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2018 (7) TMI 137

pellant is a local authority, hence, is exempted from payment of income tax under Section 10(20) and Section 10(20A) - Held that:- Authority constituted under Act, 1976 with regard to which notification under proviso to Article 243Q(1) dated 24.12.2001 has also been issued is not akin to the Municipality constituted under Article 243Q(1). - As per Explanation to Section 10(20), these are entities which mean the local authority. The submission of the appellant is that the appellant is covered by Clause (ii) of the Explanation i.e. “Municipality as referred to in clause (e) of Article 243P of the Constitution”. We, while discussing above provisions, have already held that the appellant is not covered by the word/expression of “Municipality” in clause (e) of Article 243P. Thus, the appellant is not clearly included in sub-clause (ii) of Explanation. It is not even the case of the appellant that the appellant is covered by Section 10(20) except clause (ii). - Thus, we are of the considered opinion that the appellant is not covered by the definition of local authority as contained in Explanation to Section 10(20). - Decided against the assessee. - Civil Appeal Nos.792-793 of 201 .....

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ction 10(20). 3. By the Constitution (74th Amendment) Act, 1992, the Parliament had inserted Part IXA of the Constitution providing for the constitution of Municipalities. A notification dated 24.12.2001 was issued by the Governor in exercise of the power under the proviso to clause (1) of Article 243Q of the Constitution of India specifying the appellant to be an industrial township with effect from the date of the notification in the Official Gazette. A notice dated 29.08.2005 was issued by the Assistant Commissioner of Income Tax to the appellant for furnishing Income Tax Return for the assessment year 2003-2004 and 2004-2005. Notice mentioned that after omission of Section 10(20A) w.e.f. 01.04.2003 the Authority has become taxable. Notice under Section 142(1) was also enclosed for the above purpose. 4. Notices were also issued to different Banks requiring different information. The appellant vide its letter dated 20.09.2005 replied the notice dated 29.08.2005 stating that it is a local authority and exempt from Income Tax hence notice under Section 142 be withdrawn. The Income Tax authorities also issued notice to the different Banks to deduct TDS as required under Section 194A .....

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clearly distinguishable. He submits that judgment of this Court in Agricultural Produce Market Committee, Narela(supra) was a case where this Court was concerned with status of Agricultural Produce Market Committee which was not akin to the appellant in view of the statutory provisions contained in Act, 1976, hence, reliance on such case was misplaced. 8. With regard to judgment of this Court in Adityapur Industrial Area Development Authority(surpa), it is submitted that this Court essentially has considered in the above case regarding the exemption under Article 289 of the Constitution of India whereas appellant does not rely on Article 289. He further submits that Governor of U.P. has issued notification dated 24.12.2001 under the proviso to Article 243Q(1)(a) which provision was not considered in the above mentioned two cases, hence, the present case is clearly distinguishable from the aforesaid two judgments. It is submitted that Municipal Services are being provided by the authority, hence, it is a local authority entitled to the benefit of Section 10(20) of the I.T. Act, 1961. The constitutional scheme envisages performance of municipal functions even by a body which may not .....

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, 1976 which clearly indicates that the authority was never treated as municipality within the meaning of Article 243Q. There are large number of factors which must be possessed by the municipality under the constitutional scheme which is absent in the authority. 10. Hence, Constitution never recognised industrial township as referred to in proviso to Article 243Q as equivalent to municipality. Further, the notification under the proviso to Article 243Q dated 24.12.2001 itself indicates that no municipality has been constituted in the area in which appellant operated. The Authority clearly is not a local authority. The Finance Act, 2002 brought substantial changes in the definition of local authority by defining local authority exclusively and by omitting Section 10(20A), the benefits earlier enjoyed by various authorities which were treated local authorities were taken away. The provisions of Section 10 sub-section (20) are clear and taking plain and literal meaning of the provision, the appellant is not entitled for exemption; the High court has rightly dismissed the writ petition filed by the appellant. 11. Learned counsel appearing for the Banks have also adopted the submission .....

