Holding

A road‑transport corporation such as the Calcutta State Transport Corporation is not a "local authority" and is therefore ineligible for exemption under Section 10(20) of the Income‑Tax Act.

Summary

The Calcutta State Transport Corporation (CSTC), a statutory body created under the Road Transport Corporations Act to provide road transport services, claimed that its income was exempt from tax under Section 10(20) of the Income‑Tax Act, 1961, on the ground that it was a "local authority" as defined in Section 3(31) of the General Clauses Act, 1897. The Income‑Tax authorities, the Appellate Tribunal and the Calcutta High Court rejected this claim. On appeal, the Supreme Court examined whether a road‑transport corporation could be treated as a local authority. Applying the test laid down in Union of India v. R.C. Jain (1981), the Court held that a local authority must possess attributes of a municipal committee, district board or port‑commissioner, including popular representation, power to levy taxes and regulatory powers over land use, which CSTC lacked. Consequently, CSTC was not a local authority and could not claim the exemption. The appeal was dismissed.

Issues considered

Whether the Calcutta State Transport Corporation qualifies as a "local authority" within the meaning of Section 3(31) of the General Clauses Act, 1897 and Section 2(31)(vi) of the Income‑Tax Act, 1961, thereby attracting exemption under Section 10(20).

Legislation cited

General Clauses Act, 1897s. 3(31)
Income Tax Act, 1961s. 10(20), s. 2(31)(vi)
Road Transport Corporation Act, 1950s. 18, s. 19, s. 45

Subjects

local authorityincome tax exemptionroad transport corporationGeneral Clauses Actmunicipal fundstatutory corporationSection 10(20)taxation

Judgment

A CALCUTIA STATE TRANSPORT CORPORATION
v.
COMMISSIONER OF INCOME-TAX, WEST BENGAL

FEBRUARY 29, 1996

B [S.P. JEEVAN REDDY AND K.S. PARIPOORANAN, JJ.]

Income Tax Act, 1961 :

Ss. 2(31)(vi), 10(20}-lncome of a local authority-Exemption from
C tax-Calcutta State Transport Corporation--Held, not a local authority and
cannot claim exemption.

General Clauses Act, 1897:

S.3(31)-'Local authority'-Calcutta State Transport Corporation-
D Held, not a local authority.

Road Transport Corporation Act, 1950 : ss. 18, 19-Calcutta State
Transport Corporation Held, not a 'local authority'.

The claim of the assessee-Calcutta State Transport Corporation-
E that it was a local authority within the meaning of s.2(31)(vi) or the Income
Tax Act, 1961 and as such its income was exempt under sub-section(20) of
s.10 of the Act was rejected by the Income Tax authorities as well as by the
Income Tax Appellate Tribunal. The High Court also decided the reference
agianst the assessee.

F In appeal to this Court it was contended for the assessee that since
it was entrusted by the Government with the control or management of a
"local fund' it Was a local authority within the meaning of Clause (31) of
s.3 of the General Clauses Act, 1897.

Dismissing the appeal, this Court
G
HELD : 1.1. The assessee-Corporation is not a 'local authority' and,
therefore, not entitled to claim exemption of its income by 'virtue of
sub-section(20) of s.10 of the Income Tax Act, 1961. [55-GJ

Union of India & Others v. R.C. Jain & Ors., [1981) 2 SCC 308, relied
H on.
50
CALCUTIASTATE TPT. CORPN. v. C.I.T. 51

1.2. The assessee is a Road Transport Corporation constituted to A
render road transport services in the State and is, as envisaged by ss. 18 and
19 of the Road Transport Corporations Act, meant mainly and only for the
purpose of providing an efficient, adequate economical and properly coor-
dinated system ofroad transport services. It has no element of popular rep-
resentation in its constitution. It is more in the nature of a trading
organisation. Merely because the assessee-Corporation has a fund or it is B
constituted to provide a public service and to employ persons in that con-
nection, it cannot be said that its functions are similar to those of Municipal
Council, District Board or Body of Port Commissioners. [S4-E-F]

1.3. The assessee-Corporation stands no comparison with the D.D.A. C
which has inter alia power to prepare a Master Plan specifying the zones
and the use to which each zone can be put to, power to order demolition of
buildings, where development has been commenced or completed in con-
travention.of the Master Plan, Zonal Plan or the permission, declaration of
development areas and regulation of development in those areas and power
to grant/refuse permission for development of land. Contravention of the D
orders of D.D.A. is also punishable with imprisonment and fine. These are
the indicia of government power - the power to affect persons and their rights
'<· even where they do not choose to deal with it, the power of compulsion. A road
transport organisation like the assessee has no such power. Unless one
chooses to deal with it or avail its services - it cannot affect him or his rights;
in this sense, it is like any other non-statutory Corporation. E
. [S4-G-H; SS-A-BJ
Union of India & Others v. Shri R.C. Jain & Others, (1981] 2 S.C.C. 308
and Andhra Pradesh State Road Transporl Corporation v. 17ie Income-Tax
OfficerandAnr., (1964] 7 S.C.R.17, referred to.
F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 592(NT) of
1978.

