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TMI Blog2018 (7) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in sub-clause (ii) of Explanation. It is not even the case of the appellant that the appellant is covered by Section 10(20) except clause (ii). Thus, we are of the considered opinion that the appellant is not covered by the definition of local authority as contained in Explanation to Section 10(20). - Decided against the assessee. - Civil Appeal Nos.792-793 of 2014 - - - Dated:- 2-7-2018 - Mr. A.K. Sikri And Mr. Ashok Bhushan JJ. For the Appellant(s) : Mr. Balbir Singh, SR. Adv., Mr. Jasmeet Singh, AOR, Mr. Naman Joshi, Adv., Ms. Ruhsheet J. Saluja, Adv., Mr. Hemant Jain, Adv., Mr. S.N. Tayag Rajan, Adv., Mr. Mahinder Singh, Adv., Mr. Nitesh Shrivastava, Adv., Mr. R.S. Saluja, Adv., Ms. Rubal Maini, Adv., Mr. Sandeep Chilana, Adv., Mr. Mohd. Raiz, Adv., Mr. Prbhu Dayal Chilana, Adv., Ms. Seema Joshi, Adv., Mr. Sidhartha Handa, Adv. And M/s. SARC Associates. For the Respondent(s) : Mr. K. Radhakrishnan, Sr. Adv., Mr. Shekhar Vyash, Adv., Mr. Arijit Prasad, Adv., Mr. P.K. Mullick, Adv., Mr. H.R. Rao, Adv., Mr. D.L. Chidanand, Adv., Mrs. Anil Katiyar, AOR And Ms. Meera Mathur, AOR JUDGMENT ASHOK BHUSHAN, J. The appellant by these appeals has cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) was also enclosed for the above purpose. 4. Notices were also issued to different Banks requiring different information. The appellant vide its letter dated 20.09.2005 replied the notice dated 29.08.2005 stating that it is a local authority and exempt from Income Tax hence notice under Section 142 be withdrawn. The Income Tax authorities also issued notice to the different Banks to deduct TDS as required under Section 194A of the Income Tax Act and remit the same to the Central Government Account. 5. The appellant filed a writ petition praying for quashing the notice under Section 142 of the Income Tax Act dated 29.08.2005. The appellant also challenged notice dated 31.08.2005 issued under Section 131 to the Bankers of the appellant. Notice dated 21.09.2005 under Section 194A was also sought to be quashed. The writ petition was contested by the Income Tax Department. The High Court in the writ petition decided the only question whether New Okhla Industrial Development Authority (NOIDA) is a local authority after 01.04.2003 within the meaning of Section 10(20) of the Income Tax Act, 1961 . The Division Bench of the High Court relying on two judgments of this Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the proviso to Article 243Q(1)(a) which provision was not considered in the above mentioned two cases, hence, the present case is clearly distinguishable from the aforesaid two judgments. It is submitted that Municipal Services are being provided by the authority, hence, it is a local authority entitled to the benefit of Section 10(20) of the I.T. Act, 1961. The constitutional scheme envisages performance of municipal functions even by a body which may not be elected and yet performs municipal functions. Article 243Q envisaged such authority and also having been recognised such an authority by issuing the notification, it is a local authority and is entitled for the benefit of exemption. There does not exist any elected municipality for the industrial development area and it is the appellant which is entrusted to discharge municipal functions as enumerated in the 12th Schedule under Article 243P of the Constitution. The appellant was not only a creation of a statute but has been statutorily charged to perform functions, including municipal functions. The appellant is a local body having local fund and its accounts are audited by the Examiner of the Local Fund accounts. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... local authority exclusively and by omitting Section 10(20A), the benefits earlier enjoyed by various authorities which were treated local authorities were taken away. The provisions of Section 10 sub-section (20) are clear and taking plain and literal meaning of the provision, the appellant is not entitled for exemption; the High court has rightly dismissed the writ petition filed by the appellant. 11. Learned counsel appearing for the Banks have also adopted the submissions made by the learned counsel for the Revenue in support of their contention that the appellant is a local authority within the meaning of Section 10 sub-section (20) of the I.T. Tax, 1961. 12. Learned counsel for both the parties have relied on various judgments of this Court which shall be referred to while considering the submissions made by the parties. 13. We have considered the submissions made by the learned counsel for the parties and perused the records. 14. The only issue which needs to be considered in these appeals is as to whether the appellant is a local authority within the meaning of Section 10(20) as amended by Finance Act, 2002 w.e.f. 01.04.2003. Before we proceed further, it is nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means an institution of self-government constituted under Article 243Q; 16. Article 243Q provides for the Constitution of Municipalities which is to the following effect: 243Q. Constitution of Municipalities.