Case details

Court: Supreme Court of India
Decided: 2 July 2018
Bench: A.K. Sikri
Citations: 2018 INSC 559[2018] 7 S.C.R. 781
Type: Judgment (Dismissed)

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Supreme Court of India

OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY versus CHIEF COMMISSIONER OF INCOME TAX AND ORS. on 2 July 2018

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[2018] 7 S.C.R. 781

NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY

CHIEF COMMISSIONER OF INCOME TAX AND ORS.

(Civil Appeal Nos. 792-793 of 2014)

JULY 02, 2018

[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]

Income Tax Act, 1961 – s.10(20) (as Amended by FinanceAct 2002 w.e.f. 01.04.2003) – Appellant-NOIDA, a local authorityor not – Appellant-NOIDA contended that it is covered by the cl(ii)of Explanation to s.10(20) of the Act, 1961, which defines theexpression “local authority” as “Municipality as referred to inArt.243P(e)” – Held: Special features of the Municipality as wascontemplated by the Constitutional provisions contained in Part IXAcannot be said to be present in Authority (NOIDA) as delineated bystatutory scheme of the U.P. Industrial Area Development Act, 1976under which the said authority was constituted – Though variousmunicipal functions are also being performed by the Authority asper Act of 1976, but merely because certain municipal functionswere also performed by the authority, it cannot acquire the essentialfeatures of the Municipality which are contemplated by Part IXA ofthe Constitution – Appellant is not covered by the word/expressionof “Municipality” in cl(e) of Art.243P – Thus, appellant is notcovered by the definition of local authority as contained inExplanation to s.10(20) of the Act of 1961 – U.P. Industrial AreaDevelopment Act, 1976 – s.3 – Constitution of India – Part IXA,Art.243P(e) – Finance Act, 2002.

Constitution of India – Arts.243Q and 243P(e) – In exerciseof powers under the proviso to cl(i) of Art.243Q, the Governorspecified NOIDA to be an “industrial township” vide notificationdated 24.12.2001 – Whether industrial township can be equatedwith Municipality as defined u/Art.243P(e) – Held: No – The objectof issuance of notification is to relieve the mandatory requirementof constitution of a Municipality in a State in the circumstances asmentioned in proviso but exemption from constituting Municipalitydoes not lead to mean that the industrial establishment which is

CDE

Aproviding municipal services to an industrial township is same asMunicipality as defined in Art. 243P(e).

General Clauses Act, 1897 – s.3(31) – Applicability of theAct, 1897 in defining the term ‘local authority’ post amendment(Finance Act 2002) to the I.T. Act, 1961 – Held: Prior to FinanceBAct, 2002 there being no definition of ‘local authority’ under theI.T. Act, the provisions of s.3(31) of the Act, 1897 were pressed intoservice while interpreting the extent and meaning of ‘local authority’– The Explanation to s.10(20) now contain the exhaustive definitionof local authority, thus, definition of local authority as containedin s.3(31) of the Act, 1897 no more applicable – Income Tax Act,C1961 – cl(ii) of Explanation to s.10(20) (as Amended by FinanceAct 2002)

Interpretation of Statutes – Interpretation of a proviso –Principles discussed.

DDismissing the appeals, the Court

Conclusion

HELD: 1. The appellant-New Okhla IndustrialDevelopment Authority has been constituted under section 3 ofthe U.P. Industrial Area Development Act, 1976. The only issuewhich needs to be considered in these appeals is as to whetherEthe appellant is a “local authority” within the meaning of section10(20) as amended by Finance Act, 2002 w.e.f. 01.04.2003. Thecl(ii) of Explanation to s.10(20) of the Income Tax Act, 1961,provides that the expression “local authority” means“Municipality as referred to in clause (e) of Article 243P of theConstitution”. The constitutional provisions as contained in PartFIXA delineate that the Constitution itself provided for constitutionof Municipalities, duration of Municipalities, powers of Authoritiesand responsibilities of the Municipalities. The Municipalities arecreated as vibrant democratic units of self-government. Thespecial features of the Municipality as was contemplated by theGconstitutional provisions contained in Part IXA cannot be said tobe present in Authority as delineated by statutory scheme of Act,1976. It is true that various municipal functions are also beingperformed by the Authority as per Act, 1976 but the mere factsthat certain municipal functions were also performed by theauthority it cannot acquire the essential features of the H

Municipality which are contemplated by Part IXA of theConstitution. The appellant is not covered by the word/expressionof “Municipality” in clause(e) of Article 243P. Thus, the appellantis not covered by the definition of local authority as contained inExplanation to Section 10(20). [Paras 2, 14, 27 and 55][785-F;789-E; 796-G-H; 797-A-C; 814-G-H]

2. The notification dated 24.12.2001 was issued by theGovernor in exercise of the powers under the proviso to clause(1) of Article 243Q and specified the said appellant-Authority tobe an “industrial township”. The proviso to sub-clause (1) ofArticle 243Q is an exception to the constitutional provisions whichprovide that there shall be constituted in every State a NagarPanchayat, a Municipal Council and a Municipal Corporation.Exception is covered by proviso that where an industrial townshipis providing municipal services the Governor having regard tothe size of the area and the municipal services either beingprovided or proposed to be provided by an industrialestablishment specify it to be an industrial township. The words‘industrial township’ have been used in contradiction of a NagarPanchayat, a Municipal Council and a Municipal Corporation. Theobject of issuance of notification is to relieve the mandatoryrequirement of constitution of a Municipality in a State in thecircumstances as mentioned in proviso but exemption fromconstituting Municipality does not lead to mean that the industrialestablishment which is providing municipal services to anindustrial township is same as Municipality as defined in Article243P(e). The word constituted used under Article 243P(e) readwith Article 243Q clearly refers to the constitution in every Statea Nagar Panchayat, a Municipal Council or a MunicipalCorporation. Further, the words in proviso “a Municipality underthis clause may not be constituted” clearly means that the words“may not be constituted” used in proviso are clearly incontradistinction with the word constituted as used in Article243P(e) and Article 243Q. Thus, notification dated 24.12.2001under proviso to Article 243Q(1) is not akin to constitution ofMunicipality. [Paras 23, 30][794-F; 800-B-F]

Agricultural Produce Market Committee, Narela, Delhiv. Commissioner of Income Tax and another (2008) 9

SUPREME COURT REPORTS

ASCC 434 : [2008] 12 SCR 387; Adityapur IndustrialArea Development Authority v. Union of India and others(2006) 5 SCC 100 : [2006] 1 Suppl. SCR 757;Kishansing Tomar Municipal Corporation Of The CityOf Ahmedabad Ad Others (2006) 8 SCC 352 : [2006] 7Suppl. SCR 454; S. Sundaram Pillai and others v. V.R.BPattabiraman and Others (1985) 1 SCC 591 : [1985] 2SCR 643; Union of India and others v. R.C. Jain andothers (1981) 2 SCC 308 : [1999] 1 SCR 263; A.V.Fernandez v. The State of Kerala AIR 1957 SC 657;Rajasthan Rajya Sahakari Spinning and Ginning MillsCFederation Limited v. Deputy Commissioner of IncomeTax, Jaipur (2014) 11 SCC 672 : [2014] 7 SCR 336;State of Gujarat and others v. ESSAR Oil Limited andanother (2012) 3 SCC 522 : [2012] 2 SCR 1127;Sundaram Pillai and others v. V.r. Pattabiraman andothers (1985) 1 SCC 591 : [1985] 2 SCR 643; GujaratDIndustrial Development Corporation v. Commissionerof Income Tax (1997) 7 SCC 17 : [1999] 1 SCR 263;Krishi Utpadan Mandi Samiti v. Union of India andanother (2004) 267 ITR 460; Agricultural ProduceMarket Committee v. Commissioner of Income-taxE(2006) 156 ITR 286 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.792-793 of 2014.

