http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

PETITIONER: CALCUTTA STATE TRANSPORT CORPORATION

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, WEST BENGAL

DATE OF JUDGMENT:       04/04/1996

BENCH: K. RAMASWAMY, S.P. BHARUCHA, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P.JEEVAN REDDY,J.      This appeal  is preferred on the basis or 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, the      Tribunal was  right in holding that      the  asseesee   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      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, Sri Tapas Ray, argued only one question, viz., Question No.1.      The assessee,  Calcutta State Transport Corporation, is a statutory corporation established under the Road Transport Corporations  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 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 assessment 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:      "10. In  computing the total income      of a  previous year  of any person,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

    any income  falling within  any  of      the following  clauses shall not be      included ...      (20) the income  of local authority      which is  chargeable under the heed      "Interest on  securities,"  "Income      from  house   property",   "Capital      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      within   or    outside   its    own      jurisdictional area;" The Income-tax  Officer rejected  the assessee’s  contention which was  affirmed on  appeal by  the  Appellant  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:      "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."      The contention  of Sri  Ray is  that  inasmuch  as  the assessee is  entrusted by the Government with the control or management of a "local fund", it is a local authority within the meaning  of the  said definition.  Sri Ray placed strong reliance upon the judgment of this Court in Union of India & Others v.  Sri R.C.Jain  & others [1981 (2) S.C.C. 308]. The question  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:  "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 management of a municipal or local  fund." The  learned Judge elaborated the said test saying that  to be characterized as a "local authority", the authority must  have separate legal existence as a corporate body, it  must not be a mere governmental agency but must be legally independent  entity, it  must function  in a defined area and  must ordinarily,  wholly or  partly,  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 governmental functions  and duties  as are usually entrusted to Municipal  Bodies such  as those connected with providing amenities to  the inhabitants  of the  locality like healthy

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

and  education,   water  and  sewerage,  town  planning  and development, roads,  markets, transportation, social welfare services etc.  Finally -  it was  observed -  such body must have the  power  to  raise  funds  for  furtherance  of  its activities and  fulfillment of its objects by levying taxes, rates, charges or fees. Applying 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 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; representatives  of the  inhabitants of the locality, three elected  from among the members of the Delhi Municipal Corporation and  two elected  from among  the members of the Delhi Metropolitan  Council figured among the members of the D.D.A. The  functions of the D.D.A., it was pointed out, are more akin  and similar  to the junctions of the Municipality including the  power of zonalisation, prescribing 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  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 rued transport services in the  State.  Sections  18  and  19  of  the  Road  Transport Corporations Act  which set  out the general duty and powers of 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 pert 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 Commissioners. It is more  in the  nature of  a trading  organization.  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 comparison  with the D.D.A. which has inter  alia  power  to  prepare  a  Master  Plan  for  Delhi specifying the  zones (zonalisation),  specifying the use to which each  zone can be put to, power to order demolition of buildings, where development has been 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   development  of   land.  Contravention  of D.D.A.’s orders  is also  punishable with  imprisonment  and fine on  conviction in  a  criminal  court.  These  are  the indicia of  governmental 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 organization like the  assessee 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  context,  it  is relevant to  notice that  though  Section  45  of  the  Road Transport  Corporation   Act  confers   the  power  to  make regulations upon  the Corporation, that power is confined to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

"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 employees only.      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 Constitution, 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 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.      Dr. Gauri  Shankar, learned  counsel for  the  Revenue, submitted that  the decision of this Court in Andhra Pradesh State Road  Transport Corporation  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  raised an  identical contention which was negatived  by the High Court. Sri Ray says that the said point has not been adjudicated upon 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  asseesee-corporation is  not a  "local  authority" and, therefore,  not entitled  to  claim  exemption  of  its income by  virtue of clause (20) in Section 10 of the Income Tax Act.      The appeal is accordingly dismissed. No costs.