TMI Blog2011 (3) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... the orders of the Income-tax Appellate Tribunal, Hyderabad (the Hyderabad Bench) throw up the question whether the said provision is retrospective in operation ? Be it noted, all the appeals of the year 2010 except I. T. T. A. No. 421 of 2010, are filed by the agriculture market committees, and all the appeals of 2011 and I. T. T. A. No. 421 of 2010 are filed by the Revenue. Be it also noted, the Visakhapatnam Bench took the view that the said provision is intended to declare the intention of the Legislature of not taxing agricultural market committees, and, hence, it has to be treated as retrospective in operation. The Hyderabad Bench, relying on Agricultural Produce Market Committee v. CIT, (Narela AMC) [2008] 305 ITR 1 (SC) ; [2008] 9 SCC 434, took a contra view, and held that agricultural market committees are not eligible for exemption under section 10(26AAB) of the Act for the assessment years 2003-04 and 2004-05. 2. The learned Advocate General Mr. A. Sudershan Reddy, appearing for the agricultural market committees made the following submissions. agricultural market committees availed of tax exemption under section 10(20) of the Act till April 1, 2002. By reason of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il 1, 2009, it cannot be said to be declaratory nor can it be given retrospective operation. He relies on Narela AMC, [2008] 305 ITR 1 (SC), CIT v. Agricultural Market Committee [1983] 143 ITR 1020 (AP), Budha Veerinaidu v. State of Andhra Pradesh [1983] 143 ITR 1021 (AP), R. Rajagopal Reddy v. Padmini Chandrasekharan [1995] 213 ITR 340 (SC) ; [1995] 2 SCC 630 ; AIR 1996 SC 238 and Union of India v. Martin Lorry Agencies Ltd. [2009] 12 SCC 209. The point for consideration 4. The relevant provisions of the Act-for ready reference-are extracted hereunder. Chapter III Incomes which do not form part of total income 10. Incomes not included in total income.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- . . . (20) the income of a local authority which is chargeable under the head 'Income from house property', 'Capital gains' or 'Income from other sources' or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titutions for charitable purposes as defined under section 2(15) of the Act. With effect from April 1, 2009, however, all agricultural market committees were brought under the ambit of section 10 of the Act not as local authorities, but as the institutions constituted under any law for the time being in force , for the purpose of regulating marketing of agricultural products. Thus, during the period between the assessment years 2003-04 to 2008-09, the agricultural market committees were specifically denied exemption as local authorities although they could claim such exemption under section 11 of the Act if they were registered as institutions employed in charitable purposes. 6.The agricultural market committees contend that, even during the interregnum from 2003 to 2009, they ought to be treated as local authorities and made eligible automatically for exemption under section 10(26AAB) of the Act. According to them, section 10(26AAB) of the Act is only declaratory and must operate retrospectively. What is a declaratory Act ? Declaratory Acts 7 . Acts of Legislature or Parliament, according to Francis A. R. Bennion, are Public General Acts and Private Acts. Public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erving as a declaratory enactment, or merely a reference to it. (see Bennion, page 293) 10. Crawford's Statutory Construction classifies declaratory statutes into those which declare the common law and those declaring the meaning of an existing statute. The learned author suggests that the first category of declaratory statutes should be construed according to the common law, and the second as intending to lay down a rule for future cases and to act retrospectively. A declaratory statute is like an interpretation clause for the purpose of removing doubt as to the meaning of an existing law or to correct a construction considered erroneous by the Legislature. 11. The Statute Law by Craies (1971, seventh edition) defines a declaratory Act as one, to remove doubts existing as to common law, or the meaning or effect of statute law (page 58). Craies further opines that where a statute is passed for the purpose of supplying an obvious omission in a former statute, or to explain a former statute, the subsequent statute has relation back to the time when the prior Act was passed. A gross mistake or omission in a former statute can be clarified by a subsequent enactment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich event the latter statute relates back to the time when the former Act is made ; (iii) The purpose of a declaratory Act is to remove a doubt as to the meaning of an existing law or to correct a construction considered erroneous by the Legislature. If a declaratory Act is by way of an explanatory Act, one should see whether it is intended to supply an obvious omission or clear up doubts as to the meaning of the previous Act. