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2016 (9) TMI 443 - ITAT KOLKATA

2016 (9) TMI 443 - ITAT KOLKATA - TMI - Assessee port trust status - whether the assessee port trust could be assessed in the status of a ‘local authority’ or in the status of a ‘company’ - Held that:- The assessee’s status to be assessed as a local authority and its income was exempt u/s 10(20) of the Act was accepted by the Income Tax Department upto Asst Year 2002-03. Only pursuant to an amendment made in section 10(20) of the Act with effect from Asst Year 2003-04, the situation has undergon .....

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amendment in section 10(20) is not at all applicable to the assessee port trust. We also find from the paper book filed by the assessee vide pages 77 to 83 of paper book that major port trusts in India had given confirmation to the assessee port trust that they are being assessed only as a ‘local authority’ and not in the status of a ‘company’ under the Income Tax Act and the same has been accepted by the Income Tax Department - Assessment u/s 147 quashed for want of jurisdiction - Decided in f .....

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/143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AYs 2003-04 to 2005-06 vide his separate orders all dated 30.12.2010. 2. The only issue to be decided in the appeals of the revenue is that whether the assessee port trust could be assessed in the status of a local authority or in the status of a company in the facts and circumstances of the case. 3. The facts of the case for the Asst Year 2003-04 are stated herein and considered for adjudication. The decision rendered .....

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case was reopened by the Learned AO on having the reason to believe that the assessee had been assessed considering the status of the assessee as local authority at a low rate instead of treating the status as company, due to failure on the part of the assessee to disclose full and true particulars for the Asst Year 2003-04 within the meaning of explanation 2(c )(ii) of Section 147 of the Act. After obtaining the approval of the Learned CIT, the case was reopened by issuance of notice u/s 148 da .....

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was claimed by the assessee and the expression local authority was defined only in section 10(20) of the Act which is relevant only for the purposes of that section. The ld. AO framed the reassessment in the status of a company rejecting the claim of status of local authority . However, the ld CITA reversed the decision of the ld AO on merits by holding the assessee trust as a local authority but did not give any finding on the grounds raised on the assumption of jurisdiction u/s 147 of the Act. .....

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instant case in respect of the assessment year 2003- 04. 2. That the learned Commissioner of Income Tax (Appeals) should have also held that the initiation of the impugned reassessment proceedings by the Assessing Officer, in the instant case, based upon the reasons recorded, as communicated to the Appellant Port Trust vide his letter dated 18th May, 2010, was wholly without jurisdiction, illegal, invalid and void ab-initio; and consequently all proceedings taken in pursuant to the impugned Not .....

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the original assessment proceedings for the year under appeal, was wholly impermissible in law; and therefore wholly without jurisdiction, illegal, invalid and void ab-initio. 4. That the learned Commissioner of Income Tax (Appeals), as an appellate authority, was bound in law to also wholly quash the initiation of the impugned reassessment proceedings, in the undisputed facts and circumstances of the instant case. 5. That the learned Commissioner of Income Tax (Appeals) should have also held th .....

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ival submissions and perused the materials available on record including the paper book filed by the assessee comprising of copy of orders passed u/s 143(3) of the Act in original scrutiny assessment proceedings (pages 1 to 23 of PB) ; copy of impugned notices u/s 148 of the Act (pages 24 to 29 of the PB) ; copy of reasons recorded by the ld AO u/s 148(2) of the Act (pages 30 to 32 of PB); copy of objections filed by the assessee to the reasons recorded by ld AO for reopening the assessments (pa .....

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e assessee to the ld AO in course of original assessment proceedings for AY 2003-04 (pages 60 to 65 of PB) ; copy of letter addressed by the ld AO to the assessee in course of section 154 proceedings initiated after completion of original assessment proceedings for three years (pages 66 to 67 of PB) ; copy of reply addressed by assessee to the ld AO in response to his letter dated 26.5.2009 (pages 68 to 76 of PB); copy of letter addressed by Chennai Port Trust to the assessee intimating that the .....

