REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 10577 OF 2018 (arising out of SLP (C) No. 16836 of 2018) INCOME TAX OFFICER APPELLANT(S) VERSUS URBAN IMPROVEMENT TRUST RESPONDENT(S) WITH CIVIL APPEAL NO. 10578 OF 2018 (arising out of SLP (C) No. 16837 of 2018) COMMISSIONER OF INCOME TAX (EXEMPTIONS) APPELLANT(S) VERSUS URBAN IMPROVEMENT TRUST KOTA RESPONDENT(S) WITH CIVIL APPEAL NO. 10579 OF 2018 (arising out of SLP (C) No. 16838 of 2018) INCOME TAX OFFICER APPELLANT(S) VERSUS URBAN IMPROVEMENT TRUST KOTA RESPONDENT(S) WITH CIVIL APPEAL NO. 10580 OF 2018 (arising out of SLP (C) No. 16839 of 2018) COMMISSIONER OF INCOME TAX APPELLANT(S) VERSUS URBAN IMPROVEMENT TRUST Signature Not Verified Digitally signed by SUSHIL KUMAR RAKHEJA Date: 2018.10.13 THROUGH DIRECTOR RESPONDENT(S) 13:25:02 IST Reason: 1 WITH CIVIL APPEAL NO. 10581 OF 2018 (arising out of SLP (C) No. 18076 of 2018) INCOME TAX OFFICER APPELLANT(S) VERSUS URBAN IMPROVEMENT TRUST, KOTA RESPONDENT(S) WITH CIVIL APPEAL NO. 10584 OF 2018 (arising out of SLP (C) No. 23293 of 2018) INCOME TAX OFFICER APPELLANT(S) VERSUS M/S URBAN IMPROVEMENT TRUST RESPONDENT(S) WITH CIVIL APPEAL NO. 10582 OF 2018 (arising out of SLP (C) No. 18662 of 2018) INCOME TAX OFFICER KOTA APPELLANT(S) VERSUS URBAN IMPROVEMENT TRUST RESPONDENT(S) WITH CIVIL APPEAL NO. 10586 OF 2018 (arising out of S.L.P. (C) No. 28107 OF 2018) (Diary No. 24603 of 2018) INCOME TAX OFFICER APPELLANT(S) VERSUS M/S URBAN IMPROVEMENT TRUST RESPONDENT(S) WITH CIVIL APPEAL NO. 10585 OF 2018 (arising out of SLP (C) No. 23294 of 2018) INCOME TAX OFFICER KOTA APPELLANT(S) VERSUS 2 URBAN IMPROVEMENT TRUST KOTA RESPONDENT(S) WITH CIVIL APPEAL NO. 10583 OF 2018 (arising out of SLP (C) No. 22987 of 2018) COMMISSIONER OF INCOME TAX APPELLANT(S) VERSUS M/S URBAN IMPROVEMENT TRUST RESPONDENT(S) JUDGMENT ASHOK BHUSHAN, J. Leave granted. 2. These appeals have been filed by Revenue challenging Division Bench judgments of Rajasthan High Court dated 25.07.2017 as well as subsequent judgment dated 23.10.2017 following earlier judgment. High Court vide its above judgments has dismissed all income tax appeals of Revenue and allowed that of assesse Urban Improvement Trust. Division Bench accepted claim of assessee that it is local authority within meaning of Clause (iii) of Explanation to Section 10(20) of Income Tax Act, 1961 and hence it is entitled for exemption under Section 10(20) of Act. Revenue have been contending that Urban Improvement Trust, assessee is not local authority within meaning of Explanation to Section 10(20), hence it is not entitled for 3 exemption. 3. For deciding this batch of appeals, it shall be sufficient to notice facts of Civil Appeal arising out of S.L.P. (C) No. 18067 of 2018 Income Tax Officer Vs. M/s. Urban Improvement Trust, Kota. 4. Section 10(20) has been amended by Finance Act, 2002 w.e.f. 01.04.2003. Notice under Section 142(1) of Income Tax Act, 1961 (hereinafter referred to as I.T. Act ) was issued dated 01.08.2005 requiring assessee to file return for assessment year 2003- 2004. reply was submitted on behalf of assessee that Urban Improvement Trust assessee is municipality within meaning of Article 243P of Constitution of India, hence it is not required to file income tax return. Assessing Officer passed assessment order dated 28.03.2006 rejecting contention of assessee that its income is exempted under Section 10(20). appeal was filed by assessee before Commissioner (Appeals). Commissioner (Appeals) passed order on 10.02.2010 holding that assessee is local authority within meaning of Section 10(20) of I.T. Act. Revenue filed appeal before Income Tax Appellate Tribunal 4 (hereinafter referred to as ITAT ) challenging appellate order. ITAT accepted Revenue s claim that assessee is not covered within definition of Clause (iii) of Explanation to Section 10(20). Appellate Tribunal in Paragraph 2.6 allowed appeal and restored back matter to Commissioner of Income Tax (Appeals). Para 2.6 of Order of ITAT is as follows:- 2.6 Considering our decision in case of Rajasthan Housing Board, we feel that Ld. CIT (A) was not justified in holding that income of UTI is exempt u/s 10(20) of Act. Ld. CIT(A) has not decided other issues raised before him by assessee because Ld. CIT(A) was of opinion that income of assessee was exempt u/s 10(20) of Act. Since we are vacating order of Ld. CIT(A) on issue of liability of exemption u/s 10(20) of Act, therefore, other issues are required to be considered afresh by Ld. CIT (A). Accordingly, appeals are restored back on file of Ld. CIT(A). 