Urban Improvement Trust constituted under the Rajasthan Urban Improvement Act, 1959 not a Municipal Committee hence not exempted u/s 10(20) of the Income Tax Act, 1961 – SC
ABCAUS Case Law Citation:
ABCAUS 2585 (2018) (10) SC
Important Case Laws Cited/relied upon by the parties:
New Okhla Industrial Development Authority Vs. Chief Commissioner of Income Tax & Ors. (2018) 8 SCALE 365
Agricultural Produce Market Committee Narela, Delhi Vs. Commissioner of Income Tax and Another, (2008) 9 SCC 434
Union of India Vs. R.C. Jain, (1981) 2 SCC 308
Revenue had filed multiple appeals challenging the Division Bench judgments of Rajasthan High Court in accepting the claim of the assessee – Urban Improvement Trust that it is local authority within the meaning of Clause (iii) of Explanation to Section 10(20) of the Act and hence it is entitled for exemption under Section 10(20) of the Act.
The contention if the Income Tax Department was that the Urban Improvement Trust is not a local authority hence it is not entitled for exemption.
Earlier in response to the notice u/s 142(1), the asseesee had submitted that it was a municipality within the meaning of Article 243P of the Constitution of India, hence was not required to file an income tax return.
However, the Assessing Officer passed the assessment order rejecting the contention of the assessee that its income is exempted under Section 10(20).
While the Commissioner (Appeals) held that the assessee was a local authority within the meaning of Section 10(20), the Income Tax Appellate Tribunal (Tribunal) accepted the Revenue’s claim that assessee is not covered within the definition of Clause (iii) of Explanation to Section 10(20).
However, the High Court held the assessee to be local authority within the meaning of Section 10(20) Explanation.
The assessee relied on the recent judgment of the Hon’ble Supreme Court in which the Court had occasion to interpret Section 10(20) Explanation and the constitutional provisions of Articles 243P and 243Q of the Constitution.
The Hon’ble Supreme Court observed that 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, towns and villages or for both.
However the Hon’ble Supreme Court noted that the amendment deleted Section 10(20A) and further inserted an Explanation under Section 10(20) providing for an exhaustive definition of the word “local authority”, which was not defined prior to Finance Act, 2002.
The assessee had claimed that it was covered under Clause (iii) of Explanation to Section 10(20), which exempts Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund.
The Hon’ble Supreme Court observed that 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 was not constituted in place of the municipality/municipal board rather it undertakes the act of improvement in urban areas of a municipality/municipal board under the Rajasthan Urban Improvement Act, 1959.
The Hon’ble High Court observed that in an earlier judgment it had held that the expression “Municipal Committee and District Board” occurring in said Clause (iii) of Explanation referred to those bodies, which are discharging municipal functions and power in any part of country and so far has not been substituted by any other Body by any Act of Legislature. The word “Municipal Committee” occurring in Clause (iii) Explanation, thus, has a definite purpose and object. Purpose and object was to cover those bodies, which are discharging municipal functions but are not covered by the definition of municipalities as was required to be constituted by Article 243Q of the Constitution of India.
The Hon’ble Supreme Court opined that Urban Improvement Trust constituted under the Rajasthan Urban Improvement Act, 1959, thus, could not be held to be covered by the definition of Municipal Committee as contained in Clause (iii) of Explanation to Section 10(20) of the I.T. Act.