- (1) There shall be constituted in every State,- (a) a Nagar Panchayat (by whatever name called) for a transitional area, that is to say, an area in transition from a rural area to an urban area; (b) a Municipal Council for a smaller urban area; and (c) a Municipal Corporation for a larger urban area, in accordance with the provisions of this Part: Provided that a Municipality under this clause may not be constituted in such urban area or part thereof as the Governor may, having regard to the size of tile area and the municipal services being provided or proposed to be provided by an industrial establishment in that area and such other factors as he may deem fit, by public notification, specify to be an industrial township. (2) In this article, a transitional area, a smaller urban area or a larger urban area means such area as the Governor may, having regard to the population of the area, the density of the population t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of this Part, shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until the expiration of one year from such commencement, whichever is earlier: Provided that all the Municipalities existing immediately before such commencement shall continue till the expiration of their duration, unless sooner dissolved by a resolution passed to that effect by the Legislative Assembly of that State or, in the case of a State having a Legislative Council, by each House of the Legislature of that State. 20. It is also relevant to notice certain provisions of Act, 1976, before we proceed further to examine the issue. The authority has been constituted by notification dated 17.04.1976 exercising power under Section 3 of Act, 1976. Section 3 provides for Constitution of the Authority which is to the following effect: 3.(1) The State Government may, by notification, constitute for the purposes of this Act, An authority to be called (Name of the area) Industrial Development Authority, for any industrial development area. (2) The Authority shall be a body corporate. (3) The Authority shall consist of the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority in respect of transfer of land. Section 8 deals with power to issue directions in respect of creation of building. Section 9 deals with ban on erection of building in contravention of regulations. Section 10 deals with power to require proper maintenance of site or building. Section 11 empowers the Authority to levy of tax. By Section 12 certain provisions of U.P. Urban Planning and Development Act, 1973 has been made applicable. Chapter VII deals Finance, Accounts and Audit. 23. We may also notice the notification dated 24.12.2001 issued by the Governor in exercise of the powers under the proviso to Clause (1) of Article 243Q. The notification is as follows: NOTIFICATION No.6709/77-4-2001-56 Bha/99 In exercise of the powers under the proviso to Clause (1) of Article 243Q of the Constitution of India, the Governor, having regard to the size of the New Okhla Industrial Development Area, which has been declared as an industrial development area by Government Notification No.4157-HI/XVIII-11, dated April 17, 1976 and the municipal services being provided by the New Okhla Industrial Development Authority in that area, is pleased to specify the said Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the timely elections were not being held and the nominated bodies were continuing for long periods. Elections had been irregular and many times unnecessarily delayed or postponed and the elected bodies had been superseded or suspended without adequate justification at the whims and fancies of the State authorities. These views were expressed by the then Minister of State for Urban Development while introducing the Constitution Amendment Bill before Parliament and thus the new provisions were added in the Constitution with a view to restore the rightful place in political governance for local bodies. It was considered necessary to provide a constitutional status to such bodies and to ensure regular and fair conduct of elections. In the Statement of Objects and Reasons in the Constitution Amendment Bill relating to urban local bodies, it was stated: 27. The constitutional provisions as contained in Part IXA delineate that the Constitution itself provided for constitution of Municipalities, duration of Municipalities, powers of Authorities and responsibilities of the Municipalities. The Municipalities are created as vibrant democratic units of self-government. The durat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 243Q. No other interpretation of the proviso conforms to the constitution scheme. 