Merely Because Certain Municipal Functions Are Performed By Industrial Development Authority, It Can’t Be Treated As ‘Municipality’: SC Dismisses Noida’s Claim For I-T Exemption [Read Judgment]

‘Proviso to Article 243(Q) does not contemplate constitution of an industrial establishment as a Municipality rather clarifies an exception where Municipality under clause 22 (1) of Article 243Q may not be constituted in an urban area.’

The Supreme Court has held that the New Okhla Industrial Development Authority (Noida) cannot be a treated as a ‘municipality’ to exempt it from payment of income tax.

A bench of Justice AK Sikri and Justice Ashok Bhushan was considering the issue whether the Noida is a local authority within the meaning of Section 10(20) of the Income Tax Act as amended by the Finance Act, 2002 w.e.f. 01.04.2003.

Before the apex court bench, it was contended that as municipal services are being provided by the authority, it is a local authority entitled to the benefit of Section 10(20) of the Income Tax Act, 1961.

“It is true that various municipal functions are also being performed by the Authority as per Act, 1976 but the mere facts that certain municipal functions were also performed by the authority it cannot acquire the essential features of the Municipality which are contemplated by Part IXA of the Constitution,” the bench said, referring to various provisions of the Constitution in extenso.

The court also observed that proviso to Article 243(Q) does not contemplate the constitution of an industrial establishment as a municipality rather clarifies an exception where municipality under clause 22 (1) of Article 243Q may not be constituted in an urban area. The bench said: “The words in proviso “a Municipality under this clause may not be constituted” clearly means that the words “may not be constituted” used in proviso are clearly in contradistinction with the word constituted as used in Article 243P(e) and Article 243Q. Thus, notification under proviso to Article 243Q (1) is not akin to the constitution of Municipality. We, thus, are clear in our mind that industrial township as specified under notification dated 24.12.2001 is not akin to Municipality as contemplated under Article 243Q.”

The bench, dismissing the appeals, further said: “The words ‘industrial township’ have been used in contradiction of a Nagar Panchayat, a Municipal Council and a Municipal Corporation. The object of issuance of notification is to relieve the mandatory requirement of constitution of a Municipality in a State in the circumstances as mentioned in proviso but exemption from constituting Municipality does not lead to mean that the industrial establishment which is providing municipal services to an industrial township is same as 26 Municipality as defined in Article 243P(e).”