THE INCOME TAX OFFICERversusURBAN IMPROVEMENT TRUST

                        [2018] 13 S.C.R. 847                             847


                  THE INCOME TAX OFFICER                                 A
                                  v.
                URBAN IMPROVEMENT TRUST
                  (Civil Appeal No. 10577 of 2018)
                        OCTOBER 12, 2018                                 B
          [A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
      Income Tax Act, 1961:
      Section 10(2) Explanation clause (iii) (as amended by Fiance
Act, 2002) – Whether Urban Improvement Trust (assessee)                  C
constituted under Rajasthan Improvement Act is a local authority
within meaning of clause (iii) of Explanation to s. 10(2) – Plea of
assessee that it is a “Municipal Committee” under clause (iii) of
Explanation to s. 10 (2) – Held: Scheme of the Urban Improvement
Act, under which the assessee was constituted, does not permit
                                                                         D
acceptance of the plea that assessee is a “Municipal Committee”
within meaning of clause (iii) of Explanation to s. 10(20) – Rajasthan
Improvement Act, 1959 – ss. 47, 48, 61 to 64 and 105.
      Allowing the appeals, the Court
      HELD: 1. A perusal of the Scheme of the Rajasthan Urban            E
Improvement Act, 1959 as well as the Rajasthan Municipalities
Act, 1959 indicate that Urban Improvement Trust undertakes
development in the urban area included in municipality/municipal
board. Urban Improvement Trust is not constituted in place of
the municipality/municipal board rather it undertakes the act of
improvement in urban areas of a municipality/municipal board             F
under the Rajasthan Urban Improvement Act, 1959. It may also
perform certain limited powers of the municipal board as referred
to in Sections 47 and 48 of Urban Improvement Act but on the
strength of such provision Urban Improvement Trust does not
become a municipality or municipal board. [Para 27][861-A-B]             G
     2. After the insertion of Part IXA in the Constitution by the
Constitution (Seventy-fourth)Amendment Act, 1992 w.e.f.
01.06.1993, Articles 243Q deals with constitution of
Municipalities. Section 10(20) Explanation, Clause (ii) relates to
                                                                         H
                                 847
848            SUPREME COURT REPORTS                    [2018] 13 S.C.R.


A     Municipalities; the assessee has not based its claim on the basis
      of Clause (ii) of Explanation rather it has confined its claim to
      only Clause (iii). Under Clause (iii) claim of the assessee is that
      it is a “Municipal Committee”. [Paras 27 and 28][861-C-D]
             3. The provisions of Sections 47 and 48 of Rajasthan
B     Improvement Act, 1959 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. Sections 61 to
      64 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
C     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). Section 105,
      which provides for ultimate dissolution of Trust and transfer of
D     its assets and liabilities to the Municipal Board, 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 plea that
E     Improvement Trust is a Municipal Committee as referred to in
      Clause (iii) of Explanation to Section 10(20) of the I.T. Act. Thus,
      the scheme of the Rajasthan Urban Improvement Act, 1959 does
      not permit acceptance of the contention of the appellant assessee
      that Urban Improvement Trust is a Municipal Committee within
F     the meaning of Section 10(20) Explanation (iii). [Paras 35, 36 and
      37][865-D-H; 866-A-B]
            New Okhla Industrial Development Authority v. Chief
            Commissioner of Income Tax & Ors. (2018) 8 SCALE
            365; Agricultural Produce Market Committee Narela,
G           Delhi v. Commissioner of Income Tax and Another
            (2008) 9 SCC 434 : [2008] 12 SCR 387 – relied on.
            Union of India v. R.C. Jain (1981) 2 SCC 308 – referred
            to.

H
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                                   849
                      TRUST

                          Case Law Reference                                     A
(2018) 8 SCALE 365                  relied on                  Para 10
[2008] 12 SCR 387                   relied on                  Para 29
(1981) 2 SCC 308                    referred to                Para 30
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 10577                       B
of 2018.
      From the Judgment and Order dated 23.10.2017 of the High Court
of Judicature for Rajasthan Bench at Jaipur in D.B. Income Tax Appeal
No. 287 of 2016
                                                                                 C
                                    With
     Civil Appeal Nos. 10578, 10579, 10580, 10581, 10584, 10582,
10586, 10585, 10583 of 2018.
    Vikramjit Banerjee, ASG, K. Radhakrishnan, Sr. Adv., Rupesh
Kumar, Arijit Prasad, Mrs. Anil Katiyar, Advs. for the Appellant.                D
     Sanjay Jhanwar, Rajat Sharma, Tarun Gupta, Advs. for the
Respondent.
       The Judgment of the Court was delivered by
       ASHOK BHUSHAN, J. 1. Leave granted.                                       E
        2. These appeals have been filed by the Revenue challenging the
Division Bench judgments of Rajasthan High Court dated 25.07.2017 as
well as subsequent judgment dated 23.10.2017 following earlier judgment.
The High Court vide its above judgments has dismissed all the income
tax appeals of the Revenue and allowed that of assesse – Urban                   F
Improvement Trust. The Division Bench accepted the claim of the
assessee that it is local authority within the meaning of Clause (iii) of
Explanation to Section 10(20) of the Income Tax Act, 1961 and hence it
is entitled for exemption under Section 10(20) of the Act. The Revenue
have been contending that Urban Improvement Trust, the assessee is
not a local authority within the meaning of Explanation to Section 10(20),       G
hence it is not entitled for exemption.
       3. For deciding this batch of appeals, it shall be sufficient to notice
the facts of Civil Appeal arising out of S.L.P. (C) No. 18067 of 2018 –
The Income Tax Officer Vs. M/s. Urban Improvement Trust, Kota.
                                                                                 H
850             SUPREME COURT REPORTS                          [2018] 13 S.C.R.


