NOIDA is not a Local Authority, No Tax Relief: Supreme Court [Read Judgment]

A two-judge bench of the Supreme Court has held that the New Okhla Industrial Development Authority ( NOIDA ) is not covered by the definition of local authority as contained in Explanation to Section 10(20) of the Income Tax Act, 1961.

Allahabad High Court on 14.02.2000 held that the appellant is a local body. It was held that it is covered by the exemption under Section 10(20A) of IT Act, 1961. The Division Bench, however, did not go into the question whether it is also exempt under Section 10(20).

Earlier, the Income Tax Department issued the notice to different banks treating them as assessee-in-default on the ground that it failed to deduct tax from source. Reversing the said orders, the Allahabad Court held that the assessee-Banks cannot be treated as assessee-in-default for non-deduction of TDS on the interest earned on FDs of NOIDA.

Dissatisfied by the High Court order, the department knocked the doors of the Apex Court stating that the issue for consideration is whether NOIDA is a corporation entitled for exemption from deduction of income tax at source under the provisions of a notification issued in 1970 under the Income Tax Act.

Regarding the decision of the Allahabad High Court in the year 2000, the bench noted that the High Court, in that judgment, did not express any opinion on the question whether appellant was exempted under Section 10(20).

It was also noted that after omission of Section 10(20A) only provision under which a Body or Authority can claim the exemption in Section 10(20). Local authority having been exhaustively defined in the Explanation to Section 10(20) an entity has to fall under Section 10(20) to claim the exemption.

After reading the Explanation to Section 10(20), the bench held that these are entities which mean the local authority. “The submission of the appellant is that the appellant is covered by Clause (ii) of the Explanation i.e. “Municipality as referred to in clause (e) of Article 243P of the Constitution”. We, while discussing the above provisions, have already held that the appellant is not covered by the word/expression of “Municipality” in clause (e) of Article 243P. Thus, the appellant is not clearly included in sub-clause (ii) of Explanation. It is not even the case of the appellant that the appellant is covered by Section 10(20) except clause (ii).”