Which one of the following incomes is/are taxable?
1. A local authority has earned income from the supply of water or electricity outside its own jurisdictional area.
2. An income under the head capital gain to a local authority.
3. A daily allowance received by a Member of Parliament.
4. Income arising from the transfer of units of the Unit Trust of India or of mutual fund covered under Section 10(23D).
Select the correct answer using the options given below

Solution (By Examveda Team)

Understanding Taxable Income
Let's break down why the correct answer is Option D: 1, 2 and 3 Taxable.

Item 1: A local authority has earned income from the supply of water or electricity outside its own jurisdictional area.
This income is generally taxable. Local authorities often have exemptions, but when they operate commercially outside their designated area, that income becomes subject to tax.

Item 2: An income under the head capital gain to a local authority.
Capital gains are profits from selling assets (like property or stocks). Even for a local authority, capital gains are taxable unless specifically exempted by law, which isn't generally the case.

Item 3: A daily allowance received by a Member of Parliament.
Daily allowances given to MPs to cover expenses while attending parliament are considered part of their overall compensation and are therefore taxable. While some allowances might be exempt under specific rules, daily allowances are generally not.

Item 4: Income arising from the transfer of units of the Unit Trust of India or of mutual fund covered under Section 10(23D).
Income from the transfer of units of Unit Trust of India (UTI) or mutual funds covered under Section 10(23D) is exempt from tax. This is a specific exemption granted under the Income Tax Act.

Therefore:
Only items 1, 2, and 3 represent taxable incomes. That is why the correct answer is Option D: 1, 2 and 3 Taxable.