Supreme Court Rules NOIDA Not a Local Authority for Tax Exemption

The case of New Okhla Industrial Development Authority (NOIDA) v. Chief Commissioner of Income Tax & Others revolves around the taxation status of NOIDA under the Income Tax Act, 1961. The Supreme Court was called upon to determine whether NOIDA qualifies as a ‘local authority’ under Section 10(20) of the Income Tax Act after its amendment by the Finance Act, 2002.

Background of the Case

New Okhla Industrial Development Authority (NOIDA) was constituted under the U.P. Industrial Area Development Act, 1976 to promote industrial and urban development. Until the Finance Act, 2002, NOIDA was exempt from income tax under Section 10(20A). However, after the omission of Section 10(20A) and the introduction of an explanation under Section 10(20), NOIDA’s tax-exempt status came into question.

The Income Tax Department issued notices under Section 142 to NOIDA in 1998 and again in 2005, asserting that NOIDA was no longer exempt from income tax. NOIDA challenged these notices in the Allahabad High Court, arguing that it qualifies as a local authority under the new definition of Section 10(20).

Arguments by the Parties

Petitioner’s (NOIDA) Arguments

• NOIDA is a statutory body performing municipal functions and should be considered a local authority under the Income Tax Act.
• The Governor of Uttar Pradesh issued a notification in 2001 under Article 243Q, declaring NOIDA as an ‘industrial township.’ This confirms its status as an entity equivalent to a municipality.
• NOIDA performs municipal services such as town planning, water supply, sanitation, and road development, similar to municipal corporations.
• The omission of Section 10(20A) does not automatically remove NOIDA’s tax exemption, as it still qualifies under the amended Section 10(20).

Respondent’s (Income Tax Department) Arguments

• The Finance Act, 2002 introduced an exhaustive definition of ‘local authority’ under Section 10(20), which does not include NOIDA.
• The exemption granted under the previous Section 10(20A) was specifically removed to ensure that development authorities like NOIDA are taxed.
• For NOIDA to be considered a ‘municipality’ under the Constitution, it must have an elected body, which it does not.
• The notification under Article 243Q only exempts NOIDA from forming a municipal corporation but does not grant it the status of a local authority for tax purposes.

Supreme Court’s Observations

The Supreme Court analyzed the definition of ‘local authority’ under the Income Tax Act and the provisions of Part IXA of the Constitution relating to municipalities. Key observations included:

• Section 10(20) now provides an exhaustive definition of ‘local authority,’ including only Panchayats, Municipalities, Municipal Committees, District Boards, and Cantonment Boards. NOIDA does not fall under any of these categories.
• The notification under Article 243Q does not automatically make NOIDA a municipality. It merely exempts NOIDA from being required to form one.
• For an entity to be a municipality under Article 243Q, it must have an elected body. NOIDA is controlled by government-appointed officials and does not meet this criterion.
• Previous exemptions under Section 10(20A) were deliberately removed by the legislature, indicating an intent to bring NOIDA under the tax net.
• The case of Agricultural Produce Market Committee v. CIT (2008) was cited, which held that statutory bodies performing public functions do not automatically become ‘local authorities’ unless specifically included in the definition.

Final Judgment

The Supreme Court dismissed NOIDA’s appeal and ruled in favor of the Income Tax Department. The key directives were:

• NOIDA is not a ‘local authority’ under the amended Section 10(20) of the Income Tax Act.
• NOIDA is liable to pay income tax from April 1, 2003, onwards.
• The writ petition challenging income tax notices was dismissed.
• Any pending disputes regarding NOIDA’s tax liability must be adjudicated based on the principles laid down in this ruling.

This judgment clarifies that statutory bodies created for urban development do not automatically enjoy tax exemptions unless explicitly covered under tax laws. The ruling ensures that such authorities contribute to the national tax base and cannot claim immunity merely by performing municipal functions.

Petitioner Name: New Okhla Industrial Development Authority.
Respondent Name: Chief Commissioner of Income Tax & Others.
Judgment By: Justice Ashok Bhushan.
Place Of Incident: Noida, Uttar Pradesh.
Judgment Date: 02-07-2018.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: New Okhla Industrial vs Chief Commissioner o Supreme Court of India Judgment Dated 02-07-2018.pdf