1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.792-793 OF 2014
NEW OKHLA INDUSTRIAL DEVELOPMENT
AUTHORITY … APPELLANT
VERSUS
CHIEF COMMISSIONER OF INCOME TAX
ORS. … RESPONDENTS
J U D G M E N T
ASHOK BHUSHAN, J.
The appellant by these appeals has challenged the
Division Bench judgment of Allahabad High Court dated
28.02.2011 dismissing the writ petition filled by the
appellant challenging the notices 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”)
Signature Not Verified
has
Digitally signed by
ASHWANI KUMAR
Date: 2018.07.02
been constituted under Section 3 of the U.P.
16:07:43 IST
Reason:
Industrial Area Development Act, 1976 (hereinafter
2
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 the
Allahabad High Court on 14.02.2000 holding that the
appellant is a local body. It was held that it is covered
by the exemption under Section 10(20A) of I.T.Act, 1961.
The Division Bench, however, did not go into the question
whether it is also exempt under Section 10(20).
3. By the Constitution (74th Amendment) Act, 1992, the
Parliament had inserted Part IXA of the Constitution
providing for the constitution of Municipalities. A
notification dated 24.12.2001 was issued by the Governor
3
in exercise of the power under the proviso to clause (1)
of Article 243Q of the Constitution of India specifying
the appellant to be an “industrial township” with effect
from the date of the notification in the Official
Gazette. A notice dated 29.08.2005 was issued by the
Assistant Commissioner of Income Tax to the appellant for
furnishing Income Tax Return for the assessment year
2003-2004 and 2004-2005. Notice mentioned that after
omission of Section 10(20A) w.e.f. 01.04.2003 the
Authority has become taxable. Notice under Section 142(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
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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 Agricultural Produce Market
Committee, Narela, Delhi vs. Commissioner of Income Tax
and another, (2008) 9 SCC 434 and Adityapur Industrial
Area Development Authority vs. 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
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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 senior counsel appearing for the
Revenue. We have also heard various learned counsel
appearing for different Banks.
7. Learned counsel for appellant submits that both the
judgments of this Court relied on by the High Court for
dismissing the writ petition were not applicable and
clearly distinguishable. He submits that judgment of this
Court in Agricultural Produce Market Committee,
Narela(supra) was a case where this Court was concerned
with status of Agricultural Produce Market Committee
which was not akin to the appellant in view of the
statutory provisions contained in Act, 1976, hence,
reliance on such case was misplaced.
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8. With regard to judgment of this Court in Adityapur
Industrial Area Development Authority(surpa), it is
submitted that this Court essentially has considered in
the above case regarding the exemption under Article 289
of the Constitution of India whereas appellant does not
rely on Article 289. He further submits that Governor of
U.P. has issued notification dated 24.12.2001 under 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
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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 appellant also has authorisation
by law to levy tax in contradistinction to a mere
development authority.
9. Learned counsel appearing for the Revenue refuting
the submissions of appellant contends 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
8
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
Industrial Development Authorities. After the
Constitution Amendment both U.P. Municipality Act, 1916
and U.P. Municipal Corporation Act, 1959 have been
amended in the light of constitutional provisions as
contained in Part IXA of the Constitution whereas no
amendments have been made in Act, 1976 which clearly
indicates that the authority was never treated as
municipality within the meaning of Article 243Q. There
are large number of factors which must be possessed by
the municipality under the constitutional scheme which is
absent in the authority.
