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TMI Blog2011 (3) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... hapatnam Bench took the view that the said provision is intended to declare the intention of the Legislature of not taxing agricultural market committees, and, hence, it has to be treated as retrospective in operation. The Hyderabad Bench, relying on Agricultural Produce Market Committee v. CIT, (Narela AMC) [2008] 305 ITR 1 (SC) ; [2008] 9 SCC 434, took a contra view, and held that agricultural market committees are not eligible for exemption under section 10(26AAB) of the Act for the assessment years 2003-04 and 2004-05. 2. The learned Advocate General Mr. A. Sudershan Reddy, appearing for the agricultural market committees made the following submissions. agricultural market committees availed of tax exemption under section 10(20) of the Act till April 1, 2002. By reason of the insertion of the Explanation thereto, with effect from April 1, 2003, they were denied the exemption and, therefore, section 10(26AAB) of the Act was enacted providing exemption with effect from April 1, 2009. Narela AMC [2008] 305 ITR 1 (SC) is a case which conclusively decided that agricultural market committees are not local authorities in view of the Explanation/definition clause to section 10(20) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Agencies Ltd. [2009] 12 SCC 209. The point for consideration 4. The 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 total 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 clause (d) of article 243 of the Constitution ; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution ; or (iii) Municipal Committee and District Board, legally entitled to, or en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... committees were specifically denied exemption as local authorities although they could claim such exemption under section 11 of the Act if they were registered as institutions employed in charitable purposes. 6.The agricultural market committees contend that, even during the interregnum from 2003 to 2009, they ought to be treated as local authorities and made eligible automatically for exemption under section 10(26AAB) of the Act. According to them, section 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 met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te is like an interpretation clause for the purpose of removing doubt as to the meaning of an existing law or to correct a construction considered erroneous by the Legislature. 11. The Statute Law by Craies (1971, seventh edition) defines a declaratory Act as one, "to remove doubts existing as to common law, or the meaning or effect of statute law" (page 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, page 395). 12. Justice G. P. Singh in Principles of Statutory Interpretation (2010, 12th edition), while quoting the passage from Craies as approved by the Supreme Court in Central Bank of India v. Their Workmen [1959] 29 Comp Cas 367 (SC) ; [1959-60] 17 FJR 57 (SC) ; AIR 1960 SC 12, summed up t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be so construed when the pre-amended provision was clear and unambiguous ; (iv) If a statute is curative, or a mere declarative, retrospective operation is generally intended ; and (v) In determining the nature of the Act, substance is more important than the form. 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 [1995] 213 ITR 340 (SC), a Division Bench of the Supreme Court considered the issue whether section 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 the coming into force of the said Act. Section 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 the coming into force of the Act. The statement of law in Justice G. P.Singh' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequence of the amendments will have a greater bearing in deciding the issue placed before us. In other words, if after discussion we come to a conclusion that the amendment was clarificatory/declaratory in nature and, therefore, it will have retrospective effect then it will set at rest the controversy finally. We have seen that the High Courts are sharply divided 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 section 54 of the Transfer of Property Act was executed, can be 'owners' for the purpose of section 22 of the Act. The other set of High Courts had taken a contrary view holding that unless a registered sale document transferring the ownership as required under the Transfer of Property Act the so-called purchasers cannot become owners for the purpose of section 22 of the Act." 16. Brij Mohan Das Laxman Das v. CIT [1997] 223 ITR 825 (SC) ; [1997] 1 SCC 352 ; AIR 1997 SC 1651, is a case which applied the principle that enactments decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod anterior to April 1, 1985, any interest paid to a partner, who is a partner representing his HUF, on the deposit of his personal/individual funds, does not fall within the mischief of clause (b) of section 40. In this view of the matter, we agree with the view taken by the Rajasthan High Court in Gajanand Poonam Chand and Bros. v. CIT [1988] 174 ITR 346 (Raj), that Explanation 2, in the context of clause (b) of section 40, is declaratory in nature." 