TMI Blog2009 (3) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... 47 as per the notice under section 148 dated 31-3-2006 as issued by the "ACIT, Range-1, Lucknow" and in upholding the assessment order dated 29-12-2006 passed thereunder. 2. Because on a due consideration of the facts that ( a )the "reasons recorded" were wholly deficient in meeting the requirement of law; ( b )In any case such "reasons recorded" were antedated, not recorded before the issuance of notice under section 148 dated 31-3-2006, as is borne out from this fact alone that it contained reference to the assessee s claim for exemption that had been made only in the "return" filed in compliance with the notice under section 148; ( c )The notice was neither drawn in the manner prescribed nor served in accordance with the provisions of law, as laid down in section 282 of the Act. the proceedings initiated under section 147 as also the assessment order dated 29-12-2006 passed in pursuance thereof were liable to be declared as void ab initio. 3. Because the learned "CIT (Appeals)" could not have dismissed the appellant s objections to the validity of initiation of proceedings (and so also to the validity of the assessment order passed in pursuance thereof) as non-ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being disharmony between the person for whom notice was meant and the person on whom the assessment has been made, the assessment order dated 29-12-2006 as a whole is void ab initio. 6. Because by virtue of the provisions contained in U.P. Krishi Utpadan Mandi Adhiniyam, 1964 under which the appellant has been constituted, its property as also the "income" belong to the State Government and by the applicability of Article 285 of the Constitution of India, the same are exempt from union taxation. ****** 8. Because, the "surplus" revealed by the Income and Expenditure Account and so also the enhancement made to the same (as mentioned in the preceding ground) qualified for exemption under section 10(29) of the Act and view to the contrary as has been taken by the learned Assessing Officer is wholly erroneous as being inconsistent with the provisions of law and the "material" and information on record. ****** 11. Because the learned Assessing Officer has grossly erred in referring to and relying upon the assessment order passed by the ld. Joint Commissioner of Income-tax, Range-II, Lucknow (by implication) and on the basis of observations as contained therein, in ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in crores. The assessee has claimed exemption under section 10(29) of the Act, which was then available to an authority constituted under a law with respect to its income derived from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities. It is seen that the assessee is not fulfilling conditions for claiming exemption under section 10(29) of the Income-tax Act, 1961 in view of the activities undertaken by the assessee. further, Krishi Utpadan Mandi Samiti is adjudged to be not a local authority as per order of the Hon ble Allahabad High Court ( 267 ITR 460 )." 5. In response to the said notice, the assessee filed the return of income on 26-4-2006 showing nil income because the entire surplus was claimed exempt under section 10(29) of the Income-tax Act, 1961. The Assessing Officer was of the view that the income of the assessee was taxable and was not exempt under section 10(29) of the Act. As regards to the claim of the assessee that its income was exempt under section 10(20) of the Act, the Assessing Officer observed that though under section 26A of the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964, it was provided that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on received from the committees and the another fund namely Central Mandi Fund is having the contribution from the State Government or the Board. The funds are required to be utilized for construction, maintenance and repairs of market yards and other development works as mentioned in section 26PPP of the Adhiniyam. The revenue so obtained by the assessee is required to be utilized after meeting its expenses for the repayment of the principal amount and interest of Bonds, stocks etc. The expenses include marketing expenses, maintenance of Kisan Mandi Bhawan etc. According to the Assessing Officer, it is apparent that in the case of the assessee there was no degree of autonomy and no Government functions were there as usually entrusted to Municipal bodies, it had no power to raise funds by levying taxes, cess and charges, therefore, it mainly functioned as a contractor for the construction of roads, yards etc., for which the mandi committees made the funds available and it charges certain fixed sum for carrying out such works for the mandi committees, so its income was not exempt under section 10(29) of the Income-tax Act, 1961. According to the Assessing Officer, the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tpadan Mandi Samiti v. UOI [2004] 267 ITR 460 it had been held by the Hon ble Allahabad High Court that assessee was not a local authority and its income was not exempt under section 10(20) of the Act. He also did not accept this argument of the assessee that the said decision of the Hon ble Allahabad High Court was not applicable to the present assessment year i.e., assessment year 1999-2000 as the judgment related to assessment year 2003-04. The Assessing Officer referred/relied on the following case laws : 1. CIT v. U.P. Forest Corpn. [1998] 230 ITR 945 (SC); 2.ITAT, Allahabad Bench decision in the case of U.P. Jal Nigam ( supra ); 3. Agriculture Marketing Produce Committee s case ( supra ); 4. Mahavir v. State of U.P. AIR 1979 All. 3. 