# NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. CHIEF COMMISSIONER OF INCOME TAX AND ORS

- **Citation:** [2018] 7 S.C.R. 781
- **Court:** Supreme Court of India
- **Decided:** 2018-07-02
- **Case number:** Civil Appeal Nos. 792-793 of 2014
- **Bench:** A. K. Sikri, Ashok Bhushan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/new-okhla-industrial-development-authority-v-chief-commissioner-of-income-tax-33701
- **Pages:** 35

## Headnote

Income Tax Act, 1961 - s.10(20) (as Amended by Finance
Act 2002 w.e.f. 01.04.2003) - Appellant-NOIDA, a local authority
or not - Appellant-NOIDA contended that it is covered by the cl(ii)
of Explanation to s.10(20) of the Act, 1961, which defines the
expression "local authority" as "Municipality as referred to in
Art.243P(e)" - Held: Special features of the Municipality as was
contemplated by the Constitutional provisions contained in Part IXA
cannot be said to be present in Authority (NOIDA) as delineated by
statutory scheme of the U.P. Industrial Area Development Act, 1976
under which the said authority was constituted - Though various
municipal functions are also being performed by the Authority as
per Act of 1976, but merely because certain municipal functions
were also performed by the authority, it cannot acquire the essential
features of the Municipality which are contemplated by Part IXA of
the Constitution - Appellant is not covered by the word/expression
of "Municipality" in cl(e) of Art.243P - Thus, appellant is not
covered by the definition of local authority as contained in
Explanation to s.10(20) of the Act of 1961 - U.P. Industrial Area
Development Act, 1976 - s.3 - Constitution of India - Part IXA,
Art.243P(e) - Finance Act, 2002.
Constitution of India - Arts.243Q and 243P(e) - In exercise
of powers under the proviso to cl(i) of Art.243Q, the Governor
specified NOIDA to be an "industrial township" vide notification
dated 24.12.2001 - Whether industrial township can be equated
with Municipality as defined u/Art.243P(e) - Held: No - The object
of issuance of notification is to relieve the mandatory requirement
of constitution of a Municipality in a State in the circumstances as
mentioned in proviso but exemption from constituting Municipality
does not lead to mean that the industrial establishment which is
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providing municipal services to an industrial township is same as
Municipality as defined in Art. 243P(e).
General Clauses Act, 1897 - s.3(31) - Applicability of the
Act, 1897 in defining the term 'local authority' post amendment
(Finance Act 2002) to the I.T. Act, 1961 - Held: Prior to Finance
Act, 2002 there being no definition of 'local authority' under the
I.T. Act, the provisions of s.3(31) of the Act, 1897 were pressed into
service while interpreting the extent and meaning of 'local authority'
- The Explanation to s.10(20) now contain the exhaustive definition
of local authority, thus, definition of local authority as contained
in s.3(31) of the Act, 1897 no more applicable - Income Tax Act,
1961 - cl(ii) of Explanation to s.10(20) (as Amended by Finance
Act 2002)
Interpretation of Statutes - Interpretation of a proviso -
Principles discussed.
Dismissing the appeals, the Court
HELD: 1. The appellant-New Okhla Industrial
Development Authority has been constituted under section 3 of
the U.P. Industrial Area Development Act, 1976. The only issue
which needs to be considered in these appeals is as to whether
the appellant is a "local authority" within the meaning of section
10(20) as amended by Finance Act, 2002 w.e.f. 01.04.2003. The
cl(ii) of Explanation to s.10(20) of the Income Tax Act, 1961,
provides that the expression "local authority" means
"Municipality as referred to in clause (e) of Article 243P of the
Constitution". The constitutional provisions as contained in Part
IXA delineate that the Constitution itself provided for constitution
of Municipalities, duration of Municipalities, powers of Authorities
and responsibilities of the Municipalities. The Municipalities are
created as vibrant democratic units of self-government. The
special features of the Municipality as was contemplated by the
constitutional provisions contained in Part IXA cannot be said to
be present in Authority as delineated by statutory scheme of Act,
1976. It is true that various municipal functions are also being
performed by the Authority as per

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NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY
v.
CHIEF COMMISSIONER OF INCOME TAX AND ORS.
