TaxTMI 
TaxTMI 
2018 (10) TMI 874
X X X X Extracts X X X X
X X X X Extracts X X X X
....Katiyar, AOR For the Respondent(s) : Mr. Tarun Gupta, AOR JUDGMENT ASHOK BHUSHAN, J. Leave granted. 2. These appeals have been filed by the Revenue challenging the Division Bench judgments of Rajasthan High Court dated 25.07.2017 as well as subsequent judgment dated 23.10.2017 following earlier judgment. The High Court vide its above judgments has dismissed all the income tax appeals of the Revenue and allowed that of assesse - Urban Improvement Trust. The Division Bench accepted the claim of the assessee that it is local authority within the meaning of Clause (iii) of Explanation to Section 10(20) of the Income Tax Act, 1961 and hence it is entitled for exemption under Section 10(20) of the Act. The Revenue have been contending that Urban Improvement Trust, the assessee is not a local authority within the meaning of Explanation to Section 10(20), hence it is not entitled for exemption. 3. For deciding this batch of appeals, it shall be sufficient to notice the facts of Civil Appeal arising out of S.L.P. (C) No. 18067 of 2018 - The Income Tax Officer Vs. M/s. Urban Improvement Trust, Kota. 4. Section 10(20) has been amended by Finance Act, 2002 w.e.f. 01.04.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Revenue were dismissed and that of the assessee were allowed. 6. Another set of appeals have been filed by the Revenue questioning the subsequent judgment of the High Court dated 23.10.2017 deciding Income Tax Appeal No. 287 of 2016 and other appeals. The above appeals were filed by the assessee against the judgment of the ITAT dated 08.06.2017 wherein ITAT had set aside the order of the Assessing Officer and had directed the Assessing Officer to provide reasons for issuing Notice under Section 148 to the assessee in respect of assessment years 2005-2006 to 2009-2010. Assessee thereafter was allowed to file objection before the Assessing Officer and Assessing Officer was directed to pass a speaking order. Operative portion of the judgment of ITAT contained in Para 7 is to the following effect:- "7. Since we have set aside the order passed in respect of the assessment year 2005-06 to 2009-10 as the Assessing Officer has not provided the reasons u/s 148 of the Act, therefore, the appeals of the revenue arising out of the order passed by the Ld CIT(A) in respect of the assessment year 2005-06 to 2009-10 are also set aside with the direction to the Assessing Officer to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation and the constitutional provisions of Articles 243P and 243Q of the Constitution. 11. Learned counsel for the assessee refuting the submission of appellant contends that Urban Improvement Trust is fully covered by the definition of local authority as contained in Explanation to Section 10(20) as amended by Finance Act, 2002. It is submitted that the Urban Improvement Trust is constituted under the Rajasthan Urban Improvement Act, 1959 and the assessee is performing various municipal functions, hence it is also entitled for the benefit, which is extended to the municipalities. Learned counsel for the respondent submits that the assessee, i.e. Urban Improvement Trust is covered within the definition of local authority as given in sub-clause(iii) of Explanation, i.e. "Municipal Committee". It is submitted that assessee performs the municipal functions, collects charges, has control over the municipal funds and after dissolution of the trust, the entire fund is reverted back to the Municipal Board, which provision clearly indicate that it is a Municipal Committee and covered by definition of local authority under Section 10(20). Learned counsel submits that the judgment of this....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wns and villages or for both;" 16. At this juncture, it is relevant to notice the Explanatory Notes on Finance Act, 2002. Explanatory Notes was on both the sections - Section 10(20) as well as Section 10(20A). Paragraphs 12.2 to 12.4 and 13.1 to 13.4 of the Explanatory Notes, which are relevant for the present purpose are as follows:- "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 District Boards, legally entitled to or entrusted by the Government with the control or management of a Municipal or a local fund and Cantonment Boards as defined under section 3 of the Cantonments Act, 1924. 12.3 The exemption under clause (20) of section 10 would, therefore, not be available to Agricultural Marketing Societies and Agricultural Marketing Boards, etc., despite the fact that they may be deemed to be treated as local authorities under any other Central or State Legislation. Exemption under this clause would not be available to port trusts also. 12.4 This amendment will take effect from 1st ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovision for the improvement and expansion of urban areas in the State of Rajasthan." 18. Section 10(20A) specifically granted exemption to income of an authority constituted in India by or under any law and the Rajasthan Urban Improvement Act, 1959 was, thus, clearly covered by Section 10(20A) as was availing exemption under Section 10(20A) prior to Finance Act, 2002. What is the consequence of deletion of Section 10(20A) and further insertion of Explanation under Section 10(20) providing for an exhaustive definition of the word "local authority", which was not defined under the I.T. Act prior to Finance Act, 2002? For definition of local authority, the provisions of General Clauses Act, 1897 - Section 3(31) were looked into and applied. The definition of local authority given under Section 3(31) of the General Clauses Act was 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;" 19. The Explanation added to Section 10(20) now defines the definition of local authority in four c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribe is represented in the Trust by virtue of Clause (a) or Clause (b)] [x X x] (2) The Chairman and the persons referred to in Clause (c) of Sub-section (1) [x x x] shall be appointed by the State Government by notification. (3) The members of the Municipal Board referred in Clause (b) of Sub-section (1) shall be elected by the said Board. (4) If the said Board does not, by such date as may be fixed by the State Government, elect two of its members to be Trustees, the State Government shall appoint two members of the said Board to be Trustees and every person so appointed shall be deemed to be a Trustee as if he had been duly elected by the