Law:

Section:

Section 10(20), read with section 197, of the Income-tax Act, 1961 - Local authority - Whether assessee, an agency within meaning of section 3(2) of Bihar Agricultural and Rural Area Development Agency Act, 1978, entrusted with duties and functions of integrated rural and agricultural development of command area of an irrigation project, was not a local authority within meaning of section 10(20) and, thus, it was not entitled to reduced rate of taxation as per provisions of section 197 - Held, yes [In favour of revenue] FACTS The assessee was an agency within the meaning of section 3(2) of the Bihar Agricultural and Rural Area Development Agency Act, 1978. It had housing property in the township of Patna to accommodate its offices. A portion of the same was in excess of its needs and was let out to tenant(s). The assessee submitted returns claiming the benefit of reduced rate of taxation as per the provisions of section 197 on the ground that it was a "local authority" within the meaning of section 10(20). Assistant Commissioner (TDS) held that the assessee was not a local authority within the meaning of section 10(20) and was, therefore, not entitled to the benefit of taxation at lower rate in terms of section 197. On writ: HELD Section 197 provides that persons or body of persons covered by the same shall be required to pay income-tax at a reduced rate. In the instant case, the assessee claimed the benefit because of being a local authority in view of rule 28(1) of the Income-tax Rules, read with Form 13 (Annexure II). [Para 5] Local authority has not been defined in the Act. The same has indeed been defined in sub-section (31) of section 3 of the Bihar and Orissa General Clauses Act, 1917. [Para 7] In order to qualify to be a local authority, the assessee must have separate legal existence. Thus it was necessary to examine the aims and objects and the scheme of the Bihar Act to ascertain whether or not the assessee was a local authority, and had separate legal existence. [Para 9] The assessee had been constituted by means of a notification issued by the State Government in terms of section 3(1) of the Bihar Act. The assessee was a body corporate within the…

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