A            4. Section 10(20) has been amended by Finance Act, 2002 w.e.f.
      01.04.2003. A Notice under Section 142(1) of the Income Tax Act, 1961
      (hereinafter referred to as “I.T. Act”) was issued dated 01.08.2005
      requiring the assessee to file a return for the assessment year 2003-
      2004. A reply was submitted on behalf of the assessee that Urban
      Improvement Trust – the assessee is a municipality within the meaning
B
      of Article 243P of the Constitution of India, hence it is not required to file
      an income tax return. Assessing Officer passed an assessment order
      dated 28.03.2006 rejecting the contention of the assessee that its income
      is exempted under Section 10(20). An appeal was filed by the assessee
      before the Commissioner (Appeals). Commissioner (Appeals) passed
C     an order on 10.02.2010 holding that assessee is a local authority within
      the meaning of Section 10(20) of the I.T. Act. The Revenue filed an
      appeal before the Income Tax Appellate Tribunal (hereinafter referred
      to as “ITAT”) challenging the appellate order. The ITAT accepted the
      Revenue’s claim that assessee is not covered within the definition of
      Clause (iii) of Explanation to Section 10(20). The Appellate Tribunal in
D
      Paragraph 2.6 allowed the appeal and restored back the matter to the
      Commissioner of Income Tax (Appeals). Para 2.6 of the Order of the
      ITAT is as follows:-
             “2.6 Considering our decision in the case of Rajasthan Housing
             Board, we feel that the Ld. CIT (A) was not justified in holding
E            that income of UTI is exempt u/s 10(20) of the Act. The Ld.
             CIT(A) has not decided other issues raised before him by the
             assessee because the Ld. CIT(A) was of the opinion that income
             of the assessee was exempt u/s 10(20) of the Act. Since we are
             vacating the order of the Ld. CIT(A) on the issue of liability of
F            exemption u/s 10(20) of the Act, therefore, other issues are required
             to be considered afresh by the Ld. CIT (A). Accordingly, the
             appeals are restored back on the file of the Ld. CIT(A).”
             5. Both the assessee and Revenue aggrieved by the order of ITAT
      had filed appeals before the High Court under Section 260A of the I.T.
G     Act. The High Court decided all the appeals vide its judgment dated
      25.07.2017. High Court held the assessee to be local authority within the
      meaning of Section 10(20) Explanation. After answering the above issue
      in favour of the assessee, the High court held that other issues have
      become academic. Consequently, the appeals filed by the Revenue were
      dismissed and that of the assessee were allowed.
H
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                               851
            TRUST [ASHOK BHUSHAN, J.]

      6. Another set of appeals have been filed by the Revenue               A
questioning the subsequent judgment of the High Court dated 23.10.2017
deciding Income Tax Appeal No. 287 of 2016 and other appeals. The
above appeals were filed by the assessee against the judgment of the
ITAT dated 08.06.2017 wherein ITAT had set aside the order of the
Assessing Officer and had directed the Assessing Officer to provide
                                                                             B
reasons for issuing Notice under Section 148 to the assessee in respect
of assessment years 2005-2006 to 2009-2010. Assessee thereafter was
allowed to file objection before the Assessing Officer and Assessing
Officer was directed to pass a speaking order. Operative portion of the
judgment of ITAT contained in Para 7 is to the following effect:-
      “7. Since we have set aside the order passed in respect of the         C
      assessment year 2005-06 to 2009-10 as the Assessing Officer
      has not provided the reasons u/s 148 of the Act, therefore, the
      appeals of the revenue arising out of the order passed by the Ld
      CIT(A) in respect of the assessment year 2005-06 to 2009-10
      are also set aside with the direction to the Assessing Officer to      D
      pass fresh order after providing the reasons to the assessee and
      after deciding the objections if any in terms of the judgment in the
      case of GKN DRIVESHAFTS (INDIA) LTD. VS. INCOME-
      TAX OFFICER AND OTHERS [2003] 259 ITR 19(SC). In light
      of above, all the appeals of the assessee as well as revenue are
      set aside to the file of the Assessing officer for the statistical     E
      purposes.”
      7. Aggrieved by the order of the ITAT, the appeals were filed by
the assessee. Assessee’s contention before the High Court was that
assessee being covered by definition of local authority within the meaning
of Section 10(20) Explanation of I.T. Act, its income was exempt. The        F
Division Bench of the High Court relied and quoted its earlier Division
Bench Judgment dated 25.07.2017 mentioned above and allowed the
appeals filed by the assessees.
      8. Revenue aggrieved by the aforesaid two judgments have come
up in these appeals. By both the judgments of the High Court, large          G
number of income tax appeals were decided giving rise to different appeals
under consideration in this batch of appeals.
       9. We have heard Mr. Vikramjit Banerjee, learned Additional
Solicitor General of India, Shri K. Radhakrishnan, learned senior counsel
                                                                             H
852             SUPREME COURT REPORTS                          [2018] 13 S.C.R.


