TaxTMI 
TaxTMI 
2018 (7) TMI 137
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....11 dismissing the writ petition filled by the appellant challenging the notices issued by the Income Tax Authority under Section 142 of the Income Tax Act, 1961 as well as the judgment dated 04.11.2011 rejecting the review application. 2. The facts giving rise to these appeals are: The appellant-New Okhla Industrial Development Authority (hereinafter referred to as the "Authority") has been constituted under Section 3 of the U.P. Industrial Area Development Act, 1976 (hereinafter referred to as the 'Act, 1976') by notification dated 17.04.1976. The Act, 1976 was enacted by State Legislature to provide for the constitution of an Authority for the development of certain areas in the State into industrial and urban township and for matters connected therewith. Under the Act, 1976 various functions have been entrusted to the Authorities. Notices under Section 142 of the Income Tax Act dated 28.07.1998 and 08.08.1998 were issued to the appellant. The appellant challenging the said notices filed writ petition contending that appellant is a local authority, hence, is exempted from payment of income tax under Section 10(20) and Section 10(20A) of Income Tax Act, 1961 (hereinafter ref....
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....Income Tax and another, (2008) 9 SCC 434 and Adityapur Industrial Area Development Authority vs. Union of India and others, (2006) 5 SCC 100, held that after 01.03.2003 the NOIDA is not a local authority within the meaning of Section 10(20) of the I.T.Act, 1961. The writ petition was consequently dismissed. Although, the appellant had prayed for quashing notices issued to its Bankers and notice under Section 194A but the High Court did not advert to the said issue. We do not find any necessity to advert to the aforesaid issues, since, different concerned Banks have already filed civil appeals challenging the judgment of the High Court rendered in their writ petition which has been separately challenged by a group of civil appeals being Civil Appeal arising out of SLP(C) No.3168 of 2017-Commissioner of Income Tax(TDS), Kanpur vs. Canara Bank where we have considered and decided those issues by our judgment of this date. After dismissal of the writ petition dated 28.02.2011 the appellant filed a review application which too was dismissed on 04.11.2011. Aggrieved by those two judgments Civil Appeal Nos.792-793 of 2014 have been filed by the appellant. 6. We have heard Shri Balbi....
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....pment authority. 9. Learned counsel appearing for the Revenue refuting the submissions of appellant contends that in view of the Explanation added to Section 10(20) of the I.T.Act, 1961 by Finance Act, 2002, the appellant is no longer covered by the definition of 'local authority'. The definition of 'local authority' as contained in Explanation is not an inclusive definition but being an exhaustive definition unless the appellant is covered by any of the clauses mentioned in the Explanation it cannot claim an exemption. It is further submitted that omission of Section 10(20A) by the same Finance Act clearly indicates that those authorities which were treated as local authority prior to Finance Act is no longer entitled to avail the benefit of exemption. It is evident from the Constitution 74th Amendment Act, 1992 that the Parliament has introduced certain minimum safeguards so that municipalities could act as vibrant democratic units of self-government so as to not leave them to the vagaries of laws being enacted by different State Legislatures. The Parliament was focussed on making provisions of local self-government alone and not on the aspect of municipal services and Legi....
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....by Finance Act, 2002 and after amendment w.e.f. 01.04.2003: Section 10(20) prior to amendment by the Finance Act, 2002 Section 10(20) after amendment by the Finance Act, 2002 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; 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 clause (d) of article 243 of the Constitution87; or (ii) Muni....
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.... fit, specify by public notification for the purposes of this Part." 17. Article 243R pertains to Composition of Municipalities which is to the following effect: "243R. Composition of Municipalities.-(1) Save as provided in clause ( 2 ), all the seats in a Municipality shall be filled by persons chosen by direct election from the territorial constituencies in the Municipal area and for this purpose each Municipal area shall be divided into territorial constituencies to be known as wards. (2) The Legislature of a State may, by law, provide- (a)for the representation in a Municipality of13 (i) persons having special knowledge or experience in Municipal administration; (ii) the members of the House of the People and the members of the Legislative Assembly of the State representing constituencies which comprise wholly or partly the Municipal area; (iii) the members of the Council of States and the members of the Legislative Council of the State registered electors within tile Municipal area; (iv) the Chairpersons of the Committees constituted under clause ( 5 ) of article 243S: Provided that the persons referred....
