TMI Blog2010 (9) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... SAD VERMA JJ JUDGMENT S. K. Katriar J.- This writ petition is directed against the order dated February 6, 1995 (annexure 1), passed by the learned Assistant Commissioner of Income-tax, (TDS), Circle-2, Patna, whereby he has held that the petitioner is not a "local authority" within the meaning of sub-section (20) of section 10 of the Income-tax Act, 1961 (hereinafter referred to as "the Central Act"), and is, therefore, not entitled to the benefit of certificate for deduction at lower rate of tax within the meaning of section 197 of the Central Act. 2. A brief statement of facts essential for disposal of the writ petition may be indicated. Sone Command Area Development Agency, the petitioner herein, is an agency within the meaning of section 3(2) of the Bihar Agricultural and Rural Area Development Agency Act, 1978 (Bihar Act III of 1979) (hereinafter referred to as "the Bihar Act"). The petitioner has housing property in the township of Patna to accommodate its offices. A portion of the same was in excess of its needs and was let out to tenant(s). The petitioner had submitted returns claiming the benefit of reduced rate of taxation as per the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point of time, read as follows : "Chapter III Incomes which do not form part of total income 10. Incomes not included in total income.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- . . . (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 243 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services etc. Broadly we may say that they may be entrusted with the performance of civic duties and functions which would otherwise be Governmental duties and functions. Finally, they 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. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority." 9. In order to qualify to be a "local authority", the petitioner will have to satisfy the tests indicated by the Supreme Court in paragraph 2 of the judgment reproduced hereinabove. It must have separate legal existence. We will have to examine the aims and objects and the scheme of the Bihar Act to ascertain whether or not the petitioner is a local authority, and has separate legal existence. Section 3 of the Bihar Act reads as follows : "3. Constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, who shall hold the post at the pleasure of the Government. Section 4(3) of the Bihar Act provides that ex officio members of the Board shall hold office at the pleasure of the State Government. The constitution of the Board has to be done by the State Government in terms of section 4 of the Bihar Act, is entirely a nominated body and it is, therefore, doubtful whether it has really separate legal existence as a body corporate. It is not at all an elected body and does not fulfil one of the essential requirements indicated by the Supreme Court. In other words, it is substantially controlled by the State Government, is not an elected body, and is practically little short of a Government Department. 12. The next important index indicated by the Supreme Court is that the body must function in a defined territorial area which the petitioner fulfils, but is wholly devoid of a major requirement that its governing body must comprise of persons elected by inhabitants of the area. 13. It is next to be ascertained whether or not the petitioner organization has any amount of authority, and the freedom, to decide the questions of policy affecting the area administered by it. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government or a local authority, or any individual or body, whether incorporated or not, for all or any of the purpose of this Act." 16. Although there are indications spread over different provisions of the Act that the petitioner may raise its funds, it has no power to impose compulsory levy. Its main source of fund is found in section 24 of the Bihar Act, and it is substantially dependent on the State Government for the same. It, therefore, falls short of another important requirement indicated by the Supreme Court to qualify to be a local authority. 17. The next index to be ascertained is whether or not control and management of its funds vests in the authority. Sections 25 and 26 of the Bihar Act read as follows : "25. Power of agency to spend.-The agency shall have the power to spend such sums as may be necessary for performing the functions and discharging the duties imposed on it under this Act, subject to the budget provision and/or any other directions, issued by the State Government in this behalf. 26. Recovery of the amounts due to the agency.-The principal amount of loan and interest due from any person to whom the agency has advanced loan for purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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