Urban Improvement Trusts Not Entitled To I-T Exemptions, Holds SC [Read Judgment]

“The High Court based its decision on the fact that functions carried out by the assessee are statutory functions and it is carrying on the functions for the benefit of the State Government for urban development. The said reasoning cannot lead to the conclusion that it is a Municipal Committee within the meaning of Section 10(20) Explanation Clause (iii).”

The Supreme Court on Friday held that Urban Improvement Trust constituted under the Rajasthan Urban Improvement Act, 1959 is not a local authority within the meaning of Explanation to Section 10(20) of the Income Tax Act, 1961, in order to get exemption.

The bench comprising Justice AK Sikri and Justice Ashok Bhushan in Income Tax Officer Vs. Urban Improvement Trust, set aside a Rajasthan High Court division bench ruling that had accepted the claim of the assessee that it is local authority which is entitled for exemption under Section 10(20) of the Act.

The reasoning in this judgment is more or less same as that made in recent judgment in New Okhla Industrial Development Authority Vs. Chief Commissioner of Income Tax  wherein it was held that the New Okhla Industrial Development Authority (Noida) cannot be a treated as a ‘municipality’ to exempt it from payment of income tax.

The bench held: “The High Court based its decision on the fact that functions carried out by the assessee are statutory functions and it is carrying on the functions for the benefit of the State Government for urban development. The said reasoning cannot lead to the conclusion that it is a Municipal Committee within the meaning of Section 10(20) Explanation Clause (iii).”

The court also referred to various provisions to hold that the improvement trust is not a municipal committee. It said: “The provisions of Sections 47 and 48 are to permit certain powers of the municipal boards to be performed by the Trust which does not transform the Trust into a Municipal Committee. The power entrusted under Sections 47 and 48 are for limited purpose, for purposes of carrying out the improvement by the Improvement Trusts. Sections 61 to 64 as noticed above are the provisions empowering levy of betterment charges, which is again in reference to and in context of carrying out improvement by the Improvement Trust in urban areas. The Municipal Board, Kota performs its functions, in areas where Municipal Board still exists. There is no reason to accept that Urban Improvement Trust is a Municipal Committee within the meaning of Section 10(20) Explanation Clause (iii). Coming back to Section 105, which provides for ultimate dissolution of Trust and transfer of its assets and liabilities to the Municipal Board, this provision does not in any manner improve the case of the assessee. When the Trust is dissolved or at dissolution, properties and funds and dues vested in or realisable by the Trust shall vest in and be realisable by the Municipal Board, which is a provision for different purpose and object. The above provision does not support the contention that Improvement Trust is a Municipal Committee as referred to in Clause (iii) of Explanation to Section 10(20) of the I.T. Act.”