A     for the appellants. Shri Sanjay Jhanwar and other learned counsel have
      been heard for the respondent.
              10. Learned counsel for the appellant in support of the appeal
      contends that the Division Bench of the High Court committed error in
      coming to the conclusion that Urban Improvement Trust - the assessee
B     is a local authority within the meaning of Explanation to Section 10(20)
      of the I.T. Act. It is submitted that Urban Improvement Trust might
      have been earlier getting benefit of wide definition of local authority
      prior to amendment by Finance Act, 2002 but after amendments in Section
      10(20) by Finance Act, 2002, Urban Improvement Trust is no longer
      included in the definition of local authority. Learned counsel for the
C     appellant further submits that assessee, i.e. Urban Improvement Trust is
      not covered by any of clauses, i.e. clauses (i) to (iv) of Explanation to
      Section 10(20) of the I.T. Act. Learned counsel for the appellant further
      relies on recent judgment of this Court in New Okhla Industrial
      Development Authority Vs. Chief Commissioner of Income Tax
D     & Ors. (2018) 8 SCALE 365, by which judgment, this Court had
      occasion to interpret Section 10(20) Explanation and the constitutional
      provisions of Articles 243P and 243Q of the Constitution.
             11. Learned counsel for the assessee refuting the submission of
      appellant contends that Urban Improvement Trust is fully covered by
E     the definition of local authority as contained in Explanation to Section
      10(20) as amended by Finance Act, 2002. It is submitted that the Urban
      Improvement Trust is constituted under the Rajasthan Urban
      Improvement Act, 1959 and the assessee is performing various municipal
      functions, hence it is also entitled for the benefit, which is extended to
      the municipalities. Learned counsel for the respondent submits that the
F     assessee, i.e. Urban Improvement Trust is covered within the definition
      of local authority as given in sub-clause(iii) of Explanation, i.e. “Municipal
      Committee”. It is submitted that assessee performs the municipal
      functions, collects charges, has control over the municipal funds and
      after dissolution of the trust, the entire fund is reverted back to the
G     Municipal Board, which provision clearly indicate that it is a Municipal
      Committee and covered by definition of local authority under Section
      10(20). Learned counsel submits that the judgment of this Court in New
      Okhla Industrial Development Authority Vs. Chief Commissioner
      of Income Tax & Ors.(supra) is distinguishable since in the said
      judgment, this Court had occasion to consider the provisions of Uttar
H
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                                853
            TRUST [ASHOK BHUSHAN, J.]

Pradesh Industrial Area Development Act, 1976, which was entirely             A
different legislation from one, which is under consideration in the present
case, i.e. The Rajasthan Urban Improvement Act, 1959.
       12. We have considered the submissions of the learned counsel
for the parties and have perused the records.
       13. The only issue, which has been raised by the learned counsel       B
for the parties in this batch of appeals is as to “whether the Urban
Improvement Trust constituted under the Rajasthan Urban Improvement
Act, 1959 is a local authority within the meaning of Explanation to Section
10(20) of the I.T. Act, 1961”?
      14. By Finance Act, 2002, Section 10(20) of the I.T. Act was            C
amended by inserting an Explanation w.e.f. 01.04.2003. Section 10(20)
as amended by Finance Act, 2002 is as follows:-
      “10(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         D
      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            E
      “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 243P of the
                                                                              F
      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 of the Cantonments        G
      Act, 1924 (2 of 1924);”
      15. By Finance Act, 2002, provisions of Section 10(20A) was
also deleted. Section 10(20A) as it existed prior to Finance Act, 2002
was as follows:-
                                                                              H
854            SUPREME COURT REPORTS                         [2018] 13 S.C.R.


A           “10(20A) any income of an authority constituted in India by or
            under any law enacted either for the purpose of dealing with and
            satisfying the need for housing accommodation or for the purpose
            of planning, development or improvement of cities, towns and
            villages or for both;”
B            16. At this juncture, it is relevant to notice the Explanatory Notes
      on Finance Act, 2002. Explanatory Notes was on both the sections –
      Section 10(20) as well as Section 10(20A). Paragraphs 12.2 to 12.4 and
      13.1 to 13.4 of the Explanatory Notes, which are relevant for the present
      purpose are as follows:-
C           “12.2 Through Finance Act, 2002, this exemption has been
            restricted to the Panchayats and Municipalities as referred to in
            Articles 243(d) and 243(p)(e) of the Constitution of India
            respectively. Municipal Committees and District Boards, legally
            entitled to or entrusted by the Government with the control or
            management of a Municipal or a local fund and Cantonment Boards
D           as defined under section 3 of the Cantonments Act, 1924.
            12.3 The exemption under clause (20) of section 10 would,
            therefore, not be available to Agricultural Marketing Societies and
            Agricultural Marketing Boards, etc., despite the fact that they
            may be deemed to be treated as local authorities under any other
E           Central or State Legislation. Exemption under this clause would
            not be available to port trusts also.
            12.4 This amendment will take effect from 1st April, 2003 and
            will, accordingly, apply in relation to the assessment year 2003
            2004 and subsequent assessment years.
F
            13.1 Under the existing provisions contained in clause (20A) of
            section 10, income of the Housing Boards or other statutory
            authorities set up for the purpose of dealing with or satisfying the
            need for housing accommodations or for the purpose of planning,
            development or improvement of cities, towns and villages is exempt
G           from payment of income tax.
            13.2 Through Finance Act, 2002 clause (20A) of section 10 has
            been deleted so as to withdraw exemption available to the
            abovementioned bodies. The income of Housing Boards of the
            States and of Development Authorities would, therefore, also
H           become taxable.
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                                855
            TRUST [ASHOK BHUSHAN, J.]

