AGRICULTURAL PRODUCE MARKET COMMITTEE, NARELA, DELHI v. COMMISSIONER OF INCOME TAX & ANR

Citation: [2008] 12 S.C.R. 387

Court: Supreme Court of India

Bench: S.H. KAPADIA, B. SUDERSHAN REDDY

Case summary

AGRICULTURAL PRODUCE MARKET COMMITTEE, NARELA, DELHI v. COMMISSIONER OF INCOME TAX & ANR.pdf

Judgment text

[2008] 12 S. C. R. 387 AGRICULTURAL PRODUCE MARKET COMMITTEE, NARELA, DELHI v. COMMISSIONER OF INCOME TAX & ANR. (Civil Appeal No. 5180 of 2008) AUGUST 21, 2008 -\' [S. H. KAPADIA AND 8. SUDERSHAN REDDY, JJ] ~ Income Tax Act, 1961: s. 10(20), Explanation - 'local authority' - Agricultural · Prduce Market Committee (AMC) claiming exemption from income tax - HELD: Definition of 'local authority' given in the Explanation to s. 10(20) is an exhaustive definition and words "other authority" do not find place therein - Therefore, AMC is not entitled to exemption uls 10(20) after insertion of the Explanation by Finance Act 2002 - General Clauses Act, 1897 - s. 3(31) - Constitution of India, 1950 - Articles 243(d) and 243-P(e) - Delhi Agricultural Produce Marketing (Regulation) Act, 1998 - ss. 2(1) and 5. The appellant in CA No. 5180 of 2008, an Agricultural Produce Market Committee (AMC), was availing exemption benefit under s.

10(20) of the Income Tax Act, 1961, prior to its amendment by Finance Act, 2002. By the said amendment the Explanation was added to subsection (20) of s. 10 of the 1961 Act, defining the term 'local authority'. The words 'other authority' as occurring in s. 3(31) of the General Clauses Act, 1897, did not find place in the said Explanation. Accordingly, the Revenue rejected appellant's claim for exemption from payment of tax on incom~ earned by it, for the assessment year 2003-04. The appellant having failed before the Commissioner of Income Tax (Appeals), the Income Tax Appellate . Tribunal and the High Court, filed the instant appeal. The other appeals were filed on similar facts. On the strength of the decision in R. C. Jain's case, it was contended for the appellants that the Parliament, by way of Explanation to s.

10(20), bodily lifted the definition of 'local authority' u/s 3(31) of the General Clauses Act, 1897 and, as such, the AMC continued to be a 'local authority' even after the said amendment; that even otherwise, Item (iii) of the Explanation to s. 10(20) of the 1961 Act, referred to "Municipal Committees" and "District Boards", and as no Municipal Committees were in existence, nor the term "Municipal Committee" was defined and, as such, AMC, though not a Municipal Committee, would still be a 'local authority' of like nature and character to that of a 'Municipal Cc:>mmittee' performing muni~ipal functions. For the respondents it was contended, that after the insertion of the Explanation to s. 10 (20) of the 1961 Act, the term 'local authority' stood exhaustively definedand since AMC was not mentioned in the said Explanation, the appellant was no more enti~led to the exemption benefit.

It was submitted that the clarification issued by CBDT expressly stated that Agricultural · Marketing Societies and Agricultural Marketing Boards would stand excluded from the Explanation to s. 10 (20) of the 1961 Act. - The question for consideration before the Court was: "whether Agricultural Marketing Committee [AMC(s)] is 'a "local authority", so as to be entitled to the benefit under Section 10 of the 1961 Act after insertion of the Explanation in Section 10(20) vide Finance Act, 2002 w. e. f. 1. 4. 2003? " D~smissing the appeals, the Court HELD: 1. 1 The Explanation to Section 10(20) of the Income Tax Act, 1961 provides a definition to the word "local authority". It is an exhaustive, and not an inclusive, definition. The words "other authority" do not find place DELHJ v. COMM!. OF INCOME TAX & ANR. -f in the said Explanation. Even.