8. Assessee carried the matter to the ld. CIT(A) and submitted that the Assessing Officer on the one hand had referred to the assessee s claim for exemption under section 10(29) of the Act and at the same time he rejected such a claim by referring to the decision of the Hon ble Allahabad High Court in assessee s own case in Krishi Utpadan Mandi Samiti ( supra ) wherein it had been held that "hence even if prior to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f "Local Authority". Reliance in this regard is placed on para 14 (page 137) of the compilation, copy of which appears at pages 128 to 137 of the compilation. 20. It is also very significant to mention here that the judgment of Hon ble Single Member, Nagpur Bench of the ITAT (copy appearing at pages 75 to 114) has since been upheld by the Hon ble Bombay High Court and the case is reported as CIT v. Agricultural Produce and Marketing Committee reported in (2007) 291 ITR page 419. A copy of the said judgment appears at pages 199 to 210 of this compilation." (extracted from written submissions) Thus, on merits of the addition made in the assessment, his main emphasis was on the orders passed by various Benches of ITAT and recent decision of Delhi High Court reported in 291 ITR Page 419 wherein it has been held that Agricultural Marketing Board and other Marketing Committees which are similar to Mandi Parishad, the appellant before me and the Mandi Samitis, these institutions had the status of "Local Authority" up to the assessment year 2002-03. Consequently, their incomes were exempt. Such an exemption was available under section 10(29) also, before its abolition from the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities as per the provisions of section 10(20) of the Act and their incomes are exempt from tax. Reliance was also placed on the judgment of the Hon ble Bombay High Court in the case of CIT v. Agriculture Produce Marketing Committee [2007] 291 ITR 419 . It was further submitted before the ld. CIT(A) that since the pattern and function of various Agricultural Marketing Committees and Mandi Samitis of U.P. are similar and the assessee being apex body of the Mandi Samitis of U.P. having similar functions and is governed by the same Act i.e., Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964, the cases relied were squarely applicable to the assessee s case. Accord- ingly it was submitted that the assessee was a local authority under section 10(20) of the Act in assessment year 1999-2000 and up to assessment year 2002-03. Therefore, assessed income for the year under consideration was exempt from taxation. 11. The ld. CIT(A) also referred to the observation of the Assessing Officer at pages 17 and 18 of his impugned order which reads as under : "(1)The dominant purpose of the appellant Parishad is regulatory and the Mandi Samitis are separate entities, utilizing the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation of income in excess of prescribed limits. The ld. CIT(A) pointed out the following receipts accrued to the assessee during the year: 1. Mobilisation fund Rs. 1,66,000 2. Revolving fund Rs. 2,82,010 3. Cess Rs. 20,62,09,228 4. Mandi Vikas Nidhi Rs. 61,76,74,890 But those were not further utilized for the purpose for which assessee Parishad was set up. According to the ld. CIT(A), the Assessing Officer examined the issue whether assessee was a Local Authority and its income was exempt under section 10(20), from the income-tax angle and dismissed the State Adhiniyam levelling the assessee as a Local Authority. According to the ld. CIT(A), assessee s reliance on the ITAT decisions in the case of Mandi Samitis were distinguishable since assessee had not used its income towards the object laid down. The ld. CIT(A) confirmed the view of the Assessing Officer by observing as under: "The appellant is thus not a Local Authority but an Association of Persons and is to be taxed accordingly. The Parishad cannot be held to be exempt from tax under section 10(20) and 10(29) of the Income-tax Act, 1961, neither it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circular itself it was very much clear that assessee being an Agricultural Marketing Board was eligible for exemption under section 10(20) of the Act for the years preceding to the assessment year 2003-04 because the circular clearly mentioned that in assessment year 2003-04 and subsequent assessment years, the Marketing Boards were not eligible for exemption under section 10(20) of the Act. However, nothing has been stated in respect of earlier years, which clearly shows that the assessee was entitled for exemption under section 10(20) of the Act for all the earlier years preceding assessment year 2003-04. It was submitted that the Board s instructions and Circulars are binding on the Income-tax Department. Reliance was placed on the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC). It was contended that the Hon ble Supreme Court of India in the case of Agricultural Produce Market Committee, Narela v. CIT [2008] 305 ITR 1 held that all the Agricultural Marketing Committees at different places were enjoying exemption from income-tax under section 10(20) of the Act prior to its amendment by the Finance Act, 2002 with effect from 1-4-2003. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 ITR 657 (Mad.). 6. CIT v. Mohan Meakin Breweries Ltd. [1991] 192 ITR 134 (HP). 