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous ; (iv) If a statute is curative, or a mere declarative, retrospective operation is generally intended ; and (v) In determining the nature of the Act, substance is more important than the form. If the provision is clear and unambiguous, the question of treating the amending Act as declaratory would not arise, even if the amending Act uses the expression for the removal of doubts which itself is not conclusive as to an amendment being clarificatory or declaratory in nature. Case law 14. In R. Rajagopal Reddy [1995] 213 ITR 340 (SC), a Division Bench of the Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o section 27 of the Act by providing that a person who comes to have control over the property by virtue of a transaction as referred to in clause (f) of section 269UA of the Act will also be deemed to be the owner of the property. While holding that the amendment was declaratory/clarificatory in nature, which was brought because of divergence of opinions among the High Courts on the issue, the Supreme Court observed as follows (page 649) : In our view, the circumstances under which the amendment was brought into existence and the consequence of the amendments will have a greater bearing in deciding the issue placed before us. In other words, if after discussion we come to a conclusion that the amendment was clarificatory/declaratory in nature and, therefore, it will have retrospective effect then it will set at rest the controversy finally. We have seen that the High Courts are sharply divided on this issue, one set of High Courts taking the view that the promoters/contractors after parting with possession on receipt of full consideration thereby enabling the 'purchasers' to enjoy the fruits of the property, even though no registered document as required un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition of law preclude an individual, who is a partner representing a HUF, from depositing his personal funds with the partnership and receiving interest thereon ? Explanation 2 says in clear terms that there is no such bar. This is the legislative recognition of the theory of different capacities an individual may hold-no doubt confined to clause (b) of section 40. Once this is so, we see no reason to hold that this theory of different capacities is not valid or available for the period anterior to April 1, 1985. Accordingly, we hold that even for the period anterior to April 1, 1985, any interest paid to a partner, who is a partner representing his HUF, on the deposit of his personal/individual funds, does not fall within the mischief of clause (b) of section 40. In this view of the matter, we agree with the view taken by the Rajasthan High Court in Gajanand Poonam Chand and Bros. v. CIT [1988] 174 ITR 346 (Raj), that Explanation 2, in the context of clause (b) of section 40, is declaratory in nature. 17. Brij Mohan Das [1997] 223 ITR 825 (SC) was followed and applied in Suwalal Anandilal Jain v. CIT [1997] 224 ITR 753 (SC) ; [1997] 4 SCC 89. While referring to CIT v. R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not serve its object unless it is construed as retrospective. It was observed as follows (page 681) : An assessee who had adopted the mercantile system of accounting would be entitled to account for his income and expenditure on the basis of accrual and not on the basis of actual receipt or disbursement. After the insertion of section 43B, however, even if the assessee had regularly adopted the mercantile system of accounting, the amount of tax payable by the assessee could be deducted only in the year in which the sum was actually paid and not in the year in which the assessee incurred the liability to pay that tax. Hence, an assessee (as in the present case), who had collected sales tax in the last quarter of the previous accounting year and deposited it in the treasury within the statutory period falling in the next accounting year, would not be entitled to claim any deduction for it. The sales tax so collected will form a part of the assessee's income. To obviate this kind of unexpected outcome of section 43B, the first proviso was added in section 43B by the Finance Act of 1987. The proviso makes it clear that the section will not apply in relation to any sum whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the proviso cannot be interpreted as retrospective and held that the proviso was intended to supply obvious omission in the section which has to be read thereinto. While holding that the said proviso clarified that out of the four dates, Parliament opted for the date, namely, year in which the search is initiated, the Supreme Court observed as follows (pages 340 and 341) : To clear this doubt precisely, the proviso has been inserted in section 113 by which it is indicated that the Finance Act of the year in which the search was initiated would apply. Therefore, in our view, the said proviso was clarificatory in nature. In taxation, the legislation of the type indicated by the proviso has to be read strictly. There is no question of retrospective effect. The proviso only clarifies that out of the four dates, Parliament has opted for the date, namely, the year in which the search is initiated, which date would