      13.3 Under section 80G, donation made to housing authorities,           A
      etc. referred to in clause (20A) of section 10 is eligible for 50%
      deduction from total income in the hands of the donors. Since
      clause (20A) of section 10 has been deleted, donation to the housing
      authorities etc. would not be eligible for deduction in the hands of
      the donors and this may result in drying up of donations. To continue
                                                                              B
      the incentive to donation made to housing authorities etc., section
      80G has been amended so as to provide that 50% of the sum paid
      by an assessee to an authority constituted in India by or under any
      law enacted either for the purpose of dealing with and satisfying
      the need for housing accommodation or for the purpose of planning,
      development or improvement of cities, towns and villages, or for        C
      both, shall be deducted from the total income of such assessee.
      13.4 These amendments will take effect from lst April, 2003 and
      will, accordingly, apply in relation to the assessment year 2003
      2004 and subsequent assessment years.”
       17. Section 10(20A), which existed prior to amendments made by         D
Finance Act, 2002 exempted any income of an authority constituted in
India by or under any law enacted either for the purpose of dealing with
and satisfying the need for housing accommodation or for the purpose
of planning, development or improvement of cities, towns and villages or
for both. The Rajasthan Urban Improvement Act, 1959 was enacted for           E
the improvement of Urban Areas in Rajasthan. The Act contains following
preamble:-
      “An act for the improvement of Urban Areas in Rajasthan.
      WHEREAS it is expedient to make provision for the improvement
      and expansion of urban areas in the State of Rajasthan.”                F
       18. Section 10(20A) specifically granted exemption to income of
an authority constituted in India by or under any law and the Rajasthan
Urban Improvement Act, 1959 was, thus, clearly covered by Section
10(20A) as was availing exemption under Section 10(20A) prior to
Finance Act, 2002. What is the consequence of deletion of Section             G
10(20A) and further insertion of Explanation under Section 10(20)
providing for an exhaustive definition of the word “local authority”, which
was not defined under the I.T. Act prior to Finance Act, 2002? For
definition of local authority, the provisions of General Clauses Act, 1897
- Section 3(31) were looked into and applied. The definition of local
                                                                              H
856             SUPREME COURT REPORTS                          [2018] 13 S.C.R.


A     authority given under Section 3(31) of the General Clauses Act was as
      follows:-
             “”local authority” shall mean a municipal committee, district board,
             body or port Commissioners or other authority legally entitled to,
             or entrusted by the Government with, the control or management
B            of a municipal or local fund;”
             19. The Explanation added to Section 10(20) now defines the
      definition of local authority in four clauses. Clause (i) relates to Panchayat
      as referred to in clause (d) of article 243 of the Constitution. Clause (ii)
      relates to Municipality as referred to in clause (e) of article 243P of the
C     Constitution. Clause(iv) relates to Cantonment Board as defined in section
      3 of the Cantonments Act, 1924 (2 of 1924). Learned counsel for the
      assessee claim that the assessee is covered under Clause (iii) of
      Explanation to Section 10(20), which is to the following effect:-
             “(iii) Municipal Committee and District Board,legally entitled to,
D            or entrusted by the Government with, the control or management
             of a Municipal or local fund; or”
             20. We, thus, have to confine our discussions to above Clause (iii)
      under which the assessee- Urban Improvement Trust claims to be
      covered. Before we advert to above Clause (iii), it is relevant to notice
E     certain provisions of the Rajasthan Urban Improvement Act, 1959 to
      find out the nature of the Urban Improvement Trust constituted under
      the said Act. The Rajasthan Urban Improvement Act, 1959 defines
      “improvement” in Section 2(vi) in following manner:-
             “2(vi) “improvement” with its grammatical variations means the
F            carrying out of building, engineering, mining or other operations
             in, on, over or under land or the making of any material change in
             any building or land [or making provision for any amenity in, on,
             over or under any building or land] and includes re-improvement;”
             21. Section 2(x) defines “urban area” as follows:-
G            “2(x) “urban area” means the urban area notified under Section
             3 or, as the case may be, under Section 8;”
            22. Section 2(2) of the Rajasthan Urban Improvement Act, 1959
      provides as follows:-

H
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                                857
            TRUST [ASHOK BHUSHAN, J.]

