Agricultural Produce Market Committee, Narela, Delhi v. Commissioner Of Income Tax & Anr

[2008] 12 S.C.R. 387 AGRICULTURAL PRODUCE MARKET COMMITTEE, NARELA, DELHI COMMISSIONER OF INCOME TAX & ANR. (Civil Appeal No. 5180 of 2008) AUGUST 21, 2008 [S.H. KAPADIA AND 8. SUDERSHAN REDDY, JJ] Income Tax Act, 1961: s. 10(20), Explanation - 'local authority' - Agricultural · C Prduce Market Committee (AMC) claiming exemption from income tax - HELD: Definition of 'local authority' given in the Explanation to s. 10(20) is an exhaustive definition and -words "other authority" do not find place therein Therefore, AMC is not entitled to exemption uls 10(20) after insertion D -of the Explanation by Finance Act 2002 General Clauses Act, 1897 - s. 3(31) - Constitution of India, 1950 - Articles -243(d) and 243-P(e) Delhi Agricultural Produce Marketing (Regulation) Act, 1998 - ss. 2(1) and 5. The appellant in CA No. 5180 of 2008, an Agricultural E Produce Market Committee (AMC), was availing exemption benefit under s.10(20) of the Income Tax Act, 1961, prior to its amendment by Finance Act, 2002. By the said amendment the Explanation was added to sub-section (20) of s.10 of the 1961 Act, defining the term F 'local authority'. The words 'other authority' as occurring in s.3(31) of the General Clauses Act, 1897, did not find place in the said Explanation. Accordingly, the Revenue rejected appellant's claim for exemption from payment of tax on incom~ earned by it, for the assessment year G 2003-04. The appellant having failed before the Commissioner of Income Tax (Appeals), the Income Tax Appellate .Tribunal and the High Court, filed the instant appeal. The other appeals were filed on similar facts. A On the strength of the decision in R. C. Jain's [1 ]case, it was contended for the appellants that the Parliament, by way of Explanation to s.10(20), bodily lifted the definition of 'local authority' u/s 3(31) of the General Clauses Act, 1897 and, as such, the AMC continued to B be a 'local authority' even after the said amendment; that even otherwise, Item (iii) of the Explanation to s.10(20) of the 1961 Act, referred to "Municipal Committees" and "District Boards", and as no Municipal Committees were in existence, nor the term "Municipal c Committee" was defined and, as such, AMC, though not a Municipal Committee, would still be a 'local authority' of like nature and character to that of a 'Municipal Cc:>mmittee' performing muni~ipal functions. For the respondents it was contended, that after D the insertion of the Explanation to s.10 (20) of the 1961 Act, the term 'local authority' stood exhaustively defined-and since AMC was not mentioned in the said Explanation, the appellant was no more enti~led to the exemption benefit. It was submitted that the clarification E issued by CBDT expressly stated that Agricultural · Marketing Societies and Agricultural Marketing Boards would stand excluded from the Explanation to s.10 (20) of the 1961 Act. - The question for consideration before the Court F was: "whether Agricultural Marketing Committee [AMC(s)] is 'a "local authority", so as to be entitled to the benefit under Section 10 of the 1961 Act after insertion of the Explanation in Section 10(20) vide Finance Act, 2002 w.e.f. 1.4.2003?" D~smissing the appeals, the Court HELD: 1.1 The Explanation to Section 10(20) of the Income Tax Act, 1961 provides a definition to the word "local authority". It is an exhaustive, and not an inclusive, H definition. The words "other authority" do not find place AGRI. PRODUCE MARKET COMMT., NARELA, DELHJ v. COMM!. OF INCOME TAX & ANR. आर387 387 388 389 390 5180 2008 का [ 200 392 Section: CONCLUSION in the said Explanation. Even. according to the A _appellants, Agricultural Produce Market Committee is neither a Municipal Committee nor a District Board nor a Municipality nor a Panchayat. Therefore, the functional test and the test of incorporation as laid down in the case of R. C. Jain* is no more applicable to the B Explanation to Section 10(20) of the 1961 Act. Therefore, the judgment in R. C. Jain followed by judgments of various High Courts on the status and character of AMC is no more applicable to the provisions of s.10(20) after the insertion of the Explanation/definition clause to that c sub-section by Finance Act, 2002. [para 29] [416,E-H] *Union of India and others v. R. C. Jain and others - 1981 ( 2 ) SCR 854=1981 (2) SCC 308 - held inapplicable. 