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Supreme Court denies income tax exemption to local authority

A bench of Supreme Court gave its ruling on October 12, 2018 in respect of the Urban Improvement Trust constituted under Rajasthan Urban Improvement Act, 1959.

The Supreme Court has held that an Urban Improvement Trust is not covered by definition of ‘local authority’ within the meaning of Explanation to Section 10(20) of the Income Tax Act, 1961 (IT Act). Hence, it is not entitled to tax exemption under the said provision.

The Court explained that the local authorities may be providing services in urban areas that come under municipality or municipal boards, but that doesn’t make them same as a municipality or municipal boards. In the old section 10 (20A) of the Income Tax Act in 2002, the removal of ‘Authorities’ was an indication that this facility was not available earlier to such authorities who are taking advantage of the exemption, the Bench said.

An order of the Rajasthan High Court was canceled by the Supreme Court as it ruled this decision.

The judgment was rendered by a Bench of Justices AK Sikri and Ashok Bhushan in a batch of appeals against a judgment of Rajasthan High Court.