No Income Tax Exemption to Urban Improvement Trusts: Supreme Court [Read Judgment]

Urban Improvement Trusts - Taxscan

A two-judge bench of the Supreme Court on Friday held that Urban Improvement Trusts constituted under the Rajasthan Urban Improvement Act, 1959 would not be entitled to tax benefit under section 10(20) of the Income Tax Act as the same would not constitute a local authority within the meaning of Explanation to the said section.

The bench comprising Justice AK Sikri and Justice Ashok Bhushan was hearing a bunch of appeals by the Revenue against the Rajasthan High Court order wherein the Trust was granted exemption by accepting the claim of the assessee that it is the local authority which is entitled to exemption under Section 10(20) of the Act.

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

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

“The provisions of Sections 47 and 48 are to permit certain powers of the municipal boards to be performed by the Trust which does not transform the Trust into a Municipal Committee. The power entrusted under Sections 47 and 48 are for the limited purpose, for purposes of carrying out the improvement by the Improvement Trusts,” the bench said.

Quashing the High Court, the bench observed that “The High Court based its decision on the fact that functions carried out by the assessee are statutory functions and it is carrying on the functions for the benefit of the State Government for urban development. The said reasoning cannot lead to the conclusion that it is a Municipal Committee within the meaning of Section 10(20) Explanation Clause (iii). The High Court has not adverted to the relevant facts and circumstances and without considering the relevant aspects has arrived at erroneous conclusions. Judgments of the High Court are unsustainable.”

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