according to the _appellants, Agricultural Produce Market Committee is neither a Municipal Committee nor a District Board nor a Municipality nor a Panchayat. Therefore, the functional test and the test of incorporation as laid down in the case of R. C. Jain* is no more applicable to the Explanation to Section 10(20) of the 1961 Act. Therefore, the judgment in R. C. Jain followed by judgments of various High Courts on the status and character of AMC is no more applicable to the provisions of s. 10(20) after • the insertion of the Explanation/definition clause to that sub-section by Finance Act, 2002. [para 29] [416,E-H] *Union of India and others v. R. C. Jain and others - 1981 ( 2 ) SCR 854=1981 (2) SCC 308 - held inapplicable. 1. 2 Under Section 3(31) of the General Clauses Act, 0 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 tias been omitted by Parliament in the Explanation/definition clause inserted in Section 10(20) of the 1961 Act by Finance Act, 2002. iherefore, 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 Explanation to Section 10(20) of the 1961 Act. This deliberate omission is important. [para 27] [413,E-G] 1. 3 As regards the use of the words "Municipal Committee" and "District Board" in Item (iii) of the Explanation to s. 10(20) of 1961 Act, Parliament has defined "local authority" to mean - a Panchayat as referred to in clause (d) of Article 243 of the Constitution of India, and a Municipality as referred to in clause (e) of Article 243P of the Constitution of India.

However, there , is no reference to Article 243 after the words "Municipal Committee" and "District Board". The Municipal Committee and District Board in the said Explanation are used out of abundant caution. In 1897 when General Clauses Act was enacted there existed in India, Municipal Committees. and District Boards. They continued even thereafter. Besides, Article 243N and Article 243ZF indicate that there could be enactments· which still retain the entities like Municipal Committees and District ' Boards and if they exist, Parliament intends to give C' exemption to their income under Section 10(20) of the 1961 Act. [para 30] [417,A-C; 418,B] 1. 4 Agricultural Produce Market Committee (AMC) is, therefore, not entitled to exemption under Section 10(20) of the 1961 Act after insertion of the said Explanation by Finance Act, 2002 w. e. f. 1. 4. 03. [para 33] [418,F-G] Case Law Reference: 1981 ( 2 ) SCR 854 held inapplicable para 12 Union of India and others v. R. C.

Jain and others - 1981 ( 2 ) SCR 854=1981 (2) sec 308 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5180 bf 2008 From the final Judgment and Order dated 2. 06. 2006 of the High Court of Delhi at New Delhi in ITA No. 819 of 2006 :. Ir WITH C. A. Nos. 5181 & 5182 of 2008 M. L. Verma, Avnish Ahlawat, Pawan Chaudhary, Rani Chhabra, Lalita Chaudhary, Simran Singh and Satya Mitra for the Appellant. Parag Tripathi, ASG. , P. Vishwanatha Shetty, Amey Nargolkar, Shweta Garg, Rahur Kausnik and B. V. Ba! aram Das for the Respondents. DELHI v. COMM!. OF INCOME TAX & ANR. [S. H. KAPADIA, J. ] The Judgment of the Court was delivered by S. H. KAPADIA, J. 1. Leave granted. 2. In this batch of civil appeals a short question which arises for determination is : whether Agricultural Market Committee ("AMC", for short) is a "local authority" under the Explanation to Section 10(20) of the Income-tax Act, 1961 ("1961 Act", for short). 3.

For the sake of convenience we refer to the facts mentioned in Civil Appeal No. 5180 of 2008 (arising out of S. L. P. (C) No. 6757 of 2007) filed by AMC, Narela, Delhi. 4. Appellant-Committee is established under the Delhi Agricultural Produce Marketing (Regulation) Act, 1998 ("1998 Act", for short). The provisions of the said 1998 Act enjoin upon the appellant to provide the facilities for marketing of agricultural produce in Narela... Delhi. This is apart from performing other functions and duties such as ... ... superintendence, direction and control of markets for regulating the marketing of agricultural produce. 5. For the assessment year 2003-04, the appellant- Committee claimed exemption from payment of tax under income earned by it on the ground that it was a "local authority" within the meaning of Section 10(20) of the said 1961 Act. It relied upon the definition of "local authority" in Section 2(1) of the said 1998 Act. The A. O.