be relevant for applicability of a particular Finance Act. Therefore, we have to read the proviso as it stands. There is one more reason for rejecting the above submission. Prior to June 1, 2002, in several cases, tax was prescribed sometimes in the 1961 Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch a section as a whole. What was the unintended consequence and obvious omission in the section ? Adverting to this aspect, the apex court observed as follows (page 314 of 319 ITR) : At the same time, section 43B (main section) made it mandatory for the Department to grant deduction in computing the income under section 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, the Municipal Corporation Act (octroi) and other tax laws. Therefore, by way of the first proviso, an incentive/ relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the Income-tax Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the question of retrospectivity, the court has to address the questions (i) whether the provision under consideration is by way of declaration of common law ; and (ii) whether it is intended to get over divergence of judicial opinion and to bring uniformity with a view to supply an omission which caused the unintended hardship to the assessees. Whether section 10(26AAB) of the Act is retrospective 25. Chapter III of the Act contains 14 sections which enumerated the incomes which do not form part of the total taxable income. These can be conveniently grouped into four categories. Section 10 of the Act enumerates various types of income and incomes of various statutory, non statutory entities, concerns and institutions, which shall not be included in computing the total income of the previous year of any person. The income of newly established undertakings in free trading zones and special economic zones as well as income of hundred per cent export-oriented undertakings and those idustrial undertakings in the North-Eastern Region also stand exempted under sections 10A, 10AA, 10B, 10BA, 10BB and 10C of the Act. Sections 11 to 13 of the Act constituting a code, deal wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the General Clauses Act while inserting an Explanation to section 10(20) of the Act, and agricultural market committees continued to be local authorities even after the amendment to section 10(20) of the Act, ruled that all the agricultural market 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 April 1, 2003 ; the entire definition of local authority from section 3(31) of the General Clauses Act was not bodily lifted and incorporated deliberately by Parliament in the Explanation to section 10(20) of the Act ; agricultural market committees are neither Municipalities nor District Boards under the Explanation to section 10(20) of the Act ; and they are not entitled to exemption under section 10(20) of the Act after insertion of the Explanation to section 10(20) of the Act. 30.Thus, agricultural market committees, which were exempted from income-tax till March 31, 2003, became disentitled to claim exemption due to Parliamentary intervention in inserting an Explanation to expand the tax base, and to prohibit all local authorities except those mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from claiming exemption under section 11(1) of the Act ; and, if the primary purpose and predominant object of an assessee is to promote welfare of the general public, the purpose would be charitable purpose. 33. This court, in CIT v. Agricultural Market Committee I. T. T. A. No. 251 of 2008 dated March 1, 2011) ([2011] 336 ITR 641), considered the question of registration of an Agricultural Market Committee under section 12A of the Act. It was held as follows (page 675 of 336 ITR) : . . . we are convinced that an agricultural market committee, constituted under the enactment of the State Legislature, is deriving income from the property held under legal obligation for a charitable purpose to wit the advancement of general object of utility. It is, therefore, entitled to be registered under section 12A/12AA to enable an agricultural market committee to claim exemption as per law. We have reasons for this conclusion which are as follows. Agricultural market committee is constituted under the State Act for the sole purpose of protecting the interest of agriculturists, farmers and growers. The purpose of marketing legislation is to enable purchasers to get a fair pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market committee established under a State law. The exemption from income-tax under one category is different from exemption under another category. Section 10 of the Act exempts various categories of incomes, as well as the income of statutory entities, concerns and institutions. Once the income, of any such entity, stands included in section 10 of the Act, no assessing authority can deny them the benefit. The same is not a case when an assessee claims exemption under section 11(1) of the Act which can be denied when the conditions of registration are violated or when section 13 is attracted. 