7. CIT v. Vincentian Orissa Society [1992] 194 ITR 743 (Ori.). The ld. D.R. submitted that as the assessee was not a local authority, so exemption was not available under section 10(20) of the Act. 15. We have heard both the parties at length and carefully gone through the materials available on record. In the instant case, the controversy to be resolved is whether assessee was a Local Authority for the year under consideration and as such was eligible for exemption of income under section 10(20) of the Act or not. Section 10 of the Act deals with the income which are not to be included in computing total income of previous year of any person and clause ( 20 ) of section 10 deals with the income of a local authority. It is not in dispute that assessee being a Mandi Parishad was established in accordance with the provisions contained in Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964. To decide the issue whether assessee was a local or not for the year under consideration, it is relevant to discuss the provisions of section 10(20) which read as under: "10. In computing the total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... narily understood indicating not merely Municipalities and Panchayats. The Constitution of India had understood the word "Authority" in the Constitution widely and article 12 of the Constitution defining the State would include "such authorities within the territory of India or under the control of the Central Government" and since modern Governments perform a large number of functions through autonomous bodies serving as instrumentalities of the State having considerable authority under the statutes, which creates them, the word "Authority" has been understood in a wide sense, so that the law applicable under the Constitution would apply for income-tax purposes as well. Therefore, the Marketing Boards being creation of the State is subject to the Constitutional limitation as the State itself. In the case of Ajay Hasia v. Khalid Mujib Sehravardi AIR 1981 SC 487, the Hon ble Supreme Court of India laid down the following tests for the inference whether a body is instrumentality of the Government and therefore an authority or not: "(1)If the entire share capital of the body is held by the Government, it goes a long way towards indicating that a body is an instrumentality of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appears to be no intention to make amendment effective as retrospective, so it cannot be held that before 1-4-2003 the authority other than authorities defined in Explanation to section 10(20) of the Act cannot claim the status of Local Authority. 18. As we have already mentioned that words "Local Authority" is not defined for the relevant assessment year under the Income-tax Act but it is defined under section 3(31) of the General Clauses Act, 1897, and the major tests to determine whether a body is a Local Authority are as follows: "( i )The authority must have separate legal existence as a corporate body with autonomous status; ( ii )Prior to function in a defined area and ordinarily, wholly or partly; directly or indirectly be elected by the inhabitants of the area; ( iii )It has to perform governmental functions such as running a market, providing civic amenities, etc; ( iv )It should have power to raise funds for the furtherance of its activities and the fulfilment of its projects by levying taxes/fees in addition to money provided by Government. Control and management of the fund has to vest with the authority." 19. Now it is to be seen whether assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix] persons appointed by the State Government from out of the producers ["Nominated"] as members of the Market Committee and for so long ["Nominated"] as such members are not available, any [six] producers appointed by that Government; ( h )[two persons] appointed by the State Government from out of the traders or commission agents [Nominated] as members of Market Committees and for so long as such [Nominated] members are not available [any two traders or commission agents] appointed by that Government; ( i )the Director of Mandis who shall be ex officio Secretary of the Board (hereinafter in this Chapter referred to as the Member-Secretary). (2) The appointment of Chairman and other members shall, be notified in the, Gazette. (3) A member referred to in clause ( a ), clause ( b ), clause ( c ), or clause ( d ) may, instead of attending any meeting of the Board himself depute an officer not below the rank of Deputy Secretary, and the member referred to in clause ( e ) may likewise depute an officer not below the rank of Additional Registrar, Co-operative Societies and the member referred to in clause ( f ) may likewise depute an officer not below the rank of Additional D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Board may determine; ( x )to do such other things as may be of general interest to Market Committees or considered necessary for the efficient functioning of the Board as may be specified from time to time by the State Government." 21. As regards to the availability of the funds, clause 26P of Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 describes as under: "26P. Board s Fund. (1) The Board shall have its own fund, which shall be deemed to be a local fund and to which shall be credited all moneys received by or on behalf of the Board, except the moneys required to be credited in the Uttar Pradesh State Marketing Development Fund under section 26PP." 22. From the conjoint reading of the aforesaid clauses of Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964, it would be clear that assessee fulfils all the requirements of the tests laid down under section 3(31) of the General Clauses Act, 1897 except that its office bearers are not elected but they are free to take their own policy decisions, so it can be said that the assessee-Board performs Governmental functions such as to approve proposals of the new sites selected by the Committee for the development of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of its projects by levying taxes, rates, charges or fees which may be in addition to moneys provided by Government or obtained by borrowing or otherwise. ( xi )The control or management of the fund must vest in the authority." 