(Civil Appeal Nos. 792-793 of 2014)
JULY 02, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Income Tax Act, 1961 - s.10(20) (as Amended by Finance
Act 2002 w.e.f. 01.04.2003) - Appellant-NOIDA, a local authority
or not - Appellant-NOIDA contended that it is covered by the cl(ii)
of Explanation to s.10(20) of the Act, 1961, which defines the
expression "local authority" as "Municipality as referred to in
Art.243P(e)" - Held: Special features of the Municipality as was
contemplated by the Constitutional provisions contained in Part IXA
cannot be said to be present in Authority (NOIDA) as delineated by
statutory scheme of the U.P. Industrial Area Development Act, 1976
under which the said authority was constituted - Though various
municipal functions are also being performed by the Authority as
per Act of 1976, but merely because certain municipal functions
were also performed by the authority, it cannot acquire the essential
features of the Municipality which are contemplated by Part IXA of
the Constitution - Appellant is not covered by the word/expression
of "Municipality" in cl(e) of Art.243P - Thus, appellant is not
covered by the definition of local authority as contained in
Explanation to s.10(20) of the Act of 1961 - U.P. Industrial Area
Development Act, 1976 - s.3 - Constitution of India - Part IXA,
Art.243P(e) - Finance Act, 2002.
Constitution of India - Arts.243Q and 243P(e) - In exercise
of powers under the proviso to cl(i) of Art.243Q, the Governor
specified NOIDA to be an "industrial township" vide notification
dated 24.12.2001 - Whether industrial township can be equated
with Municipality as defined u/Art.243P(e) - Held: No - The object
of issuance of notification is to relieve the mandatory requirement
of constitution of a Municipality in a State in the circumstances as
mentioned in proviso but exemption from constituting Municipality
does not lead to mean that the industrial establishment which is
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providing municipal services to an industrial township is same as
Municipality as defined in Art. 243P(e).
General Clauses Act, 1897 - s.3(31) - Applicability of the
Act, 1897 in defining the term 'local authority' post amendment
(Finance Act 2002) to the I.T. Act, 1961 - Held: Prior to Finance
Act, 2002 there being no definition of 'local authority' under the
I.T. Act, the provisions of s.3(31) of the Act, 1897 were pressed into
service while interpreting the extent and meaning of 'local authority'
- The Explanation to s.10(20) now contain the exhaustive definition
of local authority, thus, definition of local authority as contained
in s.3(31) of the Act, 1897 no more applicable - Income Tax Act,
1961 - cl(ii) of Explanation to s.10(20) (as Amended by Finance
Act 2002)
Interpretation of Statutes - Interpretation of a proviso -
Principles discussed.
Dismissing the appeals, the Court
HELD: 1. The appellant-New Okhla Industrial
Development Authority has been constituted under section 3 of
the U.P. Industrial Area Development Act, 1976. The only issue
which needs to be considered in these appeals is as to whether
the appellant is a "local authority" within the meaning of section
10(20) as amended by Finance Act, 2002 w.e.f. 01.04.2003. The
cl(ii) of Explanation to s.10(20) of the Income Tax Act, 1961,
provides that the expression "local authority" means
"Municipality as referred to in clause (e) of Article 243P of the
Constitution". The constitutional provisions as contained in Part
IXA delineate that the Constitution itself provided for constitution
of Municipalities, duration of Municipalities, powers of Authorities
and responsibilities of the Municipalities. The Municipalities are
created as vibrant democratic units of self-government. The
special features of the Municipality as was contemplated by the
constitutional provisions contained in Part IXA cannot be said to
be present in Authority as delineated by statutory scheme of Act,
1976. It is true that various municipal functions are also being
performed by the Authority as per Act, 1976 but the mere facts
that certain municipal functions were also performed by the
authority it cannot acquire the essential features of the
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Municipality which are contemplated by Part IXA of the
Constitution. The appellant is not covered by the word/expression
of "Municipality" in clause(e) of Article 243P. Thus, the appellant
is not covered by the definition of local authority as contained in
Explanation to Section 10(20). [Paras 2, 14, 27 and 55][785-F;
789-E; 796-G-H; 797-A-C; 814-G-H]
2. The notification dated 24.12.2001 was issued by the
Governor in exercise of the powers under the proviso to clause
(1) of Article 243Q and specified the said appellant-Authority to
be an "industrial township". The proviso to sub-clause (1) of
Article 243Q is an exception to the constitutional provisions which
provide that there shall be constituted in every State a Nagar
Panchayat, a Municipal Council and a Municipal Corporation.
