Important Point
The High Court was not correct in coming to the conclusion that U.P. Forest Corporation was a “local authority” u/s 3(31) of General Clauses Act, 1897 and thus entitled to exemption u/s 10(20) of I.T. Act, 1961.

Judgment

Kirpal, J.-The question involved in these appeals is whether the respondent is a local authority and, therefore, its income is exempt from tax under Section 10(20) of the Income Tax Act, 1961 (hereinafter referred to as ‘The Act’).

2. The U.P. Forest Corporation, the assessee herein, was constituted by Notification issued under Section 3 of the U.P. Forest Corporation Act, 1974. This Corporation was established for better preservation, supervision, development of forest and better exploitation of forest produce within the State of Uttar Pradesh. It took over the work which was formerly done by the forest contractors and its income was from the exploitation of forest produce and sales thereof.

3. These appeals relate to the assessment year 1977-78, 1980-81 and 1984-85. During the course of assessment proceedings, the respondent had claimed its status to be that of ‘local authority’ and, therefore, its income was liable to be exempted from levy of tax by virtue of Section 10(20) of the Act. The assessing officer rejected the claim and, in respect to the assessment year 1977-78 and 1980-81, it taxed it in the status of “artificial jurisdictional person” and in respect to the year 1984-85, as a ‘company’.

4. The respondent then filed appeals in respect to the year 1977-78, 1980-81 and the Commissioner of Income Tax (Appeal), following an earlier decision of the Allahabad High Court in Writ Petition No. 1568/1977 for the assessment year 1976-77, came to the conclusion that the respondent was a local authority and as such its income was ex­empted from tax. This order was challenged in appeal before the Tribu­nal which set aside the order of the Commissioner of Income Tax (Appeals) on the ground that the respondent was not a local authority in view of the decision of this Court in the case of Union of India v. R.C. Jain1.

5. Instead of following the procedure prescribed by the Act by way of a reference under Section 256 of the Income Tax Act, the respondent chose to file three writ petitions in the Allahabad High Court chal­lenging the orders of the Tribunal in respect to the assessment years 1977-78 and 1980-81 and order of the Assessing Authority for assess­ment year 1984-85 which had been made by it. These writ petitions were entertained by the High Court which allowed the same by coming to the conclusion that the respondent was a local authority and, therefore, its income was exempt from tax. Before the High Court, it was also contended by the respondent that it was a charitable Institution and, therefore, its income was, in any case, entitled to exemption under Section 11(1) of the Act. This contention also found favour with the High Court.

6. In these appeals, by special leave, apart from contending that the High Court ought not to have exercised its jurisdiction under Article 226 of the Constitution as the respondent should have availed of the alternative remedy upon to it under the Act, it has been submitted on behalf of the appellant that the decision of the High Court on merits is clearly contrary to the law laid down by this Court and the re­spondent cannot be regarded as being a local authority. In support of  this contention, strong reliance was placed by the counsel for the appellant on the aforesaid decision in R.C. Jain’s case (supra) as well as the decisions in Valjibhai Muljibhai Soneji & Anr. v. The State of Bombay (now Gujarat) & Ors.2, and Calcutta State Transport Corporation v. Commissioner of Income Tax3.

7. On behalf of the respondent, Shri S.P. Gupta, learned counsel submitted that the respondent Corporation had been set up to discharge Government functions and it was a local authority within the meaning of that expression in Section 3(31) of the General Clauses Act. It was also submitted that the Section 3(3) of the U.P. Forest Corporation Act provides that the Corporation shall for all purposes be a local authority and further more according to Section 17, the fund of the Corporation is regarded as a lo