In Brief
Urban Improvement Trusts established under the Rajasthan Urban Improvement Act, 1959 claimed exemption under Section 10(20) of the Income Tax Act, 1961 as local authorities. The Supreme Court held that these Trusts do not qualify as Municipal Committees under the exhaustive definition of 'local authority' introduced by Finance Act, 2002. The Court noted that Parliament deliberately deleted Section 10(20A), which previously exempted development and improvement authorities, signaling intent to make such entities taxable. The functional test of performing municipal-like work is no longer applicable. The Trusts operate for urban improvement within municipal areas but are not substitutes for municipalities, hence outside the scope of exemption."
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