From the Judgment and Order dated 28.02.2011 of the High Courtof Judicature at Allahabad in Writ Tax No.1338 of 2005 and Order dated04.11.2011 in Civil Misc. Review Application No.95157/2011 in Writ TaxNo.1338 of 2005.

Mr.Balbir Singh, Sr. Advocate, Jasmeet Singh, Naman Joshi,Ashutosh Kumar, Ms. Ruhsheet J. Saluja, Hemant Jain, S. N. TayagRajan, Ms. Rubal Maini, Sandeep Chilana, Mahinder Singh, R.S. Saluja,Prabhu Dayal Chilana, Mohd. Raiz, Nitesh Shrivastava, Sarc &Associates, Advs. for the Appellant.

Mr. K. Radhakrishnan, Sr. Advocate, Shekhar Vyas, Arijit Prasad,P. K. Mullick, R. P. Rao, H. R. Rao, D. L. Chidanand, R. Harishankar,Mrs. Anil Katiyar, Advs. for the Respondents.

The Judgment of the Court was delivered by ASHOK BHUSHAN, J. 1. The appellant by these appeals haschallenged the Division Bench judgment of Allahabad High Court dated28.02.2011 dismissing the writ petition filled by the appellant challengingthe notices issued by the Income Tax Authority under Section 142 of theIncome Tax Act, 1961 as well as the judgment dated 04.11.2011 rejectingthe review application.

2. The facts giving rise to these appeals are:

The appellant-New Okhla Industrial Development Authority(hereinafter referred to as the “Authority”) has been constituted underSection 3 of the U.P. Industrial Area Development Act, 1976 (hereinafterreferred to as the ‘Act, 1976’) by notification dated 17.04.1976. TheAct, 1976 was enacted by State Legislature to provide for the constitutionof an Authority for the development of certain areas in the State intoindustrial and urban township and for matters connected therewith. Underthe Act, 1976 various functions have been entrusted to the Authorities.Notices under Section 142 of the Income Tax Act dated 28.07.1998 and08.08.1998 were issued to the appellant. The appellant challenging thesaid notices filed writ petition contending that appellant is a local authority,hence, is exempted from payment of income tax under Section 10(20)

Aand Section 10(20A) of Income Tax Act, 1961 (hereinafter referred toas “I.T.Act, 1961). The writ petition was allowed by the Division Benchof the Allahabad High Court on 14.02.2000 holding that the appellant isa local body. It was held that it is covered by the exemption under Section10(20A) of I.T.Act, 1961. The Division Bench, however, did not go intothe question whether it is also exempt under Section 10(20).B

3. By the Constitution (74[th] Amendment) Act, 1992, the Parliamenthad inserted Part IXA of the Constitution providing for the constitutionof Municipalities. A notification dated 24.12.2001 was issued by theGovernor in exercise of the power under the proviso to clause (1) ofArticle 243Q of the Constitution of India specifying the appellant to beCan “industrial township” with effect from the date of the notification inthe Official Gazette. A notice dated 29.08.2005 was issued by theAssistant Commissioner of Income Tax to the appellant for furnishingIncome Tax Return for the assessment year 2003-2004 and 2004-2005.Notice mentioned that after omission of Section 10(20A) w.e.f.D01.04.2003 the Authority has become taxable. Notice under Section142(1) was also enclosed for the above purpose.

4. Notices were also issued to different Banks requiring differentinformation. The appellant vide its letter dated 20.09.2005 replied thenotice dated 29.08.2005 stating that it is a local authority and exemptEfrom Income Tax hence notice under Section 142 be withdrawn. TheIncome Tax authorities also issued notice to the different Banks to deductTDS as required under Section 194A of the Income Tax Act and remitthe same to the Central Government Account.

5. The appellant filed a writ petition praying for quashing the noticeFunder Section 142 of the Income Tax Act dated 29.08.2005. The appellantalso challenged notice dated 31.08.2005 issued under Section 131 to theBankers of the appellant. Notice dated 21.09.2005 under Section 194Awas also sought to be quashed. The writ petition was contested by theIncome Tax Department. The High Court in the writ petition decidedthe only question “whether New Okhla Industrial Development AuthorityG(NOIDA) is a local authority after 01.04.2003 within the meaning ofSection 10(20) of the Income Tax Act, 1961”. The Division Bench ofthe High Court relying on two judgments of this Court in AgriculturalProduce Market Committee, Narela, Delhi vs. Commissioner ofIncome Tax and another, (2008) 9 SCC 434 and AdityapurHIndustrial Area Development Authority vs. Union of India and others, (2006) 5 SCC 100, held that after 01.03.2003 the NOIDA isnot a local authority within the meaning of Section 10(20) of the I.T.Act,1961. The writ petition was consequently dismissed. Although, theappellant had prayed for quashing notices issued to its Bankers and noticeunder 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 challengingthe judgment of the High Court rendered in their writ petition which hasbeen separately challenged by a group of civil appeals being Civil Appealarising out of SLP(C) No.3168 of 2017-Commissioner of IncomeTax(TDS), Kanpur vs. Canara Bank where we have considered anddecided those issues by our judgment of this date. After dismissal of thewrit petition dated 28.02.2011 the appellant filed a review applicationwhich too was dismissed on 04.11.2011. Aggrieved by those two judgmentsCivil Appeal Nos.792-793 of 2014 have been filed by the appellant.

6. We have heard Shri Balbir Singh, learned senior counselappearing for the appellant and Shri K Radhakrishnan, learned seniorcounsel appearing for the Revenue. We have also heard various learnedcounsel appearing for different Banks.

7. Learned counsel for appellant submits that both the judgmentsof this Court relied on by the High Court for dismissing the writ petitionwere not applicable and clearly distinguishable. He submits that judgmentof this Court in Agricultural Produce Market Committee,Narela(supra) was a case where this Court was concerned with statusof Agricultural Produce Market Committee which was not akin to theappellant in view of the statutory provisions contained in Act, 1976, hence,reliance on such case was misplaced.

8. With regard to judgment of this Court in Adityapur IndustrialArea Development Authority(surpa), it is submitted that this Courtessentially has considered in the above case regarding the exemptionunder Article 289 of the Constitution of India whereas appellant doesnot rely on Article 289. He further submits that Governor of U.P. hasissued notification dated 24.12.2001 under the proviso to Article243Q(1)(a) which provision was not considered in the above mentionedtwo cases, hence, the present case is clearly distinguishable from theaforesaid two judgments. It is submitted that Municipal Services arebeing provided by the authority, hence, it is a local authority entitled tothe benefit of Section 10(20) of the I.T. Act, 1961. The constitutional AB

Ascheme envisages performance of municipal functions even by a bodywhich may not be elected and yet performs municipal functions. Article243Q envisaged such authority and also having been recognised such anauthority by issuing the notification, it is a local authority and is entitledfor the benefit of exemption. There does not exist any elected municipalityfor the industrial development area and it is the appellant which is entrustedBto discharge municipal functions as enumerated in the 12[th] Scheduleunder Article 243P of the Constitution. The appellant was not only acreation of a statute but has been statutorily charged to perform functions,including municipal functions. The appellant is a local body having localfund and its accounts are audited by the Examiner of the Local FundCaccounts. The appellant also has authorisation by law to levy tax incontradistinction to a mere development authority.

