TMI Blog2011 (1) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... ives. It has got power of superintendence over the Jal Sansthans and the Jal Sansthans have been held to be "local authority" - thus decided U. P. Jal Nigam, Lucknow, is a "local authority". - 113 of 1989 - - - Dated:- 21-1-2011 - YATINDRA SINGH, PRAKASH KRISHNA JJ. JUDGMENT Prakash Krishna J.- 1. The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following two questions under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of the High Court : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the assessee-corporation is not a 'local authority' for purposes of the Income-tax Act, 1961, notwithstanding such description in section 3(3) of the U.P. Water Supply and Sewerage Act, 1975 ? 2. Whether. on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in upholding the order of the Commissioner of Income-tax (Appeals), who had held that the assessee-corporation is a company within the meaning of section 2(26) of the Income-tax Act, 1961 ?" 2. The assessment year invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s applicable to section 10(20) of the Act. 9. The facts of the case may be noticed in brief : 10. For the relevant assessment year, the assessment under the Act was framed treating the status of the assessee as that of a "company". The tax was levied accordingly. All the three authorities below have negated the submission of the applicant that its incomes do not form part of total income in view of section 10(20) of the Act, being a local authority is exempt. The Income-tax Appellate Tribunal has dealt with the matter in depth. It examined the various provisions of the U. P. Water Supply and Sewerage Act, 1975 (hereinafter referred to as "the Act, 1975"), "local authority", as defined in section 3(31) of the Central General Clauses Act, and also the decision of the apex court on the point in Union of India v. R.C. Jain, AIR 1981 SC 951. It was found that the assessee-corporation was created by the Government of Uttar Pradesh by enacting the U. P. Water Supply and Sewerage Act, 1975. It is a body corporate having perpetual succession and a common seal and capable of suing and being sued in its name. It has power to acquire, hold and dispose of the property. The U. P. Jal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd conditions as the State Government may, by order, specify. As per the provision contained in section 7(1) of the Act, the chairman, managing director and the finance director are to be paid such remuneration, as may be fixed by the State Government. According to section 8(1) of the Act, the terms and conditions of the employees are to be determined with the approval of the State Government. Section 40(1) provides that the corporation shall have its own fund to be called the Nigam fund which shall be deemed to be a local fund and to which shall be credited all moneys received otherwise than by way of loans by or on behalf of the corporation. Section 89(1) of the Act lays down that in the discharge of its functions, the corporation shall be guided by such directions on questions of policy as may be given to it by the State Government. Sub-section (2) further says that if any question arises whether any matter is or is not a matter as respects which the State Government may issue a direction under section (1), the decision of the State Government to make rule for carrying out the purposes of the Act. Sections 97 and 98 relate to the framing of the regulations and bye-laws which can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The body must have the power to raise funds for the furtherance of their activities and the fulfilment of their projects by levying taxes, rates, charges, or fees. Essentially, control or management of the funds must vest in such body. 12. The above criteria has been laid down by the apex court in the light of the definition of local authority given in section 3(31) of the General Clauses Act in connection with a question as to whether the Delhi Development Authority is a local authority for the purposes of payment of bonus to its employees in view of the Payment of Bonus Act, 1965. Elaborating the argument, it was submitted with the help of the scheme of the Act, 1975, that the assessee fulfils all the conditions cumulatively. It was also submitted that the Jal Sansthan is a body subordinate to the Jal Nigam and the Jal Nigam is having power to superintend and control over them has been held to be a local authority by a Division Bench of this court in Kendriya Nagrik Samiti v. Jal Sansthan, AIR 1982 All 406. The said decision has been noticed by the apex court in its subsequent decision namely, Housing Board of Haryana v. Haryana Housing Board Employees' Union [1996] 1 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, any other or further ingredient is required to be fulfilled by an authority to be treated as "local authority". 20. Keeping in mind what we have said above, we may now have a close look at the provisions of the U. P. Water Supply and Sewerage Act, 1975. But before doing so, it may be placed on record that in the State of Uttar Pradesh, it is the duty of the Mahapalikas, Municipal Boards and other such bodies amongst other to provide water supply services and sewerage services. Prior to the enactment of the U. P. Water Supply and Sewerage Act, 1975, the property tax which included a general tax, water tax, drainage tax was levied under section 173 of the Nagar Mahapalika Adhiniyam. 