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rpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; Section 10(20A):Omitted by the Finance Act, 2002 w.e.f. 1.4.2002 15. The constitutional provisions contained in Part IXA of the Constitution of India as inserted by Constitution 74th Amendment Act, 1992 also need to be noted. Article 243P contains the definitions. Article 243P(e) defines Municipality which is to the following effect: 243P(e) Municipality means an institution of self-government constituted under Article 243Q; 16. Article 243Q provides for the Constitution of Municipalities which is to the following effect: 243Q. Constitution of Municipalities.- (1) There shall be constituted in every State,- (a) a Nagar Panchayat (by whatever name called) for a transitional area, that is to say, an area in transition from a rural area to an urban area; (b) a Municipal Council for a smaller urban area; and (c) a Municipal Corporation for a larger urban area, in accordance with the provisions of this Part: Provided that a Municipality under this clause may not be constituted in such urban area or part thereof as .....

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rovides for continuance of existing laws and Municipalities which is to the following effect: 243ZF. Continuance of existing laws and Municipalities.- Notwithstanding anything in this Part, any provision of any law relating to Municipalities in force in a State immediately before the commencement of the Constitution (Seventy-fourth Amendment) Act, 1992, which is inconsistent with the provisions of this Part, shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until the expiration of one year from such commencement, whichever is earlier: Provided that all the Municipalities existing immediately before such commencement shall continue till the expiration of their duration, unless sooner dissolved by a resolution passed to that effect by the Legislative Assembly of that State or, in the case of a State having a Legislative Council, by each House of the Legislature of that State. 20. It is also relevant to notice certain provisions of Act, 1976, before we proceed further to examine the issue. The authority has been constituted by notification dated 17.04.1976 exercising power under Section 3 of Act, 1976. Section 3 provides .....

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etting up of industries: and (h) to lay down the purpose for which a particular site or plot of land shall be used, namely for industrial or commercial or residential purpose or any other specified purpose in such area. 22. Section 7 deals with power of the Authority in respect of transfer of land. Section 8 deals with power to issue directions in respect of creation of building. Section 9 deals with ban on erection of building in contravention of regulations. Section 10 deals with power to require proper maintenance of site or building. Section 11 empowers the Authority to levy of tax. By Section 12 certain provisions of U.P. Urban Planning and Development Act, 1973 has been made applicable. Chapter VII deals Finance, Accounts and Audit. 23. We may also notice the notification dated 24.12.2001 issued by the Governor in exercise of the powers under the proviso to Clause (1) of Article 243Q. The notification is as follows: NOTIFICATION No.6709/77-4-2001-56 Bha/99 In exercise of the powers under the proviso to Clause (1) of Article 243Q of the Constitution of India, the Governor, having regard to the size of the New Okhla Industrial Development Area, which has been declared as an ind .....

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Act, 1992. The object of introducing these provisions was that in many States the local bodies were not working properly and the timely elections were not being held and the nominated bodies were continuing for long periods. Elections had been irregular and many times unnecessarily delayed or postponed and the elected bodies had been superseded or suspended without adequate justification at the whims and fancies of the State authorities. These views were expressed by the then Minister of State for Urban Development while introducing the Constitution Amendment Bill before Parliament and thus the new provisions were added in the Constitution with a view to restore the rightful place in political governance for local bodies. It was considered necessary to provide a constitutional status to such bodies and to ensure regular and fair conduct of elections. In the Statement of Objects and Reasons in the Constitution Amendment Bill relating to urban local bodies, it was stated: 27. The constitutional provisions as contained in Part IXA delineate that the Constitution itself provided for constitution of Municipalities, duration of Municipalities, powers of Authorities and responsibilities .....

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proviso is an exception to the constitution of Municipality as contemplated by sub-clause (1) of Article 243Q. No other interpretation of the proviso conforms to the constitution scheme. 29. A Constitution Bench of this Court had noticed the principles of statutory interpretation of a proviso in S. Sundaram Pillai and others vs. V.R. Pattabiraman and others, 1985(1) SCC 591. The following has been laid down by this Court in paragraphs 37 to 43: 37. In short, generally speaking, a proviso is intended to limit the enacted provision so as to except something which would have otherwise been within it or in some measure to modify the enacting clause. Sometimes a proviso may be embedded in the main provision and becomes an integral part of it so as to amount to a substantive provision itself. 38. Apart from the authorities referred to above, this Court has in a long course of decisions explained and adumbrated the various shades, aspects and elements of a proviso. In State of Rajasthan v. Leela Jain,AIR 1965 SC 1296, the following observations were made: So far as a general principle of construction of a proviso is concerned, it has been broadly stated that the function of a proviso is .....