9. Learned counsel appearing for the Revenue refuting thesubmissions of appellant contends that in view of the Explanation addedto Section 10(20) of the I.T.Act, 1961 by Finance Act, 2002, the appellantDis no longer covered by the definition of ‘local authority’. The definitionof ‘local authority’ as contained in Explanation is not an inclusive definitionbut being an exhaustive definition unless the appellant is covered by anyof the clauses mentioned in the Explanation it cannot claim an exemption.It is further submitted that omission of Section 10(20A) by the sameFinance Act clearly indicates that those authorities which were treatedEas local authority prior to Finance Act is no longer entitled to avail thebenefit of exemption. It is evident from the Constitution 74[th] AmendmentAct, 1992 that the Parliament has introduced certain minimum safeguardsso that municipalities could act as vibrant democratic units of self-government so as to not leave them to the vagaries of laws being enactedFby different State Legislatures. The Parliament was focussed on makingprovisions of local self-government alone and not on the aspect ofmunicipal services and Legislation on municipalities operates in a differentlegislative field as compared to Legislation on Industrial DevelopmentAuthorities. After the Constitution Amendment both U.P. Municipality

Act, 1916 and U.P. Municipal Corporation Act, 1959 have been amendedGin the light of constitutional provisions as contained in Part IXA of theConstitution whereas no amendments have been made in Act, 1976 whichclearly indicates that the authority was never treated as municipalitywithin the meaning of Article 243Q. There are large number of factorswhich must be possessed by the municipality under the constitutionalHscheme which is absent in the authority.

10. Hence, Constitution never recognised industrial township asreferred to in proviso to Article 243Q as equivalent to municipality. Further,the notification under the proviso to Article 243Q dated 24.12.2001 itselfindicates that no municipality has been constituted in the area in whichappellant operated. The Authority clearly is not a local authority. TheFinance Act, 2002 brought substantial changes in the definition of localauthority by defining local authority exclusively and by omitting Section10(20A), the benefits earlier enjoyed by various authorities which weretreated local authorities were taken away. The provisions of Section 10sub-section (20) are clear and taking plain and literal meaning of theprovision, the appellant is not entitled for exemption; the High court hasrightly dismissed the writ petition filed by the appellant.

11. Learned counsel appearing for the Banks have also adoptedthe submissions made by the learned counsel for the Revenue in supportof their contention that the appellant is a local authority within the meaningof Section 10 sub-section (20) of the I.T. Tax, 1961.

12. Learned counsel for both the parties have relied on variousjudgments of this Court which shall be referred to while considering thesubmissions made by the parties.

13. We have considered the submissions made by the learnedcounsel for the parties and perused the records.

14. The only issue which needs to be considered in these appealsis as to whether the appellant is a local authority within the meaning ofSection 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 ofSection 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 amendment by the Section 10(20) after amendment by the Finance Act, 2002 Finance Act, 2002 the income of a local authority which is the income of a local authority which is chargeable under the head “Income from chargeable under the head “Income from house property”, “Capital gains” or house property”, “Capital gains” or “Income from other sources” or from a “Income from other sources” or from a trade or business carried on by it which trade or business carried on by it which accrues or arises from the supply of a accrues or arises from the supply of a commodity or service [(not being water or commodity or service [(not being water or electricity) within its own jurisdictional electricity) within its own jurisdictional area or from the supply of water or area or from the supply of water or electricity within or outside its own electricity within or outside its own jurisdictional area; jurisdictional area; A

AExplanation.—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 B(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 defined in section 389 of the Cantonments Act, 1924 (2 of 1924);“10(20A) any income of an authority constituted Cin India by or under any law enacted either for Section 10(20A):Omitted by the Finance Act, the purpose of dealing with and satisfying the 2002 w.e.f. 1.4.2002 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 theDConstitution of India as inserted by Constitution 74[th] Amendment Act,1992 also need to be noted. Article 243P contains the definitions. Article243P(e) defines Municipality which is to the following effect:

“243P(e)”Municipality” means an institution of self-government constituted under Article 243Q;”

E16. Article 243Q provides for the Constitution of Municipalitieswhich is to the following effect:

“243Q. Constitution of Municipalities.- (1) There shall beconstituted in every State,- F(a) a Nagar Panchayat (by whatever name called) for atransitional area, that is to say, an area in transition from arural area to an urban area; (b) a Municipal Council for a smaller urban area; and

in accordance with the provisions of this Part:

Provided that a Municipality under this clause may not beconstituted in such urban area or part thereof as the Governormay, having regard to the size of tile area and the municipalservices being provided or proposed to be provided by an H

industrial establishment in that area and such other factorsas he may deem fit, by public notification, specify to be anindustrial township.

(2) In this article, a transitional area, a smaller urban areaor a larger urban area means such area as the Governormay, having regard to the population of the area, the densityof the population therein, the revenue generated for localadministration, the percentage of employment in nonagricultural activities, the economic importance or such otherfactors as he may deem fit, specify by public notification forthe purposes of this Part.”

17. Article 243R pertains to Composition of Municipalities whichis to the following effect:

“243R. Composition of Municipalities.-(1) Save as providedin clause ( 2 ), all the seats in a Municipality shall be filled bypersons chosen by direct election from the territorialconstituencies in the Municipal area and for this purposeeach Municipal area shall be divided into territorialconstituencies to be known as wards.

(2) The Legislature of a State may, by law, provide- (a)for the representation in a Municipality of-

(i) persons having special knowledge or experience inMunicipal administration;

(ii) the members of the House of the People and the membersof the Legislative Assembly of the State representingconstituencies which comprise wholly or partly theMunicipal area;

(iii) the members of the Council of States and the membersof the Legislative Council of the State registered electorswithin tile Municipal area;

(iv) the Chairpersons of the Committees constituted underclause ( 5 ) of article 243S:

Provided that the persons referred to in paragraph (i) shallnot have the right to vote in the meetings of the Municipality; A

A(b) the manner of election of the Chairperson of aMunicipality.”

18. Article 243S provides for Constitution and composition of WardsCommittees, etc. Article 243T provides for reservation of seats of SCand ST for every Municipality and number of seats reserved. ArticleB243U provides for duration of Municipalities sub-clause(1)states thatevery Municipality, unless sooner dissolved under any law for the timebeing in force, shall continue for five years from the date appointed forits first meeting and no longer.

19. Article ZF provides for continuance of existing laws andCMunicipalities which is to the following effect:

“243ZF. Continuance of existing laws and Municipalities.-Notwithstanding anything in this Part, any provision of anylaw relating to Municipalities in force in a State immediatelybefore the commencement of the Constitution (Seventy-fourthDAmendment) Act, 1992, which is inconsistent with theprovisions of this Part, shall continue to be in force untilamended or repealed by a competent Legislature or othercompetent authority or until the expiration of one year fromsuch commencement, whichever is earlier:

EProvided that all the Municipalities existing immediately beforesuch commencement shall continue till the expiration of theirduration, unless sooner dissolved by a resolution passed tothat effect by the Legislative Assembly of that State or, in thecase of a State having a Legislative Council, by each Houseof the Legislature of that State.”F

20. It is also relevant to notice certain provisions of Act, 1976,before we proceed further to examine the issue. The authority has beenconstituted by notification dated 17.04.1976 exercising power underSection 3 of Act, 1976. Section 3 provides for Constitution of the Authoritywhich is to the following effect:

“3.(1) The State Government may, by notification, constitutefor the purposes of this Act, An authority to be called (Nameof the area) Industrial Development Authority, for anyindustrial development area.

