Holding

The Uttar Pradesh Forest Corporation is not a local authority under Section 3(31) of the General Clauses Act and therefore is not exempt under Section 10(20); the charitable status issue must be decided by the assessing authority.

Summary

The Uttar Pradesh Forest Corporation claimed exemption from income tax on the ground that it was a "local authority" under Section 10(20) of the Income Tax Act, 1961, and alternatively that it was a charitable institution under Section 11(1). The assessing officer rejected the claim, the Commissioner of Income Tax (Appeals) upheld it, but the Tribunal set it aside. The corporation then filed writ petitions in the Allahabad High Court, which again held it a local authority and charitable. The Revenue appealed to the Supreme Court. The Court held that the corporation does not satisfy the attributes of a local authority as defined in Section 3(31) of the General Clauses Act, 1897, and therefore is not entitled to exemption under Section 10(20). It also held that the High Court should not have entertained the writ petition when a statutory remedy under Section 256 was available, and that the charitable status issue must be decided by the assessing authority, not the High Court. The appeals were allowed and the High Court judgment set aside, with directions to the assessing authority to examine the charitable claim within six months.

Issues considered

Whether the Uttar Pradesh Forest Corporation qualifies as a "local authority" within the meaning of Section 3(31) of the General Clauses Act, 1897 for the purpose of exemption under Section 10(20) of the Income Tax Act, 1961.
Whether the High Court could entertain writ petitions under Article 226 when an alternative statutory remedy under Section 256 of the Income Tax Act was available.
Whether the question of the corporation's charitable status under Section 11(1) of the Income Tax Act could be decided by the High Court without it being raised before the assessing authority.

Legislation cited

General Clauses Act, 1897s. 3(31)
Income Tax Act, 1961s. 10(20), s. 11(1), s. 12A, s. 256

Subjects

income taxlocal authorityexemptionSection 10(20)Section 11(1)charitable institutionGeneral Clauses ActU.P. Forest Corporation Actwrit petitionalternative remedystatutory interpretationejusdem generis

Judgment

A THE COMMISSIONER OF INCOME TAX, LUCKNOW
v.
U.P. FOREST CORPORATION

MARCH 2, 1998

B [B.N. KIRPAL AND A.P. MISRA, JJ.]

Income Tax Act, 1961 :

Section 10(20)-U.P Forest Corporation-Claiming to be a 'local
· C authority' and seeking exemption from tax-Held-UP Forest Corporation
is not a local authority-Members of Corporation are not elected by
inhabitants of area-It is not entrusted with duties entrusted usually to
Municipal bodies-It does not have power to levy taxes, charge or fee-
Question whether Corporation can be regarded as 1J charitable institution
should be investigated and examined by a proper forum under the Act-U.P
D Forest Corporation Act, 1974-s. 3(3).

General Clauses Act, 1897:
Section 3(31)- 'Local Authority '-Held-Merely because the UP Forest
Corporation Act states that the Fund of the U.P Forest Corporation shall be
a 'local fund' does not make it so under Section 3(31) of the Act, which is
E a Central Act-U.P Forest Corporation Act, 1974.

Constitution of India, 1950 :
t
Article 226-Exercise of writ jurisdiction by High Court-Assessee
instead of seeking reference uls 256 of Income Tax Act moved High Court by
F way of writ petition-Held-High Court ought not to have entertained writ
petitions when alternate remedy was available to assessee-Nor the question r•
whether the U.P forest Corporation is a charitable institution not raised
before assessing authorities should have been examined by it for the first
time-Assessing authority directed to consider this issue.
Interpretation of statutes :
G
Principle of esjusdem genesis-Applicability of

U.P. Forest Corporation the assessee, was constituted under the U.P.
Forest Corporation Act, 1974 for better preservation, supervision and
development of forest produce within the state. It took over the woI'k fonnerly
H done by forest contractors and its income was from exploitation of forest
22
C.l.T. v. U.P. FOREST CORPN. 23
produce and sales thereof. · A
The assessee, during assessment proceedings for the years 1977-78
l 1980-81 and 1984-85 claimed that it was a local authority and therefore its
income was exempt from tax under section 10(20) of the Income Tax Act,
1961. The assessing officer however, rejected the claim and taxed it as an
'artificial jurisdictional person' in respect of the years 1977-78 and 1980- B
81 and as a 'co.mpany' for the year 1984-85.