Exception is covered by proviso that where an industrial township
is providing municipal services the Governor having regard to
the size of the area and the municipal services either being
provided or proposed to be provided by an industrial
establishment specify it to be an industrial township. The words
'industrial township' have been used in contradiction of a Nagar
Panchayat, a Municipal Council and a Municipal Corporation. The
object of issuance of notification is to relieve the mandatory
requirement of constitution of a Municipality in a State in the
circumstances as mentioned in proviso but exemption from
constituting Municipality does not lead to mean that the industrial
establishment which is providing municipal services to an
industrial township is same as Municipality as defined in Article
243P(e). The word constituted used under Article 243P(e) read
with Article 243Q clearly refers to the constitution in every State
a Nagar Panchayat, a Municipal Council or a Municipal
Corporation. Further, the words in proviso "a Municipality under
this clause may not be constituted" clearly means that the words
"may not be constituted" used in proviso are clearly in
contradistinction with the word constituted as used in Article
243P(e) and Article 243Q. Thus, notification dated 24.12.2001
under proviso to Article 243Q(1) is not akin to constitution of
Municipality. [Paras 23, 30][794-F; 800-B-F]
Agricultural Produce Market Committee, Narela, Delhi
v. Commissioner of Income Tax and another (2008) 9
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SCC 434 : [2008] 12 SCR 387; Adityapur Industrial
Area Development Authority v. Union of India and others
(2006) 5 SCC 100 : [2006] 1 Suppl. SCR 757;
Kishansing Tomar Municipal Corporation Of The City
Of Ahmedabad Ad Others (2006) 8 SCC 352 : [2006] 7
Suppl. SCR 454; S. Sundaram Pillai and others v. V.R.
Pattabiraman and Others (1985) 1 SCC 591 : [1985] 2
SCR 643; Union of India and others v. R.C. Jain and
others (1981) 2 SCC 308 : [1999] 1 SCR 263; A.V.
Fernandez v. The State of Kerala AIR 1957 SC 657;
Rajasthan Rajya Sahakari Spinning and Ginning Mills
Federation Limited v. Deputy Commissioner of Income
Tax, Jaipur (2014) 11 SCC 672 : [2014] 7 SCR 336;
State of Gujarat and others v. ESSAR Oil Limited and
another (2012) 3 SCC 522 : [2012] 2 SCR 1127;
Sundaram Pillai and others v. V.r. Pattabiraman and
others (1985) 1 SCC 591 : [1985] 2 SCR 643; Gujarat
Industrial Development Corporation v. Commissioner
of Income Tax (1997) 7 SCC 17 : [1999] 1 SCR 263;
Krishi Utpadan Mandi Samiti v. Union of India and
another (2004) 267 ITR 460; Agricultural Produce
Market Committee v. Commissioner of Income-tax
(2006) 156 ITR 286 - referred to.
Case Law Reference
[2008] 12 SCR 387
referred to
Para 5
[2006] 1 Suppl. SCR 757
referred to
Para 5
[2006] 7 Suppl. SCR 454
referred to
Para 26
[1985] 2 SCR 643
referred to
Para 29
[1999] 1 SCR 263
referred to
Para 37
AIR 1957 SC 657
referred to
Para 38
[2014] 7 SCR 336
referred to
Para 43
[2012] 2 SCR 1127
referred to
Para 44
[1985] 2 SCR 643
referred to
Para 50
[1999] 1 SCR 263
referred to
Para 52
(2004) 267 ITR 460
referred to
Para 52
(2006) 156 ITR 286
referred to
Para 53
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CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
792-793 of 2014.
From the Judgment and Order dated 28.02.2011 of the High Court
of Judicature at Allahabad in Writ Tax No.1338 of 2005 and Order dated
04.11.2011 in Civil Misc. Review Application No.95157/2011 in Writ Tax
No.1338 of 2005.
Mr.Balbir Singh, Sr. Advocate, Jasmeet Singh, Naman Joshi,
Ashutosh Kumar, Ms. Ruhsheet J. Saluja, Hemant Jain, S. N. Tayag
Rajan, Ms. Rubal Maini, Sandeep Chilana, Mahinder Singh, R.S. Saluja,
Prabhu Dayal Chilana, Mohd. Raiz, Nitesh Shrivastava, Sarc &
Associates, Advs. for the Appellant.
Mr. K. Radhakrishnan, Sr. Advocate, Shekhar Vyas, Arijit Prasad,
P. K. Mullick, R. P. Rao, H. R. Rao, D. L. Chidanand, R. Harishankar,
Mrs. Anil Katiyar, Advs. for the Respondents.
The Judgment of the Court was delivered by
ASHOK BHUSHAN, J. 1. The appellant by these appeals has
challenged the Division Bench judgment of Allahabad High Court dated
28.02.2011 dismissing the writ petition filled by the appellant challenging
the notices issued by the Income Tax Authority under Section 142 of the
Income Tax Act, 1961 as well as the judgment dated 04.11.2011 rejecting
the review application.
2. The facts giving rise to these appeals are:
The appellant-New Okhla Industrial Development Authority
(hereinafter referred to as the "Authority") has been constituted under
Section 3 of the U.P. Industrial Area Development Act, 1976 (hereinafter
referred to as the 'Act, 1976') by notification dated 17.04.1976. The
Act, 1976 was enacted by State Legislature to provide for the constitution
of an Authority for the development of certain areas in the State into
industrial and urban township and for matters connected therewith. Under
the Act, 1976 various functions have been entrusted to the Authorities.