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ee intimating that the New Mangalore Port Trust is also assessed to income tax as a local authority (page 80 of PB) ; copy of letter addressed by Cochin Port Trust to the assessee intimating that the Cochin Port Trust is also assessed to income tax as a local authority (page 81 of PB) ; copy of letter addressed by Visakhapatnam Port Trust to the assessee intimating that the Visakhapatnam Port Trust is also assessed to income tax as a local authority (pages 82 to 83 of PB) ; copy of notes of argu .....

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Finance Act, 2002 w.e.f 1.4.2003 ( i.e from Asst Year 2003-04 onwards) an explanation was added to section 10(20) of the Act as below:- Explanation - For the purposes of this clause, the expression local authority means - (i) Panchayat as referred to in clause (d) of Article 243 of the Constitution; (ii ) Municipality as referred to in clause (e) of Article 243 P of the Constitution; or (iii ) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the c .....

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eaning of the expression local authority under the General Clauses Act. 6.3. We find that pursuant to the amendment with effect from Asst year 2003-04 by way of insertion of Explanation in section 10(20) of the Act, the assessee port trust though remains a local authority as per General Clauses Act but its exemption u/s 10(20) of the Act has been withdrawn. However, we find that the expression local authority has been defined only for the purpose of section 10(20) of the Act and not otherwise. I .....

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edings for the Asst Years 2003-04 , 2004-05 & 2005-06, we find that the ld AO had accepted the status of the assessee as a local authority and assessee is paying taxes on its income, if any. From the perusal of the scrutiny assessment orders passed for the Asst Years 2003-04 to 2005-06 u/s 143(3) of the Act, we find that the assessee had not claimed any exemption u/s 10(20) of the Act so as to warrant the applicability of newly inserted Explanation in section 10(20) of the Act. 6.4. We hold .....

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ocal authority. Local Authority, according to section 3(31) of the General Clauses Act shall mean a municipal committee, District Board, Body of Port Commissioners or other authority legally entitled to, or entrusted by the Government with control or management of municipal or local fund. All Major Port Trusts therefore, fall within the meaning of the expression "local authority" under the General Clauses Act. By the Finance Act 2002 w.e.f. assessment year 2003-04, exemption under sect .....

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tion of "local authority" as per General Clauses Act has not undergone any change. Therefore, KOPT remains as a local authority as per General Clauses Act, but its exemption under section 10(20) of the Act has been withdrawn w.e.f. assessment year 2003-04. In view of that, return has been correctly filed by KOPT in the status of a local authority. KOPT is governed by the Major Port Trusts Act. 6.5. The ld. AR apart from arguing that the assessee s status should be assessed only as a lo .....

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The assessee in reply to the query vide letter dated 20.05.2009 explained why it had filed return of income in the status of a 'local authority'. He argued that the reopening has been made merely on the basis of change of opinion without bringing on record any new facts or materials. He further argued that there was no failure on the part of the assessee to make full and true disclosure of income of the assessee or particulars of income of the assessee. This is more relevant as the reop .....

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03-04. Ref.: Your letter No. Fin/08/Tax dated 29/04/2010 received by this officer on 03/05/2010. Please refer to the above. Reasons recorded for re-opening for A.Y. 2003-04 in your case stand as under: "The Supreme Court In the case of Adityapur Industrial Area Development Authority v. Union of India [2006] 283 ITR 97 has held that income of an authority, even constituted by a notification under an Act enacted by the Legislature, is not the income of the Government and the Authority cannot .....

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ct to the provisions of this Act, to acquire, hold or dispose of property and may by the name by which it is constituted, sue or be sued'. Further, the Ministry of Shipping guidance note provides that 'the format of financial statements prescribed by the Indian Companies Act, 1956 has been used as the basis for developing the accounting format of port trusts together with the requirement of accounting standards' vide Ministry of Shipping [Ports Wing] letter No. PR-20021/2/98-PG dated .....