      “2(2) All words and expressions not defined in this Act have,           A
      wherever used therein, the same meanings as are assigned to
      them by the Municipal law for the time being in force:”
23. Section 9 provides for “Constitution of Trust”, which is as follows:-
      “Section 9. Constitution of Trusts.—(1) The Trust shall consist
      of—                                                                     B

      (a) Chairman,
      (b) two members of the Municipal Board, if any, having authority
      in the urban area, [XXX].
      [(bb) X X X]                                                            C
      [(c) such number of other persons, as may be determined by the
      State Government for each Trust, of whom one shall be a person
      belonging to Scheduled Tribe or Scheduled Caste, if no person of
      such caste or tribe is represented in the Trust by virtue of Clause
      (a) or Clause (b)]                                                      D
      [x X x]
      (2) The Chairman and the persons referred to in Clause (c) of
      Sub-section (1) [x x x] shall be appointed by the State Government
      by notification.
                                                                              E
      (3) The members of the Municipal Board referred in Clause (b)
      of Sub-section (1) shall be elected by the said Board.
      (4) If the said Board does not, by such date as may be fixed by
      the State Government, elect two of its members to be Trustees,
      the State Government shall appoint two members of the said Board        F
      to be Trustees and every person so appointed shall be deemed to
      be a Trustee as if he had been duly elected by the Municipal
      Board.
      (5) If the said Board shall have been superseded or dissolved in
      accordance with the provision of the Municipal law for the time         G
      being in force, it shall be represented on the Trust by persons
      appointed or elected, as the case may be, by the officer or authority
      appointed under the said law to discharge the functions and exercise
      the powers of the Board during the period of its supersession or
      dissolution.
                                                                              H
858            SUPREME COURT REPORTS                         [2018] 13 S.C.R.


A           (6) Of the person referred to in Clause (c) of Sub-section (1) at
            least one shall be a person in the service of the State Government.
            (7) The names of all persons appointed or elected to the Trust
            shall be notified by the State Government in the Official Gazette.”
             24. Under Section 47, certain powers under the Municipal laws
B     may be vested in the Trust. Section 48 provides for Transfer of duties
      etc. of Municipal Board to Trust. Sections 47 and 48 are as follows:-
            “Section 47. Powers under the Municipal laws vested in
            the Trust.—(1) Such provisions of the Municipal law for the
            time being in force in any part of the State as may be prescribed
C           in the case of each Trust, shall so far as may be consistent with
            the tenor of this Act, apply to [the urban area for which the Trust
            is established under this Act and] all references in the said
            provisions to the Municipal Board, Council or Corporation shall
            be construed as references to the Trust which, in respect of any
D           [such urban area] may alone exercise and perform all or any of
            the powers and functions which under any of the said provisions
            might have been exercised and performed by the Municipal Board,
            Council or Corporation or by the Chairman or President or by any
            officer thereof:

E           Provided that the Trust may delegate to the Chairman or to any
            officer of the Trust all or any of the powers conferred under this
            section.
            [(2) to (5) Omitted by Rajasthan Act No. 26 of 1976.]
            Section 48, Transfer of duties etc. of Municipal Board to
F           Trust.—The State Government may by notification in the Official
            Gazette transfer to the Trust any of the duties, powers, functions
            and responsibilities of the Municipal Board and thereupon the Trust
            shall carry out, exercise, perform and discharge such duties, powers,
            functions and responsibilities.”
G            25. Section 61 provides for the Improvement Fund. Section 62
      empowers the Trust to levy betterment charges. Section 63 provides for
      assessment of betterment charge and Section 64 provides for settlement
      of betterment charge by arbitrators. One more section on which reliance
      has been placed by the learned counsel for the appellant is Section 105,
      which is to the following effect:-
H
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                                   859
            TRUST [ASHOK BHUSHAN, J.]

      “Section 105. Ultimate dissolution of Trust and Transfer of                A
      its assets and liabilities to the Municipal Board.—(1) When
      all schemes sanctioned under this Act have been executed or
      have been so far executed as to render the continued existence
      of the Trust, in the opinion of the State Government, unnecessary,
      the State Government may by notification declare that the Trust
                                                                                 B
      shall be dissolved from such date as may be specified in this behalf
      in such notification and the Trust shall be deemed to be dissolved
      accordingly.
      (2) From the said date—
      (a) all properties, funds and dues which are vested in or realisable       C
      by the Trust shall vest in and be realisable by the Municipal Board;
      (b) all liabilities which are enforceable against the Trust shall be
      enforceable against the Municipal Board;
      (c) for the purpose of completing the execution of any scheme
      sanctioned under this Act, Which has not been fully executed by            D
      the Trust, and, of realising properties, funds and dues referred to
      in Clause (a) the functions of the Trust under this Act shall be
      discharged by the Municipal Board as if it were the Trust under
      this Act, and
      (d) the Municipal Board shall keep separate accounts of all moneys         E
      respectively received and expended by it under this Act, until all
      loans raised hereunder have, been repaid and until all other liabilities
      referred to in clause (b) have been duly met.”
       26. It is relevant to notice that in the same year in which the
Rajasthan Urban Improvement Act, 1959 was passed, another enactment              F
namely, the Rajasthan Municipalities Act, 1959 was enacted. Learned
counsel for the respondent has referred to notification dated 09.07.1970
by which the State Government has established Urban Improvement
Trust, Kota. Notification dated 09.07.1970 is as follows;-
               “TOWN PLANNING DEPARTMENT                                         G
                       NOTIFICATION
                      Jaipur, July 9, 1970
           No. 5 (3) TP/70- In exercise of the powers conferred by
      Section 8 read with Section 9 and 13 of the Rajasthan Urban
                                                                                 H
860        SUPREME COURT REPORTS                        [2018] 13 S.C.R.