Notices under Section 142 of the Income Tax Act dated 28.07.1998 and
08.08.1998 were issued to the appellant. The appellant challenging the
said notices filed writ petition contending that appellant is a local authority,
hence, is exempted from payment of income tax under Section 10(20)
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v.
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and Section 10(20A) of Income Tax Act, 1961 (hereinafter referred to
as "I.T.Act, 1961). The writ petition was allowed by the Division Bench
of the Allahabad High Court on 14.02.2000 holding that the appellant is
a local body. It was held that it is covered by the exemption under Section
10(20A) of I.T.Act, 1961. The Division Bench, however, did not go into
the question whether it is also exempt under Section 10(20).
3. By the Constitution (74th Amendment) Act, 1992, the Parliament
had inserted Part IXA of the Constitution providing for the constitution
of Municipalities. A notification dated 24.12.2001 was issued by the
Governor in exercise of the power under the proviso to clause (1) of
Article 243Q of the Constitution of India specifying the appellant to be
an "industrial township" with effect from the date of the notification in
the Official Gazette. A notice dated 29.08.2005 was issued by the
Assistant Commissioner of Income Tax to the appellant for furnishing
Income Tax Return for the assessment year 2003-2004 and 2004-2005.
Notice mentioned that after omission of Section 10(20A) w.e.f.
01.04.2003 the Authority has become taxable. Notice under Section
142(1) was also enclosed for the above purpose.
4. Notices were also issued to different Banks requiring different
information. The appellant vide its letter dated 20.09.2005 replied the
notice dated 29.08.2005 stating that it is a local authority and exempt
from Income Tax hence notice under Section 142 be withdrawn. The
Income Tax authorities also issued notice to the different Banks to deduct
TDS as required under Section 194A of the Income Tax Act and remit
the same to the Central Government Account.
5. The appellant filed a writ petition praying for quashing the notice
under Section 142 of the Income Tax Act dated 29.08.2005. The appellant
also challenged notice dated 31.08.2005 issued under Section 131 to the
Bankers of the appellant. Notice dated 21.09.2005 under Section 194A
was also sought to be quashed. The writ petition was contested by the
Income Tax Department. The High Court in the writ petition decided
the only question "whether New Okhla Industrial Development Authority
(NOIDA) is a local authority after 01.04.2003 within the meaning of
Section 10(20) of the Income Tax Act, 1961". The Division Bench of
the High Court relying on two judgments of this Court in Agricultural
Produce Market Committee, Narela, Delhi vs. Commissioner of
Income Tax and another, (2008) 9 SCC 434 and Adityapur
Industrial Area Development Authority vs. Union of India and
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others, (2006) 5 SCC 100, held that after 01.03.2003 the NOIDA is
not a local authority within the meaning of Section 10(20) of the I.T.Act,
1961. The writ petition was consequently dismissed. Although, the
appellant had prayed for quashing notices issued to its Bankers and notice
under Section 194A but the High Court did not advert to the said issue.
We do not find any necessity to advert to the aforesaid issues, since,
different concerned Banks have already filed civil appeals challenging
the judgment of the High Court rendered in their writ petition which has
been separately challenged by a group of civil appeals being Civil Appeal
arising out of SLP(C) No.3168 of 2017-Commissioner of Income
Tax(TDS), Kanpur vs. Canara Bank where we have considered and
decided those issues by our judgment of this date. After dismissal of the
writ petition dated 28.02.2011 the appellant filed a review application
which too was dismissed on 04.11.2011. Aggrieved by those two judgments
Civil Appeal Nos.792-793 of 2014 have been filed by the appellant.
6. We have heard Shri Balbir Singh, learned senior counsel
appearing for the appellant and Shri K Radhakrishnan, learned senior
counsel appearing for the Revenue. We have also heard various learned
counsel appearing for different Banks.
7. Learned counsel for appellant submits that both the judgments
of this Court relied on by the High Court for dismissing the writ petition
were not applicable and clearly distinguishable. He submits that judgment
of this Court in Agricultural Produce Market Committee,
Narela(supra) was a case where this Court was concerned with status
of Agricultural Produce Market Committee which was not akin to the
appellant in view of the statutory provisions contained in Act, 1976, hence,
reliance on such case was misplaced.
8. With regard to judgment of this Court in Adityapur Industrial
Area Development Authority(surpa), it is submitted that this Court
essentially has considered in the above case regarding the exemption
under Article 289 of the Constitution of India whereas appellant does
not rely on Article 289. He further submits that Governor of U.P. has
issued notification dated 24.12.2001 under the proviso to Article
243Q(1)(a) which provision was not considered in the above mentioned
two cases, hence, the present case is clearly distinguishable from the
aforesaid two judgments. It is submitted that Municipal Services are
being provided by the authority, hence, it is a local authority entitled to
the benefit of Section 10(20) of the I.T. Act, 1961. The constitutional
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v.