5. Both assessee and Revenue aggrieved by order of ITAT had filed appeals before High Court under Section 260A of I.T. Act. High Court decided all appeals vide its judgment dated 25.07.2017. High Court held assessee to be local authority within meaning of Section 10(20) Explanation. After answering above issue in favour of assessee, High court held that other issues 5 have become academic. Consequently, appeals filed by Revenue were dismissed and that of assessee were allowed. 6. Another set of appeals have been filed by Revenue questioning subsequent judgment of High Court dated 23.10.2017 deciding Income Tax Appeal No. 287 of 2016 and other appeals. above appeals were filed by assessee against judgment of ITAT dated 08.06.2017 wherein ITAT had set aside order of Assessing Officer and had directed Assessing Officer to provide reasons for issuing Notice under Section 148 to assessee in respect of assessment years 2005-2006 to 2009-2010. Assessee thereafter was allowed to file objection before Assessing Officer and Assessing Officer was directed to pass speaking order. Operative portion of judgment of ITAT contained in Para 7 is to following effect:- 7. Since we have set aside order passed in respect of assessment year 2005-06 to 2009-10 as Assessing Officer has not provided reasons u/s 148 of Act, therefore, appeals of revenue arising out of order passed by Ld CIT(A) in respect of assessment year 2005-06 to 2009-10 are also set aside with direction to Assessing Officer to pass fresh order after providing reasons to assessee and after deciding objections if any in terms of judgment in case of GKN DRIVESHAFTS (INDIA) LTD. VS. INCOME-TAX 6 OFFICER AND OTHERS [2003] 259 ITR 19(SC). In light of above, all appeals of assessee as well as revenue are set aside to file of Assessing officer for statistical purposes. 7. Aggrieved by order of ITAT, appeals were filed by assessee. Assessee s contention before High Court was that assessee being covered by definition of local authority within meaning of Section 10(20) Explanation of I.T. Act, its income was exempt. Division Bench of High Court relied and quoted its earlier Division Bench Judgment dated 25.07.2017 mentioned above and allowed appeals filed by assessees. 8. Revenue aggrieved by aforesaid two judgments have come up in these appeals. By both judgments of High Court, large 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 for appellants. Shri Sanjay Jhanwar and other learned counsel have been heard for respondent. 7 10. Learned counsel for appellant in support of appeal contends that Division Bench of High Court committed error in coming to conclusion that Urban Improvement Trust - assessee is local authority within meaning of Explanation to Section 10(20) of 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 definition of local authority. Learned counsel for 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 I.T. Act. Learned counsel for appellant further relies on recent judgment of this Court in New Okhla Industrial Development Authority Vs. Chief Commissioner of Income Tax & Ors. (2018) 8 SCALE 365, by which judgment, this Court had occasion to interpret Section 10(20) Explanation and constitutional provisions of Articles 243P and 243Q of Constitution. 11. Learned counsel for assessee refuting 8 submission of appellant contends that Urban Improvement Trust is fully covered by definition of local authority as contained in Explanation to Section 10(20) as amended by Finance Act, 2002. It is submitted that Urban Improvement Trust is constituted under Rajasthan Urban Improvement Act, 1959 and assessee is performing various municipal functions, hence it is also entitled for benefit, which is extended to municipalities. Learned counsel for respondent submits that assessee, i.e. Urban Improvement Trust is covered within definition of local authority as given in sub-clause(iii) of Explanation, i.e. Municipal Committee . It is submitted that assessee performs municipal functions, collects charges, has control over municipal funds and after dissolution of trust, entire fund is reverted back to Municipal Board, which provision clearly indicate that it is Municipal Committee and covered by definition of local authority under Section 10(20). Learned counsel submits that judgment of this Court in New Okhla Industrial Development Authority Vs. Chief Commissioner of Income Tax & Ors.