A     Improvement Act, I959 (Act No. 35 of 1959) of the State
      Government here by orders :
      1.     that for the purpose of carrying out improvement of the
             Urban Area included in the Municipal limits of Kota Town,
             a board of trustee called the improvement Trust, Kota shall
B            be established.
      2.     That the said trust shall consist of:-
             a. A Chairman.
             b. Two members/Nominees of the Municipal Council,
C               Kota.
             c. Chief Town Planner or his nominee.
             d. 4 other persons.
             In exercise of the powers conferred by sub-section(2) of
      Section 9 of the said Act, the State Government further appoints
D
      the following persons as the Chairman and other Member of the
      said Trust for a period of three years with effect from 10.7.1970
      or earlier till he is required to hold the office under Section 11 and
      12 of the said Act:
      1. Shri Nathu Lal Jain, Advocate Chairman
E
      2. Chief Town Planner or his Nominee Member
      3. Sushri Nagendra Bala, Ex. M.L.A. Member
      4. Collector, Kota Member

F     3. The term of the office of the said Trustees shall commence
         with effect from 10.7.70.
           The Municipal Council, Kota is called upon to appoint the
      two persons to be trustees of the said Trust in pursuance of sub-
      section(5) of Section 9 of the said Act within the period of one
      month from the date of issue of this Notification.
G
                                               By Order of the Governor,
                                                             R.K. Saxena,
                                           Secretary to the Government”

H
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                                  861
            TRUST [ASHOK BHUSHAN, J.]

       27. A perusal of the Scheme of the Rajasthan Urban Improvement           A
Act, 1959 as well as the Rajasthan Municipalities Act, 1959 indicate that
Urban Improvement Trust undertakes development in the urban area
included in municipality/municipal board. Urban Improvement Trust is
not constituted in place of the municipality/municipal board rather it
undertakes the act of improvement in urban areas of a municipality/
                                                                                B
municipal board under the Rajasthan Urban Improvement Act, 1959. It
may also perform certain limited power of the municipal board as referred
to in Sections 47 and 48 but on the strength of such provision Urban
Improvement Trust does not become a municipality or municipal board.
After the insertion of Part IXA in the Constitution by the Constitution
(Seventy-fourth) Amendment Act, 1992 w.e.f. 01.06.1993, Articles 243Q           C
deals with constitution of Municipalities. Section 10(20) Explanation,
Clause (ii) relates to Municipalities.
       28. Learned counsel for the assessee has not based its claim on
the basis of Clause (ii) of Explanation rather it has confined its claim to
only Clause (iii). Under Clause (iii) claim of the assessee is that it is a     D
“Municipal Committee”. We, thus, have to answer as to whether it is a
Municipal Committee within the meaning of Explanation to Section 10(20)
or not?
      29. The word “Municipal Committee” as occurring in Section
10(20) Explanation came for consideration before this Court in                  E
Agricultural Produce Market Committee Narela, Delhi Vs.
Commissioner of Income Tax and Another, (2008) 9 SCC 434. In
the above case, this Court had examined the Explanation to Section
10(20) as amended by Finance Act, 2002 and the definition of local
authority contained therein. After noticing the definition of local authority
as contained in Section 10(20) Explanation w.e.f. 01.04.2003 as well as         F
Section 3(31) of the General Clauses Act, 1897. Following was stated in
Para 30 and 31:-
      “30. At the outset, it may be noted that prior to the Finance Act,
      2002, the said 1961 Act did not contain the definition of the word
      “local authority”. That word came to be defined for the first time        G
      by the Finance Act, 2002 vide the said Explanation/definition clause.
      31. Certain glaring features can be deciphered from the above
      comparative chart. Under Section 3(31) of the General Clauses
      Act, 1897, “local authority” was defined to mean “a Municipal
                                                                                H
862            SUPREME COURT REPORTS                            [2018] 13 S.C.R.