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....Joint Secretary-ex-official. Member Chairman (b) The Secretary to the Government, Uttar Pradesh, Member Public works Department or his nominee not below the rank of Joint Secretary ex-official. Member (c) The Secretary to the Government, Uttar Pradesh, Local Member Self-Government or his nominee not below the rank of joint Secretary-ex official. Member (d) The Secretary to the Government, Uttar Pradesh, Finance Member Department or his nominee not below the rank of Joint Secretary-ex official. (e) The Managing Director, U.P. State Industrial Development Member Corporation-ex official. (f) Five members to be nominated by the State Government Member by notification. Member (g) Chief Executive Officer. Member Secretary (4) The headquarters of the Authority shall be at such place as may be notified by the State Government. (5) The procedure for the conduct of the meetings for the Authority shall be such as may be prescribed. (6) No act or proceedings of the Authority shall be invalid by reason of the existence of any vacancy in or defect in the constitution of the Authority." 21. Section 6 provides for ....
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....th effect from the date of publication of this notification in the official gazette. By order, Sd/- (Anoop Mishra) Secretary." 24. The submissions made by the parties can be dealt with in the following two heads: A. The status of the Authority by virtue of notification dated 24.12.2001 issued under Clause (1) of Article 243Q. B. Whether the appellant is a local authority "within the meaning of Section 10 sub-section (20) as explained in Explanation added by Finance Act, 2002. (A) Part IXA of the Constitution: 25. The Statement of Objects and Reasons of the Constitution 74th Amendment Act, 1992, briefly outlined the object and purpose for which Constitution Amendment was brought in. It is useful to refer to the Statement of Objects and Reasons of the Constitution Amendment which is to the following effect: "STATEMENT OF OBJECTS AND REASONS In many States local bodies have become weak and ineffective on account of a variety of reasons, including the failure to hold regular elections, prolonged supersessions and inadequate devolution of powers and functions. As a result, Urban Local Bodies are not able to perform ....
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....provided for five years contemplating regular election for electing representatives to represent the Municipality. The special features of the Municipality as was contemplated by the constitutional provisions contained in Part IXA cannot be said to be present in Authority as delineated by statutory scheme of Act, 1976. It is true that various municipal functions are also being performed by the Authority as per Act, 1976 but the mere facts that certain municipal functions were also performed by the authority it cannot acquire the essential features of the Municipality which are contemplated by Part IXA of the Constitution. The main thrust of the argument of the learned counsel for the appellant that the High Court having not adverted to the notification dated 24.12.2001 issued under proviso to Article 243Q(1) the judgments relied on by the High Court for dismissing the writ petition is not sustainable. We thus have to focus on proviso to Article 243Q(1). For the purpose and object of the industrial township referred to therein whether industrial township mentioned therein can be equated with Municipality as defined under Article 243P(e). Article 243P(e) provides that the "Municip....
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....ave been within the operative part." 39. In the case of STO, Circle-I, Jabalpur v. Hanuman Prasad, AIR 1967 SC 565, Bhargava, J. observed thus: "It is well-recognised that a proviso is added to a principal clause primarily with the object of taking out of the scope of that principal clause what is included in it and what the legislature desires should be excluded." 40. In Commissioner of Commercial Taxes v. R.S. Jhaver, AIR 1968 SC 59, this Court made the following observations: "Generally speaking, it is true that the proviso is an exception to the main part of the section; but it is recognised that in exceptional cases a proviso may be a substantive provision itself." 41. In Dwarka Prasad v. Dwarka Das Saraf, AIR 1975 SC 1758 Krishna Iyer, J. speaking for the Court observed thus: (SCC pp. 136-37, paras 16, 18) "There is some validity in this submission but if, on a fair construction, the principal provision is clean a proviso cannot expand or limit it. Sometimes a proviso is engrafted by an apprehensive draftsman to remove possible doubts, to make matters plain, to light up ambiguous edges. Here, such is the case. * *....
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....of the area and the municipal services either being provided or proposed to be provided by an industrial establishment specify it to be an industrial township. The words 'industrial township' have been used in contradiction of a Nagar Panchayat, a Municipal Council and a Municipal Corporation. The object of issuance of notification is to relieve the mandatory requirement of constitution of a Municipality in a State in the circumstances as mentioned in proviso but exemption from constituting Municipality does not lead to mean that the industrial establishment which is providing municipal services to an industrial township is same as Municipality as defined in Article 243P(e). We have already noticed that Article 243P(e) defines Municipality as an institution of self-government constituted under Article 243Q, the word constituted used under Article 243P(e) read with Article 243Q clearly refers to the constitution in every State a Nagar Panchayat, a Municipal Council or a Municipal Corporation. Further, the words in proviso "a Municipality under this clause may not be constituted" clearly means that the words "may not be constituted" used in proviso are clearly in contradistinction wi....