rejected the appellant's claim for exemption relying upon Circular No. 8/2002 dated 27. 8. 02 issued by CBDT. The view taken was that the amended provisions of Section 10(20) of the 1961 Act were not attracted to "Agricultural Produce Marketing Societies" or "Agricultural Market Boards" even when they may be local authorities under Central or State Legislations. 6. Aggrieved by the said order, appellant filed an appeal before CIT(A) who upheld the view taken by the A. O. and declined the exemption claimed by the appellant. 7. A further appeal by the appellant, before the Tribunal, also failed. 8. Aggrieved by the decision of the Tribunal, the appellant moved the High Court by way of Income Tax Appeal No:819/ 2006 under Section 260A of the 1961 Act. By impugned B. decision dated 2. 6. 06, Delhi High Court following its earlier judgment in the· case of Agricultural Produce Market Committee, Azadpur v. Commissioner of Income-tax - (/. TA. No. 74912006) dismissed the appellant's appeal.

Hence this civil appeal. 9. At the outset, it may be stated that all AMCs at different places were enjoying exemption . from income tax under Section 10(20) of the 1961 Act prior to its amendment by Finance. Act, 2002 w. e. f. 1. 4. 03. · 10. Prior to the amendment by Finance Act, 2002, l Section 10(20) of the Income-tax Act, 1961 provided as under: . "CHAPTER Ill • I ~' ~- INCOME WHICH DO NOT FORM PART OF TOTAL INCOME Incomes not included in total income. 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall.

not be included - · (20) the income of a local authority which is chargeable under the head "income from house property", "Capital gains" or·"lncome from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area er from the supply of water or electricity within or outside its own jurisdictional area. " ~ . 11. Through the aforemenl\oned amendment (Finance Act, 2002) the following Explanation stood added to Section 10(20) of the Income-tax Act, 1961 which reads as follows: "Explanation.

- For the purposes of this clause, the expression "local authority" means - (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act; 1924 (2 of 1924);" 12. Mr. M. L. Verma, learned senior counsel appearing on behalf of the appellants, submitted that AMC(s) has been held to be a "local authority" under Section 10(20) of the 1961 Act falling outside the taxing net. in this connection, learned counsel placed reliance on the judgment of the Delhi High Court in the case of Commissioner of Income-tax v. Agricultural Marketing Produce Committee - [2001] 250 ! TR 369 and the reasoning given by this Court in the case of Union of India and others v. R. C.

Jain and others - 1981 (2) SCC 308. According to learned counsel, even after the amendment to Section 10(20) of the 1961 Act, by inserting the Explanation thereto, the AMC(s) continues to be covered by Item (iii) in the said Explanation as it is a "local authority" performing the municipal functions and is legally entitled to the control of local fund, namely, Market Fund under the said 1998 Act. In this connection, learned counsel urged that vide Finance Act, 2002, Parliament has bodily lifted the definition of the "local authority" under Section 3 (31) of the General Clauses Act, 1897 ("1897 Act", for short) and has incorporated the said definition vide Explanation inserted in Section 10(20) and consequently AMC(s) is a "local authority" and continues to be a local authority even after the· said amendment to Section 10(20) of the 1961 Act.

According to learned counsel, since Section ;3(31) of the 1897 Act is bodily incorporated into ; Section 10(20) of the 1961 Act, it follows that the judgments ; of various High Courts earlier delivered prior to Finance Act, 2002 holding AMC(s) to be a "local authority", would continue 1to apply and the tests laid down in those judgments would continue to apply even after the said amendment to Section 10(20) of the 1961 Act. Therefore, according· to. learned counsel, the said Explanation does not adversely affect the appellant(s) as the appellant(s) is covered by Item (iii) in the Explanation, which according to the appellant(s), is identical to Section 3(31) of the 1897 Act on the basis of which AMC(s) . is "local authority". 13.