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authorities on this point because the legal position seems to be clearly and manifestly well established. To sum up, a proviso may serve four different purposes: (1) qualifying or excepting certain provisions from the main enactment: (2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable: (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision. 30. Applying rules of interpretation as laid down by this Court, it is clear that proviso is an exception to the constitutional provisions which provide that there shall be constituted in every State a Nagar Panchayat, a Municipal Council and a Municipal Corporation. Exception is covered by proviso that where an industrial township is providing municipal services the Governor having regard to the size of the area and the municipal services either being p .....

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the said name sue or be sued. The Authority consists of a Chairman, a Managing Director and five other Directors appointed by the State Government. The Authority is responsible for the planned development of the industrial area including preparation of the master plan of the area and promotion of industries in the area and other amenities incidental thereto. The Authority has its own establishment for which it is authorised to frame regulations with prior approval of the State Government. The State Government is authorised to entrust the Authority from time to time with any work connected with planned development, or maintenance of the industrial area and its amenities and matters connected thereto. Section 7 of the Act obliges the Authority to maintain its own fund to which shall be credited moneys received by the Authority from the State Government by way of grants, loans, advances or otherwise, all fees, rents, charges, levies and fines received by the Authority under the Act, all moneys received by the Authority from disposal of its movable or immovable assets and all moneys received by the Authority by way of loan from financial and other institutions and debentures floated fo .....

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at exemption under Article 289(1), was also available to the appellant-Authority. The said submission was considered and negativated. Apart from rejecting the claim under Article 289(1), this court noticing Section 10(20) has held in paragraph 13: 13. Applying the above test to the facts of the present case it is clear that the benefit, conferred by Section 10(20-A) of the Income Tax Act, 1961 on the assessee herein, has been expressly taken away. Moreover, the Explanation added to Section 10(20) enumerates the local authorities which do not cover the assessee herein. Therefore, we do not find any merit in the submission advanced on behalf of the assessee. 34. In the present case although exemption under Article 289 was not claimed or contended but the above judgment cannot be said to be not relevant to the present case since, the Court has also dwelled upon Section 10(20) as amended w.e.f. 01.04.2003. We, thus, do not accept the submission of the appellant that the above case was not relevant for the present case and was wrongly relied on by the High Court. 35. The second judgment which is relied on by the High court is Agricultural Produce Market Committee, Narela (supra). The Ag .....

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was no definition of the word local authority in the 1961 Act. Those judgments proceeded primarily on the functional tests as laid down in the judgment of this Court vide para 2 in R.C. Jain. We quote hereinbelow para 2 which reads as under: (SCC pp. 311-12) 2. Let us, therefore, concentrate and confine our attention and enquiry to the definition of local authority in Section 3(31) of the General Clauses Act. A proper and careful scrutiny of the language of Section 3(31) suggests that an authority, in order to be a local authority, must be of like nature and character as a Municipal Committee, District Board or Body of Port Commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management of a municipal or local fund. What then are the distinctive attributes and characteristics, all or many of which a Municipal Committee, District Board or Body of Port Commissioners shares with any other local authority? First, the authorities mus .....

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a definition to the word local authority . It is an exhaustive definition. It is not an inclusive definition. The words other authority do not find place in the said Explanation. Even, according to the appellant(s), AMC(s) is neither a Municipal Committee nor a District Board nor a Municipal Committee nor a panchayat. Therefore, in our view functional test and the test of incorporation as laid down in R.C. Jain2 is no more applicable to the Explanation to Section 10(20) of the 1961 Act. Therefore, in our view the judgment of this Court in R.C. Jain2 followed by judgments of various High Courts on the status and character of AMC(s) is no more applicable to the provisions of Section 10(20) after the insertion of the Explanation/definition clause to that sub-section vide the Finance Act, 2002. 38. This Court held that Agricultural Marketing Committee is also not covered by the words Municipal Committee, District Board, Body of Port Commissioners as used in Explanation of Section 10(20). 39. In this context, we also refer to the judgment of this Court in Saij Gram Panchayat vs. State of Gujarat an others, 1999 (2) SCC 366. This Court had occasion to consider in the above case Gujarat I .....

