TMI Blog2011 (3) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, 11, 20, 22, 32 and 36 to 43 of 2011 ITTA Nos. 523 to 529 of 2010 - - - Dated:- 30-3-2011 - V.V.S. Rao, Ramesh Ranganathan, JJ. S.R. Ashok for the Revenue A. Sudershan Reddy and K. Lalitha for the Assessee JUDGEMENT V.V.S. Rao, J:- 1. Sec. 10(26AAB) of the IT Act, 1961 (the Act) exempts income of Agricultural Market Committees (AMCs) from the levy of income-tax under the Act. It was inserted by the Finance Act, 2008 w.e.f. 1st April, 2009. This batch of appeals, under s. 260A of the Act, filed by the Revenue against the orders of the Income-tax Appellate Tribunal, Visakhapatnam (the Visakhapatnam Bench), and the appeals filed by the AMCs against 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 ITTA No. 421 of 2010, are filed by the AMCs, and all the appeals of 2011 and ITTA 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 AMCs, and hence it has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process, AMCs were treated as local authorities for the purpose of exemption under s. 10(20) of the Act. After insertion of the Explanation to s. 10(20) of the Act giving a restrictive meaning to the term 'local authorities', AMCs are disqualified from seeking exemption. The Legislature is presumed to be aware of this legal position and, once unambiguously s. 10(26AAB) of the Act is made applicable only w.e.f. 1st April, 2009, it cannot be said to be declaratory nor it can be given retrospective operation. He relies on Narela AMC (supra); CIT vs. Agricultural Market Committee (1983) 143 ITR 1020 (AP); Budha Veerinaidu vs. State of Andhra Pradesh and Anr. (1983) 143 ITR 1021 (AP); R. Rajagopal Reddy vs. Padmini Chandrasekharan (1995) 124 CTR (SC) 311 : (1995) 2 SCC 630 : AIR 1996 SC 238 and Union of India vs. Martin Lottery 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 toted income:- In computing the total income of a previous year of any person, any income falling within any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceased to be local authorities and, therefore, not eligible for exemption unless they obtained registration under s. 12A/12AA of the Act as institutions for charitable purposes as defined under s. 2(15) of the Act. W.e.f. 1st April, 2009, however, all AMCs were brought under the ambit of s. 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 asst. yrs. 2003-04 to 2008-09, the AMCs were specifically denied exemption as local authorities although they could claim such exemption under s. 11 of the Act if they were registered as institutions employed in charitable purposes. 6. The AMCs 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 s. 10(26AAB) of the Act. According to them s. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meaning of the earlier one, thus serving as a declaratory enactment, or merely a reference to it [see Bennion, p. 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 Crates (1971, 7th edition,) defines a declaratory Act as one, "to remove doubts existing as to common law, or the meaning or effect of statute law" (p. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he former Act is made; (iii) The purpose of 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, (supra) a Division Bench of the Supreme Court considered the issue whether s. 4(1) of the Benami Transactions (Prohibition) Act, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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:- "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 under s. 54 of the Transfer of Property Act was executed, can be 'owners' for the purpose of s. 22 of the Act. The other set of the High Courts had taken a contrary view holding unless a registered sale document transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined to cl. (b) of s. 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 1st April, 1985. Accordingly, we hold that even for the period anterior to 1st April, 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 cl. (b) of s. 40. In this view of the matter, we agree with the view taken by the Rajasthan High Court in Gajanand Poonam Chand and Bros vs. CIT (1988) 73 CTR (Raj) 255 : (1988) 174 ITR 346 (Raj) that Expln. 2, in the context of cl. (b) of s. 40, is declaratory in nature." 17. Bry Mohan Das (supra) was followed and applied in Suwalal Anandilal Jain vs. CIT (1997) 140 CTR (SC) 278 : (1997) 4 SCC 89. While referring to CIT vs. R.M. Chidambaram Pillai 1977 CTR (SC) 71 : (1977) 106 ITR 292 (SC) : (1977) 1 SCC 431 it was held that, s. 40(b) of the Act is based upon and is recognition of the common law relationship between the firm and its partners. 