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sidering the status of the assessee as Local Authority at a low rate instead of treating the status as Company, due to failure on the part of the assessee to disclose full and true particulars for A.Y. 2003-04 within the meaning of Explanation- 2(c)(ii) of section 147 of Income Tax Act, 1961. Prior sanction of C.I.T. Kol-XII, Kolkata has already been obtained before issuing the said notice". 6.6. We find that the assessee had given reply to the assessee objecting to the reasons recorded on .....

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stituted by a notification under an Act enacted by the State legislature, is not income of the State Government and the Authority cannot claim exemption from Union Taxation. Reply - It is submitted that the fact of that case is totally different from that of the assessee. The assessee has not claimed exemption from Union Taxation on the ground of it being 'Government' KoPT is a local authority under the General Clauses Act but its exemption under section 10(20) of the Income Tax Act has .....

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to corporatise them. You have also commented that steps have already been taken for corporatisation of JNPT, New Mangalore and Tuticorin Port Trusts. Reply - In this connection it may kindly be noted that KoPT has not gone for corporatisation. It is still a local authority. If in the future it is corporatised, it will be filing its return in the status a Company and pay tax at the rate applicable to a company. (iii) Regarding your observation, in the reason for reopening that the format of fina .....

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nting and the same format for preparation of financial statements. Therefore, merely because KoPT follows accrual system of accounting, it cannot be deemed to a company for income tax purposes. (iv) In the reason for reopening, you have referred to Section - 5 of the Major Port Trusts Act which provides that every Board constituted under this Act shall be a body corporate having perpetual succession and a common seal with power, subject to the provisions of this Act to acquire, hold or dispose o .....

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ir existence, rights and duties as individuals and is also called corporate body or-corporate entity. Hence even an association or firm or Government agency may be referred to as a body corporate. (v) Section 2(17) of the Income Tax Act, gives the definition of "Company". The definition of 'Company' is an exhaustive definition. As per the said section 'Company' means - (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a company outs .....

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Board to be a company: Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration. Thus, KoPT is not covered by this definition of company as per the Income Tax Act. (vi) Similarly, section 10(26) of the Act gives the definition of 'Indian Company' which is as under - "Indian Company" m .....

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use (17) ; (ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State; (iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Oaman and Diu and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory : Provided that the registered or, as the case may be principal office of the company, corporation, institution, association or body in a .....

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stified the reopening of assessment by making the following observations:- The only criteria at this juncture is that, the prime Minister's Council on Trade and Industry in its recommendation on ports, under the Infrastructure Development has recommended that to ensure that the port trusts start operating along more commercial lines, it is necessary to corporatise them and the assessee (Port Trust) does follow accrual system of accounting and the identification of revenue and expenditure is .....

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re and Tuticorin port trusts Viz. registering with the jurisdictional Registers of companies. Further, section 5 of the Major Port Trust Act, 1963 not only provides every Board under this Act to be a Body corporate but also common seal with power, subject to the provision of this Act to acquire; hold or dispose of property and may by name by which it is constituted, sue or be sued. Further section 2(17)(i) of the Income tax Act states that Company also means any Indian company and when read with .....

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sessee fulfills all the criteria of a company but has been assessed at a lower rate as a Local Authority and not as a company. On examination of the assessment records, it emerged that the above facts was not considered during assessment u/s 143(3) of the income Tax Act after looking into the facts as stated above. The submissions of the assessee were not examined in proper and right perspective and the assessee's explanation and claim in this regard was wrongly accepted. After amendment to .....

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eassessment proceedings initiated u/s 147 explanation 2(c)(ii) of the Income Tax Act. I, accordingly, propose to proceed with the reassessment proceedings u/s 147 of the Income Tax Act. 6.8. We find that Ministry of Shipping & Transport (Tranport Wing), Government of India, vide its communication dated 28.12.1977 addressed to the assessee that it being a local authority is not chargeable to income tax and that this view was also endorsed by the Central Board of Direct Taxes vide their Office .....

