Case: THE INCOME TAX OFFICER, Vs. URBAN IMPROVEMENT TRUST

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.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 20032004. A reply was submitted on behalf of the assessee that Urban Improvement Trust – the assessee is a municipality within the meaning 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 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 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 asConsidering our decision in the case of Rajasthan Housing Board, we feel that the Ld. CIT (A) was not justified in holding 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 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).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. 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.Another set of appeals have been filed by the Revenue 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 reasons for issuing Notice under Section 148 to the assessee in respect of assessment years0. 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 followingSince we have set aside the order passed in respect of the assessment year10 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 year10 are also set aside with the direction to the Assessing Officer to 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.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 purposes.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 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.Revenue aggrieved by the aforesaid two judgments have come up in these appeals. By both the judgments of the High Court, large number of income tax appeals were decided giving rise to different appeals under consideration in this batch of appeals.

Reasoning:
27. A perusal of the Scheme of the Rajasthan Urban 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 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 ConstitutionAmendment Act, 1992 w.e.f. 01.06.1993, Articles 243Q deals with constitution of Municipalities. Section 10(20) Explanation, Clause (ii) relates to Municipalities.In above case, this Court, thus, has held that the 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. 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 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, 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 assessee was fully covered by the definition of authorities as contained 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 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.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 limited purpose, for purposes of carrying out the improvement by the Improvement Trusts.Sections 61 to 64 as noticed above 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 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). 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 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.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 this Court?s judgment in Agricultural Produce Market Committee Narela, Delhi (supra).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.