1n appeal, the Commissioner of Income Tax (Appeals) held that the
assesee was a local authority and hence, its inco!l'e was exempt from taL
This order was however, set aside by the Tribunal Instead of seeking a C
reference u/s 256 of the Income Tax Act against the order of the Tribunal,
· the assessec moved the High Court by way of writ petitions which were
allowed, holding that the assessee was a local authority and therefore, its
.
income was exempt from taL The High Court also upheld the contention of
.
the assessee that it was a charitable institution and hence, in any case, its
income was exempt from tax under section 11(1) of the Income Tax Act.· D
1n the appeals filed by the Revenue before this Court, it was contended
on behalf of the appellant that the High Court ought not to have exercised
its jurisdiction under Article 226 of the Constitution since the respondent
had not exhausted its remedies under_ the Act; and that the decision of the
High Court on merits was contrary to the law laid down by this Court. On E
the other hand, the assessee contended that the ass~ssee Corporation had
been set up to discharge governmental functions and was a local authority
u/s 3(31) of the Ge11eral Oauses Act and satisfied the criteria of loc:il
authority its laid down by this court in the c~se of UO I v. RC Jain, [1981)
2 SCR 854; and that 3(3) of the UP Forest Corporation Act provides that the F
corporation shall be a local authority for all purposes and Section 17 states
that the corporation fund shall be regarded as a local fund.

Allowing the appeals, this Court

BE1:J> : 1.L The High Court was not correct in concluding that the G
respondent was a 'local authority' ·and entitled to exemption from payment .
of income tax under Section 10(20) of the income tax Act, 1961. The
Respondent Corporation is not a local authority within the meaning of that
expression contained in section 3(31) of the General Clauses Act. [33-E)

1.2. A 'local authority' as defined under section 3(31) of the General H
. , __,

SUPREME COURT. REPORTS (1998] 2.S.C.R

A Oauses Act, must have the attributes of a Municipal Committee. District
Board or body of Port Commissioners. Tbe distinctive attributes which a
local authority shares "ith a municipal corporation etc. are: (i) It must have
a separate legal existence as corporate bodies; (ii) it must be elected, partly
or wholly, directly or indirectly, by the inhabitants of the area; (iii) it must
enjoy a certain ~egrce of autonomy; (iv) it must be entrusted by statute with
B such govemii.~idal functions and duties as are usually entrusted to municipal
bodies; (v) It must have the pow-er to raise funds for its activities by levying
taxes, rates, charges or fees. (29-F-G)

Union of India v. R.C. Jain, (1981) 2 SCR 854 and Calcutta State
C Transport Corporation v. Commissioner ofIncome Tax, 219 LT.R. 515, relied
on.

· 1.3. Three of the five attribntes of a local authority are absent in the
case of the UP Forest Corporation. Firstly, the members of the respoiident-
Corporation are not wholly or party, directly or indirectly,-elected by the
D inhabitants of the area. It cannot be said that because the State Government
is a democratically elected body, therefore, persons nominated by the
government to be members of the corporation must be regarded as being
indirectly elected by the inhabitants. Secondly, the respondent does not have
the functions and duties which are usually entrusted to the Municipal bodies
such as providing civic amenities. Finally, and which is most important, the
E respondent does not have the power to raise funds by levying taxes, rates,
charges or fees. The expression 'local fund' occnrring in Section 3(31) of
the General Clauses Act would mean the fund of a local self-government.
(32-C-E)
· 2. E\·en though section 3(3) of the UP Forest Corporation Act regards
F the corporation as a local authority hut for the purposes of the Act, the
meaning of the expression 'local authority' as contained in General Oauses
Act, which is a Central Act, has to be seen. Merely because the UP Forest
Corporation Act regards the respondent as a local auth!'rity, would not, in
law, make the respondent a local authority for the purpose of section 10(20)
G of the Income tax Act. (28-H; 29-A)

Valjibhai Muljibhal Soneji & Anr. v. The State of Bombay and others,
(1964) 3 SCR 686, relied on. ·