1.2 Under Section 3(31) of the General Clauses Act, 0 1897, "local authority" was defined to mean "a municipal committee, district board, body of port commissioners or other authority legally entitled to the control or management of a· municipal or local fund. The words "other authority" in Section 3(31) of the 1897 Act tias been omitted by Parliament in the Explanation/definition clause inserted in Section 10(20) of the 1961 Act by Finance Act, 2002. iherefore, it would not be correct to say that the entire definition of the word "local authority" is bodily lifted from Section 3(31) of the 1897 Act and incorporated, by Parliament, in the Explanation to Section 10(20) of the 1961 Act. This deliberate omission is important. [para 27] [413,E-G] 1.3 As regards the use of the words "Municipal Committee" and "District Board" in Item (iii) of the G Explanation to s.10(20) of 1961 Act, Parliament has defined "local authority" to mean -a Panchayat as referred to in clause (d) of Article 243 of the Constitution of India, and a Municipality as referred to in clause (e) of Article 243P of the Constitution of India. However, there H SUPREME COURT REPORTS A is no reference to Article 243 after the words "Municipal Committee" and "District Board". The Municipal Committee and District Board in the said Explanation are used out of abundant caution. In 1897 when General Clauses Act was enacted there existed in India, Municipal B Committees. and District Boards. They continued even thereafter. Besides, Article 243N and Article 243ZF indicate that there could be enactments· which still retain the entities like Municipal Committees and District Boards and if they exist, Parliament intends to give C' exemption to their income under Section 10(20) of the 1961 Act. [para 30] [417,A-C; 418,B] 1.4 Agricultural Produce Market Committee (AMC) is, therefore, not entitled to exemption under Section 10(20) of the 1961 Act after insertion of the said Explanation by D Finance Act, 2002 w.e.f. 1.4.03. [para 33] [418,F-G] Case Law Reference: 1981 ( 2 ) SCR 854 held inapplicable para 12 E 1981 ( 2 ) SCR 854=1981 (2) sec 308 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5180 bf 2008 From the final Judgment and Order dated 2.06.2006 of F the High Court of Delhi at New Delhi in ITA No. 819 of 2006 WITH C.A. Nos. 5181 & 5182 of 2008 M.L. Verma, Avnish Ahlawat, Pawan Chaudhary, Rani Chhabra, Lalita Chaudhary, Simran Singh and Satya Mitra for the Appellant. Pa rag Tripathi, ASG., P. Vishwanatha Shetty, Amey Nargolkar, Shweta Garg, Rahur Kausnik and B.V. Ba!aram H Das for the Respondents. :.Ir AGRI. PRODUCE MARKET COMMT., NARELA, DELHI v. COMM!. OF INCOME TAX & ANR. [S.H. KAPADIA, J.] The Judgment of the Court was delivered by S.H. KAPADIA, J. 1. Leave granted. 2. In this batch of civil appeals a short question which 10. 11. 243 12. 394 :.Ir arises for determination is : whether Agricultural Market Committee ("AMC", for short) is a "local authority" under the B Explanation to Section 10(20) of the Income-tax Act, 1961 ("1961 Act", for short). 3. For the sake of convenience we refer to the facts mentioned in Civil Appeal No. 5180 of 2008 (arising out of S.L.P. (C) No.6757 of 2007) filed by AMC, Narela, Delhi. 4. Appellant-Committee is established under the Delhi Agricultural Produce Marketing (Regulation) Act, 1998 ("1998 Act", for short). The provisions of the said 1998 Act enjoin upon the appellant to provide the facilities for marketing of D agricultural produce in Narela ... Delhi. This is apart from performing other functions and duties such as superintendence, direction and control of markets for regulating the marketing of agricultural produce. 5. For the assessment year 2003-04, the appellant- Committee claimed exemption from payment of tax under income earned by it on the ground that it was a "local authority" within the meaning of Section 10(20) of the said 1961 Act. It relied upon the definition of "local authority" in Section 2(1) of the said 1998 Act. The A.O. rejected the appellant's claim for F exemption relying upon Circular No.8/2002 dated 27.8.02 issued by CBDT. The view taken was that the amended provisions of Section 10(20) of the 1961 Act were not attracted to "Agricultural Produce Marketing Societies" or "Agricultural Market Boards" even when they may be local authorities under G Central or State Legislations. 6. Aggrieved by the said order, appellant filed an appeal before CIT(A) who upheld the view taken by the A.O. and declined the exemption claimed by the appellant. 