(2) The Authority shall be a body corporate.

(3) The Authority shall consist of the following:–

(a) The Secretary to the Government, Uttar Pradesh, MemberIndustries Department or his Nominee not below Chairmanthe rank of Joint Secretary-ex-official. Member Chairman (b) The Secretary to the Government, Uttar Pradesh, MemberPublic works Department or his nominee not below the rankof Joint Secretary ex-official. Member

(c) The Secretary to the Government, Uttar Pradesh, LocalMember Self-Government or his nominee not below the rankof joint Secretary-ex official. Member (d) The Secretary to the Government, Uttar Pradesh, FinanceMember Department or his nominee not below the rank ofJoint Secretary-ex official.

(e) The Managing Director, U.P. State Industrial DevelopmentMember Corporation-ex official.

(f) Five members to be nominated by the State GovernmentMember by notification. Member (g) Chief Executive Officer. Member Secretary

(4) The headquarters of the Authority shall be at such placeas may be notified by the State Government.

(5) The procedure for the conduct of the meetings for theAuthority shall be such as may be prescribed.

(6) No act or proceedings of the Authority shall be invalid byreason of the existence of any vacancy in or defect in theconstitution of the Authority.”

21. Section 6 provides for the function of the Authority which is tothe following effect:

“6.(1) The object of the Authority shall be to secure theplanned development of the industrial development area.

(2) Without prejudice to the generality of the objects of theAuthority, the Authority shall perform the followingfunctions :–

A(b) to prepare a plan for the development of the industrialdevelopment area;

(c) to demarcate and develop sites for industrial, commercialand residential purpose according to the plan; (d) to provide infrastructure for industrial, commercial andBresidential purposes; (e) to provide amenities; (f) to allocate and transfer either by way of sale or lease orotherwise plots of land for industrial, commercial or residentialCpurposes; (g) to regulate the erection of buildings and setting up ofindustries: and (h) to lay down the purpose for which a particular site orplot of land shall be used, namely for industrial or commercialDor residential purpose or any other specified purpose in sucharea.”

22. Section 7 deals with power of the Authority in respect oftransfer of land. Section 8 deals with power to issue directions in respectof creation of building. Section 9 deals with ban on erection of building inEcontravention of regulations. Section 10 deals with power to requireproper maintenance of site or building. Section 11 empowers the Authorityto levy of tax. By Section 12 certain provisions of U.P. Urban Planningand Development Act, 1973 has been made applicable.

Chapter VII deals Finance, Accounts and Audit.F

23. We may also notice the notification dated 24.12.2001 issuedby 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) ofArticle 243Q of the Constitution of India, the Governor,having regard to the size of the New Okhla IndustrialDevelopment Area, which has been declared as an industrialdevelopment area by Government Notification No.4157-HI/

XVIII-11, dated April 17, 1976 and the municipal servicesbeing provided by the New Okhla Industrial DevelopmentAuthority in that area, is pleased to specify the said New OkhlaIndustrial Development Area to be an “industrial township”with effect from the date of publication of this notification inthe official gazette.

By order,

Sd/-

(Anoop Mishra)

Secretary.”

24. The submissions made by the parties can be dealt with in thefollowing two heads:

A. The status of the Authority by virtue of notification dated24.12.2001 issued under Clause (1) of Article 243Q.

B. Whether the appellant is a local authority “within the meaningof Section 10 sub-section (20) as explained in Explanation added byFinance Act, 2002.

(A) Part IXA of the Constitution:

25. The Statement of Objects and Reasons of the Constitution74[th] Amendment Act, 1992, briefly outlined the object and purpose forwhich Constitution Amendment was brought in. It is useful to refer tothe Statement of Objects and Reasons of the Constitution Amendmentwhich is to the following effect:

“STATEMENT OF OBJECTS AND REASONS

In many States local bodies have become weak and ineffectiveon account of a variety of reasons, including the failure tohold regular elections, prolonged supersessions andinadequate devolution of powers and functions. As a result,Urban Local Bodies are not able to perform effectively asvibrant democratic units of self-government.

2. Having regard to these inadequacies, it is considerednecessary that provisions relating to Urban Local Bodies areincorporated in the Constitution particularly for- A

796SUPREME COURT REPORTS

A(i) putting on a firmer footing the relationship between theState Government and the Urban Local Bodies with respectto- (a) the functions and taxation powers; and (b) arrangements for revenue sharing; B

(ii) Ensuring regular conduct of elections;

(iii) ensuring timely elections in the case of supersession; and

(iv) providing adequate representation for the weaker sectionslike Scheduled Castes, Scheduled Tribes and women.”

C26. The Kishansing Tomar Municipal Corporation Of The CityOf Ahmedabad Ad Others, 2006 (8) SCC 352, noticing the object andpurpose of Constitution 74[th] Amendment Act, 1992 stated as following:

“12. It may be noted that Part IX-A was inserted in theConstitution by virtue of the Constitution (Seventy-fourth)DAmendment Act, 1992. The object of introducing theseprovisions was that in many States the local bodies were notworking properly and the timely elections were not being heldand the nominated bodies were continuing for long periods.Elections had been irregular and many times unnecessarilyEdelayed or postponed and the elected bodies had beensuperseded or suspended without adequate justification atthe whims and fancies of the State authorities. These viewswere expressed by the then Minister of State for UrbanDevelopment while introducing the Constitution AmendmentBill before Parliament and thus the new provisions were addedFin the Constitution with a view to restore the rightful place inpolitical governance for local bodies. It was considerednecessary to provide a constitutional status to such bodiesand to ensure regular and fair conduct of elections. In theStatement of Objects and Reasons in the ConstitutionGAmendment Bill relating to urban local bodies, it was stated:”

27. The constitutional provisions as contained in Part IXA delineatethat the Constitution itself provided for constitution of Municipalities,duration of Municipalities, powers of Authorities and responsibilities ofthe Municipalities. The Municipalities are created as vibrant democratic H

units of self-government. The duration of Municipality was provided forfive years contemplating regular election for electing representatives torepresent the Municipality. The special features of the Municipality aswas contemplated by the constitutional provisions contained in Part IXAcannot be said to be present in Authority as delineated by statutory schemeof Act, 1976. It is true that various municipal functions are also beingperformed by the Authority as per Act, 1976 but the mere facts thatcertain municipal functions were also performed by the authority itcannot acquire the essential features of the Municipality which arecontemplated by Part IXA of the Constitution. The main thrust of theargument of the learned counsel for the appellant that the High Courthaving not adverted to the notification dated 24.12.2001 issued underproviso to Article 243Q(1) the judgments relied on by the High Court fordismissing the writ petition is not sustainable. We thus have to focus onproviso to Article 243Q(1). For the purpose and object of the industrialtownship referred to therein whether industrial township mentioned thereincan be equated with Municipality as defined under Article 243P(e). Article243P(e) provides that the “Municipality means an institution of self-government constituted under Article 243Q. Whether the appellant is ainstitution of self-government constituted under Article 243Q is the mainquestion to be answered? Sub-clause (1) of Article 243Q provides thatthere shall be constituted in every State- a Nagar Panchayat, a MunicipalCouncil and a Municipal Corporation, in accordance with the provisionsof this Part. The proviso to sub-clause (1) provides that: “Provided thata municipality under this clause may not be constituted in such urbanarea or part thereof as the Governor may, having regard to the size ofthe area and the municipal services being provided or proposed to beprovided for an industrial establishment in that area and such other factorsas may he may deem fit, by public notification, specify to be an industrialtownship.”.