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scheme envisages performance of municipal functions even by a body
which may not be elected and yet performs municipal functions. Article
243Q envisaged such authority and also having been recognised such an
authority by issuing the notification, it is a local authority and is entitled
for the benefit of exemption. There does not exist any elected municipality
for the industrial development area and it is the appellant which is entrusted
to discharge municipal functions as enumerated in the 12th Schedule
under Article 243P of the Constitution. The appellant was not only a
creation of a statute but has been statutorily charged to perform functions,
including municipal functions. The appellant is a local body having local
fund and its accounts are audited by the Examiner of the Local Fund
accounts. The appellant also has authorisation by law to levy tax in
contradistinction to a mere development authority.
9. Learned counsel appearing for the Revenue refuting the
submissions of appellant contends that in view of the Explanation added
to Section 10(20) of the I.T.Act, 1961 by Finance Act, 2002, the appellant
is no longer covered by the definition of 'local authority'. The definition
of 'local authority' as contained in Explanation is not an inclusive definition
but being an exhaustive definition unless the appellant is covered by any
of the clauses mentioned in the Explanation it cannot claim an exemption.
It is further submitted that omission of Section 10(20A) by the same
Finance Act clearly indicates that those authorities which were treated
as local authority prior to Finance Act is no longer entitled to avail the
benefit of exemption. It is evident from the Constitution 74th Amendment
Act, 1992 that the Parliament has introduced certain minimum safeguards
so that municipalities could act as vibrant democratic units of selfgovernment so as to not leave them to the vagaries of laws being enacted
by different State Legislatures. The Parliament was focussed on making
provisions of local self-government alone and not on the aspect of
municipal services and Legislation on municipalities operates in a different
legislative field as compared to Legislation on Industrial Development
Authorities. After the Constitution Amendment both U.P. Municipality
Act, 1916 and U.P. Municipal Corporation Act, 1959 have been amended
in the light of constitutional provisions as contained in Part IXA of the
Constitution whereas no amendments have been made in Act, 1976 which
clearly indicates that the authority was never treated as municipality
within the meaning of Article 243Q. There are large number of factors
which must be possessed by the municipality under the constitutional
scheme which is absent in the authority.
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10. Hence, Constitution never recognised industrial township as
referred to in proviso to Article 243Q as equivalent to municipality. Further,
the notification under the proviso to Article 243Q dated 24.12.2001 itself
indicates that no municipality has been constituted in the area in which
appellant operated. The Authority clearly is not a local authority. The
Finance Act, 2002 brought substantial changes in the definition of local
authority by defining local authority exclusively and by omitting Section
10(20A), the benefits earlier enjoyed by various authorities which were
treated local authorities were taken away. The provisions of Section 10
sub-section (20) are clear and taking plain and literal meaning of the
provision, the appellant is not entitled for exemption; the High court has
rightly dismissed the writ petition filed by the appellant.
11. Learned counsel appearing for the Banks have also adopted
the submissions made by the learned counsel for the Revenue in support
of their contention that the appellant is a local authority within the meaning
of Section 10 sub-section (20) of the I.T. Tax, 1961.
12. Learned counsel for both the parties have relied on various
judgments of this Court which shall be referred to while considering the
submissions made by the parties.
13. We have considered the submissions made by the learned
counsel for the parties and perused the records.
14. The only issue which needs to be considered in these appeals
is as to whether the appellant is a local authority within the meaning of
Section 10(20) as amended by Finance Act, 2002 w.e.f. 01.04.2003.
Before we proceed further, it is necessary to notice the provisions of
Section 10(20) which existed prior to its amendment by Finance Act,
2002 and after amendment w.e.f. 01.04.2003:
Section 10(20) prior to amendment by the
Finance Act, 2002
Section 10(20) after amendment by the
Finance Act, 2002
the income of a local authority which is
chargeable under the head "Income from
house
property",
"Capital
gains"
or
"Income from other sources" or from a
trade or business carried on by it which
accrues or arises from the supply of a
commodity or service [(not being water or
electricity) within its own jurisdictional
area or from the supply of water or
electricity within or outside its own
jurisdictional area;
the income of a local authority which is
chargeable under the head "Income from
house
property",
"Capital
gains"
or
"Income from other sources" or from a
trade or business carried on by it which
accrues or arises from the supply of a
commodity or service [(not being water or
electricity) within its own jurisdictional
area or from the supply of water or
electricity within or outside its own
jurisdictional area;
NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v.