10. Hence, Constitution never recognised industrial
township as referred to in proviso to Article 243Q as
equivalent to municipality. Further, the notification
under the proviso to Article 243Q dated 24.12.2001 itself
indicates that no municipality has been constituted in
the area in which appellant operated. The Authority
clearly is not a local authority. The Finance Act, 2002
9
brought substantial changes in the definition of local
authority by defining 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 necessary to notice the provisions of
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Section 10(20) which existed prior to its amendment by
Finance Act, 2002 and after amendment w.e.f. 01.04.2003:
Section 10(20) prior to Section 10(20) after
amendment by the Finance amendment by the Finance
Act, 2002 Act, 2002
the income of a local the income of a local
authority which is authority which is
chargeable under the head chargeable under the head
“Income from house “Income from house
property”, “Capital gains” property”, “Capital gains”
or “Income from other or “Income from other
sources” or from a trade or sources” or from a trade or
business carried on by it business carried on by it
which accrues or arises from which accrues or arises from
the supply of a commodity or the supply of a commodity or
service [(not being water or service [(not being water or
electricity) within its own electricity) within its own
jurisdictional area or from jurisdictional area or from
the supply of water or the supply of water or
electricity within or electricity within or
outside its own outside its own
jurisdictional area; 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, legally
entitled to, or entrusted by
the Government with, the
control or management of a
Municipal or local fund; or
(iv) Cantonment Board as
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defined in section 389 of
the Cantonments Act, 1924 (2
of 1924);
“10(20A) any income of an
authority constituted in Section 10(20A):Omitted by
India by or under any law the Finance Act, 2002 w.e.f.
enacted either for the 1.4.2002
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, or for both;”
15. The constitutional provisions contained in Part IXA
of the Constitution of India as inserted by Constitution
74th Amendment Act, 1992 also need to be noted. Article
243P contains the definitions. Article 243P(e) defines
Municipality which is to the following effect:
“243P(e)”Municipality” 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;
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(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 therein, the revenue generated for
local administration, the percentage of
employment in non agricultural activities, the
economic importance or such other factors as he
may deem fit, specify by public notification
for the purposes of this Part.”
17. Article 243R pertains to Composition of
Municipalities which is to the following effect:
“243R. Composition of Municipalities.-(1) 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 of-
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(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
provides for reservation of seats of SC and ST for every
Municipality and number of seats reserved. Article 243U
provides for duration of Municipalities
sub-clause(1)states that every Municipality, unless
sooner dissolved under any law for the time being in
force, shall continue for five years from the date
appointed for its first meeting and no longer.
19. Article ZF provides for continuance of existing laws
and Municipalities which is to the following effect:
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“243ZF. Continuance of existing laws and
Municipalities.- Notwithstanding anything in
this Part, any provision of any law relating to
Municipalities in force in a State immediately
before the commencement of the Constitution
(Seventy-fourth Amendment) Act, 1992, which is
inconsistent with the 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
following:–
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(a) The Secretary to the Government, Uttar
Pradesh, Member Industries Department or his
Nominee not below Chairman the rank of Joint
Secretary-ex-official. Member Chairman
(b) The Secretary to the Government, Uttar
Pradesh, Member Public works Department or his
nominee not below the rank of Joint Secretary
ex-official. Member
(c) The Secretary to the Government, Uttar
Pradesh, Local Member Self-Government or his
nominee not below the rank 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.”
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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 area;
(c) to demarcate and develop sites for
industrial, commercial and residential purpose
according to the plan;
(d) to provide infrastructure for industrial,
commercial and residential purposes;
(e) to provide amenities;
(f) to allocate and transfer either by way of
sale or lease or otherwise plots of land for
industrial, commercial or residential purposes;
(g) to regulate the erection of buildings and
setting up of industries: and
(h) to lay down the purpose for which a
particular site or plot of land shall be used,
namely for industrial or commercial or
residential purpose or any other specified
purpose in such area.”
22. Section 7 deals with power of the 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
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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/99In 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 New Okhla Industrial
Development Area to be an “industrial township”
with effect from the date of publication of
this notification in the official gazette.
By order,
Sd/-
(Anoop Mishra)
Secretary.”
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24. The submissions made by the parties can be dealt with
in the following two heads:
A. The status of the Authority by virtue of notification
dated 24.12.2001 issued under Clause (1) of Article 243Q.
B. Whether the appellant is a local authority “within
the meaning of Section 10 sub-section (20) as explained
in Explanation added 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 to-
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(a) the functions and taxation powers; and
(b) arrangements for revenue sharing;
(ii) Ensuring regular conduct of elections;
(iii) ensuring timely elections in the case of
supersession; and
(iv) providing adequate representation for the
weaker sections like Scheduled Castes,
Scheduled Tribes and women.”
