INCOME TAX ACT, 1961

Exemption under section 10(20)- Local authority-Applicability of Explanation

Assessee an Industrial Area Development Authority was a body corporate constituted under the Bihar Industrial Area Development Authority Act, 1974 to provide for planned development of industrial area, for promotion of industries and matters appurtenant thereto. Section 10(20A) was omitted and an Explanation was added to section 10(20) with effect from 1-4-2003. As per the amendment, a notice was issued by CIT to the Manager of the Bank to deduct income-tax at source from the interest accrued on fixed deposit receipts of the assessee-authority. The assessee-authority filed a writ petition challenging the notice of CIT on the ground that its income was not liable to be assessed under Act, in view of article 289(1). The High Court was of view that in view of the fact that section 10(20A) was omitted and an Explanation was added to section 10(20) enumerating the Local Authorities contemplated by section 10(20), the assessee-authority could not claim any benefit under those provisions after 1-4-2003 and that the exemption under article 289(1) was also not available to the assessee -authority as it was a distinct legal entity and its income could not be said to be the income of the State so as to be exempt from Union taxation. Held:As per the provisions of the Bihar Industrial Areas Development Authority Act, 1974, particularly section 17 thereof, the income of the assessee constituted under the said Act was its own income and that the assessee used to manage its own funds. It had its own assets and liabilities. It could sue or be sued in its own name. Even though, it did not carry on any trade or business within the contemplation of clause (2) of article 289, it still was an Authority constituted under an Act of the Legislature of the State having a distinct legal personality, being a body corporate, as distinct from the State. Section 17 further clarifies that only upon its dissolution its assets, funds and liabilities devolve upon the State Government. Necessarily, therefore, before its dissolution, its assets, funds and liabilities were its own. It was, therefore, futile to contend that the income of the assessee was the income of State Government even though the Authority was constituted under an Act enacted by the State Legislature by issuance of a Notification by the Government thereunder. Therefore, the benefit of section 10(20A) on the assessee had been expressly taken away. Moreover, the Explanation added to section 10(2) enumerates the local authorities, which do not cover the assessee. Hence, the High Court was justified in holding that the authority could not claim exemption from Union taxation under article 289(1) and thus the impugned notice issued by the Income-tax Authorities was valid and legal and could not be successfully challenged in the writ petition.

Income Tax Act, 1961 Section 10(20) (As amended by the Finance Act, 2002)
Constitution of India, 1950 Article 289

Case Law Analysis:Followed: The decision of Jharkhand High Court in Adityapur Industrial Area development Authority v. Union of India [2003] 132 Taxman 242 affirmed, Referred:Andhra Pradesh State Road Transport Corpn. v. ITO [1964] 7 SCR 17 [Para 12], Shri Ramtanu Co-operative Housing Society Ltd. v. State of Maharashtra 1970 (3) SCC 323 [Para 16], New Delhi Municipal Council v. State of Punjab [1997] 7 SCC 339 [Para 16], Food Corporation of India v. Municipal Committee [1999] 6 SCC 74 [Para 19], Board of Trustees for the Visakhapatnam Port Trust v. State of A.P. [1999] 6 SCC 78 [Para 19], Municipal Commissioner of Dum Dum Municipality v. Indian Tourism Development Corporation [1995] 5 SCC 251 [Para 19], Central Warehousing Corporation v. Municipal Corporation 1994 Supp. (3) SCC 316 [Para 19] and Western Coalfields Ltd. v. Special Area Development Authority AIR 1982 SC 697 [Para 19].