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15. The constitutional provisions contained in Part IXA of the
Constitution of India as inserted by Constitution 74th Amendment Act,
1992 also need to be noted. Article 243P contains the definitions. Article
243P(e) defines Municipality which is to the following effect:
"243P(e)"Municipality" means an institution of selfgovernment constituted under Article 243Q;"
16. Article 243Q provides for the Constitution of Municipalities
which is to the following effect:
"243Q. Constitution of Municipalities.- (1) There shall be
constituted in every State,-
(a) a Nagar Panchayat (by whatever name called) for a
transitional area, that is to say, an area in transition from a
rural area to an urban area;
(b) a Municipal Council for a smaller urban area; and
(c) a Municipal Corporation for a larger urban area,
in accordance with the provisions of this Part:
Provided that a Municipality under this clause may not be
constituted in such urban area or part thereof as the Governor
may, having regard to the size of tile area and the municipal
services being provided or proposed to be provided by an
Explanation.-For the purposes of this clause,
the expression "local authority" means- (i)
Panchayat as referred to in clause (d) of article
243 of the Constitution87; or
(ii) Municipality as referred to in clause (e) of
article 243P of the Constitution88; or
(iii) Municipal Committee and District Board,
legally
entitled
to, or
entrusted by the
Government with, the control or management of
a Municipal or local fund; or
(iv) Cantonment Board as defined in section 389
of the Cantonments Act, 1924 (2 of 1924);
"10(20A) any income of an authority constituted
in India by or under any law enacted either for
the purpose of dealing with and satisfying the
need for housing accommodation or for the
purpose
of
planning,
development
or
improvement of cities, towns and villages, or for
both;"
Section 10(20A):Omitted by the Finance Act,
2002 w.e.f. 1.4.2002
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industrial establishment in that area and such other factors
as he may deem fit, by public notification, specify to be an
industrial township.
(2) In this article, a transitional area, a smaller urban area
or a larger urban area means such area as the Governor
may, having regard to the population of the area, the density
of the population therein, the revenue generated for local
administration, the percentage of employment in non
agricultural activities, the economic importance or such other
factors as he may deem fit, specify by public notification for
the purposes of this Part."
17. Article 243R pertains to Composition of Municipalities which
is to the following effect:
"243R. Composition of Municipalities.-(1) Save as provided
in clause ( 2 ), all the seats in a Municipality shall be filled by
persons chosen by direct election from the territorial
constituencies in the Municipal area and for this purpose
each Municipal area shall be divided into territorial
constituencies to be known as wards.
(2) The Legislature of a State may, by law, provide-
(a)for the representation in a Municipality of-
(i) persons having special knowledge or experience in
Municipal administration;
(ii) the members of the House of the People and the members
of the Legislative Assembly of the State representing
constituencies which comprise wholly or partly the
Municipal area;
(iii) the members of the Council of States and the members
of the Legislative Council of the State registered electors
within tile Municipal area;
(iv) the Chairpersons of the Committees constituted under
clause ( 5 ) of article 243S:
Provided that the persons referred to in paragraph (i) shall
not have the right to vote in the meetings of the Municipality;
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(b) the manner of election of the Chairperson of a
Municipality."
18. Article 243S provides for Constitution and composition of Wards
Committees, etc. Article 243T provides for reservation of seats of SC
and ST for every Municipality and number of seats reserved. Article
243U provides for duration of Municipalities sub-clause(1)states that
every Municipality, unless sooner dissolved under any law for the time
being in force, shall continue for five years from the date appointed for
its first meeting and no longer.
19. Article ZF provides for continuance of existing laws and
Municipalities which is to the following effect:
"243ZF. Continuance of existing laws and Municipalities.-
Notwithstanding anything in this Part, any provision of any
law relating to Municipalities in force in a State immediately
before the commencement of the Constitution (Seventy-fourth
Amendment) Act, 1992, which is inconsistent with the
provisions of this Part, shall continue to be in force until
amended or repealed by a competent Legislature or other
competent authority or until the expiration of one year from
such commencement, whichever is earlier:
Provided that all the Municipalities existing immediately before
such commencement shall continue till the expiration of their
duration, unless sooner dissolved by a resolution passed to
that effect by the Legislative Assembly of that State or, in the
case of a State having a Legislative Council, by each House
of the Legislature of that State."
20. It is also relevant to notice certain provisions of Act, 1976,
before we proceed further to examine the issue. The authority has been
constituted by notification dated 17.04.1976 exercising power under
Section 3 of Act, 1976. Section 3 provides for Constitution of the Authority
which is to the following effect:
"3.(1) The State Government may, by notification, constitute
for the purposes of this Act, An authority to be called (Name
of the area) Industrial Development Authority, for any
industrial development area.
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(2) The Authority shall be a body corporate.
(3) The Authority shall consist of the following:-
(a) The Secretary to the Government, Uttar Pradesh, Member
Industries Department or his Nominee not below Chairman
the rank of Joint Secretary-ex-official. Member Chairman
(b) The Secretary to the Government, Uttar Pradesh, Member
Public works Department or his nominee not below the rank
of Joint Secretary ex-official. Member
(c) The Secretary to the Government, Uttar Pradesh, Local
Member Self-Government or his nominee not below the rank
of joint Secretary-ex official.
