Local authority [Section 10(20)]

Major tests to be applied - The major tests for treating an authority as a ‘local authority’, which can be carved out from the decision in Union of India v. R.C. Jain AIR 1981 SC 951 and subsequent decisions are essentially as follows :

     (i)   The authority must have separate legal existence as corporate body and autonomous status.

    (ii)   Must function in a defined area and must ordinarily, wholly or partly, directly or indirectly elected by the inhabi­tants of the area.

  (iii)   It performs governmental functions such as running a market, providing civic amenities, etc.

   (iv)   It must have power to raise funds for the furtherance of its activities and the fulfilment of its projects by levying taxes/fees; this may be in addition to money provided by Govern­ment. Control and management of the fund must vest with the authority - CIT v. Agricultural Marketing Produce Committee [2001] 250 ITR 369 (Delhi).

‘Jurisdictional area’ means the territorial limits- The expression ‘its jurisdictional area’ in section 4(3)(iii) of the 1922 Act means the territorial limits of a local authority and does not include the extended areas beyond those limits. Use of the words ‘its own’ is highly suggestive of the jurisdictional area being the same as the territorial limits - City Board  v. CIT  [1962] 46 ITR 1214 (All.).

State Road Transport Corporation is not a local authority - A State Transport Corporation is not a ‘local authority’ and is, therefore, not entitle to claim exemption of its income by virtue of section 10(20) calculate - Calcutta State Transport Corpn. v. CIT [1996] 85 Taxman 402/219 ITR 515 (SC).

Income from melas and exhibition is also exempt - Income from melas and exhibition organised by the District Board through a committee constituted by it was exempt in the hands of the Dis­trict Board under section 10(20) - CIT v. Krishi Udyog Evam Saurkusha Pradershini [1981] 128 ITR 214 (All.).

Market committee is a local authority - Market committee entrust­ed by Government with control and management of ‘local fund’ is a local authority - Budh Veerinaidu v. State of Andhra Pradesh [1983] 143 ITR 1021 (AP) (Appendix)/CIT v. Agricultural Market Committee [1983] 143 ITR 1020 (AP).

Forest Corporation - U.P. State Forest Corporation established for preservation of forest could not be treated as local authority merely because the Act which has created the Corporation has called it a local authority - CIT v. U.P. Forest Corpn. [1998] 97 Taxman 259/230 ITR 945 (SC).