TaxTMI 
TaxTMI 
2011 (3) TMI 1382
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....he 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 to be treated as retrospective in operation. The Hyderabad Bench, relying on Agricultural Produce Market Committee, Narela vs. CIT and Anr. (2008) 218 CTR (SC) 433 : (2008) 11 DTR (SC) 289 : (2008) 305 ITR 1 (SC) : (2008) 9 SCC 434 (Narela AMC) took a contra view, and held that AMCs are not eligible for exemption under s. 10(26AAB) of the Act for the asst. yrs. 2003-04 and 2004-05. 2. The learned Advocate General Mr. A. Sudershan Reddy, appearing for AMCs made the following submissions. AMCs availed tax exemption under s. 10(20) of the Act till 1st April, 2002. By reason of insertion of the Explanation thereto, w.e.f. 1st April, 2003, they were denied the exemption and, therefore, s. 10(26AAB) of the Act was enacted providing exemption w.e.f. 1st April, 2009. Narela AMC (supra) is a case which conclusively decided that AMCs are not local authorities in view of Explanation/definition cl. to s. 10(20) of the Act. It i....
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....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 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 'Income 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 or from the supply of water or electricity within or outside its own jurisdictional area. Explanation:- For the purposes of this clause, the expression 'local authority' means:- (i) Panchayat as referred to in cl. (d) of Art. 243 of the Constitution; or (ii) Municipality as referred to in cl. (e) of Art. 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal....
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....ed 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 private Acts. Public general Acts can be classified in various ways:- (i) law reform Acts; (ii) technical financial Acts; (iii) adoptive Acts; and (iv) indemnity Acts. The law reform Acts include codification Acts, declaratory Acts and statute law revision Acts. 8. It is axiomatic that there is a presumption against retrospective operation of a law made by the legislature. Every Act, unless expressly made so, would operate prospectively when it is brought into force by any of the known legislative methods. But a law, which is declaratory in nature, is an exception to the general rule and considered to operate retrospectively from the very beginning when the statute was enacted. The exercise to ascertain whether the Act under consideration is declaratory or clarific....
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....tory 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 a subsequent enactment in which event the latter would be declaratory relating back to the time when the original enactment was passed. In such an event, the presumption against construing it retrospectively is inapplicable (Ibid, p. 395). 12. Justice G.P. Singh in 'Principles of Statutory Interpretation' (2010, 12th edn.), while quoting the passage from Craies as approved by the Supreme Court in Central Bank of India vs. Their Workmen AIR 1960 SC 12 summed up the statement of law approved in R. Rajagopal Reddy (supra) as follows:- "But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will not only be amending the law ....
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..... 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, 1988 can be applied to a suit initiated by a person claiming to be the real owner prior to coming into force of the said Act. Sec. 4 thereof barred a suit to enforce any right to property held Benami against the person in whose name the property is held. The plea was that the Act being declaratory is retrospective and it bars even the suits filed prior to coming into force of the Act. The Statement of Law in Justice G.P. Singh's Treatise that, "declaratory enactment declares and clarifies the real intention of the legislature in connection with earlier existing transaction of an enactment, it does not create new rights or obligations" was approved. Applying the same s. 3 of the said Act, which prohibited benami tran....
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....ided 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 transferring the ownership as required under the Transfer of Property Act (sic) the so-called purchasers cannot become owners for the purpose of s. 22 of the Act." 16. Brij Mohan Das Laxman Das vs. CIT (1997) 138 CTR (SC) 214 : (1997) 223 ITR 825 (SC) : (1997) 1 SCC 352 : AIR 1997 SC 1651 is a case which applied the principle that enactments declaratory of common law should be construed according to common law. The facts therein are as follows : Sec. 40(b) of the Act mandated that the amount of interest paid to a partner of the firm shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". By Taxation Laws (Amendment) Act, 1984 w.e.f. 1st....
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.... 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 followed Bry Mohan Das (supra) and Suwalal (supra). 19. In Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC) : (1997) 3 SCC 472 the Supreme Court considered the question of retrospectivity of s. 43B of the Act inserted by the Finance Act, 1983 w.e.f. 1st April, 1984. For the asst. yr. 1984-85 the appellant claimed deduction of certain sum which was on account of sales-tax collected by the assessee for the last quarter of the relevant accounting year. The AO disallowed the same relying on s. 43B of the Act. The Tribunal referred the case to the Supreme Court under s. 256(1) of the Act. The question was whether sales-tax, collected by t....