· 3. The local authority specifically mentioned in section 3(31) of the
Act clearly can he regarded as local bodies which are intended to carry on.
H self-government. Accordingly, 'other authorities' referred to in section 3(31)
C.J.T. v. U.P. FO~ESTCORPN. [KIRPAL, J.] 25
must be similar or akin to municipal committee, district board to body of A
Port Commissioners. (31-G-Hj
.._
..,.
4.1. In the absence of a contention having been raised before the
' income tax authorities that the income of the assessee-corporation is held
for charitable purpose and therefore exempt from tax under section 11(1) of
the Act, the High Court ought not to have examined this issue for the first B
time and then concluded in favour of the assessee. Whether the income of
.,.
an institution can be regarded as held for charitable purposes and whether
'""· the institution is entitled to be registered under section 12A of the Act
requires investigation of facts. If the High Court wanted the issue to be
decided, the proper course would have been to remand the case to the tribunal
or the assessing authority for a decision: [33-G-H-Fj
c
4.2. The assessing authority is directed to examine within six months
the question as to whether the Corporation is a charitable institution and his
income exempt from tax under section 11(1) of the Income Tax Act. Since
the corporation can not be regarded as a local authority, interest of justice D
would demand that the question as to whether the corporation can be regarded
....
as a charitable institution should be investigated and examined by a proper
forum under the Act. The liability of the respondent to pay tax would be
subject to the outcome of that decision. (34-C-Dj

Commissioner of Income-Tax, Andhra Pradesh, Hyderabad v. Andhra E
Pradesh State Road Transport Corporation, Hyderabad, [1986) l SCR 57'1,
cited.

5. The High Court ought not to have entertained the writ petitions
when adequate alternate remedy was available to the respondent-as<~ssee.
The petitioners should not normally short circuit the procedure provideJ by F
--~
the taxing statute and seek the redress by filing a petition under Article 226
of the Constitution of India. (34-E)

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 180-182
of 1989.
G
From the Judgment and Order dated 19.5.88 of the Allahabad High Court
, --( in W. P. No. 4424/87 and 216/88 and 8215of1987.
/

Ranbir Chandra, N.K. Aggarwal and B. Krishna Prasad for the Appellant.

S.P. Gupta, Sunil Gupta and H.K. Puri for the Respondent. H
26 SUPREME COURT REPORTS [1998] 2 S.C.R.

A The Judgment of the Court was delivered by

KIRPAL, J. The question involved in these appeals is whether the
respondent is a local authority and, therefore, its income is exempt from tax
under Section 10(20) of the Income Tax Act, 1961 (hereinafter referred to as
'The Act').
B The U.P. Forest Corporation, the assessee herein, was constituted by
Notification issued under Section 3 of the U.P. Forest Corporation Act, 1974.
This Corporation was established for better preservation, supervision,
development of forest and better exploitation of forest produce within the
state of Uttar Pradesh. It took over the work which was formerly done by the
C forest contractors and its income was from the exploitation of forest produce
and sales thereof.

These appeals relate to the assessment year 1977-78, 1980-81 and 1984-
85. During the course of assessment proceedings, the respondent had claimed
its status to be that of 'local authority' and, therefore, its income was liable
D to be exempted from levy of tax by virtue of Section l 0(20) of the Act. The
assessing officer rejected the claim and, in respect to the assessment year
1977-78 and 1980-81, it taxed it in the status of"artificialjurisdictional person"
and in respect to the year 1984-85, as a 'company'.

E The respondent then filed appeals in respect to the year 1977-78, 1980-
81 and the Commissioner of Income Tax (Appeal), following in earlier decision
of the Allahabad High Court in Writ Petition No. 1568/1977 for the assessment
year 1976-77, came to the conclusion that the respondent was a local authority
and as such its income was exempted from tax. This order was challenged in
. appeal before the Tribunal which set aside the order of the Commissioner of
F Income Tax (Appeals) on the ground that the respondent was not a local
authority in view of the decision of this Court in the case of Union of India
v. R.C. Jain, [1981] 2 SCR 854.

Instead of following the procedure prescribed by the Act by way of a
reference under Section 256 of the Income Tax Act, the respondent chose to
G file three writ petitions in the Allahabad High Court challenging the order of
the Tribunal in respect to the assessment years 1977-78 and 1980-81 anc:! order
of the Assessing Authority for assessment year 1984-85 which had been
made by it. These writ petitions were entertained by the High Court which
allowed the same by coming to the conclusion that the respondent was a local
H authority and, therefore, its income was exempt from tax. Before the High
C.l.T. v. U.P. FOREST CORPN. [KIRPAL, J.] 27
Court, it was also contended by the respondent that it was a charitable A
Institution and, therefore, its income was in any case, entitled to exemption
under Section 11 ( 1) of the Act. This contention also found favour with the
High Court.

