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2018 (10) TMI 874

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.... 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. 01.04.2003. A Notice under Section 142(1) of the Income Tax....

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....er 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 pass fresh order after providing the reasons to the assessee and after deciding the ....

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....rned 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 Court in New Okhla Industrial Development Authority Vs. Chief Commissioner of Income Tax & Ors.(....

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....he 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 April, 2003 and will, accordingly, apply in relation to the assessment year 2003 2004 and subsequent assessment years. 13.1 Under the existing provisions contained in clause (....

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....n 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 clauses. Clause (i) relates to Panchayat as referred to in clause (d) of article 243 of the Constitution. Clause (ii) relates to Municipality as referred to in clause (e) of article 243P of the Constitution. Clause(iv) relates to Cant....

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....n (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 least one shall be a person in the service of the State Government. (7) The names of all persons appointed or elected to the Trust shall be notified by the State Government in the Official Gazette." 24. Under Section 47, certain powers under the Municipal laws may be vested in the Trust. Section 48 provides for Transfer of duties etc. of Municipal....

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....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 duly met." 26. It is relevant to notice that in the same year in which the Rajasthan Urban Improvement Act, 1959 was passed, another enactment namely, the Rajasthan Municipalities Act, 1959 was enacted. Learned counsel for the respondent has referred to notification dated 09.07.1970 by which the State Government has established Urban Improvement Trust, Kota. Notification dated 09.07.1970 is as follows;- "TOWN PLANNING DEPARTMENT....

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....palities. 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 Vs. Commissioner of Income Tax and Another, (2008) 9 SCC 434. In the above case, this Court had examined the Explanation to Section 10(20) as amended by Finance Act, 2002 and the definition of local authority contained therein. After noticing the definition of local authority as contained in Section 10(20) Explanation w.e.f. 01.04.2003 as well as Section 3(31) of the General Clauses Act, 1897. Following was stated in Para 30 and 31:- "30. At the outset, it may be noted that prior to the Finance Act, 2002, the said 1961 Act did not contain the definition of the word "local ....

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.... 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 Clause (iii) of Section 10(20). This Court held that the words "Municipal Committee and District Board" in Explanation were used out of abundant caution. In 1897, when the General Clauses Act was enacted there existed in India Municipal Committees and District Boards, which were discharging the municipal functions in different parts of the country. The expression "Municipal Committee and District Board" were included by amendments incorporated by Finance Act, 2002 to take into its fold those Municipal Committees and District Board which are still discharging municipal functions where no other municipalities or boards to di....

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....ontinue 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 discharging municipal functions and power in any part of country and so far has not been substituted by any other Body by any Act of Legislature. The word "Municipal Committee" occurring in Clause (iii) Explanation, thus, has a definite purpose and object. Purpose and object was to cover those bodies, which are discharging municipal functions but are not covered by the definition of municipalities as was required to be constituted by Article 243Q of the Constitution of India. Urban Improvement Trust constituted under the Rajasthan Urban Improvement Act, 1959, thus, cannot be held to be covered by the definition of Municipal Committee as contained in Cla....

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....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 Act, 1959 does not permit acceptance of the contention of the appellant assessee that Urban Improvement Trust is a Municipal Committee within the meaning of Section 10(20) Explanation (iii). The purpose and object for expression "Municipal Committee" used in Section 10(20) Explanation (iii) has been explained, as already noticed above, by this Court's judgment in Agricultural Produce Market Committee Narela, Delhi (supra). 38. The entire consideration of the High Court in the impugned judgment is contained in paragraph 15 to 18 which are to the following effect:- "15. It is true that the functions which are carried out by the assessee are statutory functio....