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....ear 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 factors suggested as relevant in Crates Statute Law while determining whether a law is declaratory or not. These are:- (i) General scope and purview of the statute; (ii) Remedy sought to be applied; (iii) Former state of the law; and (iv) what it was the legislature contemplated. It was further held that, where a statute is enacted for the purpose of supplying an obvious omission in a former statute, the subsequent statute is treated as retrospective ignoring the rule against retrospectivity of a legislation. 21. CIT vs. Suresh N. Gupta (2008) 214 CTR (SC) 274 : (2008) 1 DTR (SC) 354 : (2008) 297 ITR 322....
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....sion. 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 date for applicability of Finance Act would be the year in which the search stood initiated under s. 158BC (sic 132)." 22. Here, we may also refer to CIT vs. Atom Extrusions Ltd. (2009) 227 CTR (SC) 417 : (2009) 32 DTR (SC) 49 : (2010) 1 SCC 489. Sec. 43B of the Act allowed an assessee to claim deduction of the amount of sales-tax collected by him in the last quarter of the relevant accounting year. A proviso was added by the Finance Act, 1987 w.e.f. 1st April, 1988 followed by Expln. 2, which was added by the Finance Act, 1989 with retrospective effect from 1st April, 1984. The effect of these amendments is ....
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....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 become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988." 23. Yet another reason for reading the amendment to s. 43B of the Act as retrospective, as held in Alom Extrusions (supra) is to remove the hardship and invidious discrimination which should be caused to assessees if the provision is taken to operate prospectively. 24. The conspectus of the case law especially those precedents, which considered the Finance Acts of various years amending different provisions of the Act on the question whether they are retrospective or prospective, is as follows. Brij....
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.... 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 (SC) 283 : (1996) 219 ITR 515 (SC) : (1996) 8 SCC 758 and the Delhi High Court in AMPC (supra) adopted the meaning of "local authority" as defined in s. 3(31) of the General Clauses Act, 1897. In Budha Veerinaidu (supra) and Kadapa AMC, (supra) this Court, having regard to various provisions of the AMC Act, held that a Market Committee is a local authority. 28. The Finance Act, 2002 inserted an Explanation defining the expression "local authority" from 1st April, 2003. As a result, units of Local-self Government like Panchayats and Municipal bod....
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.... 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 in CIT vs. Agricultural Produce and Market Committee (2007) 210 CTR (Bom) 386 : (2007) 291 ITR 419 (Bom), Punjab and Haryana High Court in CIT vs. Market Committee Dhariwal and Ors. (2007) 294 ITR 563 (P and H) and Madhya Pradesh High Court in two decisions in CIT vs. Krishi Upaj Mandi Samiti, Morena and Ors. (2008) 215 CTR (MP) 54 : (2008) 2 DTR (MP) 258 : (2009) 308 ITR 380 (MP) and CIT vs. Krishi Upaj Mandi Samiti (2009) 308 ITR 401 (MP) ruled that, after the amendment of s. 10(20) of the Act having the effect of wit....
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....nce 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 income derived from property held for charitable purposes, but as an AMC under s. 10(26AAB) of the Act. 35. The conspectus of periodical tax immunity enjoyed by AMCs is as follows. From the beginning till 31st March, 2003, an AMC was exempted from tax as a 'local authority'. From 1st April, 2003 to 31st March, 2008 it could claim exemption under s. 11(1) of the Act subject to satisfying the conditions in s. 12A of the Act. Thereafter, indisputably, it is exempted from tax not as a 'local au....
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....onstitution 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 what it seeks to achieve. The same is not the case with the comments or speeches made by members of the House during the debate. Some members (say from Treasury Bench) may support the bill and speak of the good elements of the bill. Some members (say opposition members) may point out inadequacies in the bill with reference to why and what of the law to be made. The Hon'ble Minister, who pilots the bill, while replying to the debate would certainly be one among those suppo....
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.... (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 principles are relevant when we consider the submission of the AMCs regarding the issue of retrospectivity. 40. While replying to the debate on the Finance Bill 2008, the Union Finance Minister stated as follows:- "6. .......A number of Honourable Members have written to me expressing their concern on the possible impact of the proposal on Agricultural Produce Market Committees (APMC) or State Agricultural Marketing Boards (SAMB). Si....
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.... 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 insert a new provision as declaratory nor to give it retrospective effect. The plain words of the provision themselves best reflect the intention of the legislature and it is not possible to read something regarding enforcement of the provision which was not intended by the mover of the Bill. It is well-settled that the Act, as it stands when amended on the 1....
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....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 development authorities shall be exempt from income-tax. As a measure to promote socio-economic development, a similar exemption has been provided in respect of any income accruing or arising to the Coir Board established under the Coir Industry Act, 1953 by inserting sub-cl. (h) in cl. ....