28. Thus, proviso does not contemplate constitution of an industrialestablishment as a Municipality rather clarifies an exception whereMunicipality under clause (1) of Article 243Q may not be constituted inan urban area. The proviso is an exception to the constitution ofMunicipality as contemplated by sub-clause (1) of Article 243Q. Noother interpretation of the proviso conforms to the constitution scheme.

29. A Constitution Bench of this Court had noticed the principlesof statutory interpretation of a proviso in S. Sundaram Pillai and others ABC

DEF

Avs. V.R. Pattabiraman and others, 1985(1) SCC 591. The followinghas been laid down by this Court in paragraphs 37 to 43:

“37. In short, generally speaking, a proviso is intended tolimit the enacted provision so as to except something whichwould have otherwise been within it or in some measure tomodify the enacting clause. Sometimes a proviso may beembedded in the main provision and becomes an integral part B

of it so as to amount to a substantive provision itself.

38. Apart from the authorities referred to above, this Courthas in a long course of decisions explained and adumbratedthe various shades, aspects and elements of a proviso. In Stateof Rajasthan v. Leela Jain[,AIR 1965 SC 1296,] the followingobservations were made:

“So far as a general principle of construction of a provisois concerned, it has been broadly stated that the functionof a proviso is to limit the main part of the section andcarve out something which but for the proviso would havebeen within the operative part.”

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 principalclause primarily with the object of taking out of the scopeof that principal clause what is included in it and what thelegislature 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 anexception to the main part of the section; but it is recognisedthat in exceptional cases a proviso may be a substantiveprovision itself.”

41. In Dwarka Prasad v. Dwarka Das Saraf[,]AIR 1975 SC1758 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 fairconstruction, the principal provision is clean a proviso H

cannot expand or limit it. Sometimes a proviso is engraftedby 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 provisoshould be limited in its operation to the subject-matter ofthe enacting clause, the stand we have taken is sound. Toexpand the enacting clause, inflated by the proviso, sinsagainst the fundamental rule of construction that a provisomust be considered in relation to the principal matter towhich it stands as a proviso. A proviso ordinarily is but aproviso, although the golden rule is to read the wholesection, inclusive of the proviso, in such manner that theymutually throw light on each other and result in aharmonious 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 apart of the main section for special treatment. It is notexpected to enlarge the scope of the main section. But caseshave arisen in which this Court has held that despite thefact that a provision is called proviso, it is really a separateprovision and the so-called proviso has substantiallyaltered the main section.”

43. We need not multiply authorities after authorities on thispoint because the legal position seems to be clearly andmanifestly well established. To sum up, a proviso may servefour different purposes:

(1) qualifying or excepting certain provisions from the mainenactment:

(2) it may entirely change the very concept of the intendmentof the enactment by insisting on certain mandatoryconditions to be fulfilled in order to make the enactmentworkable:

A(3) it may be so embedded in the Act itself as to become anintegral part of the enactment and thus acquire the tenorand colour of the substantive enactment itself; and

(4) it may be used merely to act as an optional addenda tothe enactment with the sole object of explaining the realBintendment of the statutory provision.”

30. Applying rules of interpretation as laid down by this Court, it isclear that proviso is an exception to the constitutional provisions whichprovide that there shall be constituted in every State a Nagar Panchayat,a Municipal Council and a Municipal Corporation. Exception is coveredCby proviso that where an industrial township is providing municipalservices the Governor having regard to the size of the area and themunicipal services either being provided or proposed to be provided byan industrial establishment specify it to be an industrial township. Thewords ‘industrial township’ have been used in contradiction of a NagarPanchayat, a Municipal Council and a Municipal Corporation. The objectDof issuance of notification is to relieve the mandatory requirement ofconstitution of a Municipality in a State in the circumstances as mentionedin proviso but exemption from constituting Municipality does not lead tomean that the industrial establishment which is providing municipalservices to an industrial township is same as Municipality as defined inEArticle 243P(e). We have already noticed that Article 243P(e) definesMunicipality as an institution of self-government constituted under Article243Q, the word constituted used under Article 243P(e) read with Article243Q clearly refers to the constitution in every State a Nagar Panchayat,a Municipal Council or a Municipal Corporation. Further, the words inproviso “a Municipality under this clause may not be constituted” clearlyFmeans that the words “may not be constituted” used in proviso are clearlyin contradistinction with the word constituted as used in Article 243P(e)and Article 243Q. Thus, notification under proviso to Article 243Q(1) isnot akin to constitution of Municipality. We, thus, are clear in our mindthat industrial township as specified under notification dated 24.12.2001Gis not akin to Municipality as contemplated under Article 243Q.

31. At this juncture, we may also notice the two judgments asrelied on by the High Court and three more judgments where Article243Q came for consideration. The first judgment which needs to benoticed is Adityapur Industrial Area Development Authority (supra).

The Adityapur Industrial Development Authority was constituted underthe Bihar Industrial Area Development Authority Act, 1974. In paragraph2 of the judgment the constitution of the authority was noticed which isto the following effect:

“2. The appellant Authority has been constituted under theBihar Industrial Area Development Authority Act, 1974 toprovide for planned development of industrial area, forpromotion of industries and matters appurtenant thereto. Theappellant Authority is a body corporate having perpetualsuccession and a common seal with power to acquire, holdand dispose of properties, both movable and immovable, tocontract, and by the said name sue or be sued. The Authorityconsists of a Chairman, a Managing Director and five otherDirectors appointed by the State Government. The Authorityis responsible for the planned development of the industrialarea including preparation of the master plan of the areaand promotion of industries in the area and other amenitiesincidental thereto. The Authority has its own establishmentfor which it is authorised to frame regulations with priorapproval of the State Government. The State Government isauthorised to entrust the Authority from time to time with anywork connected with planned development, or maintenanceof the industrial area and its amenities and matters connectedthereto. Section 7 of the Act obliges the Authority to maintainits own fund to which shall be credited moneys received bythe Authority from the State Government by way of grants,loans, advances or otherwise, all fees, rents, charges, leviesand fines received by the Authority under the Act, all moneysreceived by the Authority from disposal of its movable orimmovable assets and all moneys received by the Authorityby way of loan from financial and other institutions anddebentures floated for the execution of a scheme or schemesof the Authority duly approved by the State Government.Unless the State Government directs otherwise, all moneysreceived by the Authority shall be credited to its funds whichshall be kept with State Bank of India and/or one or more ofthe nationalised banks and drawn as and when required bythe Authority.”