A           Committee, District Board, Body of Port Commissioners or other
            authority legally entitled to … the control or management of a
            municipal or local fund”. The words “other authority” in Section
            3(31) of the 1897 Act have been omitted by Parliament in the
            Explanation/definition clause inserted in Section 10(20) of the 1961
            Act vide the Finance Act, 2002. Therefore, in our view, it would
B
            not be correct to say that the entire definition of the word “local
            authority” is bodily lifted from Section 3(31) of the 1897 Act and
            incorporated, by Parliament, in the said Explanation to Section
            10(20) of the 1961 Act. This deliberate omission is important.”
             30. In the above case, earlier judgment of this Court in Union of
C     India Vs. R.C. Jain, (1981) 2 SCC 308 was considered where this
      Court had laid down and applied the functional test as to whether a body
      is local authority or not? This Court laid down that functional test as
      evolved in R.C. Jain’s case (supra) is no more applicable after
      amendment of Section 10(20) of I.T. Act by Finance Act, 2002. Following
D     was laid down in paragraph 35:-
            “35. One more aspect needs to be mentioned. In R.C. Jain, (1981)
            2 SCC 308 the test of “like nature” was adopted as the words
            “other authority” came after the words “Municipal Committee,
            District Board, Body of Port Commissioners”. Therefore, the words
E           “other authority” in Section 3(31) took colour from the earlier
            words, namely, “Municipal Committee, District Board or Body of
            Port Commissioners”. This is how the functional test is evolved in
            R.C. Jain. However, as stated earlier, Parliament in its legislative
            wisdom has omitted the words “other authority” from the said
            Explanation to Section 10(20) of the 1961 Act. The said
F           Explanation to Section 10(20) provides a definition to the word
            “local authority”. It is an exhaustive definition. It is not an inclusive
            definition. The words “other authority” do not find place in the
            said Explanation. Even, according to the appellant(s), AMC(s) is
            neither a Municipal Committee nor a District Board nor a Municipal
G           Committee nor a panchayat. Therefore, in our view functional
            test and the test of incorporation as laid down in R.C. Jain is no
            more applicable to the Explanation to Section 10(20) of the 1961
            Act. Therefore, in our view the judgment of this Court in R.C.
            Jain followed by judgments of various High Courts on the status
            and character of AMC(s) is no more applicable to the provisions
H
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                               863
            TRUST [ASHOK BHUSHAN, J.]

      of Section 10(20) after the insertion of the Explanation/definition    A
      clause to that sub-section vide the Finance Act, 2002.”
        31. This Court further noticed the expression “Municipal
Committee” in Clause (iii) of Section 10(20). This Court held that the
words “Municipal Committee and District Board” in Explanation were
used out of abundant caution. In 1897, when the General Clauses Act          B
was enacted there existed in India Municipal Committees and District
Boards, which were discharging the municipal functions in different parts
of the country. The expression “Municipal Committee and District Board”
were included by amendments incorporated by Finance Act, 2002 to
take into its fold those Municipal Committees and District Board which
are still discharging municipal functions where no other municipalities or   C
boards to discharge municipal functions have been constituted. In
paragraph Nos. 36 and 37 following has been laid down:-
      “36**. The question still remains as to why Parliament has used
      the words “Municipal Committee” and “District Board” in Item
      (iii) of the said Explanation. In our view, Parliament has defined     D
      “local authority” to mean—a panchayat as referred to in clause
      (d) of Article 243 of the Constitution of India and municipality as
      referred to in clause (e) of Article 243-P of the Constitution of
      India. However, there is no reference to Article 243 after the
      words “Municipal Committee” and “District Board”. In our view,         E
      the Municipal Committee and District Board in the said Explanation
      are used out of abundant caution.
      37. In 1897, when the General Clauses Act was enacted there
      existed in India Municipal Committees and District Boards. They
      continued even thereafter. In some remote place it is possible that    F
      there exists a Municipal Committee or a District Board. Therefore,
      in our view, apart from a panchayat and municipality, Parliament
      in its wisdom decided to give exemption to Municipal Committee
      and District Board. Earlier there were District Board Acts in
      various States. Most of the States had repealed those Acts.
      However, it is quite possible that in some remote place District       G
      Board may still exist. Therefore, Parliament decided to give
      exemption to such Municipal Committees and District Boards.
      Therefore, in our view, advisedly Parliament has retained exemption
      for Municipal Committee and District Board apart from panchayat
      and municipality.”                                                     H
864            SUPREME COURT REPORTS                         [2018] 13 S.C.R.


A           32. This Court further noticed the constitutional provision of Part
      IX-A and noticed that any law relating to municipalities in force in a
      State immediately before the commencement of the Constitution
      (Seventy-fourth Amendment) Act, 1992, even if inconsistent with the
      provisions of Part IX-A, shall continue to be in force until amended or
      repealed by a competent legislature. In Para 39, following has been laid
B
      down:-
            “39. Similarly, under Part IX-A there is Article 243-ZF which
            refers to the “Municipalities”. This article, inter alia, states that
            notwithstanding anything in Part IX-A, any provision of any law
            relating to municipalities in force in a State immediately before
C           the commencement of the Constitution (Seventy-fourth
            Amendment) Act, 1992, which is inconsistent with the provisions
            of Part IX-A, shall continue to be in force until amended or repealed
            by a competent legislature. In our view, Article 243-N and Article
            243-ZF indicate that there could be enactments which still retain
D           the entities like Municipal Committees and District Boards and if
            they exist, Parliament intends to give exemption to their income
            under Section 10(20) of the 1961 Act.”
             33. In above case, this Court, thus, has held that the expression
      “Municipal Committee and District Board” occurring in Clause (iii) of
E     Explanation referred to those bodies, which are discharging municipal
      functions and power in any part of country and so far has not been
      substituted by any other Body by any Act of Legislature. The word
      “Municipal Committee” occurring in Clause (iii) Explanation, thus, has a
      definite purpose and object. Purpose and object was to cover those bodies,
      which are discharging municipal functions but are not covered by the
F     definition of municipalities as was required to be constituted by Article
      243Q of the Constitution of India. Urban Improvement Trust constituted
      under the Rajasthan Urban Improvement Act, 1959, thus, cannot be
      held to be covered by the definition of Municipal Committee as contained
      in Clause (iii) of Explanation to Section 10(20) of the I.T. Act. Further,
G     as noticed above, prior to deletion of Section 10(20A), Section 10(20A)
      was a provision which exempted the income of authority constituted in
      India by or under any law enacted for the purpose of planning,
      development or improvement of cities, towns and villages or for both.
      There cannot be any dispute that Urban Improvement Trust, i.e. the

