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New Okhla Industrial Development Authority v. Chief Commissioner of Income Tax

Civil Appeal · 2018 INSC 559Decided 2 Jul 2018
Civil Appeal Nos. 792-793 of 2014
Justice A.K. Sikri · Justice Ashok Bhushan

Background

NOIDA (New Okhla Industrial Development Authority), a body set up under a Uttar Pradesh statute to develop industrial townships, was issued income-tax notices by the tax department. NOIDA argued it was a "local authority" exempt from income tax under Sections 10(20) and 10(20A) of the Income Tax Act. The Allahabad High Court rejected this claim, and NOIDA appealed to the Supreme Court.

Decision Breakdown

The Court examined whether NOIDA qualified as a "Municipality" under Article 243P of the Constitution (the relevant category for the tax exemption after a 2002 amendment narrowed the old definition of "local authority"). It held that NOIDA, an appointed development authority, not an elected municipal body, did not satisfy the constitutional definition of a municipality, and so could not claim the Section 10(20) exemption. The Court applied the strict-construction rule for taxing statutes: exemptions must be read literally, with no benefit of the doubt given to the taxpayer. Since NOIDA could not bring itself within any limb of the statutory definition, the appeals were dismissed.

Lesson Learnt

Tax exemptions for government-linked bodies are not automatic: an authority must fit squarely within the exact statutory definition (here, a constitutionally defined "Municipality"), and courts will not stretch the wording to cover a body merely because it performs public functions.

Official source (sci.gov.in)View Judgment (PDF)

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