A32. On the question as to whether the Adityapur Industrial AreaDevelopment Authority was covered within the meaning of local authorityas per Section 10(20) as amended by the Finance Act, 2002, the HighCourt held that the appellant authority could not have claimed benefitunder the provisions after 01.04.2003. In paragraphs 6 and 7 followingwas held:B

“6. It would thus be seen that the income of a local authoritychargeable under the head “Income from house property”,“Capital gains” or “Income from other sources” or from atrade or business carried on by it was earlier excluded incomputing the total income of the Authority of a previous year.CHowever, in view of the amendment, with effect from 1-4-2003the Explanation “local authority” was defined to include onlythe authorities enumerated in the Explanation, which doesnot include an authority such as the appellant. At the sametime Section 10(20-A) which related to income of an authorityDconstituted in India by or under any law enacted for thepurpose of dealing with and satisfying the need for housingaccommodation or for the purpose of planning, developmentor improvement of cities, towns and villages, which beforethe amendment was not included in computing the totalincome, was omitted. Consequently, the benefit conferred byEsub-section (20-A) on such an authority was taken away.

7. The High Court by its impugned judgment and order heldthat in view of the fact that Section 10(20-A) was omitted andan Explanation was added to Section 10(20) enumerating the“local authorities” contemplated by Section 10(20), theFappellant Authority could not claim any benefit under thoseprovisions after 1-4-2003. It further held that the exemptionunder Article 289(1) was also not available to the appellantAuthority as it was a distinct legal entity, and its income couldnot be said to be the income of the State so as to be exemptGfrom Union taxation. The said decision of the High Court isimpugned in this appeal.”

33. One of the submissions which was raised before this Courtwas that exemption under Article 289(1), was also available to theappellant-Authority. The said submission was considered and negativated.

Apart from rejecting the claim under Article 289(1), this court noticingSection 10(20) has held in paragraph 13:

“13. Applying the above test to the facts of the present case itis clear that the benefit, conferred by Section 10(20-A) of theIncome Tax Act, 1961 on the assessee herein, has beenexpressly taken away. Moreover, the Explanation added toSection 10(20) enumerates the “local authorities” which donot cover the assessee herein. Therefore, we do not find anymerit in the submission advanced on behalf of the assessee.”

34. In the present case although exemption under Article 289 wasnot claimed or contended but the above judgment cannot be said to benot relevant to the present case since, the Court has also dwelled uponSection 10(20) as amended w.e.f. 01.04.2003. We, thus, do not acceptthe submission of the appellant that the above case was not relevant forthe present case and was wrongly relied on by the High Court.

35. The second judgment which is relied on by the High court isAgricultural Produce Market Committee, Narela (supra). TheAgricultural Produce Market Committee was constituted under the DelhiAgricultural Produce Marketing (Regulation) Act, 1998. The questionarose as to whether Agricultural Market Committee is a “local authority”under the Explanation to Section 10(20) of the Income Tax Act, 1961. Inthe above context it was noticed that all Agricultural Market Committeesat different places were enjoying exemption from income tax underSection 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) ofGeneral Clauses Act, 1897 is as follows:

“”local authority” shall mean a municipal committee, districtboard, body or port Commissioners or other authority legallyentitled to, or entrusted by the Government with, the controlor management of a municipal or local fund;”

36. In the above case this Court noticed in extenso the provisionsof Delhi Agricultural Produce Marketing (Regulation) Act, 1998 andprovisions of Section 10(20) of the Income Tax Act, 1961. Definition oflocal authority as contained in Explanation to Section 10(20) and Section3(31) of the General Clauses Act was also noticed and discussed. ThisCourt held that the definition of local authorityin General Clauses Actunder Section 3(31) is no longer applicable after the amendment of Section

A10(20) by Finance Act, 2002. Following was laid down by this Court inparagraphs 31 and 32:

31. Certain glaring features can be deciphered from the abovecomparative chart. Under Section 3(31) of the GeneralClauses Act, 1897, “local authority” was defined to mean “aMunicipal Committee, District Board, Body of PortCommissioners or other authority legally entitled to … thecontrol or management of a municipal or local fund”. Thewords “other authority” in Section 3(31) of the 1897 Act havebeen omitted by Parliament in the Explanation/definitionclause inserted in Section 10(20) of the 1961 Act vide theFinance Act, 2002. Therefore, in our view, it would not becorrect to say that the entire definition of the word “localauthority” is bodily lifted from Section 3(31) of the 1897 Actand incorporated, by Parliament, in the said Explanation toSection 10(20) of the 1961 Act. This deliberate omission isimportant.

32. It may be noted that various High Courts had taken theview prior to the Finance Act, 2002 that AMC(s) is a “localauthority”. That was because there was no definition of theword “local authority” in the 1961 Act. Those judgmentsproceeded primarily on the functional tests as laid down inthe judgment of this Court vide para 2 in R.C. Jain. We quotehereinbelow para 2 which reads as under: (SCC pp. 311-12)

“2. Let us, therefore, concentrate and confine our attentionand enquiry to the definition of ‘local authority’ in Section3(31) of the General Clauses Act. A proper and carefulscrutiny of the language of Section 3(31) suggests that anauthority, in order to be a local authority, must be of likenature and character as a Municipal Committee, District Boardor Body of Port Commissioners, possessing, therefore, many,if not all, of the distinctive attributes and characteristics of aMunicipal Committee, District Board, or Body of PortCommissioners, but, possessing one essential feature, namely,that it is legally entitled to or entrusted by the Governmentwith, the control and management of a municipal or localfund. What then are the distinctive attributes andcharacteristics, all or many of which a Municipal Committee, F

District Board or Body of Port Commissioners shares withany other local authority? First, the authorities must haveseparate legal existence as corporate bodies. They must notbe mere governmental agencies but must be legallyindependent entities. Next, they must function in a definedarea and must ordinarily, wholly or partly, directly or indirectly,be elected by the inhabitants of the area. Next, they must enjoya certain degree of autonomy, with freedom to decide forthemselves questions of policy affecting the area administeredby them. The autonomy may not be complete and the degreeof the dependence may vary considerably but, an appreciablemeasure of autonomy there must be. Next, they must beentrusted by statute with such governmental functions andduties as are usually entrusted to municipal bodies, such asthose connected with providing amenities to the inhabitantsof the locality, like health and education services, water andsewerage, town planning and development, roads, markets,transportation, social welfare services, etc. etc. Broadly wemay say that they may be entrusted with the performance ofcivic duties and functions which would otherwise begovernmental duties and functions. Finally, they must havethe power to raise funds for the furtherance of their activitiesand the fulfilment of their projects by levying taxes, rates,charges, or fees. This may be in addition to moneys providedby Government or obtained by borrowing or otherwise. Whatis essential is that control or management of the fund mustvest 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 inan 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 followingwas stated:

“35. One more aspect needs to be mentioned. In R.C. Jain thetest of “like nature” was adopted as the words “otherauthority” came after the words “Municipal Committee,District Board, Body of Port Commissioners”. Therefore, thewords “other authority” in Section 3(31) took colour fromthe earlier words, namely, “Municipal Committee, District ABCDE

ABoard or Body of Port Commissioners”. This is how thefunctional test is evolved in R.C. Jain[2]. However, as statedearlier, Parliament in its legislative wisdom has omitted thewords “other authority” from the said Explanation to Section10(20) of the 1961 Act. The said Explanation to Section 10(20)provides a definition to the word “local authority”. It is anBexhaustive definition. It is not an inclusive definition. Thewords “other authority” do not find place in the saidExplanation. Even, according to the appellant(s), AMC(s) isneither a Municipal Committee nor a District Board nor aMunicipal Committee nor a panchayat. Therefore, in our viewCfunctional test and the test of incorporation as laid down inR.C. Jain[2]is no more applicable to the Explanation to Section10(20) of the 1961 Act. Therefore, in our view the judgmentof this Court in R.C. Jain[2]followed by judgments of variousHigh Courts on the status and character of AMC(s) is nomore applicable to the provisions of Section 10(20) after theDinsertion of the Explanation/definition clause to that sub-section vide the Finance Act, 2002.”