24. Now we have to see whether the assessee satisfies the aforesaid tests. For that purpose, it is relevant to discuss the establishment of funds and their utilization which has been enumerated in clauses 26PP and 26PPP of the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 which read as under: "26PP. Uttar Pradesh State Marketing Development Fund. (1) There shall be established for the Board, a Fund, to be called the "Uttar Pradesh State Marketing Development Fund" to which the following amounts shall be credited, namely : ( a )all contributions received from the Committees under sub-section (5) of section 19 except such percentage thereof as the State Government may direct to be credited to the Board s Fund; ( b )such other amounts as the State Government or the Board may direct., (2) The fund established under sub-section (1), shall subject to the provisions of this Act, be utilised by the Board for the following purposes, namely : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board in such manner as may be prescribed.]" 25. From the conjoint reading of the above discussed various clauses relating to the establishment, constitution of the assessee Board, its powers, raising of funds and their utilization, it would be clear that the assessee is a Corporate Body having separate autonomous status. Its operational areas are defined. It is free to take its own decisions for the purpose of establishment and to run a market, to provide civic amenities in the market, to provide facilities to the agriculturists, other producers and payers of the market fee in the market area, development of market yards, painths, repairs of link roads, market lanes, etc. and having superintendence and control over the working of Market Committees. As such the assessee Board is fulfilling the various tests laid down in the above referred to cases of Ajay Hasia ( supra ) and R.C. Jain ( supra ) except that its officer bearers are not elected. However, the office bearers and the members are selected from the State Government, Specialized field relating to the agriculture, out of the producers, traders and commission agents, so it can be said that the members of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this fund vests in the committee. Clearly, this is a "local fund" as envisaged by section 3(31) of the General Clauses Act, 1897." The ratio laid down in the above referred to case also applies to the facts of the present assessee s case. 29. In view of the aforesaid discussions, it can be concluded that assessee was established under Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964. The provisions of the said Act enable the assessee to provide facilities for superintendence and control over the working of Market Committee, giving directions to the Committees in general or any Committee in particular, to approve the proposal of the new sites selected by the Committees for the development of markets, to make necessary arrangements for propaganda and publicity of matters related to regulate marketing of agricultural produce, to do other things as may be general interest of Market Committees, to use funds for providing facilities to the agriculturists, other producers, for construction, maintenance and repairs of link roads, for development of principal market yards, for providing aid to financially weak and under developed Committees, etc. Therefore, we are of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the assessment year 2003-04 and subsequent assessment years." 30. From Instruction 12.3 in the above Circular, it is crystal clear that exemption under clause ( 20 ) of section 10 would not be available to the assessee with effect from 1-4-2003. However, nothing is stated for the period preceding 1-4-2003 which clearly shows that there was no intention of the CBDT to make circular effective retrospectively rather it is prospective, therefore, assessee was entitled to the status of "Local Authority" before amendment which is effective from 1-4-2003. Furthermore the Hon ble Supreme Court of India in the case of Agricultural Produce Market Committee, Narela ( supra ) has considered its earlier judgment in the case of R.C. Jain ( supra ). The said judgment has not been overruled. Therefore functional tests as laid down in the aforesaid case i.e., R.C. Jain ( supra ) are applicable for the years which falls prior to the amendment made by the Finance Act, 2002 in section 10(20) of the Act. The Hon ble Supreme Court of India vide para 9 page 4 of the abovesaid judgment of Agricultural Produce Market Committee, Narela ( supra ) observed as under: "At the outset, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a taxing statute, one has simply to look to what is clearly stated therein. There, is, in fiscal statutes, no room for any intendment nor, is there any equity about the levy sanctioned under it. A conjoint reading of the notifications dated January 14, 1977, and January 15, 1977, show that the entire Union Territory of Delhi, as it was then described, is a market area and the marketing committee constituted by the Government from time to time is for the said market area. Section 4(3) of the Delhi Agricultural Produce Marketing (Regulation) Act, 1998, forbids local authorities from establishing or authorizing or allowing to be established or continuing or authorizing the continuation of any place in the market area for marketing of agricultural produce specified in the declaration. The appellant-committee was established under the Delhi Agricultural Produce Marketing (Regulation) Act, 1976, which was replaced by the Delhi Agricultural Produce Marketing (Regulation) Act, 1998. The provisions of the said Act enjoined upon the appellant to provide facilities for marketing of agricultural produce in Azadpur Sabzi Mandi, Delhi apart from performing other functions and duties such a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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