 Member
(d) The Secretary to the Government, Uttar Pradesh, Finance
Member Department or his nominee not below the rank of
Joint Secretary-ex official.
(e) The Managing Director, U.P. State Industrial Development
Member Corporation-ex official.
(f) Five members to be nominated by the State Government
Member by notification.
 Member
(g) Chief Executive Officer. Member Secretary
(4) The headquarters of the Authority shall be at such place
as may be notified by the State Government.
(5) The procedure for the conduct of the meetings for the
Authority shall be such as may be prescribed.
(6) No act or proceedings of the Authority shall be invalid by
reason of the existence of any vacancy in or defect in the
constitution of the Authority."
21. Section 6 provides for the function of the Authority which is to
the following effect:
"6.(1) The object of the Authority shall be to secure the
planned development of the industrial development area.
(2) Without prejudice to the generality of the objects of the
Authority, the Authority shall perform the following
functions :-
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(b) to prepare a plan for the development of the industrial
development area;
(c) to demarcate and develop sites for industrial, commercial
and residential purpose according to the plan;
(d) to provide infrastructure for industrial, commercial and
residential purposes;
(e) to provide amenities;
(f) to allocate and transfer either by way of sale or lease or
otherwise plots of land for industrial, commercial or residential
purposes;
(g) to regulate the erection of buildings and setting up of
industries: and
(h) to lay down the purpose for which a particular site or
plot of land shall be used, namely for industrial or commercial
or residential purpose or any other specified purpose in such
area."
22. Section 7 deals with power of the Authority in respect of
transfer of land. Section 8 deals with power to issue directions in respect
of creation of building. Section 9 deals with ban on erection of building in
contravention of regulations. Section 10 deals with power to require
proper maintenance of site or building. Section 11 empowers the Authority
to levy of tax. By Section 12 certain provisions of U.P. Urban Planning
and Development Act, 1973 has been made applicable.
Chapter VII deals Finance, Accounts and Audit.
23. We may also notice the notification dated 24.12.2001 issued
by the Governor in exercise of the powers under the proviso to Clause
(1) of Article 243Q. The notification is as follows:
"NOTIFICATION
No.6709/77-4-2001-56 Bha/99
In exercise of the powers under the proviso to Clause (1) of
Article 243Q of the Constitution of India, the Governor,
having regard to the size of the New Okhla Industrial
Development Area, which has been declared as an industrial
development area by Government Notification No.4157-HI/
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XVIII-11, dated April 17, 1976 and the municipal services
being provided by the New Okhla Industrial Development
Authority in that area, is pleased to specify the said New Okhla
Industrial Development Area to be an "industrial township"
with effect from the date of publication of this notification in
the official gazette.
 By order,
 Sd/-
 (Anoop Mishra)
 Secretary."
24. The submissions made by the parties can be dealt with in the
following two heads:
A. The status of the Authority by virtue of notification dated
24.12.2001 issued under Clause (1) of Article 243Q.
B. Whether the appellant is a local authority "within the meaning
of Section 10 sub-section (20) as explained in Explanation added by
Finance Act, 2002.
(A) Part IXA of the Constitution:
25. The Statement of Objects and Reasons of the Constitution
74th Amendment Act, 1992, briefly outlined the object and purpose for
which Constitution Amendment was brought in. It is useful to refer to
the Statement of Objects and Reasons of the Constitution Amendment
which is to the following effect:
 "STATEMENT OF OBJECTS AND REASONS
In many States local bodies have become weak and ineffective
on account of a variety of reasons, including the failure to
hold regular elections, prolonged supersessions and
inadequate devolution of powers and functions. As a result,
Urban Local Bodies are not able to perform effectively as
vibrant democratic units of self-government.
2. Having regard to these inadequacies, it is considered
necessary that provisions relating to Urban Local Bodies are
incorporated in the Constitution particularly forNEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v.
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(i) putting on a firmer footing the relationship between the
State Government and the Urban Local Bodies with respect
to-
(a) the functions and taxation powers; and
(b) arrangements for revenue sharing;
(ii) Ensuring regular conduct of elections;
(iii) ensuring timely elections in the case of supersession; and
(iv) providing adequate representation for the weaker sections
like Scheduled Castes, Scheduled Tribes and women."
26. The Kishansing Tomar Municipal Corporation Of The City
Of Ahmedabad Ad Others, 2006 (8) SCC 352, noticing the object and
purpose of Constitution 74th Amendment Act, 1992 stated as following:
"12. It may be noted that Part IX-A was inserted in the
Constitution by virtue of the Constitution (Seventy-fourth)
Amendment Act, 1992. The object of introducing these
provisions was that in many States the local bodies were not
working properly and the timely elections were not being held
and the nominated bodies were continuing for long periods.