38. This Court held that Agricultural Marketing Committee is alsonot covered by the words “Municipal Committee, District Board, Bodyof Port Commissioners” as used in Explanation of Section 10(20).E

39. In this context, we also refer to the judgment of this Court inSaij Gram Panchayat vs. State of Gujarat an others, 1999 (2) SCC366. This Court had occasion to consider in the above case GujaratIndustrial Development Act, 1962, the provisions of Article 243Q andGujarat Municipalities Act, 1963.F

40. This Court held that Gujarat Industrial Development Actoperates in a totally different sphere from Parts IX and IXA of theConstitution and the Gujarat Panchayats Act, 1961. In paragraph 16 ofthe judgment following was held:

G“The Gujarat Industrial Development Act operates in atotally different sphere from Parts IX and IX-A of theConstitution as well as the Gujarat Panchayats Act, 1961 andthe Gujarat Municipalities Act, 1962 — the latter beingprovisions dealing with local self-government, while the formerbeing an Act for industrial development and orderlyHestablishment and organisation of industries in a State.”

41. It is, however, true that in the above case this Court was notconcerned with the issue which has arisen in the present case and theCourt was concerned with a different controversy.

42. We, thus, conclude that authority constituted under Act, 1976with regard to which notification under proviso to Article 243Q(1) dated24.12.2001 has also been issued is not akin to the Municipality constitutedunder 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 anExplanation has been added to Section 10(20) of the I.T. Act, 1961 andSection 10(20A) has been omitted. Prior to Finance Act, 2002 therebeing no definition of ‘local authority’ under the I.T. Act, the provisionsof Section 3(31) of the General Clauses Act, 1897 were pressed intoservice while interpreting the extent and meaning of local authority. TheExplanation having now contained the exhaustive definition of localauthority, the definition of local authority as contained in Section 3(31) ofGeneral Clauses Act, 1892 is no more applicable. Section 3 of the GeneralClauses Act begins with the words “In this Act, and in all Central Actsand Regulations made after the commencement of this Act, unless thereis anything repugnant in the subject or context,-.... The definition givenof the local authority under Section 3(31) does not now govern the fieldin 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 GeneralClauses Act is now no more applicable to interpret local authority underSection 10(20) of the I.T. Act. Before we proceed further it shall beuseful to notice certain well settled principles of statutory interpretationof 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 statutesand in determining the liability of a subject to tax one musthave regard to the strict letter of the law and n ot merely tothe spirit of the statute or the substance of the law. If theRevenue satisfies the Court that the case falls strictly withinthe provisions of the law, the subject can be taxed. If on theother hand, the case is not covered within the four corners ofthe provisions of the taxing statute, no tax can be imposed by A

Ainference or by analogy or by trying to probe into theintentions of the legislature and by considering what was thesubstance of the matter. We must of necessity, therefore, haveregard to the actual provisions of the Act and the rules madethereunder before we can come to the conclusion that theappellant was liable to assessment as contended by the SalesBTax Authorities.”

44. This Court in Rajasthan Rajya Sahakari Spinning andGinning Mills Federation Limited vs. Deputy Commissioner ofIncome Tax, Jaipur, 2014(11) SCC 672 again reiterated that therehas to be strict interpretation of taxing statutes and further the fact thatCone class of legal entities are given some benefit which is specificallystated in the Act does not mean that the legal entities not referred to inthe Act would also get the same benefit. Following was laid down inparagraph 23:

“23. We are also of the view that in all the tax matters one hasDto interpret the taxation statute strictly. Simply because oneclass of legal entities are given some benefit which isspecifically stated in the Act does not mean that the legalentities not referred to in the Act would also get the samebenefit. As stated by this Court on several occasions, there isEno equity in matters of taxation. One cannot read into a sectionwhich has not been specifically provided for and therefore,we do not agree with the submissions of the learned counselappearing for the appellant and we are not prepared to readsomething in the section which has not been provided for.The judgments referred to hereinabove support the view whichFwe have expressed here.”

45. It shall be useful to refer to Explanatory Notes on FinanceAct, 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 LocalGAuthorities to become taxable are to the following effect:

“12.2 Through Finance Act, 2002, this exemption has beenrestricted to the Panchayats and Municipalities as referredto in Articles 243(d) and 243(p)(e) of the Constitution of Indiarespectively. Municipal Committees and District Boards, legally H

entitled to or entrusted by the Government with the control ormanagement of a Municipal or a local fund and CantonmentBoards as defined under section 3 of the Cantonments Act,1924.

12.3 The exemption under clause (20) of section 10 would,therefore, not be available to Agricultural Marketing Societiesand Agricultural Marketing Boards, etc., despite the fact thatthey may be deemed to be treated as local authorities underany other Central or State Legislation. Exemption under thisclause would not be available to port trusts also.

12.4 This amendment will take effect from 1st April, 2003 andwill, accordingly, apply in relation to the assessment year2003 2004 and subsequent assessment years.”

46. Further paragraphs 13.1 to 13.4 of the Explanatory Notescontained heading: “Income of certain Housing Boards etc. tobecome 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 statutoryauthorities set up for the purpose of dealing with or satisfyingthe need for housing accommodations or for the purpose ofplanning, development or improvement of cities, towns andvillages is exempt from payment of income tax.

13.2 Through Finance Act, 2002 clause (20A) of section 10has been deleted so as to withdraw exemption available tothe abovementioned bodies. The income of Housing Boardsof the States and of Development Authorities would, therefore,also become taxable.

13.3 Under section 80G, donation made to housing authorities,etc. referred to in clause (20A) of section 10 is eligible for50% deduction from total income in the hands of the donors.Since clause (20A) of section 10 has been deleted, donationto the housing authorities etc. would not be eligible fordeduction in the hands of the donors and this may result indrying up of donations. To continue the incentive to donationmade to housing authorities etc., section 80G has beenamended so as to provide that 50% of the sum paid by an A

CDEF

Aassessee to an authority constituted in India by or under anylaw enacted either for the purpose of dealing with andsatisfying the need for housing accommodation or for thepurpose of planning, development or improvement of cities,towns and villages, or for both, shall be deducted from thetotal income of such assessee.B13.4 These amendments will take effect from lst April, 2003and will, accordingly, apply in relation to the assessment year2003 2004 and subsequent assessment years.”

47. The explanatory note clearly indicates that by Finance Act,C2002 the exemption under Section 10(20) has been restricted to thePanchayats and Municipalities as referred to in Articles 243P(d) and243P(e). Further by deletion of Clause (20A), the income of the HousingBoards of the States and of Development Authorities became taxable.

48. On a writ petition filed by the appellant before the AllahabadDHigh Court where the notices issued in the year 1998 under Section 142of the Income Tax Act was challenged vide its judgment dated 14.02.2000the High Court held that appellant’s case comes squarely under Section10(20A) of the Income Tax Act, hence, the appellant was liable to beexempted under the said Act, although, the High Court did not expressany opinion on the question whether appellant was exempted underESection 10(20) in that judgment.

