JAGDISH SAHAI J. - (1.) AT the instance of the City Board, Mussoorie (hereinafter referred to as the assessee), the following questions of law have been referred to us by the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal) for our opinion : 1. Whether the licence to supply electrical energy to an extended area operated to extend the jurisdictional area of the assessee and as such the income rising from the supply of electrical energy to such extended areas was exempt under section 4(3)(iii) of the Indian Income-tax Act ? 2. Whether the City Board of Mussoorie was a local authority included in the category of person an envisaged in section 2(9) of the Indian Income-tax Act and whether the income accruing to the said City Board was liable to tax ? 3. Whether the administrator appointed by the U.P. Government under section 31(b) of the U.P. Municipalities Act after superseding the City Board, Mussoorie, was a local authority for the purpose of assessment under the Indian Income-tax Act, 1922 ? 4. Whether the supply of electrical energy to the consumers in the extended area was business within the meaning of section 10 of the Indian Income-tax Act ?
(2.) THE assessee is a municipality functioning under the provisions of the U.P. Municipalities Act (hereinafter called the Municipalities Act). THE following facts emanate from the statement of case submitted by the Tribunal. THE assessee obtained a licence under section 4(1) of the Indian Electricity Act (hereinafter called the Electricity Act) to supply electrical energy within the municipal limits of Mussoorie. Under Notification No. 917-C/895-W dated October 13, 1919, the U.P. Government granted to the assessee a licence under section 4(3)(b) of the Electricity Act sanctioning the extension of supply of electrical energy to the following places : 1. Cantonment of Landour and adjacent lands. 2. Cantonment of Dehra Dun and adjacent lands. 3. Municipality of Dehra Dun and adjacent lands. 4. Notified area of Rajpur and adjacent lands. Admittedly, the extended areas were outside the municipal of limits of Mussoorie. Ever since the notification mentioned above, the assessee has been regularly supplying electrical energy not only in the City of Mussoorie but also to the extended areas mentioned above. The City Board of Mussoorie was superseded under section 30 of the Municipalities Act and on April 17, 1943, an officer-in-charge and an administrator were appointed by the U.P. Government to carry on the affairs of the City Board. In the assessment years 1949-50, 1950-51 and 1951-52, the Income-tax Officer taxed the profits arising from the supply of electrical energy by the assessee to the extended area to income-tax (hereinafter referred to as the tax). The contention of the assessee was that the aforesaid income could not be taxed by virtue of the provisions of section 4(3)(iii) of the Indian Income-tax Act (hereinafter referred to as the Act) but the same was not accepted either by the Income-tax Officer or by the Appellate Assistant Commissioner or by the Tribunal. We have heard Mr. S.N. Misra for the assessee and Mr. Gopal Behari for the income-tax department. We will first answer the second question. Section 2(9) of the Act reads as follows : 2(9) Person includes a Hindu undivided family and a local authority. Local authority is therefore comprehended in the word person. The Act does not define local authority but section 3 , clause (31), of the General clauses Act (Central) reads as follows : 3.(31) Local authority shall mean a Municipal Committee, District Board, body of port commissioners or other authority legally entitled to, or entrusted by the Goverment with, the control or management of a Municipal or Local fund. Consequently, there cannot be any escape from the conclusion that by virtue of being a municipality the assessee is a local authority and, consequently, a person liable to pay tax. We, therefore, answer the second question in the affirmative and against the assessee.
(3.) WE will now take up the third question. Admittedly, the City Board of Mussoorie was superseded and on 17th April, 1943, an office-in-charge and an administrator were appointed to carry on its affairs. It is contended by Mr. Misra that because of the appointment of an office-in-charge and an administrator and for the reason that the City Board of Mussoorie was superseded it ceased to be a local authority and cannot consequently be assessed to tax. WE have no hesitation in saying that there is no substance whatsoever in this submission. The City Board of Mussoorie was a Municipality when the present Municipalities Act was passed. Section 2, clause (9), of the Municipalities Act reads as follows : 2.(9) Municipality means any local areas which is a Municipality by reason of a notification issued under section 3 or subject to the provisions of the said section any local area which was a municipality at the time immediately preceding commencement of this Act. Consequently, the City Board is a municipality within the meaning of and for the purposes of the Municipalities Act. Under section 3 of the Municipalities Act the State Government can declare any local area to be a municipality. Section 6 of that Act provides that in every municipality there shall be a Municipal Board and such Board shall be a body corporate by the name of the Municipal Board of the place by reference to which the municipality is know having a perpetual succession and a common seal and subject to any restriction or qualification imposed by this or any other enactment vested with the capacity of suing or being sued in its corporate name, of acquiring, holding and transferring property movable or immoveable and of entering into contracts. The provisions of section 6 mentioned above clearly make a municipality a legal person and a corporation with perpetual succession. The mere fact that the administration of a municipality is taken over by the Government from the elected representatives of the people does not mean that it ceases to be a corporate body or becomes a department of the Government. There is nothing in section 31 of the Municipalities Act to suggest that on supersession a Municipal Board loses its identity as a municipality and becomes merged in the State Government as one of its departments. Section 31 of the Municipalities Act reads as follows : 31. When a Board is superseded under section 31 the following consequences shall follow : (a) all members of the Board including the President shall on a date to be specified under the order vacate their offices as such but without prejudice to their eligibility for re-election or re-nomination; (b) such person or persons as the State Government may appoint in that behalf shall as long as supersession of the Board lasts exercise and perform, so far as may be, the powers and duties of the Board and shall be deemed to be the Board for all purposes; and (c) a fresh Board shall be constituted with effect from the date of its expiry of the period of supersession as though the term under section 10A had expired. ;