ADITYAPUR INDUSTRIAL AREA DEVELOPMENT AUTHORITY versus UNION OF INDIA AND ORS.

Citation: [2006] SUPP. 1 S.C.R. 757 · Decided: 03-05-2006 · Supreme Court of India · Bench: B.P. SINGH · Disposal: Dismissed

Judgment (excerpt)

ADITY APUR INDUSTFJAL AREA DEVELOPMENT AUTHORITY 
A 
v. 
UNION OF INDIA AND ORS. 
MAY 3, 2006 
[B.P. SINGH AND S.H. KAPADIA, JJ.] 
B 
Constitution of India-Article 289-lncome Tax Act, 1961-Sections 
10(20) and 10(20A)-Bihar Industrial, Areas Development Authority Act, 
1974-Sections 7 and 17-lncome of State Industrial Development 
Authority-Notice issued by Revenue to the Banker of the Authority to C 
.... 
deduct income tax at source from inter:est income accrued on fixed deposits 
of the Authority-Writ Petition filed before High Court challenging the notice 
was dismissed-Correctness of-Held, the Authority is a distinct legal entity-
Income of the Authority is not the income of the State and hence not entitled 
to exemption under Article 289 of the Constitution-Authority is not a local D 
authority entitled to exemption under section 10(20) of the Income Tax Act-
Finance Act, 2002---General Clauses Act, 1897; Section 3(3). 
Revenue issued a notice to the Banker of the appellant-Authority to 
deduct income tax at source from interest accrued on fixed deposits of the 
Authority in view of omission of section 10(20A) and addition of an Explanation E 
to Section 10(20) of the Income Tax Act, 1961 with effect from April I, 2003. 
The appellant filed a Writ Petition before High Court challenging the notice 
of the Revenue. The High Court dismissed the Writ Petition holding that the 
notice was legal and valid. 
In appeal to this Court, the appellant contended that it is a local authority F 
having regard to section 3(3) of the General Clauses Act, 1897 and Section 
7 of the Bihar Industrial Areas Development Authority Act, 1974 and hence 
its income is exempt from Income Tax under section 10(20) of the Income 
Tax Act, 1961; that it is an agency of the State not carrying on trade or 
business and hence is covered under Article 289(1) of the Constitution of 
India, which exempts the properties and income of a State from Union Taxation; G 
and that the amendment to the Income Tax Act was not made by reference to 
Article 289 of the Constitution. 
The Revenue contended that under Article 289(1) of the Constitution of 
757 
H 
758 
SUPREME COURT REPORTS [2006] SUPP. I S.C.R. 
A India, only the income of the State and not the income of any authority under 
the State is exempt from Union taxation; that the appellant has a distinct legal 
entity and hence it cannot claim that its income is the income of the State; 
and that under section 17 of the Bihar Industrial Area Development Authority 
Act, 1974, the State can dissolve any Authority and hence, as a necessary 
B corollary, till the Authority is not dissolved, its properties, funds and dues 
are those of the Authority and not of the State. 
Dismissing the appeals, the Court 
HELD: 1.1. As per section 17 of the Bihar Industrial Areas Development 
C Authority Act, 1974, the income of the appellant-Authority constituted under 
the said Act is its own income and that the Authority manages its own funds. 
It has its own assets and liabilities. It can sue or be sued in its own name. 
Even though, it does not carry on any trade or business within the 
contemplation of Clause (2) of Article 289 of the Constitution of India, it still 
is an Authority constituted under an Act of the Legislature of the State having 
D a distinct legal personality, being a body corporate, as distinct from the State. 
Section 17 of the Act further clarifies that only upon its dissolution its assets, 
funds and liabilities devolve upon the State Government. Necessarily therefore, 
before its dissolution, it5 assets, funds and liabilities are its own. It is, 
therefore, futile to contend that the income of the Authority is the income of 
State Government, even though the Authority is constituted under an Act 
E enacted by the State Legislature by issuance of a Notification by the 
Government thereunder. (764-G-H; 765-A-BI 
1.2. The benefit conferred by Section 10(20A) of the Income Tax Act, 
1961 on the assessee has been expressly taken away. Moreover, the explanation 
p 
added to Section 10(20) enumerates the "local authorities" which do not cover 
the assessee herein. The appellant/ Authority could not claim exemption from 
Union taxation under Article 289(1) of the Constitution oflndia. The impugned 
notice issued by the Income Tax Authorities was, therefore, valid and legal. 
(771-B-CI 
G 
Andhra Pradesh State Road Transport Corporation v. Income Tax Officer 
and Anr., (1964) 7 SCR 17, relied on. 
Foo

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