21. To provide for the establishment of a corporation, authorities and organization for the development and regulation of water supply and sewerage services and for matters connected therewith to the U. P. Water Supply and Sewerage Act was enacted. Section 3 of the Act, 1975, provides for establishment of the Nigam (the U. P. Jal Nigam), by notification in the Gazette by the State Government. It shall be a body corporate having perpetual succession and a common seal, vide its sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted date were vested in the State Government for the purposes of the Local Self-Government, Engineering Department shall vest in and stand transferred to the Nigam and all the rights, liabilities and obligations of the State Government whether arising out of any contract or otherwise pertaining to the said Departments shall be the rights, liabilities and obligations of the Nigam. In other words, the aforesaid section provides for vesting of assets and liabilities of the State Government in respect of the aforesaid Department shall be vested on or after appointed date in the Nigam. It also contains the provision of transfer of employees to the Nigam and the Jal Sansthan. The Nigam will stand in the shoes of State Government for the purposes of the Local Self-Government, Engineering Department. 26. Chapter V contains section 40 which deals with the property, contract, finance, accounts and audits, says that the Nigam shall have its own fund to be called the Nigam fund, which shall be deemed to be a "local fund" wherein all moneys received otherwise than by way of loans by or on behalf of the Nigam be credited. The State Government may give loans to the Nigam, vide section 45. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal, to render all necessary services in regard to water supply and sewerage to the State Government and local bodies, etc. like the Municipal Committees, the District Board, Gram Panchayat, Jal Nigam represents the units of local self-government and thus, fulfils the first ingredient. 31. At this juncture, it was seriously contended by learned standing counsel for the Department that the Jal Nigam does not fulfil condition No. 2 as the members of the Jal Nigam are not directly elected representatives. Section 4(2)(g) deals with the constitution of Nigam. It provides that five members would be five elected heads of the local bodies in the State, nominated by the State Government. The submission that these five persons, who are nominated as members of the Nigam ignores the fact that they are elected by the public. Therefore, the argument that the Nigam does not fulfil ingredient No. 2 of the R. C. Jain's case, AIR 1981 SC 951, has no substance. Out of various elected heads of local bodies, the choice has been given to the State Government to nominate five of them as members of the Nigam. It does not mean that these five persons later on, on nomination ceases to be elected repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y taxes, fees and charges, learned standing counsel submits that such power has been given to the Jal Sansthans and not to the Jal Nigam. The above argument was built-up by making reference to Chapter VI of the Act, 1975, wherein, the power of taxes, fees and charges have been entrusted expressly to the Jal Sansthans. This kind of argument was advanced in the case of Union of India v. R. C. Jain, AIR 1981 SC 951, also and was repelled by the apex court. The argument was that at any rate, the Delhi Development Authority was collecting fees and not tax, and, therefore, its fund is not a local fund as no part of it flowed directly from any power vested in the Delhi Development Authority. Meeting the said argument, it was observed that in deciding the question whether an authority is local authority or not, the relevant thing is to find out as to whether such authority is authorized by statute to make a compulsory exactions of money and not with the further question whether money so exacted is to be utilized for specific or general purposes. It was held that there is no consolidated fund and no separate development fund. There is only one fund, the fund of the Delhi Development Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not carrying on any business nor it has been found so even by the assessing authority or any other authority under the Act. Also the powers and functions of the U. P. Jal Nigam as demonstrated above, have bearing to the powers and functions of municipality committee. Therefore, the decision laid down in the case of U. P. Forest Corporation [1998] 230 ITR 945 (SC) is distinguishable on facts. 41. In the case on hand, the powers and functions of U. P. Jal Nigam are akin to the various powers and functions amongst others of the municipalities or district boards. It has already been demonstrated that the Jal Nigam was established to improve the water supply and sewerage services in the State, which was being performed earlier by the municipal bodies. Due to rapid growth in the population and vast expansion of urbanization and fast development of science, it appears that the State Government though it fit to entrust the work of water supply and sewerage services to a specialized body (the U. P. Jal Nigam), instead of leaving it in the hands of unspecialized persons, discharging the municipal functions. It has not been found as a fact even by the Income-tax Appellate Tribunal that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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