In these appeals, by special leave, apart from contending that the High
Court ought not to have exercised its jurisdiction under Article 226 of the B
Constitution as the respondent should have availed of the alternative remedy
open to it under the Act, it has been submitted on behalf of the appellant that
the decision of the High. Court on merits is clearly contrary to the law laid
down by this Court and the respondent cannot be regarded an being a local
authority. In support of this contention, strong reliance was placed by the C
counsel for the appellant on the aforesaid decision in R.C. Jain's (~upra) as
well as the decision in Valjibhai Muljibhai Soneji & Anr: v. The State of
'Bombay (now Gujarat) and others, [1964] 3 SCR 686 and Calcutta State
Transport Corporation v. Commissioner of Income Tax, 219 I.T.R. 515.

On behalf of the respondent, Shri S.P. Gupta, learned counsel submitted D
that the respondent Corporation had been set up to ~ischarge Governmental
functions and it was a local authority within the meaning of that expression
in Section 3(31) of the General Clauses Act. It was also submitted that the
Section 3(3) of the U.P. Forest Corporation Act provides that the Corporation
shall for all purposes be a local authority and further more according to
Section 17, the fund of the Corporation is regarded as a local fund. It was E
contended that the respondent satisfied the criterion of local authority as laid
down by this Court in R.C. Jain's case (supra) and, therefore, the decision of
the High Court calls for no interference. On the question whether the
Corporation exists and functions under a legal obligation for charitable purposes
as defined by Section 2(15) of the Act and, therefore, it's income exempt under F
- "' Section ll(l)(a) of the Act reliance was placed on the decision of this Court
in Commissioner of Income-Tax, Andhra Pradesh, Hyderabad v. Andhra
Pradesh State Road Transport Corporation, Hyderabad, [1986] l SCR 570.

We will first consider the question as to whether the respondent is
entitled to exemption under Section 10(20) the Act. The said sub-clause reads G
as under:

'The income of a local authority which is charg.eable 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 H
28 SUPREME COURT REPORTS [1998] 2 S .C.R.

A or electricity within its own jurisdictional area or from the supply of
water or electricity within or outside its own jurisdictional area".
...
The expression 'local authority' is not defined in the Income Tax Act
Section 3(31) of the General Clauses Act, however, defines 'local authority'
as under:
B
" 'Local authority' shall mean a municipal committee district board,
body of port Commissioners or other authority legally entitled to, or
entrusted by the Government with, the control or management of a
municipal or local fund."

C This expression came up for consideration in the aforesaid cases of Valjibhai
Muljibhai Soneji's (supra), R.C. Jain's (supra) and Calcutta State Transport
Corporation's (supra). In Valjibhai Muljibhai Soneji 's case (supra), a contention
had been urged that the State Transport Authority was a local authority, in
the context of proceedings arising out of challenge to acquisition under the
Land Acquisition Act. It had been contended that the State Transport
D Corporation was not a lTical authority but a Company and that the provisions
of Part VII of the Land Acquisition Act not having been complied with, the
acquisition was bad. Dealing with this contention, it was observed by this
Court at page 696:

"The definitions given in the General Clauses Act, 1897, govern all
E
Central Acts and Regulations made after the commencement of the
Act".
While perusing the expression 'local authority', as defined under Section
3(31) of the General Clauses Act, it was observed at page 697 that the funds
F of the Corporation could not be regarded as local fund. Dealing with the
contentions that the Bombay State Transport Act, 1950 itself provided that
the Corporation shall for all purposes be deemed to be local authority, it was
observed that "No doubt, that is so. But the definition contained in this Act

G
cannot override the definition contained in the General Clauses Act of 1897
which alone must apply for construing the expression occurring in a Central
Act like the Land Acquisition Act unless there is something repugnant in the
I
subject or context."