18. Yet again in CIT vs. Kanji Shivji and Co. (2000) 158 CTR (SC) 537 : (2000) 2 SCC 253 a Division Bench of the Supreme Court fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 s. 43B, the first proviso was added in s. 43B by the Finance Act of 1987. The proviso makes it clear that the section will not apply in relation to any sum which is actually paid by the assessee in the next accounting year if it is paid on or before the due date for furnishing the return of income in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with the return." 20. In Zile Singh (supra) while reiterating the principles of law with regard to declaratory laws, the Supreme Court quoted with approval the four fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 FA. Therefore, we have to read the proviso as it stands.......There is one more reason for rejecting the above submission. Prior to 1st June, 2002, in several cases, tax was prescribed sometimes in the 1961 Act and sometimes in Finance Act and often in both. This made liability uncertain. In the present case, however, the rate of tax in case of block assessment at 60 per cent was prescribed by s. 113 but the year of Finance Act imposing surcharge was not stipulated. This resulted in the above four ambiguities. Therefore, clarification was needed. The proviso was curative in nature. Hence, the proviso inserted in s. 113 merely clarifies that out of the above four dates, the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, by way of 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 IT 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 rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds.... However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by Parliament only w.e.f. 1st April, 2004, would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 industrial undertakings in the North-Eastern Region also stand exempted under ss. 10A, 10AA, 10B, 10BA, 10BB and 10C of the Act. Secs. 11 to 13 of the Act, constituting a Code, deal with income from charitable or religious purposes. The last group comes under s. 13A which relates to income received by political parties by way of voluntary contributions. Exemption of AMCs as local authorities:- 26. The exemption from tax liability of the AMCs constituted under s. 4(1) of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1956 (the AMC Act), has a chequered history. In view of the enacting history and precedent law, we can visualize three distinct periods. 27. Sec. 10(20) of the Act, extracted hereinabove, exempts a local authority from tax. The term "local authority" was not defined prior to the Finance Act, 2002. The Supreme Court in Union of India vs. R.C. Jain (1981) 2 SCC 308 : AIR 1981 SC 951; Calcutta STC vs. CIT (1996) 132 CTR ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid that there is ambiguity or doubt after 1st April, 2003 as to the status of AMCs being local authorities because of the clear language in the Explanation to s. 10(20) of the Act, and also the decision of the Supreme Court in Narela AMC (supra). Exemption of AMCs as juridical persons for the advancement of the object of general public utility:- 31. The second period is from 1st April, 2003 to 31st March, 2009. As noticed supra, under Chapter III of the Act, an assessee may claim exemption from payment of tax on the income derived from property held for charitable or religious purposes. This is subject, however, to the condition that the assessee obtains registration under s. 12AA of the Act. An assessee, who is covered by any of the clauses in s. 10 of the Act, is neither precluded nor disqualified from seeking registration under s. 12A of the Act, on the statutory exemption under s. 10 of the Act having been withdrawn by Parliament. After insertion of the Explanation to s. 10(20) of the Act, AMCs in many States sought registration under s. 12AA of the Act. The jurisdictional CITs denied such registration and various AMCs approached Courts. 32. The Bombay High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving, paying and depositing money, and resolving disputes. Thirdly, the income of AMC from different sources licence fees, market fees, loans etc., which is derived without any profit motive is to be used to meet the expenditure for providing market facilities named supra. Fourthly, all the income has to be deposited in the market committee fund, out of which ten per cent shall be contributed to the Central Market Fund which shall vest in the Government, which exercises power of supervision and superintendence over the market committees. The Government administers and applies Central Market Fund inter alia for providing grants to needy AMCs. Fifthly, AMCs serve an important aspect of rural economy, i.e., providing facilities for marketing agricultural produce and products of livestock." Exemption of AMCs after 1st April, 2009:- 34. After insertion of s. 10(26AAB) of the Act, in computing the total income of the previous year of an AMC, for the period commencing from 1st April, 2009, its income shall not be included in the total income. It is plain that from 1st April, 2009 an AMC is exempted from paying income-tax not as a 'local