Elections had been irregular and many times unnecessarily
delayed or postponed and the elected bodies had been
superseded or suspended without adequate justification at
the whims and fancies of the State authorities. These views
were expressed by the then Minister of State for Urban
Development while introducing the Constitution Amendment
Bill before Parliament and thus the new provisions were added
in the Constitution with a view to restore the rightful place in
political governance for local bodies. It was considered
necessary to provide a constitutional status to such bodies
and to ensure regular and fair conduct of elections. In the
Statement of Objects and Reasons in the Constitution
Amendment Bill relating to urban local bodies, it was stated:"
27. The constitutional provisions as contained in Part IXA delineate
that the Constitution itself provided for constitution of Municipalities,
duration of Municipalities, powers of Authorities and responsibilities of
the Municipalities. The Municipalities are created as vibrant democratic
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units of self-government. The duration of Municipality was provided for
five years contemplating regular election for electing representatives to
represent the Municipality. The special features of the Municipality as
was contemplated by the constitutional provisions contained in Part IXA
cannot be said to be present in Authority as delineated by statutory scheme
of Act, 1976. It is true that various municipal functions are also being
performed by the Authority as per Act, 1976 but the mere facts that
certain municipal functions were also performed by the authority it
cannot acquire the essential features of the Municipality which are
contemplated by Part IXA of the Constitution. The main thrust of the
argument of the learned counsel for the appellant that the High Court
having not adverted to the notification dated 24.12.2001 issued under
proviso to Article 243Q(1) the judgments relied on by the High Court for
dismissing the writ petition is not sustainable. We thus have to focus on
proviso to Article 243Q(1). For the purpose and object of the industrial
township referred to therein whether industrial township mentioned therein
can be equated with Municipality as defined under Article 243P(e). Article
243P(e) provides that the "Municipality means an institution of selfgovernment constituted under Article 243Q. Whether the appellant is a
institution of self-government constituted under Article 243Q is the main
question to be answered? Sub-clause (1) of Article 243Q provides that
there shall be constituted in every State- a Nagar Panchayat, a Municipal
Council and a Municipal Corporation, in accordance with the provisions
of this Part. The proviso to sub-clause (1) provides that: "Provided that
a municipality under this clause may not be constituted in such urban
area or part thereof as the Governor may, having regard to the size of
the area and the municipal services being provided or proposed to be
provided for an industrial establishment in that area and such other factors
as may he may deem fit, by public notification, specify to be an industrial
township.".
28. Thus, proviso does not contemplate constitution of an industrial
establishment as a Municipality rather clarifies an exception where
Municipality under clause (1) of Article 243Q may not be constituted in
an urban area. The proviso is an exception to the constitution of
Municipality as contemplated by sub-clause (1) of Article 243Q. No
other interpretation of the proviso conforms to the constitution scheme.
29. A Constitution Bench of this Court had noticed the principles
of statutory interpretation of a proviso in S. Sundaram Pillai and others
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vs. V.R. Pattabiraman and others, 1985(1) SCC 591. The following
has been laid down by this Court in paragraphs 37 to 43:
"37. In short, generally speaking, a proviso is intended to
limit the enacted provision so as to except something which
would have otherwise been within it or in some measure to
modify the enacting clause. Sometimes a proviso may be
embedded in the main provision and becomes an integral part
of it so as to amount to a substantive provision itself.
38. Apart from the authorities referred to above, this Court
has in a long course of decisions explained and adumbrated
the various shades, aspects and elements of a proviso. In State
of Rajasthan v. Leela Jain,AIR 1965 SC 1296, the following
observations were made:
"So far as a general principle of construction of a proviso
is concerned, it has been broadly stated that the function
of a proviso is to limit the main part of the section and
carve out something which but for the proviso would have
been within the operative part."
39. In the case of STO, Circle-I, Jabalpur v. Hanuman Prasad,
AIR 1967 SC 565, Bhargava, J. observed thus:
"It is well-recognised that a proviso is added to a principal
clause primarily with the object of taking out of the scope
of that principal clause what is included in it and what the
legislature desires should be excluded."
40. In Commissioner of Commercial Taxes v. R.S. Jhaver, AIR
1968 SC 59, this Court made the following observations:
"Generally speaking, it is true that the proviso is an
exception to the main part of the section; but it is recognised
that in exceptional cases a proviso may be a substantive
provision itself."
41. In Dwarka Prasad v. Dwarka Das Saraf, AIR 1975 SC
1758 Krishna Iyer, J. speaking for the Court observed thus:
(SCC pp. 136-37, paras 16, 18)
"There is some validity in this submission but if, on a fair
construction, the principal provision is clean a proviso
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cannot expand or limit it.