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....e Authority by way of loan from financial and other institutions and debentures floated for the execution of a scheme or schemes of the Authority duly approved by the State Government. Unless the State Government directs otherwise, all moneys received by the Authority shall be credited to its funds which shall be kept with State Bank of India and/or one or more of the nationalised banks and drawn as and when required by the Authority." 32. On the question as to whether the Adityapur Industrial Area Development Authority was covered within the meaning of local authority as per Section 10(20) as amended by the Finance Act, 2002, the High Court held that the appellant authority could not have claimed benefit under the provisions after 01.04.2003. In paragraphs 6 and 7 following was held: "6. It would thus be seen that the income of a local authority 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 was earlier excluded in computing the total income of the Authority of a previous year. However, in view of the amendment, with effect from 1-4-2003 the Explanation "local authority....
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.... the High Court. 35. The second judgment which is relied on by the High court is Agricultural Produce Market Committee, Narela (supra). The Agricultural Produce Market Committee was constituted under the Delhi Agricultural Produce Marketing (Regulation) Act, 1998. The question arose as to whether Agricultural Market Committee is a "local authority" under the Explanation to Section 10(20) of the Income Tax Act, 1961. In the above context it was noticed that all Agricultural Market Committees at different places were enjoying exemption from income tax under Section 10(20) prior to its amendment by the Finance Act, 2002 w.e.f. 01.04.2003. The definition of 'local authority' under Section 3(31) of General Clauses Act, 1897 is as follows: ""local authority" shall mean a municipal committee, district board, body or port Commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund;" 36. In the above case this Court noticed in extenso the provisions of Delhi Agricultural Produce Marketing (Regulation) Act, 1998 and provisions of Section 10(20) of the Income Tax Act, 1961. Definition of local....
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....und. 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 must have separate legal existence as corporate bodies. They must not be mere governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area. Next, they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of the dependence may vary considerably but, an appreciable measure of autonomy there must be. Next, they must be entrusted by statute with such governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc. etc. Broadly we may say that they....
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....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 Industrial Development Act, 1962, the provisions of Article 243Q and Gujarat Municipalities Act, 1963. 40. This Court held that Gujarat Industrial Development Act operates in a totally different sphere from Parts IX and IXA of the Constitution and the Gujarat Panchayats Act, 1961. In paragraph 16 of the judgment following was held: "The Gujarat Industrial Development Act operates in a totally different sphere from Parts IX and IX-A of the Constitution as well as the Gujarat Panchayats Act, 1961 and the Gujarat Municipalities Act, 1962 - the latter being provisions dealing with local self-government, while the former being an Act for industrial development and orderly establishment and organisation of industries in a State." 41. It is, however, true that in the above case this Court was not concerned with the issue which has arisen in the present case and the Court was concerned with a different controversy.....
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....bstance 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 and Ginning Mills Federation Limited vs. Deputy Commissioner of Income Tax, Jaipur, 2014(11) SCC 672 again reiterated that there has to be strict interpretation of taxing statutes and further the fact that one class of legal entities are given some benefit which is specifically stated in the Act does not mean that the legal entities not referred to in the Act would also get the same benefit. Following was laid down in paragraph 23: "23. We are also of the view that in all the tax matters one has to interpret the taxation statute strictly. Simply because one class of legal entities are given some benefit which is specifically stated in the Act does not mean that the legal entities not referred to in the Act would also get the same benefit. As stated by this Court on several occasions, there is no equity in matters of taxation. One cannot read into a section which ha....
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....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 donors and this may result in drying up of donations. To continue the incentive to donation made to housing authorities etc., section 80G has been amended so as to provide that 50% of the sum paid by an assessee to an authority constituted in India by or under any law enacted either for the purpose 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, shall be deducted from the total income of such assessee. 13.4 These amendments will take effect from lst April, 2003 and will, accordingly, apply in relation to the assessment year 2003 2004 and subsequent assessment years." 47. The explanatory note clearly indicates that by Finance Act, 2002 the exemption under Section 10(....
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....rom 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 explain and not vice versa." (pp. 297-98) 53. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is- "(a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanati....
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....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 on equity, inference, etc. It is the first principle of interpretation that a statute should be read in its ordinary, natural and grammatical sense as observed by the Supreme Court of India: "In construing a statutory provision the first and foremost rule of construction is the literary construction. All that the Court has to see at the very outset is what does the provision say. If the provision is unambiguous and if from the provision the legislative intent is clear, the Court need not call into aid the other rules of construction of statutes. The other rules of construction are called into aid only when the legislative intent is ....