Learned counsel next contended that even after the amendment to Section 10(20), the appellant(s) is covered by Item (iii) of the said Explanation as it is a "local authority" • performing municipal functions and as it is legally entitled to )r-· the control of local fund, namely, Market Fund. In this co~nection, learned counsel pointed out that the appellant(s) has the power and authority to levy and collect fees called "Market Fees" and in fact it levies and collects "Market Fees" and the fact that the Government exercises control, does not . take away the statutory power of the appellant(s) under Section 62 of the 1998 Act. 14. Learned counsel next contended that it is true that the words ''other authority" appearing in Section 3(31) of the 1897 Act do not find place in the Explanation to Section 10(20) of the 1961 Act, however, that would not change the basis of decision of this Court in the case of R. C. Jain (supra).

Learned counsel urged that the judgment of this Court in the case of •+-. A R. C. Jain (supra) is squarely applicable to the facts of the present case and applying the tests laid down in the said judgment the position which emerges is that AMC(s) is a "local authority" of "like nature and character" as a Municipal Committee performing municipal functions and legally entitled * to the control of the local fund, namely, the Market Fund. One more aspect needs to be mentioned. An Explanatory Note (at pages 114 to 116 of the paper book of S. L. P. (C) No. 6757 of 2007) states that "Agricultural Produce Marketing Boards" and "Agricultural Marketing Societies" are not entitled to exemption after insertion of the said Explanation in Section 10(20) of the 1961 Act. According to learned counsel AMC(s) is neither 1 "Agricultural Produce Marketing Board" nor "Agricultural Marketing Society".

Therefore, according to learned counsel even the Explanatory Note indicates that AMC(s) is covered by the Explanation and, therefore, AMC(s) is entitled to the continuance of the benefit of exemption even after Finance Act, 2002. Further, in the Explanation to Section 10(20) there are three items - Item (i) refers to "Panchayat", Item (ii) refers to "Municipalities" whereas Item (iii) refers to "Municipal Committees" and "District. Boards". According to learned counsel, there is no independent definition of "Municipal '. Committee". According to learned counsel, the Department is ~ also not able to answer whether any Municipal Committee still exists so as to constitute a separate category or whether they would be covered under Item (ii) in the said Explanation which refers to "Municipality".

Therefore, according to learned counsel, AMC(s) is a "local authority" of like nature and character as a Municipal Committee performing municipal functions legally entitled to control the local fund. 15. Lastly, learned counsel urged that in any event it is well-settled rule of construction of taxing statutes that if two views are possible then the view that is favourable to assessee should be executed and in case of doubt it should be resolved in favour of that assessee. 16. Mr. Parag P. Tripathi, learned Additional Solicitor ' -4. · General of India, submitted that before the insertion of the Explanation, under Section 10(20) of the 1961 Act, by Finance Act, 2002, various High Courts were of the view that since "local authority" has not been defined under 1961 Act; the definition may be borrowed from Section 3(31) of the 1897 + Act.

However, according to learned counsel, after the insertion of the Explanation, vide Finance Act, 2002 whereby "local authority" stood defined exhaustively, it was not necessary to invoke Section 3(31) of the 1897 Act. He further contended that the Notes on Clauses in the Finance Bill 2002 shows that Parliament intended to restrict the exemption to Panchayat ' -1-and Municipality, as referred to in Article 243(d) and Article I ..... 243P(e) of the Constitution of India, Municipal Committees · and District Boards, legally entitled to or entrusted by the Government with the control or management of a local fund as well as Cantonment Boards as defined under Section 3 of the Cantonment Act, 1924. In this connection, learned counsel urged that AMC(s) is not mentioned in the Explanation. Therefore, according to learned counsel, it would not be proper to read AMC(s) into the Explanation particularly when Section 10(20) of the 1961 Act is an exemption provision. 17.