(supra) is distinguishable since in said judgment, this Court had occasion to consider provisions of Uttar Pradesh Industrial Area Development 9 Act, 1976, which was entirely different legislation from one, which is under consideration in present case, i.e. Rajasthan Urban Improvement Act, 1959. 12. We have considered submissions of learned counsel for parties and have perused records. 13. only issue, which has been raised by learned counsel for parties in this batch of appeals is as to whether Urban Improvement Trust constituted under Rajasthan Urban Improvement Act, 1959 is local authority within meaning of Explanation to Section 10(20) of I.T. Act, 1961 ? 14. By Finance Act, 2002, Section 10(20) of I.T. Act was amended by inserting Explanation w.e.f. 01.04.2003. Section 10(20) as amended by Finance Act, 2002 is as follows:- 10(20) income of local authority which is chargeable under head "Income from house property", "Capital gains" or "Income from other sources" or from trade or busi- ness carried on by it which accrues or arises from supply of commodity or service (not being water or electricity) within its own ju- risdictional area or from supply of water or electricity within or outside its own ju- risdictional area. Explanation. For purposes of this clause, expression "local authority" means 10 (i) Panchayat as referred to in clause (d) of article 243 of Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by Gov- ernment with, control or management of Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of Cantonments 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:- 10(20A) any income of authority constituted in India by or under any law enacted either for purpose of dealing with and satisfying need for housing accommodation or for purpose of planning, development or improvement of cities, towns and villages or for both; 16. At this juncture, it is relevant to notice Explanatory Notes on Finance Act, 2002. Explanatory Notes was on both sections Section 10(20) as well as Section 10(20A). Paragraphs 12.2 to 12.4 and 13.1 to 13.4 of Explanatory Notes, which are relevant for present purpose are as follows:- 12.2 Through Finance Act, 2002, this exemption has been restricted to Panchayats and Municipalities as referred to 11 in Articles 243(d) and 243(p)(e) of Constitution of India respectively. Municipal Committees and District Boards, legally entitled to or entrusted by Government with control or management of Municipal or local fund and Cantonment Boards as defined under section 3 of Cantonments Act, 1924. 12.3 exemption under clause (20) of section 10 would, therefore, not be available to Agricultural Marketing Societies and Agricultural Marketing Boards, etc., despite fact that they may be deemed to be treated as local authorities under any other 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 assessment year 2003 2004 and subsequent assessment years. 13.1 Under existing provisions contained in clause (20A) of section 10, income of Housing Boards or other statutory authorities set up for purpose of dealing with or satisfying need for housing accommodations or for purpose of planning, development or improvement of cities, towns and villages is exempt 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 abovementioned bodies. income of Housing Boards of States and of Development Authorities would, therefore, also become taxable. 13.3 Under section 80G, donation made to housing authorities, etc. referred to in clause (20A) of section 10 is eligible for 50% deduction from total income in hands of donors. Since clause (20A) of section 10 has been deleted, donation to housing authorities etc. would not be eligible for deduction in hands of donors and this may result in drying up of donations. To continue incentive to donation made to housing authorities etc., section 80G has been 12 amended so as to provide that 50% of sum paid by assessee to authority constituted in India by or under any law enacted either for purpose of dealing with and satisfying need for housing accommodation or for purpose of planning, development or improvement of cities, towns and villages, or for both, shall be deducted from total income of such assessee. 13.4 These amendments will take effect from lst April, 2003 and will, accordingly, apply in relation to assessment year 2003 2004 and subsequent assessment years. 