26. The Kishansing Tomar Municipal Corporation Of The
City Of Ahmedabad Ad Others, 2006 (8) SCC 352, noticing
the object and purpose of Constitution 74 th Amendment Act,
1992 stated as following:
“12. It may be noted that Part IX-A was
inserted in the Constitution by virtue of the
Constitution (Seventy-fourth) Amendment Act,
1992. The object of introducing these
provisions was that in many States the local
bodies were not working properly 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:”
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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 duration of Municipality was
provided for five years contemplating regular election
for electing representatives to represent the
Municipality. The special features of the Municipality as
was contemplated by the constitutional provisions
contained in Part IXA cannot be said to be present in
Authority as delineated by statutory scheme of Act, 1976.
It is true that various municipal functions are also
being performed by the Authority as per Act, 1976 but the
mere facts that certain municipal functions were also
performed by the authority it cannot acquire the
essential features of the Municipality which are
contemplated 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
21
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 regard to the size of the area
and the municipal services being provided or proposed to
be provided for an industrial establishment in that area
and such other factors as may he may deem fit, by public
notification, specify to be an industrial township.”.
28. Thus, proviso does not contemplate constitution of an
industrial establishment as a Municipality rather
clarifies an exception where Municipality under clause
22
(1) of Article 243Q may not be constituted in an urban
area. The proviso is an exception to the constitution of
Municipality as contemplated by sub-clause (1) of Article
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 for the proviso would have been within
the operative part.”
23
39. In the case of STO, Circle-I, Jabalpur v.
Hanuman Prasad, AIR 1967 SC 565, Bhargava, J.
observed thus:
“It is well-recognised that a proviso is
added to a principal clause primarily with
the object of taking out of the scope of
that principal clause what is included in
it and what the legislature desires should
be excluded.”
40. In Commissioner of Commercial Taxes v. R.S.
Jhaver, AIR 1968 SC 59, this Court made the
following observations:
“Generally speaking, it is true that the
proviso is an exception to the main part of
the section; but it is recognised that 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
24
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)SCC 216, this Court made the following
observations: [SCC para 22, p. 224: SCC (Tax)
p. 315]
“Ordinarily a proviso to a section is
intended to take out a part of the main
section for special treatment. It is not
expected to enlarge the scope of the main
section. But cases have arisen in which
this Court has held that despite the fact
that a provision is called proviso, it is
really a separate provision and the
so-called proviso has substantially altered
the main section.”
43. We need not multiply authorities 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
25
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 the municipal services
either being provided or proposed to be provided by an
industrial establishment specify it to be an industrial
township. The words ‘industrial township’ have been used
in contradiction of a Nagar Panchayat, a Municipal
Council and a Municipal Corporation. The object of
issuance of notification is to relieve the mandatory
requirement of constitution of a Municipality in a State
in the circumstances as mentioned in proviso but
exemption from constituting Municipality does not lead to
mean that the industrial establishment which is providing
municipal services to an industrial township is same as
26
Municipality as defined in Article 243P(e). We have
already noticed that Article 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
27
Authority Act, 1974. In paragraph 2 of the judgment the
constitution of the authority was noticed which is to the
following effect:
“2. The appellant Authority has been
constituted under the Bihar Industrial Area
Development Authority Act, 1974 to provide for
planned development of industrial area, for
promotion of industries and matters appurtenant
thereto. The appellant Authority is a body
corporate having perpetual succession and a
common seal with power to acquire, hold and
dispose of properties, 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 loan from financial and
other institutions and debentures floated for
the execution of a scheme or schemes of the
Authority duly approved by the State
Government. Unless the State Government directs
28otherwise, all moneys received by the Authority
shall be credited to its funds which shall be
kept with State Bank of India and/or one or
more of the nationalised banks and drawn as and
when required by the Authority.”
32. On the question as to whether the Adityapur
Industrial Area Development Authority was covered within
the meaning of local authority as per Section 10(20) as
amended by the Finance Act, 2002, the High Court held
that the appellant authority could not have claimed
benefit under the provisions after 01.04.2003. 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.
