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TMI Blog2018 (10) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... ion does not in any manner improve the case of the assessee. When the Trust is dissolved or at dissolution, properties and funds and dues vested in or realisable by the Trust shall vest in and be realisable by the Municipal Board, which is a provision for different purpose and object. The above provision does not support the contention that Improvement Trust is a Municipal Committee as referred to in Clause (iii) of Explanation to Section 10(20). We, thus, are of the view that Scheme of the Rajasthan Urban Improvement Act, 1959 does not permit acceptance of the contention of the appellant assessee that Urban Improvement Trust is a Municipal Committee within the meaning of Section 10(20) Explanation (iii). The purpose and object for expression “Municipal Committee” used in Section 10(20) Explanation (iii) has been explained, as already noticed above, by this Court’s judgment in Agricultural Produce Market Committee Narela, Delhi [2008 (8) TMI 8 - SUPREME COURT]. X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Act. The Revenue filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as "ITAT") challenging the appellate order. The ITAT accepted the Revenue's claim that assessee is not covered within the definition of Clause (iii) of Explanation to Section 10(20). The Appellate Tribunal in Paragraph 2.6 allowed the appeal and restored back the matter to the Commissioner of Income Tax (Appeals). Para 2.6 of the Order of the ITAT is as follows:- "2.6 Considering our decision in the case of Rajasthan Housing Board, we feel that the Ld. CIT (A) was not justified in holding that income of UTI is exempt u/s 10(20) of the Act. The Ld. CIT(A) has not decided other issues raised before him by the assessee because the Ld. CIT(A) was of the opinion that income of the assessee was exempt u/s 10(20) of the Act. Since we are vacating the order of the Ld. CIT(A) on the issue of liability of exemption u/s 10(20) of the Act, therefore, other issues are required to be considered afresh by the Ld. CIT (A). Accordingly, the appeals are restored back on the file of the Ld. CIT(A)." 5. Both the assessee and Revenue aggrieved by the order of ITAT had filed appeals before the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue aggrieved by the aforesaid two judgments have come up in these appeals. By both the judgments of the High Court, large number of income tax appeals were decided giving rise to different appeals under consideration in this batch of appeals. 9. We have heard Mr. Vikramjit Banerjee, learned Additional Solicitor General of India, Shri K. Radhakrishnan, learned senior counsel for the appellants. Shri Sanjay Jhanwar and other learned counsel have been heard for the respondent. 10. Learned counsel for the appellant in support of the appeal contends that the Division Bench of the High Court committed error in coming to the conclusion that Urban Improvement Trust - the assessee is a local authority within the meaning of Explanation to Section 10(20) of the I.T. Act. It is submitted that Urban Improvement Trust might have been earlier getting benefit of wide definition of local authority prior to amendment by Finance Act, 2002 but after amendments in Section 10(20) by Finance Act, 2002, Urban Improvement Trust is no longer included in the definition of local authority. Learned counsel for the appellant further submits that assessee, i.e. Urban Improvement Trust is not covered by any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002, Section 10(20) of the I.T. Act was amended by inserting an Explanation w.e.f. 01.04.2003. Section 10(20) as amended by Finance Act, 2002 is as follows:- "10(20) the income of a local authority which is chargeable under the head "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area. Explanation.-For the purposes of this clause, the expression "local authority" means- (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924);" 15. By Finance Act, 2002, provisions of Section 10(20A) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in the hands of the donors. Since clause (20A) of section 10 has been deleted, donation to the housing authorities etc. would not be eligible for deduction in the hands of the donors and this may result in drying up of donations. To continue the incentive to donation made to housing authorities etc., section 80G has been amended so as to provide that 50% of the sum paid by an assessee to an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, shall be deducted from the total income of such assessee. 13.4 These amendments will take effect from lst April, 2003 and will, accordingly, apply in relation to the assessment year 2003 2004 and subsequent assessment years." 17. Section 10(20A), which existed prior to amendments made by Finance Act, 2002 exempted any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovement Trust constituted under the said Act. The Rajasthan Urban Improvement Act, 1959 defines "improvement" in Section 2(vi) in following manner:- "2(vi) "improvement" with its grammatical variations means the carrying out of building, engineering, mining or other operations in, on, over or under land or the making of any material change in any building or land [or making provision for any amenity in, on, over or under any building or land] and includes re-improvement;" 21. Section 2(x) defines "urban area" as follows:- "2(x) "urban area" means the urban area notified under Section 3 or, as the case may be, under Section 8;" 22. Section 2(2) of the Rajasthan Urban Improvement Act, 1959 provides as follows:- "2(2) All words and expressions not defined in this Act have, wherever used therein, the same meanings as are assigned to them by the Municipal law for the time being in force:" 23. Section 9 provides for "Constitution of Trust", which is as follows:- "Section 9. Constitution of Trusts.-(1) The Trust shall consist of- (a) Chairman, (b) two members of the Municipal Board, if any, having authority in the urban area, [XXX]. [(bb) X X X] [(c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght have been exercised and performed by the Municipal Board, Council or Corporation or by the Chairman or President or by any officer thereof: Provided that the Trust may delegate to the Chairman or to any officer of the Trust all or any of the powers conferred under this section. [(2) to (5) Omitted by Rajasthan Act No. 26 of 1976.] Section 48, Transfer of duties etc. of Municipal Board to Trust.-The State Government may by notification in the Official Gazette transfer to the Trust any of the duties, powers, functions and responsibilities of the Municipal Board and thereupon the Trust shall carry out, exercise, perform and discharge such duties, powers, functions and responsibilities." 