17. Section 10(20A), which existed prior to amendments made by Finance Act, 2002 exempted any income of authority constituted in India by or under any law enacted either for purpose of dealing with and satisfying need for housing accommodation or for purpose of planning, development or improvement of cities, towns and villages or for both. Rajasthan Urban Improvement Act, 1959 was enacted for improvement of Urban Areas in Rajasthan. Act contains following preamble:- act for improvement of Urban Areas in Rajasthan. WHEREAS it is expedient to make provision for improvement and expansion of urban areas in State of Rajasthan. 18. Section 10(20A) specifically granted exemption to income of authority constituted in India by or under any law and Rajasthan Urban Improvement Act, 1959 13 was, thus, clearly covered by Section 10(20A) as was availing exemption under Section 10(20A) prior to Finance Act, 2002. What is consequence of deletion of Section 10(20A) and further insertion of Explanation under Section 10(20) providing for exhaustive definition of word local authority , which was not defined under I.T. Act prior to Finance Act, 2002? For definition of local authority, provisions of General Clauses Act, 1897 - Section 3(31) were looked into and applied. definition of local authority given under Section 3(31) of General Clauses Act was as follows:- local authority shall mean municipal committee, district board, body or port Commissioners or other authority legally entitled to, or entrusted by Government with, control or management of municipal or local fund; 19. Explanation added to Section 10(20) now defines definition of local authority in four clauses. Clause (i) relates to Panchayat as referred to in clause (d) of article 243 of Constitution. Clause (ii) relates to Municipality as referred to in clause (e) of article 243P of Constitution. Clause(iv) relates to Cantonment Board as defined in section 3 of Cantonments Act, 1924 (2 of 1924). Learned counsel for 14 assessee claim that assessee is covered under Clause (iii) of Explanation to Section 10(20), which is to following effect:- (iii) Municipal Committee and District Board,legally entitled to, or entrusted by Government with, control or management of Municipal or local fund; or 20. We, thus, have to confine our discussions to above Clause (iii) under which assessee- Urban Improvement Trust claims to be covered. Before we advert to above Clause (iii), it is relevant to notice certain provisions of Rajasthan Urban Improvement Act, 1959 to find out nature of Urban Improvement Trust constituted under said Act. Rajasthan Urban Improvement Act, 1959 defines improvement in Section 2(vi) in following manner:- 2(vi) "improvement" with its grammatical variations means carrying out of building, engineering, mining or other operations in, on, over or under land or 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:- 2(x) "urban area" means urban area notified under Section 3 or, as case may be, under Section 8; 15 22. Section 2(2) of Rajasthan Urban Improvement Act, 1959 provides as follows:- 2(2) All words and expressions not defined in this Act have, wherever used therein, same meanings as are assigned to them by Municipal law for time being in force: 23. Section 9 provides for Constitution of Trust , which is as follows:- Section 9. Constitution of Trusts. (1) Trust shall consist of (a) Chairman, (b) two members of Municipal Board, if any, having authority in urban area, [XXX]. [(bb) X X X] [(c) such number of other persons, as may be determined by State Government for each Trust, of whom one shall be person belonging to Scheduled Tribe or Scheduled Caste, if no person of such caste or tribe is represented in Trust by virtue of Clause (a) or Clause (b)] [x X x] (2) Chairman and persons referred to in Clause (c) of Sub-section (1) [x x x] shall be appointed by State Government by notification. (3) members of Municipal Board referred in Clause (b) of Sub-section (1) shall be elected by said Board. (4) If said Board does not, by such date as may be fixed by State Government, elect two of its members to be Trustees, State Government shall appoint two members of said Board to be Trustees and every person so appointed shall be deemed to be Trustee as if he had been duly elected by Municipal 16 Board. (5) If said Board shall have been superseded or dissolved in accordance with provision of Municipal law for time being in force, it shall be represented on Trust by persons appointed or elected, as case may be, by officer or authority appointed under said law to discharge functions and exercise powers of Board during period of its supersession or dissolution. (6) Of person referred to in Clause (c) of Sub-section (1) at least one shall be person in service of State Government. (7) names of all persons appointed or elected to Trust shall be notified by State Government in Official Gazette. 