authority', or as an assessee with the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four named categories of local authorities, and not to AMCs. Speech of Ministers as an external aid to construction:- 37. Whether the speech of an Hon'ble Minister, while piloting the Bill, can be pressed into service for interpreting the law? As a general principle of law, speeches made by members during the debate are not relevant while construing a statute, but the speech of the Hon'ble Minister, while introducing the Bill, stands on a different footing. The Constitution of India mandates special procedure in respect of money bills when they are made into law (Arts. 109 and 207 of the Constitution in Parliament and State legislature respectively). Therefore the speech made by the Hon'ble Finance Minister, while introducing a money bill in the Parliament, may be relevant in understanding the nature of the levy of tax. Nonetheless the speech made by the Hon'ble Minister, in reply to the debate by the members, at best may stand on par with speeches of other members, but it cannot be equated with the speech of the Hon'ble Minister while introducing the bill. As the mover of the bill, it is presumed that the Minister knows the answers as to why such a law is being made, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC) : (1980) 2 SCC 31 where the speech made by the Finance Minister while introducing the exclusionary clause in s. 2, cl. (15) of the Act was relied upon by the Court for the purpose of ascertaining what was the reason for introducing that clause." 39. In CWT vs. Yuvraj Amrinder Singh Etc. (1985) 49 CTR (SC) 211 : (1985) 156 ITR 525 (SC) : (1985) 4 SCC 608 : AIR 1986 SC 959, Gold Coin Health Food (P) Ltd. (supra) and Martin Lottery Agencies Ltd. (supra) the Supreme Court relied on the speech of the Hon'ble Finance Minister to interpret the provisions in the Act as well as the Finance Act, 1994. In these cases, the speech of the Hon'ble Minister, at the time of introduction of the Bill, was used as an external aid. No authority has been brought to our notice which would lend support to the view that even speeches made by members during the debate, and the reply of the Hon'ble Minister thereto, could also be used for interpreting the provisions of law. Indeed, as seen from the decided cases, while referring to the Notes on Clauses appended to the Bill, the speech of the Hon'ble Minister was relied on to understand the provision. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , any income which accrues or arises to him:- (a) from any source in the State of Sikkim; or (b) by way of dividend or interest on securities:- (Proviso and Explanation are omitted as not relevant.) .... (b) after cl. (26AAA) as so inserted, the following clause shall be inserted w.e.f. the 1st day of April, 2009, namely:- '(26AAB) any income of an agricultural produce market committee or board constituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce'; (c) in cl. (29A), after sub-cl. (g), the following sub-clause shall be inserted and shall be deemed to have been inserted w.e.f. the 1st day of April, 2002, namely:- (h) the Coir Board established under s. 4 of the Coir Industry Act, 1953 (45 of 1953)." 43. When the Union Finance Minister, while replying to the debate on the Finance Bill, proposed to extend exemption in the case of Coir Board with retrospective effect from 1st April, 2002, but while proposing to insert cl. (26AAB) to provide exemption to any income of AMCs without specific mention of retrospectivity, it has to be given a plain meaning. The intention was never to inser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, dt 27th March, 2009 Sub:- Finance Act, 2008 Explanatory Notes on the Provisions relating to Direct Taxes. 1. Introduction:- 1.1 The Finance Act, 2008 (hereafter referred to as "the Act") as passed by the Parliament, received the assent of the President on the 10th May, 2008 and has been enacted as Act No. 18 of 2008 [(2008) 216 CTR (St) 273 : (2008) 6 DTR (St) 13 : (2008) 300 ITR (St) 17]. This circular explains the substances of the provisions of the Act relating to direct taxes. ......... 7. Exemption of income of Agricultural Produce Marketing Committee or Board:- 7.1 Clause (26AAB) has been inserted in s. 10 to provide for tax exemption with respect to the income of an Agricultural Produce Marketing Committee or Board which has been constituted under any law for the purpose of regulating the marketing of agricultural produce. 7.2 Applicability:- This amendment has been made applicable w.e.f. 1st April, 2009 and shall accordingly apply for the asst. yr. 2009-10 and subsequent assessment years. 8. Exemption of income of Coir Board:- 8.1 Clause (29A) of s. 10 provides that any income of certain specified commodity boards and export developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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