7. A further appeal by the appellant, before the Tribunal, also failed. 8. Aggrieved by the decision of the Tribunal, the appellant moved the High Court by way of Income Tax Appeal No:819/ 2006 under Section 260A of the 1961 Act. By impugned B. decision dated 2.6.06, Delhi High Court following its earlier judgment in the· case of Agricultural Produce Market Committee, Azadpur v. Commissioner of Income-tax - (/.TA. No. 7 4912006) dismissed the appellant's appeal. Hence this civil appeal. 9. At the outset, it may be stated that all AMCs at different places were enjoying exemption . from income tax under Section 10(20) of the 1961 Act prior to its amendment by Finance.Act, 2002 w.e.f. 1.4.03. · 10. Prior to the amendment by Finance Act, 2002, Section 10(20) of the Income-tax Act, 1961 provided as under: "CHAPTER Ill INCOME WHICH DO NOT FORM PART OF TOTAL INCOME Incomes not included in total income. 10. 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·"lncome 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 area er from the supply of water or electricity within or outside its own jurisdictional area." . 11. Through the aforemenl\oned amendment (Finance DELHI v. COMMI. OF INCOME TAX & ANR. [S.H. KAPADIA, J.] Act, 2002) the following Explanation stood added to Section A 10(20) of the Income-tax Act, 1961 which reads as follows: "Explanation.- For the purposes of this clause, the expression "local authority" means - (i) Panchayat as referred to in clause (d) of article 243 B of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally c entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act; 1924 (2 of 1924);" 12. Mr. M.L. Verma, learned senior counsel appearing on behalf of the appellants, submitted that AMC(s) has been held to be a "local authority" under Section 10(20) of the 1961 Act falling outside the taxing net. in this connection, learned counsel placed reliance on the judgment of the Delhi High E Court in the case of Commissioner of Income-tax v. -Agricultural Marketing Produce Committee [2001] 250 !TR 369 and the reasoning given by this Court in the case of Union of India and others v. R.C. Jain and others - 1981 (2) SCC 308. According to learned counsel, even after the amendment to Section 10(20) of the 1961 Act, by inserting F the Explanation thereto, the AMC(s) continues to be covered by Item (iii) in the said Explanation as it is a "local authority" performing the municipal functions and is legally entitled to the control of local fund, namely, Market Fund under the said 1998 Act. In this connection, learned counsel urged that vide G Finance Act, 2002, Parliament has bodily lifted the definition of the "local authority" under Section 3 (31) of the General Clauses Act, 1897 ("1897 Act", for short) and has incorporated the said definition vide Explanation inserted in Section 10(20) and consequently AMC(s) is a "local authority" and continues H A to be a local authority even after the· said amendment to Section 10(20) of the 1961 Act. According to learned counsel, since Section ;3(31) of the 1897 Act is bodily incorporated into Section 10(20) of the 1961 Act, it follows that the judgments of various High Courts earlier delivered prior to Finance Act, B [2002 holding AMC(s) to be a "local authority", would continue ]to apply and the tests laid down in those judgments would continue to apply even after the said amendment to Section 10(20) of the 1961 Act. Therefore, according· to. learned counsel, the said Explanation does not adversely affect the c [appellant(s) as the appellant(s) is covered by Item (iii) ][in ][the ]Explanation, which according to the appellant(s), is identical to Section 3(31) of the 1897 Act on the basis of which AMC(s) .is a "local authority". 13. Learned counsel next contended that even after the D amendment to Section 10(20), the appellant(s) is covered by Item (iii) of the said Explanation as it is a "local authority" performing municipal functions and as it is legally entitled to the control of local fund, namely, Market Fund. In this co~nection, learned counsel pointed out that the appellant(s) E [has the power and authority to levy and collect fees called ]"Market Fees" and in fact it levies and collects "Market Fees" and the fact that the Government exercises control, does not . take away the statutory power of the appellant(s) under Section 62 of the 1998 Act. 14. Learned counsel next contended that it is true that