From the Judgement and Order dated 29.3.76 of the Calcutta High
Court inl.T.R.No.644of1972.
G
Tapas Ray, G.S. Chatterjee and Sukumar Basu for the Appellants.

Dr.V. Gaurishankar, S. Rajappa, and S.N. Tcrdol for the Respon-
dents.

The Judgement of the Court was delivered by H
51
52 SUPREME COURT REPORTS (1996] 3 S.C.R.

A B.P. JEEVAN REDDY, J. This appeal is preferred on the basis of a
certificate of fitness granted by the Calcutta High Court under Section 261
of the Income-tax Act. Two questions were referred for the opinion of the
High Court under Section 256(1) of the Income Tax Act. They are :

"(1) Whether, on the facts and in the circumstances of the case
B the Tribunal was right in holding that the assessee is not a 'local'
authority' as contemplated by Section 2(31)(vi) of the Income-tax
Act, 1961?

(2) Whether on the facts and in the circumstances of the case, the
Tribunal is right in holding that the assessee is not entitled to an
c allowance for its contribution to the employees' provident fund
gratuity funds?"

The High Court answered both the questions in the affirmative - i.e.,
against the assessee and in favour of the Revenue. In this appeal, however,
D Sri Tapas Ray, argued only one question, viz, question No.1.

The assessee, Calcutta State Transport Corporation, is a statutory
corporation established order the Road Transport Corporation Act, 1959.
It was constituted under a notification dated June 10, 1960. Prior to the
constitution of the assessee, Road Transport was managed by a department
E of the Government of West Bengal. For the first assessment year (1961-62)
after its constitution, the assessee did not claim any exemption from tax.
But for the next assess year (1962-63), the assessee contended that since it
is a "local authority" within the meaning of Section 2(31)(vi) (definition of
'person'), its income is exempt under and by virtue of clause (20) of Section
10. Clause (20) of Section 10 reads thus:
F
"10. In computing the total income of a previous year of any person,
any income falling within any of the following clauses shall not be
inclused ....... .

(20) the income of a local authority which is chargeable under the
G 11
head "Interest on securities, "Income from house property", "Capi-
tal gains" or "Income from other sources" or from a trade or
business carried on by it which accrues or arises from the supply
of a commodity or service (not being water or electricity) within
its own jurisdictional area or from the supply of water or electricity
H within or outside its own jurisdictional area;"
CALCUITASTATE TPT. CORPN.v. C.l.T. [B.P.JEEVAN REDDY,J.] 53

The Income-tax Officer rejected the assessee's contention which was A
affirmed on appeal by the Appellate Assistant Commissioner. On further
appeal, the Tribunal also agreed with the Income Tax Officer.

The expression "local authority" is not defined in the Income Tax Act.
Its definition is, however, contained in the General Clauses Act in Clause
(31) of Section 3. It reads : B

"'Local authority' shall mean a municipal committee, district board,
body of port commissioners or other authority legally entitled to,
or entrusted by the Government with, the control or management
of a municipal or local fund."
c
The contention of Sri Ray is that inasmuch as the asscssee is
entrusted by the Government with the control or management of a ''local
fund", it is a local authority within the meaning of th~ said definition. Sri
Ray placed strong reliance upon the judgement of tliis Court in Union of
India & Others v. Shri R.C. Jain & Others, (1981] 2 S.C.C. 308:The qnestion D
in the said decision was whether the Delhi Development Authority
(D.D.A.) constituted under the Delhi Development Act, 1957 is a "local
authority". The question had arisen under the provisions of the Payment of
Bonus Act. Chinnappa Reddy, J., speaking for the Bench, laid down the
following test for determining whether a particular body is a "local
authority" within the meaning of Section 3(31) of the General Clauses Act: E
"An authority, in order to be a local authority, must be of like nature and
character as a Municipal Committee, District Board or Body of Port
Commissioners, possessing, therefore, many, if not all, of the distinctive
attributes and characteristics of a Municipal Committee, District Board or
Body of Port Commissioners, but possessing one essential feature, viz., that
it is legally entitled to or entrusted by the government with, the control and F
management of a municipal or local fund." The learned Judge elaborated
the said test saying that to be characterised as a '1ocal authority", the
authority must have separate legal existence as a corporate body, it must
not be a mere government agency but must be legally independent entity,
it must function in a defined area and must ordinarily, wholly or partly, G
directly or indirectly, be elected by the inhabitants of the area. It must also
·'( enjoy a certain degree of autonomy either complete or partial, must be
entrusted by statute with such government functions and duties as are
usually entrusted to Municipal Bodies such as those connected with provid-
ing amenities to the inhabitants of the locality like health and education,
water and sewerage, town planning and development, roads, markets, H
54 SUPREME COURT REPORTS [1996]3 S.C.R.