24. Under Section 47, certain powers under Municipal laws may be vested in 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 Municipal laws vested in Trust. (1) Such provisions of Municipal law for time being in force in any part of State as may be prescribed in case of each Trust, shall so far as may be consistent with tenor of this Act, apply to [the urban area for which Trust is established under this Act and] all references in said provisions to Municipal Board, Council or Corporation shall be construed as references to Trust which, in respect of any [such urban area] may alone exercise and perform all or any of powers and functions which under any of said provisions might have been exercised and performed by Municipal Board, Council or Corporation or by Chairman or President or by any officer thereof: Provided that Trust may delegate to 17 Chairman or to any officer of Trust all or any of 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 Trust. State Government may by notification in Official Gazette transfer to Trust any of duties, powers, functions and responsibilities of Municipal Board and thereupon Trust shall carry out, exercise, perform and discharge such duties, powers, functions and responsibilities. 25. Section 61 provides for Improvement Fund. Section 62 empowers 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 learned counsel for appellant is Section 105, which is to following effect:- Section 105. Ultimate dissolution of Trust and Transfer of its assets and liabilities to Municipal Board. (1) When all schemes sanctioned under this Act have been executed or have been so far executed as to render continued existence of Trust, in opinion of State Government, unnecessary, State Government may by notification declare that Trust shall be dissolved from such date as may be specified in this behalf in such notification and Trust shall be deemed to be dissolved accordingly. (2) From said date (a) all properties, funds and dues which are 18 vested in or realisable by Trust shall vest in and be realisable by Municipal Board; (b) all liabilities which are enforceable against Trust shall be enforceable against Municipal Board; (c) for purpose of completing execution of any scheme sanctioned under this Act, Which has not been fully executed by Trust, and, of realising properties, funds and dues referred to in Clause (a) functions of Trust under this Act shall be discharged by Municipal Board as if it were Trust under this Act, and (d) Municipal Board shall keep separate accounts of all moneys 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 same year in which Rajasthan Urban Improvement Act, 1959 was passed, another enactment namely, Rajasthan Municipalities Act, 1959 was enacted. Learned counsel for respondent has referred to notification dated 09.07.1970 by which State Government has established Urban Improvement Trust, Kota. Notification dated 09.07.1970 is as follows;- TOWN PLANNING DEPARTMENT NOTIFICATION Jaipur, July 9, 1970 No. 5 (3) TP/70- In exercise of powers conferred by Section 8 read with Section 9 and 13 of Rajasthan Urban Improvement Act, I959 (Act No. 35 of 1959) of 19 State Government here by orders : (1) that for purpose of carrying out improvement of Urban Area included in Municipal limits of Kota Town, board of trustee called improvement Trust, Kota shall be established. (2) That said trust shall consist of:- (a) Chairman. (b) Two members/Nominees of Municipal Council, Kota. (c) Chief Town Planner or his nominee. (d) 4 other persons. In exercise of powers conferred by sub- section(2) of Section 9 of said Act, State Government further appoints following persons as Chairman and other Member of said Trust for period of three years with effect from 10.7.1970 or earlier till he is required to hold office under Section 11 and 12 of said Act: 1. Shri Nathu Lal Jain, Advocate Chairman 2. Chief Town Planner or his Nominee Member 3. Sushri Nagendra Bala, Ex. M.L.A. Member 4. Collector, Kota Member (3) term of office of said Trustees shall commence with effect from 10.7.70. Municipal Council, Kota is called upon to appoint two persons to be trustees of said Trust in pursuance of sub-section(5) of Section 9 of said Act within period of one month from date of issue of this Notification. By Order of Governor, R.K. Saxena, Secretary to Government 27. perusal of Scheme of Rajasthan Urban Improvement Act, 1959 as well as Rajasthan Municipalities Act, 1959 indicate that Urban Improvement 20 Trust undertakes development in urban area included in municipality/municipal board. Urban Improvement Trust is not constituted in place of municipality/municipal board rather it undertakes act of improvement in urban areas of municipality/municipal board under Rajasthan Urban Improvement Act, 1959. It may also perform certain limited power of municipal board as referred to in Sections 47 and 48 but on strength of such provision Urban Improvement Trust does not become municipality or municipal board. After insertion of Part IXA in Constitution by 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 Municipalities. 