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The Municipal Corporation Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai
Decided On
Case NumberIncome-tax Reference No. 5 of 1947
Judge
Reported in(1948)50BOMLR326
AppellantThe Municipal Corporation
RespondentCommissioner of Income-tax
Excerpt:
.....of the commodity or service is outside the jurisdictional area of the local authority.;the bombay city municipality maintained water-works outside its municipal limits for the supply of water within those limits. the municipality supplied water from those waterworks by a meter kept there to government and other individuals outside its limits and made an income. a question arose whether such income was exempt from assessment under section 4(3)(iii) of the indian income-tax act, 1922:-;that the exemption under section 4(3)(iii) of the act did not apply, because (1) the operation of the municipality in supplying water should be characterised as the carrying on of a trade or business, (2) the income arose from the supply of a commodity or service, and (3) the supply was outside the..........corporation of the city of bombay, and in the year of account 1988-39 the corporation supplied water outside the city of bombay to government and other persons. the total receipts from this supply amounted to rs. 4,12,366, and the question is whether the income derived by the corporation by the supply of water is subject to tax. this water was supplied from the municipal water works situated outside the city of bombay on property belonging to the corporation and the supply was metered at the water works. the municipal corporation's contention is that the surplus of receipt over expenditure with regard to this supply is exempt from income-tax under section 4(3)(iii) of the indian income-tax act.2. now, sub-section (3) of section 4 contains various kinds of incomes which are not to be.....
Judgment:

M.C. Chagla, C.J.

1. The assessee in this case is the Municipal Corporation of the City of Bombay, and in the year of account 1988-39 the Corporation supplied water outside the City of Bombay to Government and other persons. The total receipts from this supply amounted to Rs. 4,12,366, and the question is whether the income derived by the Corporation by the supply of water is subject to tax. This water was supplied from the Municipal water works situated outside the City of Bombay on property belonging to the Corporation and the supply was metered at the water works. The Municipal Corporation's contention is that the surplus of receipt over expenditure with regard to this supply is exempt from income-tax under Section 4(3)(iii) of the Indian Income-tax Act.

2. Now, Sub-section (3) of Section 4 contains various kinds of incomes which are not to be included in the total income of the person receiving it, and one of those kinds of income is the one mentioned in Sub-clause (iii) of that sub-section which is the income of local authorities. But the exemption does not apply to the income of local authorities if (1) that is derived from a trade or business, (2) that income arises from the supply of commodity or services, and (3) if the supply of the commodity or service is outside the jurisdictional area of the local authority.

3. Turning to the scheme of the Municipal Act, Section 1 provides that the Act extends only to the City of Bombay except as otherwise expressly provided by the Act itself. Then Chapter III sets out the duties and powers of the Municipal authorities, some are obligatory and the others are discretionary, and Section 61 contains those duties which are obligatory upon the Municipal authorities, and Sub-clause (b) of Section 61 refers to the construction and maintenance of works and means for providing a supply of water for public and private purposes. Therefore, this is one of the obligatory duties of the Municipal Corporation. Section 63 deals with matters which in their discretion the Corporation may provide and I may refer to one of these which is mentioned in Sub-clause (k) 'any measure not hereinbefore specifically named, likely to promote public safety, health, convenience or instruction.' Section 87 gives the power to the Corporation to acquire and hold moveable and immoveable property, whether within or without the limits of the City, and Section 88 provides that all property held by the Corporation is vested in it in trust for the purposes of the Municipal Act. Chapter X deals with water supply and Section 261 provides for the supply of water to the City of Bombay and Section 262 provides that the Municipal water-works shall be managed and kept in repair by the Municipal Commissioner. Section 288 gives the power to the Commissioner to supply water from a municipal water work to any local authority or person without the City on such terms as to payment and as to the period and conditions of supply as shall be, either generally or specially, approved by the Corporation. Therefore, it is clear that the water works vest in the Municipality in trust for the purposes of the Act. Water is supplied to the City as an obligatory duty under Section 261 of the Act, and to the extent that water is supplied outside the City of Bombay to Government and other individuals, it is under the power conferred upon the Commissioner under Section 288 of the Act.

4. The first question that arises is whether in supplying water to Government and other persons outside the limits of the. City of Bombay the Municipality is doing any trade or business. A trade or business is an operation from which income or profits can be derived. That operation must have certain method and continuity about it, and there can be no doubt that the Municipality has been deriving income from supplying water to Government and other individuals outside the City of Bombay. Therefore, this operation of the Municipality must be characterised as the carrying on of a trade or business. There is no doubt that the income arises from the supply of a commodity or service because the Municipality as the local authority supplies water to Government and other individuals.

5. The third question is whether this supply is outside its jurisdictional area. The jurisdiction of the Municipality is the City of Bombay. Its jurisdiction docs not extend outside that area merely because it owns properties outside the area. It is perfectly true that the water works which are situated outside the limits of Bombay are the property of the Municipality, and the Advocate General's contention is that inasmuch as the water is supplied from the meter situated on the property of the Municipality, the supply of water is within the jurisdictional area of the Municipality. We are unable to accept that contention, because the mere owning of property does not extend the jurisdiction of the Bombay Municipality. That jurisdiction essentially is confined to the limits of the City of Bombay. It has also been contended by the Advocate General that in doing what it has done the Bombay Municipality has discharged a discretionary duty cast upon it by the statute and to that extent it has been doing a Municipal function and not doing trade or business. It is suggested that the supply of water falls within Section 63(k) as constituting a measure for the promotion of public health and convenience, In my opinion the whole of chap. III which deals with duties and powers of the Municipal authorites deals with those duties and powers which are to be discharged by the Municipal authorities within the jurisdiction of the Municipality, viz. within the limits of the City of Bombay. These obligatory and discretionary duties of the Corporation are not to be discharged outside the limits of the City. It is only under Section 288 which, as I have pointed out earlier, falls under chap. X which specifically deals with water supply that the Commissioner is empowered to supply water to any local authority or person outside the city limits. But that power which is conferred under Section 288 cannot be looked upon either as an obligatory or a discretionary duty cast upon the Corporation. Therefore, the activity carried on by the Municipality does not fall within the exemption mentioned in Sub-clause (iii) of Section 4(3), and, therefore, the income derived by the Municipality is liable to tax. The answer to the question, therefore, will be in the negative. The assessee to pay the costs.

Tendolkar, J.

6. I agree.


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