29
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
was added to Section 10(20) enumerating the
“local authorities” contemplated by Section
10(20), the appellant Authority could not claim
any benefit under those provisions after
1-4-2003. It further held that the exemption
under Article 289(1) was also not available to
the appellant Authority as it was a distinct
legal entity, and its income could not be said
to be the income of the State so as to be
exempt from Union taxation. The said decision
of the High Court 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
30
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. The second judgment which is relied on by the High
court is Agricultural Produce Market Committee, Narela
(supra). The Agricultural Produce Market Committee was
constituted under the Delhi Agricultural Produce
Marketing (Regulation) Act, 1998. The question arose as
to whether Agricultural Market Committee is a “local
authority” under the Explanation to Section 10(20) of the
Income Tax Act, 1961. In the above context it was noticed
that all Agricultural Market Committees at different
places were enjoying exemption from income tax under
Section 10(20) prior to its amendment by the Finance Act,
2002 w.e.f. 01.04.2003. The definition of ‘local
authority’ under Section 3(31) of General Clauses Act,
1897 is 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;”
31
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 Act
have been omitted by Parliament in the
Explanation/definition clause inserted in
Section 10(20) of the 1961 Act vide the Finance
Act, 2002. Therefore, in our view, it would not
be correct to say that the entire definition of
the word “local authority” is bodily lifted
from Section 3(31) of the 1897 Act and
incorporated, by Parliament, in the said
Explanation to Section 10(20) of the 1961 Act.
This deliberate omission is important.
32
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
attributes and characteristics, all or many
of which a Municipal Committee, District
Board or Body of Port Commissioners shares
with any other local authority? First, the
authorities must have separate legal
existence as corporate bodies. They must not
be mere governmental agencies but must be
legally independent entities. Next, they must
function in a defined area and must
ordinarily, wholly or partly, directly or
indirectly, be elected by the inhabitants of
the area. Next, they must enjoy a certain
degree of autonomy, with freedom to decide
for themselves questions of policy affecting
the area administered by them. The autonomy
may not be complete and the degree of the
dependence may vary considerably but, an
appreciable measure of autonomy there must
33
be. Next, they must 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 mentioned.
In R.C. Jain the test of “like nature” was
adopted as the words “other authority” came
after the words “Municipal Committee, District
Board, Body of Port Commissioners”. Therefore,
the words “other authority” in Section 3(31)
took colour from the earlier words, namely,
“Municipal Committee, District Board or Body of
Port Commissioners”. This is how the functional
test is evolved in R.C. Jain2. However, as
34stated 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
Explanation of Section 10(20).
39. In this context, we also refer to the judgment of
this Court in Saij Gram Panchayat vs. State of Gujarat an
others, 1999 (2) SCC 366. This Court had occasion to
consider in the above case Gujarat Industrial Development
Act, 1962, the provisions of Article 243Q and Gujarat
Municipalities Act, 1963.
35
40. This Court held that Gujarat Industrial Development
Act operates in a totally different sphere from Parts IX
and IXA of the Constitution and the Gujarat Panchayats
Act, 1961. In paragraph 16 of the judgment following was
held:
“The Gujarat Industrial Development Act
operates in a totally different sphere from
Parts IX and IX-A of the Constitution as well
as the Gujarat Panchayats Act, 1961 and the
Gujarat Municipalities Act, 1962 — the latter
being provisions 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
36
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
3(31) of General Clauses Act, 1892 is no more applicable.
Section 3 of the General Clauses Act begins with the
words “In this Act, and in all Central Acts and
Regulations made after the commencement of this Act,
unless there is anything repugnant in the subject or
context,-…. The definition given of the local authority
under Section 3(31) does not now govern the field 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
37
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 must of necessity, therefore,
have regard to the actual provisions of the Act
and the rules made thereunder before we can
come to the conclusion that the appellant was
liable to assessment as contended by the Sales
Tax Authorities.”