29. A Constitution Bench of this Court had noticed the principles of statutory interpretation of a proviso in S. Sundaram Pillai and others vs. V.R. Pattabiraman and others, 1985(1) SCC 591. The following has been laid down by this Court in paragraphs 37 to 43: 37. In short, generally speaking, a proviso is intended to limit the enacted provision so as to except something which would have otherwise been within it or in some measure to modify the enacting clause. Sometimes a proviso may be embedded in the main provision and becomes an integral part of it so as to amount to a substantive provision itself. 38. Apart from the authorities referred to above, this Court has in a long course of decisions explained and adumbrated the various shades, aspects and elements of a proviso. In State of Rajasthan v. Leela Jain,AIR 1965 SC 1296, the following observations were made: So far as a general principle of construction of a proviso is concerned, it has been broadly stated that the function of a proviso is to limit the main part of the section and carve out something which but fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties after authorities on this point because the legal position seems to be clearly and manifestly well established. To sum up, a proviso may serve four different purposes: (1) qualifying or excepting certain provisions from the main enactment: (2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable: (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision. 30. Applying rules of interpretation as laid down by this Court, it is clear that proviso is an exception to the constitutional provisions which provide that there shall be constituted in every State a Nagar Panchayat, a Municipal Council and a Municipal Corporation. Exception is covered by proviso that where an industrial township is providing municipal services the Governor having regard to the size of the area and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perties, both movable and immovable, to contract, and by the said name sue or be sued. The Authority consists of a Chairman, a Managing Director and five other Directors appointed by the State Government. The Authority is responsible for the planned development of the industrial area including preparation of the master plan of the area and promotion of industries in the area and other amenities incidental thereto. The Authority has its own establishment for which it is authorised to frame regulations with prior approval of the State Government. The State Government is authorised to entrust the Authority from time to time with any work connected with planned development, or maintenance of the industrial area and its amenities and matters connected thereto. Section 7 of the Act obliges the Authority to maintain its own fund to which shall be credited moneys received by the Authority from the State Government by way of grants, loans, advances or otherwise, all fees, rents, charges, levies and fines received by the Authority under the Act, all moneys received by the Authority from disposal of its movable or immovable assets and all moneys received by the Authority by way of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt is impugned in this appeal. 33. One of the submissions which was raised before this Court was that exemption under Article 289(1), was also available to the appellant-Authority. The said submission was considered and negativated. Apart from rejecting the claim under Article 289(1), this court noticing Section 10(20) has held 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 submission advanced on behalf of the assessee. 34. In the present case although exemption under Article 289 was not claimed or contended but the above judgment cannot be said to be not relevant to the present case since, the Court has also dwelled upon Section 10(20) as amended w.e.f. 01.04.2003. We, thus, do not accept the submission of the appellant that the above case was not relevant for the present case and was wrongly relied on by the High Court. 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is important. 32. It may be noted that various High Courts had taken the view prior to the Finance Act, 2002 that AMC(s) is a local authority . That was because there was no definition of the word local authority in the 1961 Act. Those judgments proceeded primarily on the functional tests as laid down in the judgment of this Court vide para 2 in R.C. Jain. We quote hereinbelow para 2 which reads as under: (SCC pp. 311-12) 2. Let us, therefore, concentrate and confine our attention and enquiry to the definition of local authority in Section 3(31) of the General Clauses Act. A proper and careful scrutiny of the language of Section 3(31) suggests that an authority, in order to be a local authority, must be of like nature and character as a Municipal Committee, District Board or Body of Port Commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management of a municipal or local fund. What then are the distinctive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in2. 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. Jain2 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. Jain2 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. 