Municipal Board. (5) If the said Board shall have been superseded or dissolved in accordance with the provision of the Municipal law for the time being in force, it shall be represented on the Trust by persons appointed or elected, as the case may be, by the officer or authority appointed under the said law to discharge the functions and exercise the powers of the Board during the period of its supersession or dissolution. (6) Of the person referred to in Clause (c) of Sub-section (1) at lea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....continued existence of the Trust, in the opinion of the State Government, unnecessary, the State Government may by notification declare that the Trust shall be dissolved from such date as may be specified in this behalf in such notification and the Trust shall be deemed to be dissolved accordingly. (2) From the said date- (a) all properties, funds and dues which are vested in or realisable by the Trust shall vest in and be realisable by the Municipal Board; (b) all liabilities which are enforceable against the Trust shall be enforceable against the Municipal Board; (c) for the purpose of completing the execution of any scheme sanctioned under this Act, Which has not been fully executed by the Trust, and, of realising properties, funds and dues referred to in Clause (a) the functions of the Trust under this Act shall be discharged by the Municipal Board as if it were the Trust under this Act, and (d) the Municipal Board shall keep separate accounts of all moneys respectively received and expended by it under this Act, until all loans raised hereunder have, been repaid and until all other liabilities referred to in clause (b) have been dul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n place of the municipality/municipal board rather it undertakes the act of improvement in urban areas of a municipality/municipal board under the Rajasthan Urban Improvement Act, 1959. It may also perform certain limited power of the municipal board as referred to in Sections 47 and 48 but on the strength of such provision Urban Improvement Trust does not become a municipality or municipal board. After the insertion of Part IXA in the Constitution by the Constitution (Seventy-fourth) Amendment Act, 1992 w.e.f. 01.06.1993, Articles 243Q deals with constitution of Municipalities. Section 10(20) Explanation, Clause (ii) relates to Municipalities. 28. Learned counsel for the assessee has not based its claim on the basis of Clause (ii) of Explanation rather it has confined its claim to only Clause (iii). Under Clause (iii) claim of the assessee is that it is a "Municipal Committee". We, thus, have to answer as to whether it is a Municipal Committee within the meaning of Explanation to Section 10(20) or not? 29. The word "Municipal Committee" as occurring in Section 10(20) Explanation came for consideration before this Court in Agricultural Produce Market Committee Narela, Delhi V....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ody of Port Commissioners". This is how the functional test is evolved in R.C. Jain. However, as stated earlier, Parliament in its legislative wisdom has omitted the words "other authority" from the said Explanation to Section 10(20) of the 1961 Act. The said Explanation to Section 10(20) provides a definition to the word "local authority". It is an exhaustive definition. It is not an inclusive definition. The words "other authority" do not find place in the said Explanation. Even, according to the appellant(s), AMC(s) is neither a Municipal Committee nor a District Board nor a Municipal Committee nor a panchayat. Therefore, in our view functional test and the test of incorporation as laid down in R.C. Jain is no more applicable to the Explanation to Section 10(20) of the 1961 Act. Therefore, in our view the judgment of this Court in R.C. Jain followed by judgments of various High Courts on the status and character of AMC(s) is no more applicable to the provisions of Section 10(20) after the insertion of the Explanation/definition clause to that sub-section vide the Finance Act, 2002." 31. This Court further noticed the expression "Municipal Committee" in Claus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the Constitution (Seventy-fourth Amendment) Act, 1992, even if inconsistent with the provisions of Part IX-A, shall continue to be in force until amended or repealed by a competent legislature. In Para 39, following has been laid down:- "39. Similarly, under Part IX-A there is Article 243-ZF which refers to the "Municipalities". This article, inter alia, states that notwithstanding anything in Part IX-A, any provision of any law relating to municipalities in force in a State immediately before the commencement of the Constitution (Seventyfourth Amendment) Act, 1992, which is inconsistent with the provisions of Part IX-A, shall continue to be in force until amended or repealed by a competent legislature. In our view, Article 243-N and Article 243-ZF 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 exemption to their income under Section 10(20) of the 1961 Act." 33. In above case, this Court, thus, has held that the expression "Municipal Committee and District Board" occurring in Clause (iii) of Explanation referred to those bodies, which are discharg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the improvement by the Improvement Trusts. 36. Sections 61 to 64 as noticed above are the provisions empowering levy of betterment charges, which is again in reference to and in context of carrying out improvement by the Improvement Trust in urban areas. The Municipal Board, Kota performs its functions, in areas where Municipal Board still exists. There is no reason to accept that Urban Improvement Trust is a Municipal Committee within the meaning of Section 10(20) Explanation Clause (iii). Coming back to Section 105, which provides for ultimate dissolution of Trust and transfer of its assets and liabilities to the Municipal Board, this provision does not in any manner improve the case of the assessee. When the Trust is dissolved or at dissolution, properties and funds and dues vested in or realisable by the Trust shall vest in and be realisable by the Municipal Board, which is a provision for different purpose and object. The above provision does not support the contention that Improvement Trust is a Municipal Committee as referred to in Clause (iii) of Explanation to Section 10(20) of the I.T. Act. 37. We, thus, are of the view that Scheme of the Rajasthan Urban Improvement....