Applying the above principle in the present case, even though Section
3(3) of the U.P. Forest Corporation Act regards the Corporation as being the
local authority but for the purposes of the Act, the meaning of expression
H 'local authority' as contained in General Clauses Act, which is the Central
C.I.T. v. U.P. FORESTCORPN. [KIRPAL, J.) 29
Act, has to be seen. Merely because the U.P. Forest Corporation Act regards A
the respondent as a local authority, would not, in law, make the respondent
.. a local authority for the purposes of Section 10(20) of the Act. Whether the
respondent is a local authority or not has to be examined without regard to
the fact that Section 3(3) of the U.P. Forest Corporation Act regards it as a
local authority. The test for determining whether a body is local authority had B
been laid down by this Court in R.C. Jain's case (supra). In the context of
applicability of the Bonus Act, 1965, the question which arose there was
whether the Delhi Development Authority was a local authority. In constructing
the meaning of the expression 'local authority' as defined in Section 3(31) of
the General Clauses Act, it was observed by this Court at page 857-858 as
~~: c
"Let us, therefore, concentrate and confine our attention and enquiry
to the definition of 'local authority' in Section 3(31) of the General
Clauses Act. A proper and careful scrutiny of the language of Section
3(31) suggests that an authority in order to be local Authority, must
be of like nature and character as a Municipal Committee, District D
Board or Body of Port Commissioners, possessing, therefore, many,
if not all, of the distinctive attributes and characteristics of a Municipal
Committee, District Board, or Body of Port Commissioner, but,
possessing one essential feature, namely, that it is legally entitled to
or entrusted by the Government with, the control and management of E
a municipal or local fund. What then are the distinctive attributes and
characteristics, all or many of which a Municipal Committee, District
Board or Body of Port Commissioners shares with any other local
authority? First, the authorities must have separate legal existence as
Corporate bodies. They must not be mere Governmental agencies but
must be legally independent entities. Next, they must function in a F
defined area and must ordinarily, wholly or partly, directly or indirectly,
be elected by the inhabitants of the area. 'Next they must enjoy a
certain degree of autonomy, with freedom to decide for themselves
questions of policy affecting the area administered by them. The
autonomy may not be complete and the degree of the dependence
may vary considerably but, an appreciate measure of the autonomy G
there must be. Next, they must be entrusted by Statute with such
Governmental functions and duties as are usually entrusted to
municipal bodies, such as these connected with providing amenities
to the inhabitants of the locality, like health and education services,
water and sewerage, town planing and development, roads, markets, H
30 SUPREME COURT REPORTS (1998] 2 S.C.R.

A transportation, social welfare services etc. 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
fanctions. Finally, they must have the power to raise funds for the
furtherence of their activities and the fulfillment of their projects !>y
levying taxes, rates, charges, or fees. This may be in addition to
B moneys provided by Government or obtained 'by borrowing or
otherwise. What is •:ssential is that control or management of the fund
must vest in the authority."

(emphasis added)

C This Court then examined the provisions of the Delhi Development Act and
came to the coAclusion that the said Authority had the above mentioned
attributes of local authority as defined by Section 3(31) of the Genenl Clause
Act.

The decision in R.C. Jain's Case (supra) was then followed in Calcutta
D State Transport Corporation's case (supra) where the assesses had contended
that it was a local authority. While holding that the definition of the Corporation
was not similar to the definition of the Delhi Development Act, it was observed
as follows:

We do not think that the said decision is of any help to the
E
assessee herein. The assessee is a road transport corporation
constituted to render road transport services in the State. Se~tions 18
& 19 of the Road Transport Corporations Act which set out the
general duty and powers of the Corporation establish clearly that the
Corporation is meant mainly and only for the purpose of providing an
F efficient, adequate, economical and properly coordinated system of
road transport services in the State or part of it, as the case may be.
It has no element of popular representation in its constitution. Its
powers and fanctions bear no relation to the powers and functions
of a municipal committee, district board or body of port
commissioners. It is more in the nature of a trading organisation.
G Merely because it has a fund or for that matter merely because it is
constituted to providt: a public service and to employ persons in that
connection, it cannot be said that its functions are similar to those of
municipal council district board or body of port commissioners. The
assessee-Corporation stands no comparison with the Delhi
H Development Authority which has, inter alia, power to prepare a
C.l.T. v. U.P. FORESTCORPN. [KIRPAL, J.] 31
Master Plan for Delhi specifying the zones (zonalisation), specifying A
the use to which each zone can be put to, power to order demolition
of buildings, where development has been commenced or completed
in contravention of the Master Plan zonal Plan or the pennission,
declaration of development areas and regulation of development in
those areas and power to gant/refuse pennission for development of
land. Contravention of the Delhi Development Authority's orders is B
also punishable with imprisonment and fine on conviction as a criminal
Court. These are the indicia of governmental power-the power to
affect persons and their rights even where they do not choose to deal
with it, the power of compulsion. A road transport organisation like
the assessee herein has no such power. Unless one chooses to deal C
with it or avail of its services- it cannot affect him or his rights; in its
sense, it is like any other non-statutory corporation. In its context, it
is relevant to notice that thought Section 45 of the Road Transport
Corporation Act confers the power to make regulations upon the
corporation, that power is confined to "the administration of the
affairs of the corporation". Sub-section (2) of Section 45, which D
elucidates the said power also shows that the said power is confine9
to internal management of the corporation and the service conditions
of its employees only". (emphasis added)