It was next contended that Section 3(31) of the 1897 . , Act was riot bodily incorporated in the Explanation to Section ~ 10(20) of the 1961 Act as it sought to be contended on behalf of the appellant(s). Learned counsel submitted that Parliament in its wisdom has excluded the expression "other authority", . found under Section 3(31) of the 1897 Act, from the Explanation to Section 10(20) of the 1961 Act. According to learned counsel, this conspicuous absence has to be understood in the context, namely, that in the case of R. C. Jain (supra), the focus of this Court was on the said expression -~ "other authority" under Section 3(31) of the 1897 Act and, therefore, reliance placed by the appellants herein on the judgment of this Court in the case of R. C. Jain (supra) was misplaced. 18.

Learned counsel further submitted that the explanation/definition clause inserted by Finance Act, 2002 is ·+-" exhaustive as it uses the expression "means" as contradistinct from the expression "includes". Learned counsel submitted that borrowing definition frorn other statutes is not a safe guide, particularly, when the explanation is a definition section, ~ specifically designed for grant of the exemption under Section 10(20) of the 1961 Act. 19. Learned counsel next con~ended that in the hierarchy, mentioned in 1998 Act, the Delhi Agricultural Marketing Board, as defined under Section 5, is in complete control of the finances of AMC(s) and, therefore, according to learned _,... , counsel, the clarification, issued by CBDT, expressly states ~ that Agricultural Marketing Societies and Agricultural Marketing Boards shall stand excluded from the said Explanation.

According to learned counsel, since the said Board is the highest authority under the 1998 Act, the CBDT Circular clarifies that the exemption shall not be admissible to such Agricultural Marketing Boards and when such an exemption is not admissible to Agricultural Marketing Boards it would not be admissible to a subordinate body under the 1998 Act, namely, AMC(s). 20. Mr. P. Vishwanatha Shetty, learned senior counsel ,, appearing for the Department, has adopted the arguments of . _. ,. the learned Addi. Solicitor General. Learned counsel submitted that earlier in 1897 when General Clauses Act stood enacted there were District Boards and Municipal Committees in certain areas. Those District Boards, according to learned counsel, were different from the Municipalities.

Learned counsel urged that if one looks at the said Explanation in its entirety, it would be clear that Parliament intended to grant exemption to Panchayat, Municipality, Municipal Committee and District Boards legally entitled to the control or management of a local fund. Learned counsel contended that an AMC(s) is not a Municipal Committee. He contended that the constitution of Panchayat and Municipality indicated them to be representative body which is not there in the case of AMC(s). Learned counsel submitted that even in the case of a Municipal '-_I , -· ... 89. Application of Market Fund-(1) Subject to the provisions of section 88, the Market Fund may be expended for the following purposes only, namely:- (i) the acquisition of a site or sites for the market yard; (ii) the establishment, maintenance and improvement ·-,L of the market yards; I ...

(iii) the construction and repair of buildings necessary for the purposes of the market and for convenience or safety of the persons using the market yard; (iv) the maintenance of standard weights and measures; (v) the meeting of establishment charges including payment and contribution of provident fund, pension, gratuity, leave encashment on retirement or yearly basis, actual reimbursement of hospitalization expenses in the authorized hospitals or other items as may be laid down in the regulations/rules; +- (vi) loans and advances to the employees of the committee; (vii) the payment of interest on the loans that may be raised for the purpose of the market and provisions of sinking fund in respect of such loans; (viii) the collection and dissemination or information relating to crop statistics and marketing of agricultural + produce; (ix) expenses incurred in auditing the accounts of the marketing committee; (x) payment of honorarium to Chairman travelling allowances of Chairman, Vice-Chairman and other ........