28. Learned counsel for assessee has not based its claim on basis of Clause (ii) of Explanation rather it has confined its claim to only Clause (iii). Under Clause (iii) claim of assessee is that it is Municipal Committee . We, thus, have to answer as to whether it is Municipal Committee within meaning of Explanation to Section 10(20) or not? 21 29. word Municipal Committee as occurring in Section 10(20) Explanation came for consideration before this Court in Agricultural Produce Market Committee Narela, Delhi Vs. Commissioner of Income Tax and Another, (2008) 9 SCC 434. In above case, this Court had examined Explanation to Section 10(20) as amended by Finance Act, 2002 and definition of local authority contained therein. After noticing definition of local authority as contained in Section 10(20) Explanation w.e.f. 01.04.2003 as well as Section 3(31) of General Clauses Act, 1897. Following was stated in Para 30 and 31:- 30. At outset, it may be noted that prior to Finance Act, 2002, said 1961 Act did not contain definition of word local authority . That word came to be de- fined for first time by Finance Act, 2002 vide said Explanation/definition clause. 31. Certain glaring features can be deciphered from above comparative chart. Under Sec- tion 3(31) of General Clauses Act, 1897, local authority was defined to mean Mu- nicipal Committee, District Board, Body of Port Commissioners or other authority legally entitled to control or management of municipal or local fund . words other au- thority in Section 3(31) of 1897 Act have been omitted by Parliament in Explanation/definition clause inserted in Sec- tion 10(20) of 1961 Act vide Finance Act, 2002. Therefore, in our view, it would not be correct to say that entire defini- tion of word local authority is bodily lifted from Section 3(31) of 1897 Act and 22 incorporated, by Parliament, in said Ex- planation to Section 10(20) of 1961 Act. This deliberate omission is important. 30. In above case, earlier judgment of this Court in Union of India Vs. R.C. Jain, (1981) 2 SCC 308 was considered where this Court had laid down and applied functional test as to whether 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 was laid down in paragraph 35:- 35. One more aspect needs to be mentioned. In R.C. Jain, (1981) 2 SCC 308 test of like nature was adopted as words other au- thority came after words Municipal Com- mittee, District Board, Body of Port Commis- sioners . Therefore, words other author- ity in Section 3(31) took colour from earlier words, namely, Municipal Committee, District Board or Body of Port Commissioners . This is how functional test is evolved in R.C. Jain. However, as stated earlier, Parlia- ment in its legislative wisdom has omitted words other authority from said Explana- tion to Section 10(20) of 1961 Act. said Explanation to Section 10(20) provides definition to word local authority . It is exhaustive definition. It is not in- clusive definition. words other author- ity do not find place in said Explana- tion. Even, according to appellant(s), AMC(s) is neither Municipal Committee nor District Board nor Municipal Committee nor panchayat. Therefore, in our view functional test and test of incorporation as laid down in R.C. Jain is no more applicable to 23 Explanation to Section 10(20) of 1961 Act. Therefore, in our view judgment of this Court in R.C. Jain followed by judgments of various High Courts on status and charac- ter of AMC(s) is no more applicable to provisions of Section 10(20) after inser- tion of Explanation/definition clause to that sub-section vide Finance Act, 2002. 31. This Court further noticed expression Municipal Committee in Clause (iii) of Section 10(20). This Court held that words Municipal Committee and District Board in Explanation were used out of abundant caution. In 1897, when General Clauses Act was enacted there existed in India Municipal Committees and District Boards, which were discharging municipal functions in different parts of country. 