Applying the ratio of the aforesaid decisions to the facts of the present case, E
we find that it is not possible to hold that the Corporation is a local authority
within the meaning of that expression contained in Section 3(31) of the
General Clauses Act, 1857. In R.C. Jain's case (supra), it has been-held that
the 'local authority' must have the nature and character of a Municipal
Committee, District Board, Body of Port Commissioners. We are unable to
accept the contention of Shri Gupta that in interpreting the scope and extent F
of the expression 'other authority' in the definition of 'local authority' in
Section 3(31) of the General Clauses Act the principle of ejusdem generis is
not applicable because there is no distinct genus or category running through
the bodies named earlier. The local authorities which are specifically mentioned
in Section 3(31) of the General Clause Act clearly can be regarded as local
bodies which are interred to carry on self-government. It is for this reason that G
this definition states that such a authority must have control or management
of a municipal or local fund. Municipal Committee, District Board. Body of
Port Commissioners are entities which carry on government affairs in local
areas and they would give color to the words 'other authorities' occurring in
Section 3(31). To put it differently. 'other authority' referred to in Section 3(31) H
32 SUPREME COURT REPORTS [1998] 2 S.C.R.

A must be similar or akin to municipal committee, district board or body a Port
Commissioners. In R.C. Jain's case (supra), at least five attributes of
characteristics of an authority falling under Section 3(31) of the General
Clauses Act have been mentioned. At least three of the five attributes
mentioned in the passage quoted above from R.C. Jain's case (supra) are
absent here. Firstly; the members of the respondent Corporation are not
B wholly or partly, directly or indirectly, elected by the inhabitants of the area.
According to Section 4 of the U.P. Forest Corporation Act, the Corporation
is consisted of a Chairman and eight members. The Chairman as well as the
members are nominated by the State Government. Five members, so appointed,
must be officers serving under the State Government and three non-officials
C members appointed by the State Government must be belonging to the category,
who in the Government's opinion, possess experience in matter relating to
preservation and development of forests. It is too tenuous to contend as was
sought to be done by Shri Gupta, that because the State Government is a
democratically elected body, therefore, persons nominated by the Government
to be members of the Corporation must be regarded as being indirectly elected
D by the inhabitants. This contention is clearly unacceptable. The second
essential attribute, which is lacking in the present case, is that the respondent
do not have the functions and duties which are usually entrusted to the
municipal bodies such as providing civil amenities to the inhabitants of the
locality like health, education, town planning, markets, transportation etc.
E Finally and which is most important, the respondent does not have the power
to raise funds by levying taxes, rates, charges or fees. The expression 'local
fund' occurring in Section 3(31) of the General Clauses Act would mean the
fund of a local self-government. In deciding whether Delhi Development
Authority was a local authority, the Court had to examine as to whether it's
fund consisted of any funds flowed directly from any taxing power vested in
F the D.D.A. It was observed in R.C. Jain's case (supra) at page 863 as follows:

"In the first place when it is said that one of the attributes of a local
authority is the power to raise funds by the method of taxation,
taxation is to be understood not in any fine and narrow sense as to
include only those compulsory exaction's of money imposed for public
G purpose and requiring no consideration to sustain it, but in a broad
generic sense as to also include fees levied essentially for services
rendered. It is now well recognised that there is no generic difference
between a tax and a fee; both are compulsory exaction of money by
public authority. In deciding the question whether an authority is a
H local authority, our concern is only to find out whether the public
C.l.T. v. U.P. FORESTCORPN. [KIRPAL, J.] 33
authority is authorised by statute to make a compulsory exaction of A
>- money and not with the further question whether the money so
exacted is to be utilised for specific or general purposes. In the
second place the Delhi Development Authority is constituted for the
sole purpose of the planned development of Delhi and no other
purpose and there is a merger, as it were, of specific and general
purposes. The statutory situation is such that the distinction between B
... tax and fee has withered away. In the third place we see no reason
-(
to hold that the charge contemplated by See 37 is a fee and not a tax".