36. It is not possible to countenance the plea that section 10(26AAB) of the Act is declaratory in nature. Before its enactment, there was no doubt or ambiguity in understanding the nature of exemption from income-tax availed of by the agricultural market committees. After insertion of the Explanation to section 10(20) of the Act, with effect from April 1, 2003, an agricultural market committee ceased to be a local authority . There can-not be any doubt or ambiguity on this score. Thereafter, before insertion of section 10(26AAB) of the Act, an agricultural market committee could claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers) may point out inadequacies in the Bill with reference to why and what of the law to be made. The hon'ble Minister, who pilots the Bill, while replying to the debate would certainly be one among those supporting the Bill, and his reply to the debate may not have much assistance for the purpose of interpretation. We may, however, hasten to add that the Constituent Assembly debates are important external aids while interpreting the Constitutional provisions (see Indra Sawhney v. Union of India, AIR 1993 SC 477 ; [1992] Supp (3) SCC 217, S. R. Bommai v. Union of India, AIR 1994 SC 1918 ; [1994] 3 SCC 1 and Aruna Roy v. Union of India, AIR 2002 SC 3176 ; [2002] 7 SCC 368). 38. In K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) ; [1981] 4 SCC 173 ; AIR 1981 SC 1922, the Supreme Court relied on the speech made by the hon'ble Finance Minister while moving the amendment introducing sub section (2) of section 52 of the Act. In this regard, the court observed as follows (page 608) : Now, it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Members have written to me expressing their concern on the possible impact of the proposal on agricultural produce market committees (APMCs) or State Agricultural Marketing Boards (SAMB). Since there is no intention to tax such committees or boards, and in order to remove any doubts, I propose to insert a new clause (26AAB) in section 10 of the Income-tax Act to provide exemption to any income of an APMC or SAMB con- stituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce . . . 7. Similarly, I also propose to extend the exemption to the Coir Board with retrospective effect from the 1st day of April, 2002. 41. As per the settled principles of interpretation, the speech made by the Union Finance Minister while replying to the debate to the Finance Bill is not conclusive regarding the intention of the Legislature whether or not a new provision is inserted by way of a declaration. Even otherwise, the speech of the Finance Minister extracted to the extent relevant as above does not support the contention of the agricultural market committees. There are four reasons to arrive at this conclusion. 42. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention was never to insert a new provision as declaratory nor to give it retrospective effect. The plain words of the provision themselves best reflect the intention of the Legislature and it is not possible to read something regarding enforcement of the provision which was not intended by the mover of the Bill. It is well settled that the Act, as it stands when amended on the 1st day of April of the financial year, is applicable to the assessment year relevant to the said financial year unless the provision itself was inserted or amended with retrospective effect. 44. Secondly, as already concluded above, the agricultural market committees enjoyed exemption from paying income-tax as local authority under section 10(20) of the Act till March 31, 2002. They enjoyed such exemption from April 1, 2003, not as local authorities but as juridical persons deriving income from the property for charitable purposes, assuming that they have obtained registration under section 12A for the purpose of availing of exemption under section 11 of the Act and indisputably they would be availing of exemption from tax, under the Income-tax Act from April 1, 2009, as creations under the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Exemption of income of Coir Board 8.1 Clause (29A) of section 10 provides that any income of certain specified commodity boards and export development authorities shall be exempt from income-tax. As a measure to promote socioeconomic development, a similar exemption has been provided in respect of any income accruing or arising to the Coir Board established under the Coir Industry Act, 1953, by inserting sub-clause (h) in clause (29A) of section 10. 8.2 Applicability.-This amendment has been made applicable with retrospective effect from 1st April, 2002, and shall accordingly apply for the assessment year 2002-03 and subsequent assessment years. (emphasis supplied) 47. The above explanatory circular concerning section 10(26AAB) on the one hand, and section 10(29A)(h) on the other, abundantly makes it clear that, in the case of the former clause, the enforceability is with effect from April 1, 2009, and it shall accordingly apply for the assessment year 2009-10 whereas in the case of the latter sub-clause, it is made applicable with retrospective effect from April 1, 2002, and shall apply for the assessment year 2002-03. It is settled legal position t ..... 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