~ members of the Marketing Committee and sitting fees payable to number for attending the meeting; (xi) contribution to the Board as prescribed and DELHI v. COMM!. OF INCOME TAX & ANR. [S. H. KAPADIA, J. ] Consolidated fund of the National Capital Territory of Delhi to the extent required for salary of the · employees of the Government as provided in clause (b) of sub-section (2) and sub-section (3) of this section; (xii) contribution to any scheme for development of ' . B agricultural marketing including transport an9 j. scientific storage; (xiii) to provide facilities like grading services and communication to agriculturists in the market area; (xiv) to provide for development of agricultural produce in the market area; (xv) payment of expenses on elections under this Act; (xvi) incurring of all expenses for research, extension and training in marketing of agricultural produce; (xvii) prevention.

on conjunction with other agencies, State, Union Territory, Central and others in relation to distress sale of agricultural produce; (xviii) fostering co-operative marketing and assisting cooperative marketing societies in the procurement and organization of profitable· disposal of produce particularly the produce belonging to small and marginal farmers; -+ (xix) acquisition of land for construction of office building, guest house for farmers and visitors and staff quarters and maintenance thereof; hiring built up accommodation for office use, guest house or for other purpose of agricultural marketing; (xx) . any other purpose connected with the marketing of agricultural produce under this.. Act whereon the expenditure of the marketing committee fund is in the public interest subject to the prior sanction of the Board. ~ ,, l ~' (xxi) contribution to centralized pension fund of the Board as may be prescribed.

(2) Without prejudice to the generality of sub-section (1 ), every marketing committee shaH, out of the "market fund" pay- 'JI.. (a) to the Board, as contribution, such percentage of its I ·I income derived from the licence fee, market fee, fines received as specified below, to enable the Board to defray its expenses on office establishment and other expenses incurred by it in the . i. nterest of the marketing committee generally,-, (i) if the annual income of a marketing committee does not exceed ten thousand rupees, ten percent. (ii) if the annual income of a marketing committee exceeds ten thousand rupees but does not ' -~ exceed fifteen thousand rupees, on the first 't- Rs. 10,000 ten percent. On the next five thousand rupees or part thereof... fifteen percent (iii) if the annual income of a marketing committee exceeds fifteen thousand rupees, on the first } Rs. 10,000 Ten percent + ~ on the next Rs.

5,000 Fifteen percent t on the remaining income Twenty percent ,_ ~ (b) to the Government, the cost of any ~peci"al or additional staff employed by the Government, in consultation with the marketing_committeeCfot giving· ·~·effect to the provisions of this Act in the market afea. (3) The Government shall determine the cost of the special or additional staff referred to in clause (b) ·of sub-section DELHI ~ COMMI. OF INCOME TAX & ANR. [S. H. KAPADIA, J. ] j (2) and shall, where the staff is employed for the purposes of more than one marketing committee, apportion such cost among the marketing committees concerned in such manner as it things fit and the decision of the Government determining the am_ount payable by any marketing committee shall be final. . .. ; CHAPTER. XI ' . BUDGET AND ACCOUNTS 91.

Budget and Account of a Marketing Committee- (1) Everything marketing committee shall prepare and pass the budget on its income and expenditure fo'r the ensuing year in the prescribed Form and shall submit it to the Board for sanction before the prescribed date. The Board shall sanction the budget with or without modification within three months from the date of receipt thereof. If the budget is not returned by the Board within three months, it shall be · presumed to have been sanctioned. -1 (2) No expenditure shall be incurred on any item if there is no provision in the sanctioned budget thereof, unless it can be met by reappropriation from saving under any other Head and has sanction for re-appropriation of the Vice- Chairman of the Board. 95.

Preparation of Balance and administrative report- (1) At the end of every year, a marketing committee shall draw up its final accounts of receipts and expeAditure and a balance sheet of its assets and liabilities and prepare an annual administrative report in such manner and in such Form as may be prescribed. (2) Copies of accounts, balance sheet and administrative report referred to in sub-section (1) shall be submitted to I ~· the Board and the Director by such time as may be prescribed. " (emphasis supplied by us) - ' 23. We also quote Section 3(31) of the General Clauses Act, 1897 herein below which reads as under: "GENERAL DEFINITIONS "3. DEFINITIONS. - 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,- j. "l (31 ): "local authority" shall mean a municipal committee, district boar.

d, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the ·C control or management of a municipal or local fund;" (emphasis supplied by us) 24. The short question which arises in this batch of civil appeals is : whether Agricultural Marketing Committee ,.. [AMC(s)] is a "local authority", so as to be entitled to the benefit under Section 10 of the 1961 Act after insertion of the Explanation in Section 10(20) vide Finance Act, 2002 w. e. f. 1. 4,2003. 25. Before analyzing the above question, we quote hereinbelow a comparative chart containing the Explanation to Section 10(20) of the 1961 Act on one hand in juxtaposition to Section 3(31). of the 1897 Act: Explanation to Section Section 3(31) of the 1897 . 10(20) of the 1961 Act Act "Explanation. - For the 3. DEFINITIONS.

- In this +· purposes ·of this clause, the Act, and in all Central Acts expression "local authority" and Regulations made after m~ans - the commencement of this Act, unless there is anything (i) Panchayat as referred to in repugnant in the subject or \ " clause (d) of article 243 of the context, - ·- Constitution; or (31 ). "local authority" shall I mean a municipal committee, the Constitution; or district board, body of port commissioners or other (iii) Municipal Committee and authority legally entitled to, or District Board, legally entitled entrusted by the Government to, or entrusted by the with, the control or management Government with, the control of a municipal or local· fund. or management of a Municipal ~"". or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924); 26. At the outset, it may be noted that prior to Finance Act, 2002, the said 1961 Act did not contain the definition of the word "local authority".

That word came to be defined for 0 the first time by Finance Act, 2002 vide the said Explanation/ definition clause. 27. 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 has been omitted by Parliament in the Explanation/definition clause inserted in Section 10(20) of the 1961 Act vide Finance Act, 20,02. + 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.

It may be noted that various High Courts had taken the view prior to 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 "'· l> f r functional tests as laid down in the judgment of this Court vide _,para '2' in the case of R. C. Jain (supra). We quote hereinbelow para '2' which reads as under: "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 ).

J-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 agenci~s 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 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. " 28. As stated above, it has been argued on behalf of the appellants that ·AMC(s) is not a Municipal Committee. The words "Mu·nicipal Committee" finds place. in Item (iii) of the said Explanation. According to the appellants, although AMC(s) is no! a Municipal Committee stm it is a "local authority" of like nature and character to that of a Municipal Committee performing municipal functions legally entitled to control the local fund, namely, the Market· Fund. For fhat proposition reliance is placed on para '2' of the judgment in the case of R. C. Jain (supra}, as quoted hereinabove.

However, it may be noted that this Court in the case of R. C. Jain (supra) was required to consider· the question as to whether "Delhi Development Authority" is a "local authority" as its employees stood outside the purview of Payment of Bonus Act, 1965. Under Section 32(iv) of the Payment of Bonus Act, 1965 it is stated that nothing in the said 1965 Act shall apply to employees employed by an establishment engaged in any industry carried on by or under the authority of any Department + of the Central Government or State Government or a local authority. It is in this context that the Court was required to consider in the case of R. C. Jain (supra) as to whether ODA is a "local authority". There was no definition of "local authority" in the said_ 1965 Act. Therefore, this Court had to go back to Section 3(31) of the 1897 Act.

As quoted hereinabove, Section 3(31) of the 1897 Act defines "local authority" to mean - Municipal Committee, District Board, body of Port Commissioners or other authority In the case of R. C. Jain ~- (supra) this Court was aware that DOA is neither a District Board nor a Body of Port Commissioners. Therefore, the only question the Court had to address to was : whether DOA would fall within the meaning of the words "other authority" in Section 3(31) of the 1897 Act. Therefore, we have to read para '2' of the judgment in the case of R. C. Jain (supra) in the context of Section 3(31) of the 1897 Act as the word "local "'"Iauthority" was not defined in the Payment of Bonus Act, 1965. . ~ The Court, therefore, in the case of R. C. Jain (supra) had to fall back upon Section 3(31) . of the 1897 Act and in doing so this Court in the. case of R. C. Jain (supra) applied the functional and incorporation tests. 29. One more aspect needs to be mentioned. In the case of R. C.

