2011 (3) TMI 751 - HC - Income Tax

Section 10(26AAB) not retrospective; Finance Act 2008 exemption effective from April 1, 2009 - relief from AY 2009-10 onward

AP HC held that section 10(26AAB), as inserted by the Finance Act, 2008, is not retrospective to April 1, 2003, and took effect from April 1, 2009. ... Taxability of income of agricultural market committees - Held that:- section 10(26AAB) inserted by the Finance Act, 2008, w.e.f April 1, 2009, cannot be applied retrospectively w.e.f April 1, 2003, and that the new clause (26AAB) in section 10 is applicable w.e.f. from April 1, 2009, and shall accordingly apply for the AY 09-10 and for the subsequent assessment years. decided against upto AY 08-09 and in favour from AY 09-10. Issues Involved:1. Retrospective operation of Section 10(26AAB) of the Income-tax Act, 1961.2. Exemption status of agricultural market committees (AMCs) under various provisions of the Income-tax Act, 1961.Detailed Analysis:1. Retrospective Operation of Section 10(26AAB):The primary issue addressed is whether Section 10(26AAB) of the Income-tax Act, 1961, which exempts the income of agricultural market committees (AMCs) from income tax, is retrospective in operation. This provision was inserted by the Finance Act, 2008, effective from April 1, 2009. The Visakhapatnam Bench of the Income-tax Appellate Tribunal (ITAT) held that the provision is retrospective, while the Hyderabad Bench held it is prospective.The court analyzed the nature of declaratory and clarificatory statutes, which are exceptions to the general rule against retrospective operation. It was noted that a declaratory Act clarifies what the law is or was, often for the avoidance of doubt, and is presumed to have retrospective effect unless the language of the statute indicates otherwise.The court concluded that Section 10(26AAB) is not declaratory or clarificatory. Before its enactment, there was no ambiguity regarding the exemption status of AMCs. The provision was intended to apply prospectively from April 1, 2009, as indicated by the language of the Finance Act, 2008, and the Central Board of Direct Taxes (CBDT) Circular No. 1 of 2009, which clarified that the amendment applies from the assessment year 2009-10 onwards.2. Exemption Status of Agricultural Market Committees:The court examined the historical exemption status of AMCs under different provisions of the Income-tax Act:- Pre-April 1, 2003: AMCs were exempted from tax as 'local authorities' under Section 10(20) of the Act. The term 'local authority' was not defined, and courts had interpreted it to include AMCs.- Post-April 1, 2003: The Finance Act, 2002, inserted an Explanation to Section 10(20), defining 'local authority' to exclude AMCs. Consequently, AMCs lost their exemption as local authorities. However, they could still seek exemption under Section 11 as institutions for charitable purposes, subject to registration under Section 12A.- Post-April 1, 2009: Section 10(26AAB) was inserted, specifically exempting the income of AMCs. This provision was not intended to be retrospective, as affirmed by the court.The court rejected the argument that Section 10(26AAB) should be applied retrospectively to cover the period from April 1, 2003, to March 31, 2009. The legislative intent, as evidenced by the Finance Act, 2008, and the CBDT Circular, was to provide prospective relief.Conclusion:The court held that Section 10(26AAB) of the Income-tax Act, 1961, inserted by the Finance Act, 2008, is not retrospective and applies only from April 1, 2009. Consequently, the appeals filed by the agricultural market committees were dismissed, and the appeals filed by the Revenue were allowed. There was no order as to costs.