(emphasis added)

In the case of respondent Corporation, the Act does not enable !t to levy any c
tax, cess or fee. It is the income from the sale of the forest produce which
goes to augment its funds. It has no power under the Act of compulsory
exaction such as taxes, fees, rates or charges. Like any commercial organisation
it makes profit from sale of forest produce and it has been given the power
to raise loans. Whereas municipal or local funds are required to be spent for D
_._,
providing civic amenities, there is no such obligation on the respondent to
do so. Merely because Section 17 of the U.P. Forest Corporation Act states
that the fund of the Corporation "shall be a local fund" would not make it
a local fund as contemplated by Section 3(31) of the General Clauses Act.

In our opinion, therefore, the High Court was not correct in coming to E
the conclusion that the respondent was a 'local authority' and entitled to
exemption under Section I 0(20) of the Act.

Coming to the question whether the income of the respondent is held
for charitable purposes and, therefore, exempt from tax by virtue of Section
- ~· 11 (I) of the Act, we find no such contention was raised by the respondent F
before the Income-tax Authorities. In order to take advantage of the provisions
of Section 11 of the Act, a trust or the institution has to get itself registered.
Whether the income of the Institution can be regarded as being held for
charitable purposes and whether the institution is entitled to registration
under Section 12(A) of the Income Tax Act requires investigation of facts. In G
the absence of this contention having been raised before the Income Tax
Authorities, the High Court, in our opinion, ought not to have itself embarked
upon examining this issue for the first time and then coming to a conclusion
favourable to the respondent. We do realise that the respondent did not raise
this contention before the Income Tax Authorities because it had contended
that is was liable to exemption being a local authority. Perhaps a contention H
34 SUPREME COURT REPORTS [1998] 2 S.C.R.

A in the alternative ought to have been raised, but this was not done. If the
High Court had wanted this issue to be decided, proper course would have
been to have reminded the case to the Tribunal or to the Assessing Authority
for a decision. This was perhaps not done because the High Court had
already come to the conclusion, in JUr opinion wrongly, that the respondent
was a local authority. Inasmuch as the respondent cannot, in our opinion, be
B regarded as being a local authority, interest of justice would demand that the
question as to whether its income is table to be exempted from tax under
Section 11(1) of the Act should be investigated and examined by a proper
forum under the Act.

C These proceedings arise out of the writ petitions which have been filed
challenging the correctness of the decision of the Tribunal in respect of the
assessment year 1977-78, 1980-81 and that of the Assessing Authority for the
assessment year 1984-85. In our opinion, the proper course to adopt, while
allowing these appeals, would be to require the assessing authority to examine
the question as to whether the respondent is entitled to the benefit under
D Section 11 (I) of the Act. Before concluding, we would like to observe that
the High Court ought not to have entertained the writ petitions when adequate
alternative remedy was available to the respondent. Under peculiar facts and
circumstances of the present case and inasmuch as the litigation between the
parties has been going on for a number of years, we do not think it will be
E appropriate to dismiss there appeals on this ground at this late stage. We,
however, emphasise that petitioners should not normally short circuit the
procedure provided by the taxing statute and seek the redress by filling a
petiti·on under Article 226 of the Constitution of India.

For the aforesaid reasons, these appeals are allowed and the decision
p of the High Court is set aside. Whtie holding that the respondent is not a local
authority whose income is exempted from tax under Section 10(20) of the Act, r' -
we, however, direct the assessing authority to consider the claim of the
respondent that its income is not liable to be taxed in view of the provisions
of Section l l(l)(A) of the Act. This question should be decided by the
assessing authority within six months from today and the liability of the
G respondent to pay tax would be subject to the outcome of that decision.
There shall be no order as to costs.

S.K . Appeals allowed.

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