49. After omission of Section 10(20A) only provision under whicha Body or Authority can claim exemption is Section 10(20). Local authorityhaving been exhaustively defined in the Explanation to Section 10(20)an entity has to fall under Section 10(20) to claim exemption. It is alsoFuseful to notice that this Court laid down in State of Gujarat and othersvs. ESSAR Oil Limited and another, 2012 (3) SCC 522, that a personinvoking an exception or an exemption provision to relieve him of the taxliability must establish clearly that he is covered by the said provision. Itis useful to extract paragraph 88 which is to the following effect:

G“88. This Court in Novopan case, 1994 Supp (3) SCC 606,held that the principle that in case of ambiguity, a taxing statuteshould be construed in favour of the assessee, does not applyto the construction of an exception or an exempting provision,as the same have to be construed strictly. Further this Courtalso held that a person invoking an exception or an exemptionH

provision to relieve him of the tax liability must establishclearly that he is covered by the said provision and in case ofdoubt or ambiguity, benefit of it must go to the State.”

50. For interpreting an explanation this Court in s. SundaramPillai and others vs. V.r. Pattabiraman and others, 1985 (1) SCC591, laid down in paragraphs 47 and 53 as follows:

“47. Swarup in Legislation and Interpretation very aptly sumsup the scope and effect of an Explanation thus:

“Sometimes an Explanation is appended to stress upon aparticular thing which ordinarily would not appear clearlyfrom the provisions of the section. The proper function of anExplanation is to make plain or elucidate what is enacted inthe substantive provision and not to add or subtract from it.Thus an Explanation does not either restrict or extend theenacting part; it does not enlarge or narrow down the scopeof the original section that it is supposed to explain.... TheExplanation 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 toabove, it is manifest that the object of an Explanation to astatutory provision is—

“(a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the mainenactment, to clarify the same so as to make it consistent with thedominant object which it seems to subserve,

(c) to provide an additional support to the dominant object of theAct in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or changethe enactment or any part thereof but where some gap is leftwhich is relevant for the purpose of the Explanation, in order tosuppress the mischief and advance the object of the Act it canhelp or assist the Court in interpreting the true purport andintendment of the enactment, and (e) it cannot, however, take away a statutory right with whichany person under a statute has been clothed or set at naught the A

Aworking of an Act by becoming an hindrance in the interpretationof the same.”

51. This Court in Adityapur Industrial Area DevelopmentAuthority (supra) after considering Section 10(20) as amended by theFinance Act, 2002 and consequences of deletion of Section 10(20A) hasBlaid down following in paragraph 13:

52. It is also relevant to notice that this Court in Gujarat IndustrialDevelopment Corporation vs. Commissioner of Income Tax, 1997D(7) SCC 17, after considering the provisions of Section 10(20A) of I.T.Act held that Gujarat Industrial Development Corporation is entitled forexemption under Section 10(20A). The Gujarat Industrial DevelopmentCorporation was held to be entitled for exemption under Section 10(20A)at the time when the provision was in existence in the statute book andafter its deletion from the statute book the exemption is no more available.ENow, reverting back to Section 10(20) as amended by Finance Act,2002, the same has also come for consideration before different HighCourts. A Division Bench of the Allahabad High court in Krishi UtpadanMandi Samiti vs. Union of India and another, (2004) 267 ITR 460stated following:F“

“A bare perusal of the Explanation of Section 10(20) showsthat now only four entities are local authorities for the purposeof Section 10(20), namely, (i) Panchayat, (ii) Municipality;(iii) Municipal Committee and District Board; (iv) CantonmentBoard Krishi Utpadan Mandi Samiti is not one of the entitiesGmentioned in the Explanation to Section 10(20).

It may be noted that the Explanation to Section 10(20) usesthe word ‘means’ and not the word ‘includes’. Hence, it is notpossible for this Court to extend the definition of ‘localauthority’ 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 thedefinitions in other Acts, as the IT Act now specifically defines‘local authority’.

It is well settled that in tax matters the literal rule ofinterpretation applies and it is not open to the Court to extendthe language of a provision in the Act by relying on equity,inference, etc.

It is the first principle of interpretation that a statute shouldbe read in its ordinary, natural and grammatical sense asobserved by the Supreme Court of India:

“In construing a statutory provision the first and foremostrule of construction is the literary construction. All thatthe Court has to see at the very outset is what does theprovision say. If the provision is unambiguous and if fromthe provision the legislative intent is clear, the Court neednot call into aid the other rules of construction of statutes.The other rules of construction are called into aid onlywhen the legislative intent is not clear” vide HiralalRatanlal v. STO, AIR 1973 SC 1034;”

53. A Division Bench of the Delhi High Court also in AgriculturalProduce Market Committee vs. Commissioner of Income-tax,(2006)156 ITR 286 had occasion to consider Section 10(20) as amendedw.e.f. 01.04.2003 where the High court in paragraph 8 has stated thefollowing:

“8. The most striking feature of the Explanation is that thesame provides an exhaustive meaning to the expression “localauthority”. The word “means” used in the Explanation leavesno scope for addition of any other entity as a ‘local authority’to those enlisted in the Explanation. In other words, even ifan entity constitutes a ‘local authority’ for purposes of theGeneral Clauses Act, 1897 or for purposes of any otherenactment for that matter, it would not be so construed forpurposes of section 10(20) of the Act unless it answers thedescription of one of those entities enumerated in theExplanation. Mrs. Ahlawat did not make any attempt to bringher case under clauses (i), (ii) and (iv) of the Explanationand in our opinion rightly so because the appellant committee

814SUPREME COURT REPORTS

Acannot by any process of reasoning be construed as aPanchayat as referred to in clause (d) of Art. 243 of theConstitution of India, a municipality in terms of clause (e) ofArt. 243P of the Constitution of India or a Cantonment Boardas defined under section 3 of the Cantonments Act, 1924.What she argued was that looking to the nature of the functionsBenjoined upon the appellant committee, it must be deemed tobe a municipal committee within the meaning of that expressionin clause (iii) of the Explanation. We regret our inability toaccept that submission. We say so for two distinct reasons.Firstly because the expression “municipal committee” appearsCin a taxing statute and must, Therefore, be construed strictly.It is fairly well-settled by a long line of decisions rendered bythe Supreme Court that while interpreting a taxing statute,one has simply to look to what is clearly stated therein. Thereis, in fiscal statutes, no room for any intendment nor is thereany equity about the levy sanctioned under the same. TheDfollowing passage from Cape Brandy Syndicate v. IRC 1921(1) KB 64 has been approved by the Apex Court in thedecisions rendered by their Lordships.

“in a taxing Act one has to look merely at what is clearlysaid. There is no room for any intendment. There is noequity about a tax. There is no presumption as to a tax.Nothing is to be read in, nothing is to be implied, One canonly look fairly at the language used.”

54. We fully endorse the views taken by the High Court in theabove two judgments.F

55. Now, reverting back to Explanation to Section 10(20), theseare entities which mean the local authority. The submission of the appellantis that the appellant is covered by Clause (ii) of the Explanation i.e.“Municipality as referred to in clause (e) of Article 243P of theConstitution”. We, while discussing above provisions, have already heldGthat the appellant is not covered by the word/expression of “Municipality”in clause (e) of Article 243P.Thus, the appellant is not clearlyincluded in sub-clause (ii) of Explanation. It is not even the case of theappellant that the appellant is covered by Section 10(20) except clause(ii).

56. Thus, we are of the considered opinion that the appellant isnot covered by the definition of local authority as contained in Explanationto Section 10(20).

57. In view of what has been stated above, we dismiss theseappeals.

Ankit Gyan

Appeals dismissed.