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authority under Section 10(20) of the I.T. Act. Before we proceed further it shall be useful to notice certain well settled principles of statutory interpretation of fiscal statutes. This Court in A.V. Fernandez vs. The State of Kerala, AIR 1957 SC 657 laid following: (29) It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and n ot merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. We must of necessity, therefore, have regard to the actual provisions of the Act and the rules made thereunder before we can come to the conclusion that the appellant was liable to assessment as contended by the Sales Tax Authorities. 44. This Court in Rajasthan Rajya Sahakari Spinning an .....

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elation to the assessment year 2003 2004 and subsequent assessment years. 46. Further paragraphs 13.1 to 13.4 of the Explanatory Notes contained heading: Income of certain Housing Boards etc. to become taxable on deletion of Clause (20A), are as stated below: 13.1 Under the existing provisions contained in clause (20A) of section 10, income of the Housing Boards or other statutory authorities set up for the purpose of dealing with or satisfying the need for housing accommodations or for the purpose of planning, development or improvement of cities, towns and villages is exempt from payment of income tax. 13.2 Through Finance Act, 2002 clause (20A) of section 10 has been deleted so as to withdraw exemption available to the abovementioned bodies. The income of Housing Boards of the States and of Development Authorities would, therefore, also become taxable. 13.3 Under section 80G, donation made to housing authorities, etc. referred to in clause (20A) of section 10 is eligible for 50% deduction from total income in the hands of the donors. Since clause (20A) of section 10 has been deleted, donation to the housing authorities etc. would not be eligible for deduction in the hands of the .....

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on of an exception or an exempting provision, as the same have to be construed strictly. Further this Court also held that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision and in case of doubt or ambiguity, benefit of it must go to the State. 50. For interpreting an explanation this Court in s. Sundaram Pillai and others vs. V.r. Pattabiraman and others, 1985 (1) SCC 591, laid down in paragraphs 47 and 53 as follows: 47. Swarup in Legislation and Interpretation very aptly sums up the scope and effect of an Explanation thus: Sometimes an Explanation is appended to stress upon a particular thing which ordinarily would not appear clearly from the provisions of the section. The proper function of an Explanation is to make plain or elucidate what is enacted in the substantive provision and not to add or subtract from it. Thus an Explanation does not either restrict or extend the enacting part; it does not enlarge or narrow down the scope of the original section that it is supposed to explain.... The Explanation must be interpreted according to its own tenor; that it is meant to ex .....

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onsideration before different High Courts. A Division Bench of the Allahabad High court in Krishi Utpadan Mandi Samiti vs. Union of India and another, (2004) 267 ITR 460 stated following: A bare perusal of the Explanation of Section 10(20) shows that now only four entities are local authorities for the purpose of Section 10(20), namely, (i) Panchayat, (ii) Municipality; (iii) Municipal Committee and District Board; (iv) Cantonment Board Krishi Utpadan Mandi Samiti is not one of the entities mentioned in the Explanation to Section 10(20). It may be noted that the Explanation to Section 10(20) uses the word 'means' and not the word 'includes'. Hence, it is not possible for this Court to extend the definition of 'local authority' as contained in the Explanation to Section 10(20), vide P. Kasilingam v. P.S.G. College of Technology, AIR 1995 SC 1395 (para 19). It is also not possible to refer to the definitions in other Acts, as the IT Act now specifically defines 'local authority'. It is well settled that in tax matters the literal rule of interpretation applies and it is not open to the Court to extend the language of a provision in the Act by relying o .....

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. Firstly because the expression "municipal committee" appears in a taxing statute and must, Therefore, be construed strictly. It is fairly well-settled by a long line of decisions rendered by the Supreme Court that while interpreting 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 the same. The following passage from Cape Brandy Syndicate v. IRC 1921 (1) KB 64 has been approved by the Apex Court in the decisions rendered by their Lordships. "in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, One can only look fairly at the language used." 54. We fully endorse the views taken by the High Court in the above two judgments. 55. Now, reverting back to Explanation to Section 10(20), these are entities which mean the local authority. The submission of the appellant is that the appellant is covered by Clause (ii) of the Explanation i.e. Municipality as referred t .....

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