H
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                                  865
            TRUST [ASHOK BHUSHAN, J.]

assessee was fully covered by the definition of authorities as contained        A
in Section 10(20A) prior to its deletion. When there is a specific deletion
of Section 10(20A), the said deletion was for an object and purpose.
The Explanatory Notes in Paragraph Nos. 13.1 to 13.4 as noticed above
clearly mentioned that “income of certain Housing Boards etc. to become
taxable”. The deletion of authorities, which were enumerated in Section
                                                                                B
10(20A) was a clear indicator that such authorities, which were enjoying
exemption under Section 10(20A) shall no longer be entitled to enjoy the
exemption henceforth. The deletion of Section 10(20A) thus has to be
given a purpose and meaning.
        34. This Court in New Okhla Industrial Development
Authority Vs. Chief Commissioner of Income Tax & Ors. (supra),                  C
which was a judgment delivered by this very Bench had considered in
detail the object and purpose of Section 10(20A), the object and purpose
of Finance Act, 2002 amendment adding the Explanation to Section 10(20)
and deletion of Section 10(20A).
       35. The provisions of Sections 47 and 48 are to permit certain           D
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.
       36. Sections 61 to 64 as noticed above are the provisions                E
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             F
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        G
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.
                                                                                H
866            SUPREME COURT REPORTS                         [2018] 13 S.C.R.


A           37. We, thus, are of the view that Scheme of the Rajasthan Urban
      Improvement Act, 1959 does not permit acceptance of the contention of
      the appellant assessee that Urban Improvement Trust is a Municipal
      Committee within the meaning of Section 10(20) Explanation (iii). The
      purpose and object for expression “Municipal Committee” used in Section
      10(20) Explanation (iii) has been explained, as already noticed above, by
B
      this Court’s judgment in Agricultural Produce Market Committee
      Narela, Delhi (supra).
             38. The entire consideration of the High Court in the impugned
      judgment is contained in paragraph 15 to 18 which are to the following
      effect:-
C
            “15. It is true that the functions which are carried out by the
            assessee are statutory functions and carry on for the benefit of
            the State Government for urban development therefore, in our
            considered opinion, the functions carried out by the authority is a
            supreme function and fall within the activity of the State
D           Government.
            16. In that view of the matter, the judgments which are strongly
            relied upon by counsel for the department are of no help in the
            facts of the case as the case relied upon by the department was
            in respect of industrial corporation which was under the statute
E           for the purpose of making profit. The fees and other charges
            which are covered are statutorily for the development of the urban
            area. In that view of the matter, the judgment which sought to be
            relied upon by the counsel for the respondents, in our considered
            opinion, would be of importance and the functions which are carried
F           out by the assessee is statutory function. In our considered opinion,
            under clause-10(20) & Sub-clause (3) Municipal Committee and
            District Board are legal entity entrusted by the function of the
            Government within the control or management of the municipal
            or local authority and will try to help the assessee.

G           17. In that view of the matter, the reliance placed by counsel for
            the department regarding 10(20) and explanation A will not make
            any difference. Taking into consideration income of authority is
            under constitution of India vide order enacted either for the purpose
            of dealing with or setting up the housing scheme for the purpose
            of planning and development of the improvement of the cities,
H
   THE INCOME TAX OFFICER v. URBAN IMPROVEMENT                                  867
            TRUST [ASHOK BHUSHAN, J.]

       town and villages or both for which the authority are created to         A
       carry out the function of State which are sovereign whereas the
       urban development and calculation of development charges will
       fall under the development charges.
       18. In that view of the matter, deletion of 20A will not make
       difference in case of assessee. In our considered opinion, Clause-       B
       3 will come in the help of the assessee. In that view of the matter,
       we are considered opinion, that the authority assessee is a local
       authority for the purpose of carrying out of the improvement and
       development function of the State.”
       39. The High Court based its decision on the fact that functions         C
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 High Court has not adverted to the relevant facts and
circumstances and without considering the relevant aspects has arrived          D
at erroneous conclusions. Judgments of the High Court are unsustainable.
       40. In view of foregoing discussions, we are of the view that
judgments of the High Court deserves to be set aside. All the appeals
are allowed. In view of setting aside the judgments of the High Court
dated 25.07.2017 and 23.10.2017, the order passed by ITAT revives.              E
Parties shall bear their own costs.


Kalpana K. Tripathy                                          Appeals allowed.

                                                                                F




                                                                                G




                                                                                H