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 boards to discharge municipal functions have been constituted. In paragraph Nos. 36 and 37 following has been laid down:- 36**. question still remains as to why Parliament has used words Municipal Com- mittee and District Board in Item (iii) of said Explanation. In our view, Parliament has defined local authority to mean pan- chayat as referred to in clause (d) of Article 243 of Constitution of India and munici- pality as referred to in clause (e) of Article 24 243-P of Constitution of India. However, there is no reference to Article 243 after words Municipal Committee and District Board . In our view, Municipal Committee and District Board in said Explanation are used out of abundant caution. 37. In 1897, when General Clauses Act was enacted there existed in India Municipal Com- mittees and District Boards. They continued even thereafter. In some remote place it is possible that there exists Municipal Commit- tee or District Board. Therefore, in our view, apart from panchayat and municipality, Parliament in its wisdom decided to give ex- emption to Municipal Committee and District Board. Earlier there were District Board Acts in various States. Most of States had re- pealed those Acts. However, it is quite possi- ble that in some remote place District 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. 32. This Court further noticed constitutional provision of Part IX-A and noticed that any law relating to municipalities in force in State immediately before commencement of Constitution (Seventy-fourth Amendment) Act, 1992, even if inconsistent with provisions of Part IX-A, shall continue to be in force until amended or repealed by competent legislature. In Para 39, following has been laid down:- 39. Similarly, under Part IX-A there is Arti- cle 243-ZF which refers to Municipali- ties . This article, inter alia, states that 25 notwithstanding anything in Part IX-A, any provision of any law relating to municipali- ties in force in State immediately before commencement of Constitution (Seventy- fourth Amendment) Act, 1992, which is incon- sistent with provisions of Part IX-A, shall continue to be in force until amended or repealed by competent legislature. In our view, Article 243-N and Article 243-ZF indi- cate that there could be enactments which still retain entities like Municipal Com- mittees and District Boards and if they exist, Parliament intends to give exemption to their income under Section 10(20) of 1961 Act. 33. In above case, this Court, thus, has held that expression Municipal Committee and District Board occurring in Clause (iii) of 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. word Municipal Committee occurring in Clause (iii) Explanation, thus, has definite purpose and object. Purpose and object was to cover those bodies, which are discharging municipal functions but are not covered by definition of municipalities as was required to be constituted by Article 243Q of Constitution of India. Urban Improvement Trust constituted under Rajasthan Urban Improvement Act, 1959, thus, cannot be held to be covered by definition of Municipal Committee as contained in Clause (iii) of Explanation to Section 10(20) of I.T. Act. Further, as noticed 26 above, prior to deletion of Section 10(20A), Section 10(20A) was provision which exempted income of authority constituted in India by or under any law enacted for 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. assessee was fully covered by definition of authorities as contained in Section 10(20A) prior to its deletion. When there is specific deletion of Section 10(20A), said deletion was for object and purpose. 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 . deletion of authorities, which were enumerated in Section 10(20A) was clear indicator that such authorities, which were enjoying exemption under Section 10(20A) shall no longer be entitled to enjoy exemption henceforth. deletion of Section 10(20A) thus has to be given purpose and meaning. 34. This Court in New Okhla Industrial Development Authority Vs. Chief Commissioner of Income Tax & Ors. (supra), which was judgment delivered by this very Bench had considered in detail object and purpose of Section 10(20A), object and purpose of Finance Act, 27 2002 amendment adding Explanation to Section 10(20) and deletion of Section 10(20A). 