TaxTMI 
TaxTMI 
2018 (7) TMI 137
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.... 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 referred to as "I.T.Act, 1961). The writ petition was allowed by the Division Bench of....
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..... 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 Balbir Singh, learned senior counsel appearing for the appellant and Shri K Radhakrishnan, learned senio....
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....ntends 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 Legislation on municipalities operates in a different legislative field as compared to Legislation on Industria....
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....02 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) Municipality as referred to in clause (e) of article 243P of the Constitution88; or (iii) Municipal Committee and District Board, le....
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.... 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 to in paragraph (i) shall not have the right to vote in the meetings of the Municipality; (b) the manner of election of the Chairperson of a Municipality." 18. Article 243S provides for Constitution and composition of Wards Committees, etc. Article 243T provid....
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.... 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 the function of the Authority which is to the following effect: "6.(1) The object of the Authority shall be to secure the planned development of the industrial development area. (2) Without prejudice to the generality of the objects of the Authority, the Authority shall perform the following functions :- (b) to prepare a plan for the development of the industrial development ....
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....ded 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 effectively as vibrant democratic units of self-government. 2. Having regard to these inadequacies, it is considered necessary that provisions relating to Urban Local Bodies are incorporated in the Constitution particularly for- (i) putting on a firmer footing the relationship between the State Government and the Urban Local Bodies with respect to19 (a) the functions and taxation powers; and (b) arrangements for revenue sharing; (ii) Ensuring regular conduct of elections; (iii) ensuring timely elections....
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....ntemplated 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 "Municipality means an institution of self-government constituted under Article 243Q. Whether the appellant is a institution of self-government constituted under Article 243Q is the main question to be answered? Sub-clause (1) of Article 243Q provides that there shall be constituted in every State- a Nagar Panchayat, a Municipal Council and a Municipal Corporation, in accordance with the provisions of this Part. The proviso to sub-clause (1) provides that: "Provided that a municipality under this clause may not be constituted in such urban area or part thereof as the Governor may, having re....
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....t 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. * * * If the rule of construction is that prima facie a proviso should be limited in its operation to the subject-matter of the enacting clause, the stand we have taken is sound. To expand the enacting clause, inflated by the proviso, sins against the fundamental rule of construction that a proviso must be considered in relation to the principal matter to which it stands as a proviso. A proviso ordinarily is but a proviso, although the golden rule is to read the whole section, inclusive of the proviso, in such manner that they mutually throw light on each other and result in a harmonious construction." 42. In Hiralal Rattanlal v. State of U.P., 1973 (1)S....
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....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 with the word constituted as used in Article 243P(e) and Article 243Q. Thus, notification under proviso to Article 243Q(1) is not akin to constitution of Municipality. We, thus, are clear in our mind that industrial township as specified under notification dated 24.12.2001 is not akin to Municipality as contemplated under Article 243Q. 31. At this juncture, we may also notice the two judgments as relied on by the High Court and three more judgments where Article 243Q came for consideration. The first judgment which needs to be noticed is Adityapur Industrial Area Development Authority (supra). The Adityapur Industrial Development Authority was constituted under the Bihar Industrial Area Development Authority Act,....
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....1.04.2003. 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" was defined to include only the authorities enumerated in the Explanation, which does not include an authority such as the appellant. At the same time Section 10(20-A) which related to income of an authority constituted in India by or under any law enacted 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, which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by sub-section (20-A) on such an authority was taken away. 7. The High Court by its impugned judgment and order held that in view of the fact that Section 10(20-A) was omitted and an Explanation w....
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.... 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 authority as contained in Explanation to Section 10(20) and Section 3(31) of the General Clauses Act was also noticed and discussed. This Court held that the definition of local authority in General Clauses Act under Section 3(31) is no longer applicable after the amendment of Section 10(20) by Finance Act, 2002. Following was laid down by this Court in paragraphs 31 and 32: 31. Certain glaring features can be deciphered from the above comparative chart. Under Section 3(31) of the General Clauses Act, 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 A....