A transportation, social welfare services etc. Finally it was observed-such
body must have the power to raise funds for furtherance of its activities
and fulfilment of its objects by le;ying taxes, rates, charges or fees. Apply-
ing the said tests, it was held that D.D.A. is a "local authority". In particular,
it was pointed out that Section 37 of the Delhi Development Act empowers
the D.D.A. to levy betterment charges on the owners of the properties and
B that other provisions provide for its assessment and collection. The arrears
of betterment charges are recoverable as arrears of land revenue. There is
an element of popular representation in the constitution of D.D.A.; repre-
sentatives of the inhabitants of the locality, three elected from among the
members of the Delhi Municipal Corporation and two elected from among
C the members of the Delhi Metropolitan Council figured among the mem-
bers of the D.D.A. The functions of the D.D.A., it was pointed out, are
more akin and similar to the functions of the Municipality including the
power of zonalisation, pre,cribing the use to which each zone is to be put
to, demolition of constructions made contrary to zoning regulations, in
short, it was pointed out, the functions of the D.D.A. are similar in nature.
D to the functions of a Municipality which is undoubtedly a local authority.

We do not think that the said decision is of any help to the assessee
herein. The assessee is a Road Transport Corporation constituted to
render road transport services in the State. Sections 18 and 19 of the Road
Transport Corporations Act which set out the general duty and powers of
E the Corporation establish clearly that the Corporation is meant mainly and
only for the purpose of providing an efficient, adequate, economical and
properly coordinated system of road transport services in the State or part
of it, as the case may be. It has no element of popular representation in its
constitution. Its powers and functions bear no relation to the powers and
functions of a Municipal Committee, District Board or Body of Port
F Commissioners. It is more in the nature of a trading organisation. Merely
because it has a fund or for that matter merely because it is constituted to
provide a public service and to employ persons in that connection, it cannot
be said that its functions are similar to those of Municipal Council, District
Board or Body of Port Commissioners. The assessee-corporation stands no
G comparison with the D.D.A. which has inter alia power to prepare a
Master Plan for Delhi specifying the zones (zonalisation), can be put to,
power to order demolition of buildings, where development has been y
commenced or completed in contravention of the Master Plan, Zonal Plan
or the permission, declaration of development areas and regulation of
development in those areas and power to grant/refuse permission for
H development of land Contravention of D.D.A. 's orders is also punishable
CALCUTIASTATE TPT. CORPN.v. C.l.T. [B.P.JEEVANREDDY,J.] 55

with imprisonment and fine on conviction in a criminal court. These are the A
indicia of governmental power - the power to affect persons and their rights
J- even where they to not choose to deal with it, the power of compulsion. A
road transport organisation like the asses see herein has no such power.
Unless one chooses to deal with it or avail its services - it cannot affect him
or his rights; in this sense, it is like any other non-statutory Corporation.
In this cor.text, it is relevant to notice that though Section 45 of the Road B
Transport Corporation Act confers the power to make regulations upon
the Corporation, that power is confined to "the administration of the affairs
of the Corporation" Sub-section (2) of Section 45, which elucidates the said
power also shows that the said power is confined to internal management
of the Corporation and the service conditions of its emplyees only.
c
In view of the above, it is not necessary to go into the question
whether the assessee is an "authority" within the meaning of Article 12 of
the Cunstitution, a question which appears to have attracted a good
amount of attention before the High Court. Even if it is an "authority''
within the meaning of Article 12, it would not be enough to attract the D
exemption in Section- 10(20) of the Income Tax Act. It must be a "local
· authority'. The decision of this Court in R.C. Jain was not available to the
High Court when it decided the present matter and hence, it did not have
the, guidance provided by the said decision. Even so, the conclusion arrived
at by it is the correct one in law.
E
Dr. Gauri Shankar, learned counsel for the Revenue, submitted that
the decision of this Court inAndhra Pradesh State Road Transport Corpora-
tion v; The Income-Tax Officer and Anr., (1964] 7 S.C.R. 17 is sufficient to
conclude the issue against the assessee. Learned counsel submitted that in
the said case too, the Andhra Pradesh State Road Transport Corporation F
raised an identical contention which was negatived by the High Court and
it chose not to pursue it before the Supreme Court. Sri Ray says that the
said point has not been adjudicated upcin by this Court. He may be right
but that does not advance his case. Applying the test evolved by the
decision of this Court in R.C. Jain, we hold that the assessee-corporatiori·
is not a "local authority' and, therefore, not entitled to claim exemption of G
its income by virtue of dense (20) in Section 10 of th.e Income Tax Act.

The appeal is accordingly dismissed. No costs.

R.P. Appeal dismissed.