Jain (supra) 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 the case of R. C. Jain (supra). ~ However, as stated, earlier Parliament in its legislative wisdom has omitted the words "other authority" from the said Explanation to Section 10(20) of the 1961 Act. The said Explanation to Section 10(20) provides a definition to the word "local authority''. It is an exhaustive definition. It is not an inclusive definition. The words "other authority" do not find place in the said Explanation. Even, according to the appellant(s), AMC(s) is neither a Municipal Committee nor a District Board nor a Municipal Committee nor a Panchayat.

Therefore, in our vie\11( functional + test and the test of incorporation as laid down in the case of R. C. Jain (supra) 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 the case of R. c_ Jain (supra) 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 Finance Act 2002. 30. The question still remains as to why Parliament has used the words "Municipal Committee" and "District Board" in Item (iii) of the said Explanation. In our view, Parliament has defined "local authority" to meah - a Panchayat as referred to in clause (d) of Article 243 of the Constitution of India, Municipality as referred to in clause (e) of Article 243P of the Constitution of India.

However, there is no reference to the x Article 243 after the words "Municipal Committee" and "District ~ Board". In our view, the Municipal Committee and District Board in the said Explanation are used out of abundant caution. In 1897 when General Clauses Act was enacted there existed in India Municipal Committees and District Boards. They continued even thereafter. In some remote place it is possible that there exists a Municipal Committee or a District Board. Therefore, in our view, apart from a Panchayat and Municipality, Parliament in its wisdom decided to give exemption to Municipal Committee and District Board. Earlier there were District Board Acts in various States. Most of the States had repealed those Acts. However, it is quite possible that in some ' -~ remote place District Board may still exists. Therefore, Parliament decided to give exemption to such Municipal Committees and District Boards.

Therefore, in our view, advisedly Parliament has retained exemption for Municipal Committee and District Board apart from Panchayat and Municipality. Our view finds support from the provisions contained in Part IX of the Constitution of India. Article 243N provides for continuance of existing laws and Panchayats. It ~ states, inter alia, that notwithstanding anything in Part IX, any law relating to Panchayats in a State immediately before commencement of the Constitution (Seventy-third Amendment) Act, 1992, which is inconsistent with the provisions of Part IX, shall continue to be in force until repealed by a competent Legislature. Similarly, under Part IXA there is Article 243ZF < ·-+' which refers to the "Municipalities".

This Article, inter alia, states that notwithstanding anything in Part IXA, 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 Part IXA, shall continue to be in force until amended or repealed by a competent Legislature. In oor view, Article 243N and Article 243ZF indicates that there could be enactments which still retain the entities ! ike Municipal Committees and District Boards and if they exist, Parliament intends to give exemption to their income under Section 10(20) of the 1961 Act. 31. Before concluding we quote hereinbelow an imoortant principle of law enunciated by this Court in the case of R. C. Jain (supra) which reads as under: "... it is not a sound Yule of interpretatior) to seek the meaning of words used in an Act, in the definition clause of other statutes. " ' 32.

Since we are of the view that AMC(s) is neither a Municipal Committee nor a District Board under the said Explanation to Section 10(20) of the 1961 Act, we refrain from going into the question : whether the AMC(s) is legally entitled to the control of the local fund, namely, Market Fund, under the said 1998 Act. There is one more reason why we do not wish to expr~§S any opinion on the said question. Vide Finance Act, 2008, income of AMC(s) is exempt. Sub-section 26AAB of Section 10 comes into force with effect from 1. 4. 2009. Therefore, we do not wish to express any opinion on the ·question as to whether AMC(s) is legally entitled to the control of the local fund. 33. We hold that AMC(s) is, therefore, not entitled to exemption under Section 10(20) of the 1961 Act after insertio. n of the said Explanation vide Finance Act, 2002 w. e. f. 1. 4. 03. 34.

For the aforestated reasons, we find no merit in this batch of Civil Appeals and accordingly the said Civil Appeals are dismissed with no order as to costs. R. P. Appeal dismissed.