44. This Court in Rajasthan Rajya Sahakari Spinning and
Ginning Mills Federation Limited vs. Deputy Commissioner
of Income Tax, Jaipur, 2014(11) SCC 672 again reiterated
that there has to be strict interpretation of taxing
statutes and further the fact that 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. Following was laid down in paragraph 23:
38
“23. We are also of the view that in all the
tax matters one has to interpret the taxation
statute strictly. Simply because 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 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.
39
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.”
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, therefore,
also become taxable.
40
13.3 Under section 80G, donation made to
housing authorities, etc. referred to in
clause (20A) of section 10 is eligible for
50% deduction from total income in the
hands of the donors. Since clause (20A) of
section 10 has been deleted, donation to
the housing authorities etc. would not be
eligible for deduction in the hands of the
donors and this may result in drying up of
donations. To continue the incentive to
donation made to housing authorities etc.,
section 80G has been amended so as to
provide that 50% of the sum paid by an
assessee to an authority constituted in
India by or under any law enacted either
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, or for both,
shall be deducted from the total income of
such assessee.
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.
41
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
defined in the Explanation to Section 10(20) an entity
has to fall under Section 10(20) to claim exemption. It
is also useful to notice that this Court laid down in
State of Gujarat and others vs. ESSAR Oil Limited and
another, 2012 (3) SCC 522, 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. 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
42of 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
provisions of the section. The proper
function of an Explanation is to make plain
or elucidate what is enacted in the
substantive provision and not to add or
subtract from it. Thus an Explanation does
not either restrict or extend the enacting
part; it does not enlarge or narrow down the
scope of the original section that it is
supposed to explain…. The Explanation must
be interpreted according to its own tenor;
that it is meant to explain and not vice
versa.” (pp. 297-98)
53. Thus, from a conspectus of the
authorities referred to above, it is manifest
43
that the object of an Explanation to a
statutory provision is—
“(a) to explain the meaning and intendment
of the Act itself,
(b) where there is any obscurity or
vagueness in the main enactment, to clarify
the same so as to make it consistent with the
dominant object which it seems to subserve,
(c) to provide an additional support to the
dominant object of the Act in order to make
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)
44enumerates 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.”
52. It is also relevant to notice that this Court in
Gujarat Industrial Development Corporation vs.
Commissioner of Income Tax, 1997 (7) SCC 17, after
considering the 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).
45
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
for this Court to extend the definition of
‘local authority’ as contained in the
Explanation to Section 10(20), vide P.
Kasilingam v. P.S.G. College of Technology, AIR
1995 SC 1395 (para 19). It is also not possible
to refer to the definitions in other Acts, as
the IT Act now specifically defines ‘local
authority’.
It is well settled that in tax matters the
literal rule of interpretation applies and it
is not open to the Court to extend the language
of a provision in the Act by relying on equity,
inference, etc.It is the first principle of interpretation
that a statute should be read in its ordinary,
natural and grammatical sense as observed by
the Supreme Court of India:
“In construing a statutory provision
the first and foremost rule of construction
is the literary construction. All that the
Court has to see at the very outset is what
does the provision say. If the provision is
unambiguous and if from the provision the
legislative intent is clear, the Court 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
46Section 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), (ii) and (iv) of
the Explanation and in our opinion rightly so
because the appellant committee cannot by any
process of reasoning be construed as a
Panchayat as referred to in clause (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
47approved 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 intendment. There is no equity about a
tax. There is no presumption as to a tax.
Nothing is to be read in, nothing is to be
implied, One can only look fairly at the
language used.”
54. We fully endorse the views taken by the High Court in
the above two judgments.
55. Now, reverting back to Explanation to Section 10(20),
these are entities which mean the local authority. The
submission of the appellant is that the appellant is
covered by Clause (ii) of the Explanation i.e.
“Municipality as referred to in clause (e) of Article
243P of the Constitution”. We, while discussing above
provisions, have already held that the appellant is not
covered by the word/expression of “Municipality” in
clause (e) of Article 243P. Thus, the appellant is not
clearly included 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).
56. 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).
48
57. In view of what has been stated above, we dismiss
these appeals.
…………………J.
( A.K. SIKRI )
…………………J.
( ASHOK BHUSHAN )
NEW DELHI,
JULY 02, 2018.
