Performing certain municipal functions does not make NOIDA a municipality: SC

New Okhla Industrial Development Authority (NOIDA) cannot acquire the essential features of a municipality merely because it performs certain municipal functions, the Supreme Court today said while dismissing an appeal filed by the authority against IT assessment notices issued to it in 2003.

A bench comprising justices A K Sikri and Ashok Bhushan said that the authority is not covered by the definition of local authority as contained in explanation to section 10(20) of the Income Tax Act.

Section 10(20) of the Income Tax Act deals with the income of the local authorities.

"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 bench said.

NOIDA had approached the apex court challenging the Allahabad High Court decision of 2011, dismissing its writ petition filled by it against the notices issued by the Income Tax department.

The authority was created under the Uttar Pradesh Industrial Area Development Act, 1976 to provide for the development of certain areas in the state into industrial and urban township.

NOIDA had claimed that it has assumed the character of a local authority and was therefore eligible for tax exemption as provided for under Section 10 of the IT Act.

The dispute on the issue first arose in 2013, when the I-T department imposed a tax liability on the banks for non-deduction of TDS on the interest income on fixed deposit receipts (FDRs) of NOIDA.

Against the decision to levy tax, the banks preferred an appeal before the Commissioner of Income Tax (Appeals), saying NOIDA was a corporation.

The appeal was decided in favour of the banks and, thereafter, the department preferred a petition before the Income Tax Appellate Tribunal (ITAT), which again decided in the favour of the banks.

The I-T department had also moved the apex court saying the issue for consideration was whether NOIDA is a corporation entitled for exemption from deduction of income tax at source under the provisions of a notification issued in 1970 under the Income Tax Act.

It has said that the high court erred in holding that NOIDA is covered under exemption from TDS under the Income Tax Act and the banks are not liable to deduct tax at source on interest paid to the NOIDA on its FDRs.