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This correspondence was given in the context of application preferred by the assessee trust for non-deduction of income tax at source from stevedoring bills raised by the assessee. Similarly in yet another correspondence of the Department of Revenue, Ministry of Finance, Income Tax Department, West Bengal vide proceedings No. PRO/TC-1/94-95/75 dated 23.6.1994 , it was categorically stated that the assessee port trust being a local authority is not liable for income tax u/s 10(20) of the Act and .....

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ld not fall under the definition of the expression local authority . At the cost of repetition, we state that the said definition inserted in section 10(20) is only applicable for the purpose of section 10(20) of the Act and for assessee s claiming exemption under that section. It is not in dispute that the assessee had not claimed any exemption u/s 10(20) of the Act for the impugned assessment years under appeal before us. Hence the amendment in section 10(20) is not at all applicable to the as .....

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o. FA/B.52/2010/176 dated 28.12.2010 Mumbai Port Trust - Vide Ref. Letter No. FA/A/IT/ Misc/1133 dated 3.2.2011 New Mangalore Port Trust - Vide Ref. Letter No. NMPT/FIN/ITA/2010-11 dated 4.1.2011 Cochin Port Trust - Vide Ref.Letter No. CAD/Taxes Cell/Income Tax/ 2010 dated 31.12.2010 Visakhapatnam Port Trust - Vide Ref.Letter No. FA?B&B/Reopening of Asst Dated 24.12.2010 6.10. We find that the Income Tax Act does not define the expression local authority other than what is mentioned in the E .....

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has been approved by the following decisions:- Buddha Veerinaidu vs State of Andhra Pradesh reported in (1983) 143 ITR 1021 at 1024 (SC) - It was held that the body of port commissioners are specifically mentioned in section 3(31) of the General Clauses Act , as Local Authority . The port commissioners are appointed specifically by the Government to administer the affairs of the ports and they ned not and do not discharge any functions of local self government. Calcutta State Transport Corporat .....

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ir Lordships of Hon ble Supreme Court following the definition of the expression Local Authority as contained in the General Cluases Act held and observed that the Delhi Development Authority is a local authority for the purposes of Payment of Bonus Act, 1965, which Act also did not contain any definition of the expression Local Authority . Especially in page 312 para 5, the Hon ble Supreme Court noted that Delhi Development Authority was constituted by the Central Government under section 3 of .....

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eneral Clauses Act, 1897 for the purposes of examining whether U.P.Forest Corporation was or was not a Local Authority under the Income Tax Act, 1961. CIT vs Agricultural Marketing Produce Committee reported in (2001) 250 ITR 369 (Del) The Hon ble Delhi High Court after reiterating the aforesaid decisions of the Hon ble Apex Court quoted inter alia the following three tests are relevant for determining whether an authority could be held to be a local authority:- (a) It must have a separate legal .....

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definition of that expression in the Income Tax Act, 1961. 6.11. We find that the decision of the Hon ble Supreme Court in Adityapur Industrial Area Development Authority vs Union of India & Ors reported in (2006) 283 ITR 97 (SC), referred to the ld AO in the reasons recorded and in the re-assessment orders dated 30.12.2010, has no application whatsoever in deciding the controversy raised by the ld. AO. In that case, the question for consideration before the Hon ble Supreme Court was as to w .....

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local authority, as defined for the purposes of section 10(20) of the said Act; and with the further omission of section 10(20A) of the said Act from the statute book, that the assessee was not entitled to claim any tax exemption, particularly in view of the fact that its income could not be said to be the income of the state so as to be exempt from union taxation under Article 289(1) of the Constitution. 6.12. We also find that the ld. AO has accepted the status of the assessee port trust as a .....

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he Act for the Asst Years 2003-04 to 2005-06 were reopened without any tangible material brought on record by the ld AO. We also hold that the reassessment is done only due to change of opinion and the above facts and various correspondences addressed by the Ministry of Shipping (under which assessee trust is primarily administered and controlled) ; various correspondences of Ministry of Finance, Income Tax Department, Government of India ; from the reasons recorded for re-opening the assessment .....

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