17. Brij Mohan Das [1997] 223 ITR 825 (SC) was followed and applied in Suwalal Anandilal Jain v. CIT [1997] 224 ITR 753 (SC) ; [1997] 4 SCC 89. While referring to CIT v. R. M. Chidambaram Pillai [1977] 106 ITR 292 (SC) ; [1997] 1 SCC 431 it was held that section 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 v. Khanji Shivji and Co. [2000] 242 ITR 124 (SC) ; [2000] 2 SCC 253 a Division Bench of the Supreme Court followed Brij Mohan Das [1997] 223 ITR 825 (SC) and Suwalal [1997] 224 ITR 753 (SC) 19. In Allied Motors P. Ltd. v. CIT [1997] 224 ITR 677 (SC) ; [1997] 3 SCC 472, the Supreme Court considered the question of retrospectivity of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the assessee incurred the liability to pay that tax. Hence, an assessee (as in the present case), who had collected sales tax in the last quarter of the previous accounting year and deposited it in the treasury within the statutory period falling in the next accounting year, would not be entitled to claim any deduction for it. The sales tax so collected will form a part of the assessee's income. To obviate this kind of unexpected outcome of section 43B, the first proviso was added in section 43B by the Finance Act of 1987. The proviso makes it clear 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 [2004] 8 SCC 1, while reiterating the principles of law with regard to declaratory laws, the Supreme Court quoted with approval the four factors suggested as relevant in Craies Statute Law while determining whether a law is declaratory or not. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew, the said proviso was clarificatory in nature. In taxation, the legislation of the type indicated by the proviso has to be read strictly. There is no question of retrospective effect. The proviso only clarifies that out of the four dates, Parliament has opted for the date, namely, the year in which the search is initiated, which date would be relevant for applicability of a particular Finance Act. Therefore, we have to read the proviso as it stands. There is one more reason for rejecting the above submission. Prior to June 1, 2002, in several cases, tax was prescribed sometimes in the 1961 Act and sometimes in the 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 section 113 but the year of the 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 section 113 merely clarifies that out of the above four dates, the relevant date for applicability of the Finance Act would be the year in which the search stood initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws. Therefore, by way of the first proviso, an incentive/ relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the Income-tax Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare 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 with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act enumerates various types of income and incomes of various statutory, non statutory entities, concerns and institutions, which shall not be included in computing the total income of the previous year of any person. The income of newly established undertakings in free trading zones and special economic zones as well as income of hundred per cent export-oriented undertakings and those idustrial undertakings in the North-Eastern Region also stand exempted under sections 10A, 10AA, 10B, 10BA, 10BB and 10C of the Act. Sections 11 to 13 of the Act constituting a code, deal with income from charitable or religious purposes. The last group comes under section 13A which relates to income received by political parties by way of voluntary contributions. Exemption of agricultural market committees as local authorities 26. The exemption from tax liability of the agricultural market committees constituted under section 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. Section 10(20) of the Act, extracted hereinabove, exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; agricultural market committees are neither Municipalities nor District Boards under the Explanation to section 10(20) of the Act ; and they are not entitled to exemption under section 10(20) of the Act after insertion of the Explanation to section 10(20) of the Act. 30.Thus, agricultural market committees, which were exempted from income-tax till March 31, 2003, became disentitled to claim exemption due to Parliamentary intervention in inserting an Explanation to expand the tax base, and to prohibit all local authorities except those mentioned in the Explanation. In other words, with effect from April 1, 2003, agricultural market committees could not be considered local authorities nor would it be said that there is ambiguity or doubt after April 1, 2003 as to the status of agricultural market committees being local authorities because of the clear language in the Explanation to section 10(20) of the Act and also the decision of the Supreme Court in Narela Agricultural Market Committee [2008] 305 ITR 1 (SC) Exemption of agricultural market committees as juridical persons for the advancement of the object of general public utility 31. The second period is from April 1, 2003, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty held under legal obligation for a charitable purpose to wit the advancement of general object of utility. It is, therefore, entitled to be registered under section 12A/12AA to enable an agricultural market committee to claim exemption as per law. We have reasons for this conclusion which are as follows. Agricultural market committee is constituted under the State Act for the sole purpose of protecting the interest of agriculturists, farmers and growers. The purpose of marketing legislation is to enable purchasers to get a fair price for the commodities by eliminating middlemen and provide regular market with all necessary facilities . . . Secondly, the agricultural market committee is under legal obligation to provide all necessary infrastructure and market facilities within the market place/ yard in notified market area, including water, electricity, auction/trading platforms, facilities for receiving, paying and depositing money, and resolving disputes. Thirdly, the income of the agricultural market committee from different