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....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 may be entrusted with the performance of civic duties and functions which would otherwise be governmental duties and functions. Finally, they must have the power to raise funds for the furtherance of their activities and the fulfilment of their projects by levying taxes, rates, charges, or fees. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority." 37. The Court further held that Explanation under Section 10(20) provides an exhaustive definition and the tests laid down by this Court in an earlier case i.e. Union of India and others vs. R.C. Jain and others, 1981 (2) SCC 308, are no longer applicable. In paragraph 35 following was stated: "35. One more aspect needs to be menti....
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....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. 42. We, thus, conclude 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). B. Section 10(20) as amended by the Finance Act, 2002 43. We have already noticed that by the Finance Act, 2002 an Explanation has been added to Section 10(20) of the I.T. Act, 1961 and Section 10(20A) has been omitted. Prior to Finance Act, 2002 there being no definition of 'local authority' under the I.T. Act, the provisions of Section 3(31) of the General Clauses Act, 1897 were pressed into service while interpreting the extent and meaning of local authority. The Explanation having now contained the exhaustive definition of local authority, the definition of local authority as contained in Section....
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....ecause 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 has not been specifically provided for and therefore, we do not agree with the submissions of the learned counsel appearing for the appellant and we are not prepared to read something in the section which has not been provided for. The judgments referred to hereinabove support the view which we have expressed here." 45. It shall be useful to refer to Explanatory Notes on Finance Act, 2002. Explanatory Notes both on Section 10(20) and Section 10(20A) are relevant and contained in paragraph 12.2 to 12.4 and 13.1 to 13.4. Paragraphs 12.2. to 12.4 under the heading: Income of certain Local Authorities to become taxable are to the following effect: "12.2 Through Finance Act, 2002, this exemption has been restricted to the Panchayats and Municipalities as referred to in Articles 243(d) and 243(p)(e) of the Constitution of India respectively. Municipal Committees and Di....
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....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(20) has been restricted to the Panchayats and Municipalities as referred to in Articles 243P(d) and 243P(e). Further by deletion of Clause (20A), the income of the Housing Boards of the States and of Development Authorities became taxable. 48. On a writ petition filed by the appellant before the Allahabad High Court where the notices issued in the year 1998 under Section 142 of the Income Tax Act was challenged vide its judgment dated 14.02.2000 the High Court held that appellant's case comes squarely under Section 10(20A) of the Income Tax Act, hence, the appellant was liable to be exempted under the said Act, although, the High Court did not express any opinion on the question whether appellant was exempted under Section 10(20) in that judgment. 49. After omission of Section 10(20A) only provision under which a Body or Authority can claim exemption is Section 10(20). Local authority having been exhaustively define....
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....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 Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same." 51. This Court in Adityapur Industrial Area Development Authority (supra) after considering Section 10(20) as amended by the Finance Act, 2002 and consequences of deletion of Section 10(20A) has laid down following 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 subm....
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....rt 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 not clear" vide Hiralal Ratanlal v. STO, AIR 1973 SC 1034;" 53. A Division Bench of the Delhi High Court also in Agricultural Produce Market Committee vs. Commissioner of Income-tax, (2006)156 ITR 286 had occasion to consider Section 10(20) as amended w.e.f. 01.04.2003 where the High court in paragraph 8 has stated the following: "8. The most striking feature of the Explanation is that the same provides an exhaustive meaning to the expression "local authority". The word "means" used in the Explanation leaves no scope for addition of any other entity as a 'local authority' to those enlisted in the Explanation. In other words, even if an entity constitutes a 'local authority' for purposes of the General Clauses Act, 1897 or for purposes of any other enactment for that matter, it would not be so construed for purposes of section 10(20) of the Act unless it answers the description of one of those entities enumerated in the Explanation. Mrs. Ahlawat did not make any attempt to bring her case under clauses (i),....