35. provisions of Sections 47 and 48 are to permit certain powers of municipal boards to be performed by Trust which does not transform Trust into Municipal Committee. power entrusted under Sections 47 and 48 are for limited purpose, for purposes of carrying out improvement by Improvement Trusts. 36. Sections 61 to 64 as noticed above are provisions empowering levy of betterment charges, which is again in reference to and in context of carrying out improvement by Improvement Trust in urban areas. Municipal Board, Kota performs its functions, in areas where Municipal Board still exists. There is no reason to accept that Urban Improvement Trust is Municipal Committee within 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 Municipal Board, this provision does not in any manner improve case of assessee. When Trust is dissolved or at dissolution, properties and funds and dues vested in or realisable by Trust shall vest in and be realisable by Municipal Board, which is provision for 28 different purpose and object. above provision does not support contention that Improvement Trust is Municipal Committee as referred to in Clause (iii) of Explanation to Section 10(20) of I.T. Act. 37. We, thus, are of view that Scheme of Rajasthan Urban Improvement Act, 1959 does not permit acceptance of contention of appellant assessee that Urban Improvement Trust is Municipal Committee within meaning of Section 10(20) Explanation (iii). purpose and object for expression Municipal Committee used in Section 10(20) Explanation (iii) has been explained, as already noticed above, by this Court s judgment in Agricultural Produce Market Committee Narela, Delhi (supra). 38. entire consideration of High Court in impugned judgment is contained in paragraph 15 to 18 which are to following effect:- 15. It is true that functions which are carried out by assessee are statutory functions and carry on for benefit of State Government for urban development therefore, in our considered opinion, functions carried out by authority is supreme function and fall within activity of State Government. 16. In that view of matter, judgments which are strongly relied upon by counsel for department are of no help in facts of case as case relied upon by 29 department was in respect of industrial corporation which was under statute for purpose of making profit. fees and other charges which are covered are statutorily for development of urban area. In that view of matter, judgment which sought to be relied upon by counsel for respondents, in our considered opinion, would be of importance and functions which are carried out by 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 function of Government within control or management of municipal or local authority and will try to help assessee. 17. In that view of matter, reliance placed by counsel for department regarding 10(20) and explanation will not make any difference. Taking into consideration income of authority is under constitution of India vide order enacted either for purpose of dealing with or setting up housing scheme for purpose of planning and development of improvement of cities, town and villages or both for which authority are created to carry out function of State which are sovereign whereas urban development and calculation of development charges will fall under development charges. 18. In that view of matter, deletion of 20A will not make difference in case of assessee. In our considered opinion, Clause-3 will come in help of assessee. In that view of matter, we are considered opinion, that authority assessee is local authority for purpose of carrying out of improvement and development function of State. 39. High Court based its decision on fact that functions carried out by assessee are statutory 30 functions and it is carrying on functions for benefit of State Government for urban development. said reasoning cannot lead to conclusion that it is Municipal Committee within meaning of Section 10(20) Explanation Clause (iii). High Court has not adverted to relevant facts and circumstances and without considering relevant aspects has arrived at erroneous conclusions. Judgments of High Court are unsustainable. 40. In view of foregoing discussions, we are of view that judgments of High Court deserves to be set aside. All appeals are allowed. In view of setting aside judgments of High Court dated 25.07.2017 and 23.10.2017, order passed by ITAT revives. Parties shall bear their own costs. J. (A.K. SIKRI) J. (ASHOK BHUSHAN) NEW DELHI, OCTOBER 12, 2018. 31 Income-tax Officer v. Urban Improvement Trust