25. Section 61 provides for the Improvement Fund. Section 62 empowers the Trust to levy betterment charges. Section 63 provides for assessment of betterment charge and Section 64 provides for settlement of betterment charge by arbitrators. One more section on which reliance has been placed by the learned counsel for the appellant is Section 105, which is to the following effect:- "Section 105. Ultimate dissolution of Trust and Transfer of its assets and liabilities to the Municipal Board. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 of the said Act, the State Government further appoints the following persons as the Chairman and other Member of the said Trust for a period of three years with effect from 10.7.1970 or earlier till he is required to hold the office under Section 11 and 12 of the said Act: 1. Shri Nathu Lal Jain, Advocate Chairman 2. Chief Town Planner or his Nominee Member 3. Sushri Nagendra Bala, Ex. M.L.A. Member 4. Collector, Kota Member (3) The term of the office of the said Trustees shall commence with effect from 10.7.70. The Municipal Council, Kota is called upon to appoint the two persons to be trustees of the said Trust in pursuance of sub-section(5) of Section 9 of the said Act within the period of one month from the date of issue of this Notification. By Order of the Governor, R.K. Saxena, Secretary to the Government" 27. A perusal of the Scheme of the Rajasthan Urban Improvement Act, 1959 as well as the Rajasthan Municipalities Act, 1959 indicate that Urban Improvement Trust undertakes development in the urban area included in municipality/municipal board. Urban Improvement Trust is not constituted in place of the municipality/municipal board rather it undertakes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our view, it would not be correct to say that the entire definition of the word "local authority" is bodily lifted from Section 3(31) of the 1897 Act and incorporated, by Parliament, in the said Explanation to Section 10(20) of the 1961 Act. This deliberate omission is important." 30. In the above case, earlier judgment of this Court in Union of India Vs. R.C. Jain, (1981) 2 SCC 308 was considered where this Court had laid down and applied the functional test as to whether a body is local authority or not? This Court laid down that functional test as evolved in R.C. Jain's case (supra) is no more applicable after amendment of Section 10(20) of I.T. Act by Finance Act, 2002. Following was laid down in paragraph 35:- "35. One more aspect needs to be mentioned. In R.C. Jain, (1981) 2 SCC 308 the test of "like nature" was adopted as the words "other authority" came after the words "Municipal Committee, District Board, Body of Port Commissioners". Therefore, the words "other authority" in Section 3(31) took colour from the earlier words, namely, "Municipal Committee, District Board or Body of Port Commissioners". This is how the functional test is evolved in R.C. Jain. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation are used out of abundant caution. 37. In 1897, when the General Clauses Act was enacted there existed in India Municipal Committees and District Boards. They continued even thereafter. In some remote place it is possible that there exists a Municipal Committee or a District Board. Therefore, in our view, apart from a panchayat and municipality, Parliament in its wisdom decided to give exemption to Municipal Committee and District Board. Earlier there were District Board Acts in various States. Most of the States had repealed those Acts. However, it is quite possible that in some remote place District Board may still exist. Therefore, Parliament decided to give exemption to such Municipal Committees and District Boards. Therefore, in our view, advisedly Parliament has retained exemption for Municipal Committee and District Board apart from panchayat and municipality." 32. This Court further noticed the constitutional provision of Part IX-A and noticed that any law relating to municipalities in force in a State immediately before the commencement of the Constitution (Seventy-fourth Amendment) Act, 1992, even if inconsistent with the provisions of Part IX-A, shall continue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed above clearly mentioned that "income of certain Housing Boards etc. to become taxable". The deletion of authorities, which were enumerated in Section 10(20A) was a clear indicator that such authorities, which were enjoying exemption under Section 10(20A) shall no longer be entitled to enjoy the exemption henceforth. The deletion of Section 10(20A) thus has to be given a purpose and meaning. 34. This Court in New Okhla Industrial Development Authority Vs. Chief Commissioner of Income Tax & Ors. (supra), which was a judgment delivered by this very Bench had considered in detail the object and purpose of Section 10(20A), the object and purpose of Finance Act, 2002 amendment adding the Explanation to Section 10(20) and deletion of Section 10(20A). 35. The provisions of Sections 47 and 48 are to permit certain powers of the municipal boards to be performed by the Trust which does not transform the Trust into a Municipal Committee. The power entrusted under Sections 47 and 48 are for limited purpose, for purposes of carrying out the improvement by the Improvement Trusts. 36. Sections 61 to 64 as noticed above are the provisions empowering levy of betterment charges, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be relied upon by the counsel for the respondents, in our considered opinion, would be of importance and the functions which are carried out by the assessee is statutory function. In our considered opinion, under clause-10(20) & Subclause (3) Municipal Committee and District Board are legal entity entrusted by the function of the Government within the control or management of the municipal or local authority and will try to help the assessee. 17. In that view of the matter, the reliance placed by counsel for the department regarding 10(20) and explanation A will not make any difference. Taking into consideration income of authority is under constitution of India vide order enacted either for the purpose of dealing with or setting up the housing scheme for the purpose of planning and development of the improvement of the cities, town and villages or both for which the authority are created to carry out the function of State which are sovereign whereas the urban development and calculation of development charges will fall under the development charges. 18. In that view of the matter, deletion of 20A will not make difference in case of assessee. In our considered opinion, Clause- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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