sources-licence fees, market fees, loans, etc., which is derived without any profit motive is to be used to meet the expenditure for providing market fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act is declaratory in nature. Before its enactment, there was no doubt or ambiguity in understanding the nature of exemption from income-tax availed of by the agricultural market committees. After insertion of the Explanation to section 10(20) of the Act, with effect from April 1, 2003, an agricultural market committee ceased to be a "local authority". There can-not be any doubt or ambiguity on this score. Thereafter, before insertion of section 10(26AAB) of the Act, an agricultural market committee could claim exemption, under section 11(1) of the Act, as a charitable institution. Here also there is no ambiguity or doubt, nor is it a case of Parliament supplying an omission to redress a hardship. In the pre-2003 period, it may be reiterated, agricultural market committees were treated as local authorities, but post-April 1, 2009, they are not treated as local authorities but are grouped as a separate category of statutory creations entitled to the benefit under section 10 of the Act. The submission of the agricultural market committees, therefore, cannot be accepted. Section 10(26AAB) of the Act is operative only from April 1, 2009, and it cannot operate retrospectively n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 38. In K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) ; [1981] 4 SCC 173 ; AIR 1981 SC 1922, the Supreme Court relied on the speech made by the hon'ble Finance Minister while moving the amendment introducing sub section (2) of section 52 of the Act. In this regard, the court observed as follows (page 608) : "Now, it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. In fact there are at least three decisions of this court, one in Sole Trustee, Loka Shikshana Trust v. CIT [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles of interpretation, the speech made by the Union Finance Minister while replying to the debate to the Finance Bill is not conclusive regarding the intention of the Legislature whether or not a new provision is inserted by way of a declaration. Even otherwise, the speech of the Finance Minister extracted to the extent relevant as above does not support the contention of the agricultural market committees. There are four reasons to arrive at this conclusion. 42. The Finance Bill, 2008, did not contain any proposal to insert clause (26AAB) in section 10, nor was there any such proposal to insert sub-clause (h) in clause (29A) dealing with the Coir Board. The speech of the Finance Minister does not specifically refer to retrospectivity of the proposed clause (26AAB) in section 10. In so far as section 10(29A)(h) of the Act is concerned, the Finance Minister says that exemption is being extended to Coir Board retrospectively from April 1, 2002. If there had been any inadvertence in so far as giving retrospectivity to section 10(26AAB) as well, the same would have been rectified and corrected in the Finance Act. It is not so. The Finance Act, 2008, relevant to our purpose, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enjoyed such exemption from April 1, 2003, not as "local authorities" but as juridical persons deriving income from the property for charitable purposes, assuming that they have obtained registration under section 12A for the purpose of availing of exemption under section 11 of the Act and indisputably they would be availing of exemption from tax, under the Income-tax Act from April 1, 2009, as creations under the State law. There is no doubt or ambiguity whatsoever with regards this position and, therefore, section 10(26AAB) of the Act cannot be construed as declaratory in nature. 45. Thirdly, as held by the Supreme Court in Narela AMC [2008] 305 ITR 1 (SC) section 3(31) of the General Clauses Act, 1897, was not bodily lifted and incorporated in the Explanation to section 10(20) of the Act. In view of the deliberate omission by Parliament to restrict the meaning of "local authority", only to four categories of legal entities, it is not possible to accept the plea of the learned Advocate General. If Parliament intended to clarify the position, vis-a-vis the Explanation to section 10(20) of the Act and agricultural market committees, nothing prevented them to insert another entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y makes it clear that, in the case of the former clause, the enforceability is with effect from April 1, 2009, and it shall accordingly apply for the assessment year 2009-10 whereas in the case of the latter sub-clause, it is made applicable with retrospective effect from April 1, 2002, and shall apply for the assessment year 2002-03. It is settled legal position that the Central Board of Direct Taxes circulars are binding on all income-tax authorities (Union of India v. Muralidhara Menon [2009] 9 SCC 304 and Asst. CIT v. Hotel Blue Moon [2010] 321 ITR 362 (SC) ; [2010] 3 SCC 259), and do not fetter the court from interpreting the law. But they do certainly have significance in understanding the provision under consideration. If the Central Board of Direct Taxes clarificatory circular issued on the heels of the Finance Act does not deviate from the Finance Bill and the Act, there is no bar to rely on the Central Board of Direct Taxes Circular. A combined reading of paragraphs 7.1 and 7.2 with 8.1 and 8.2 of the Central Board of Direct Taxes Circular No. 1 of 2009, dated March 27, 2009, negatives the sub- mission of the agricultural market committees that section 10(26AAB) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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