38. This Court held that Agricultural Marketing Committee is also not covered by the words Municipal Committee, District Board, Body of Port Commissioners as used in Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ield in view of the express omission of the expression all other authority . This Court has already in Agricultural Produce Market Committee, Narela (supra), held that definition under Section 3(31) of the General Clauses Act is now no more applicable to interpret local authority under Section 10(20) of the I.T. Act. Before we proceed further it shall be useful to notice certain well settled principles of statutory interpretation of fiscal statutes. This Court in A.V. Fernandez vs. The State of Kerala, AIR 1957 SC 657 laid following: (29) It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and n ot merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. We m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 46. Further paragraphs 13.1 to 13.4 of the Explanatory Notes contained heading: Income of certain Housing Boards etc. to become taxable on deletion of Clause (20A), are as stated below: 13.1 Under the existing provisions contained in clause (20A) of section 10, income of the Housing Boards or other statutory authorities set up for the purpose of dealing with or satisfying the need for housing accommodations or for the purpose of planning, development or improvement of cities, towns and villages is exempt from payment of income tax. 13.2 Through Finance Act, 2002 clause (20A) of section 10 has been deleted so as to withdraw exemption available to the abovementioned bodies. The income of Housing Boards of the States and of Development Authorities would, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. It is useful to extract paragraph 88 which is to the following effect: 88. This Court in Novopan case, 1994 Supp (3) SCC 606, held that the principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee, does not apply to the construction of an exception or an exempting provision, as the same have to be construed strictly. Further this Court also held that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision and in case of doubt or ambiguity, benefit of it must go to the State. 50. For interpreting an explanation this Court in s. Sundaram Pillai and others vs. V.r. Pattabiraman and others, 1985 (1) SCC 591, laid down in paragraphs 47 and 53 as follows: 47. Swarup in Legislation and Interpretation very aptly sums up the scope and effect of an Explanation thus: Sometimes an Explanation is appended to stress upon a particular thing which ordinarily would not appear clearly from the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 10(20A) of I.T. Act held that Gujarat Industrial Development Corporation is entitled for exemption under Section 10(20A). The Gujarat Industrial Development Corporation was held to be entitled for exemption under Section 10(20A) at the time when the provision was in existence in the statute book and after its deletion from the statute book the exemption is no more available. Now, reverting back to Section 10(20) as amended by Finance Act, 2002, the same has also come for consideration before different High Courts. A Division Bench of the Allahabad High court in Krishi Utpadan Mandi Samiti vs. Union of India and another, (2004) 267 ITR 460 stated following: A bare perusal of the Explanation of Section 10(20) shows that now only four entities are local authorities for the purpose of Section 10(20), namely, (i) Panchayat, (ii) Municipality; (iii) Municipal Committee and District Board; (iv) Cantonment Board Krishi Utpadan Mandi Samiti is not one of the entities mentioned in the Explanation to Section 10(20). It may be noted that the Explanation to Section 10(20) uses the word 'means' and not the word 'includes'. Hence, it is not possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) of Art. 243 of the Constitution of India, a municipality in terms of clause (e) of Art. 243P of the Constitution of India or a Cantonment Board as defined under section 3 of the Cantonments Act, 1924. What she argued was that looking to the nature of the functions enjoined upon the appellant committee, it must be deemed to be a municipal committee within the meaning of that expression in clause (iii) of the Explanation. We regret our inability to accept that submission. We say so for two distinct reasons. Firstly because the expression municipal committee appears in a taxing statute and must, Therefore, be construed strictly. It is fairly well-settled by a long line of decisions rendered by the Supreme Court that while interpreting a taxing statute, one has simply to look to what is clearly stated therein. There is, in fiscal statutes, no room for any intendment nor is there any equity about the levy sanctioned under the same. The following passage from Cape Brandy Syndicate v. IRC 1921 (1) KB 64 has been approved by the Apex Court in the decisions rendered by their Lordships. in a taxing Act one has to look merely at what is clearly said. There is no room for any inten ..... 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