1. Challenge to income tax notices — claim of exemption as local authority under Section 10(20), Income Tax Act, 1961 — status of industrial township under Article 243Q, Constitution. (Para 1 , 2 , 3 , 4 , 5 , 20 , 21 , 22 , 23 )
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2018 Supreme(SC) 686
SUPREME COURT OF INDIA
A.K. SIKRI, ASHOK BHUSHAN, JJ.
New Okhla Industrial Development Authority – Appellant
Versus
Chief Commissioner of Income Tax & Ors. – Respondents
Civil Appeal Nos. 792-793 of 2014
Decided On : 02-07-2018
Important Points
IMPORTANT POINTS
Industrial township is not akin to Municipality.
When a Statute contains exhaustive definition, definition under General Clauses Act, 1897 will not be applicable.
Exemption u/s 10(20), Income Tax Act is now restricted to Panchayats and Municipalities as referred to in Articles 243P(d) and 243P(e).
As an effect of deletion of section 10(20A) Housing Boards and Development Authorities became taxable.
A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision.
Industrial township is not akin to Municipality.
When a Statute contains exhaustive definition, definition under General Clauses Act, 1897 will not be applicable.
Exemption u/s 10(20), Income Tax Act is now restricted to Panchayats and Municipalities as referred to in Articles 243P(d) and 243P(e).
As an effect of deletion of section 10(20A) Housing Boards and Development Authorities became taxable.
A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision.
Subject
Taxation - Income Tax
Act Referred
Headnote
(a) Constitution of India – Article 243Q(1), Proviso r/e Article 243P(e) – Industrial establishment not contemplated as a Municipality – Proviso rather clarifies an exception where Municipality may not be constituted in an urban area – ‘Industrial township’ is not Nagar Panchayat, Municipal Council or Municipal Corporation – Industrial establishment providing municipal services to an industrial township not same as Municipality as defined in Article 243P(e) – Held, industrial township not akin to Municipality. (Para 28, 30, 42)
(2006) 5 SCC 100; (2008) 9 SCC 434 – Relied upon
(2006) 8 SCC 352; (1985) 1 SCC 591; (1981) 2 SCC 308; (1999) 2 SCC 366 – Referred
(b) Interpretation of statute – Statute containing exhaustive definition – Definition under General Clauses Act, 1897 will not be applicable. (Para 43)
AIR 1957 SC 657; (2014) 11 SCC 672 – Relied upon
(c) Finance Act, 2002 – Section 10(20) Explanation, Income Tax Act, 1961 – Exemption u/s 10(20) – Restricted to Panchayats and Municipalities as referred to in Articles 243P(d) and 243P(e), Constitution of India – Effect of deletion of section 10(20A) – Housing Boards and Development Authorities becoming taxable. (Para 47)
(d) Interpretation of statute – Fiscal statute – Strict construction – A person invoking an exception or an exemption provision to relieve him of the tax liability – Must establish clearly that he is covered by the said provision. (Para 49)
(2012) 3 SCC 522; (1985) 1 SCC 591 – Relied upon
(1997) 7 SCC 17 – Referred
(2004) 267 ITR 460; (2006)156 ITR 286 – Cited with approval
Facts of the case:
Notices under Section 142 of the Income Tax Act dated 28.07.1998 and 08.08.1998 were issued to the appellant. The appellant filed writ petition contending that it is a local authority hence exempted from payment of income tax under Section 10(20) and Section 10(20A) of Income Tax Act, 1961. The writ petition was allowed.
After the Constitution (74th Amendment) Act, 1992 a notification dated 24.12.2001 was issued by the Governor specifying the appellant to be an “industrial township” with effect from the date of the notification in the Official Gazette. A notice dated 29.08.2005 was issued by the Assistant Commissioner of Income Tax to the appellant for furnishing Income Tax Return for the assessment year 2003-2004 and 2004-2005 as w.e.f. 01.04.2003 the Authority had become taxable. Notice under Section 142(1) was also enclosed for the above purpose.
Notices were also issued to different Banks requiring different information and asking them to deduct TDS from appellant.
appellant filed a writ petition for quashing the notice under Section 142 of the Income Tax Act dated 29.08.2005; the notice dated 31.08.2005 issued under Section 131 to the Bankers of the appellant; and Notice dated 21.09.2005 under Section 194A.
The High Court in the writ petition decided the only question “whether New Okhla Industrial Development Authority (NOIDA) is a local authority after 01.04.2003 within the meaning of Section 10(20) of the Income Tax Act, 1961”. The Division Bench of the High Court held that after 01.03.2003 the NOIDA is not a local authority within the meaning of Section 10(20) of the I.T. Act, 1961. The writ petition was consequently dismissed. Although, the appellant had prayed for quashing notices issued to its Bankers and notice under Section 194A but the High Court did not advert to the said issue. After dismissal of the writ petition the appellant filed a review application which too was dismissed.
Finding of the Court:
The appellant is not covered by the definition of local authority as contained in Explanation to Section 10(20).
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Appellant claims status as local authority performing municipal functions — Revenue contends the definition in Section 10(20) is exhaustive and excludes industrial development authorities. (Para 7 , 8 , 9 , 10 , 11 )
3. Proviso to Article 243Q creates an exception to the constitution of a municipality — Section 10(20) Explanation provides an exhaustive definition, excluding functional tests for local authority. (Para 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 )
4. Exemption under Section 10(20), Income Tax Act, 1961, is restricted to entities specifically listed in the exhaustive Explanation; functional similarity to municipalities does not grant local authority status. (Para 30 , 37 , 43 , 44 , 56 )
5. Appeals dismissed — entity held not to be a local authority within the meaning of Section 10(20), Income Tax Act, 1961. (Para 57 )
6. Does the status of an industrial township under Article 243Q of the Constitution make an entity a Municipality?
No. The proviso to Article 243Q(1) is an exception that allows the Governor to specify an area as an industrial township instead of constituting a Municipality. Therefore, an industrial township is not akin to a Municipality as defined under Article 243P(e). (Para 27 , 28 , 30 )
7. Is the definition of local authority under the Explanation to Section 10(20) of the Income Tax Act, 1961, inclusive or exhaustive?
It is an exhaustive definition. The use of the word means indicates that only the four listed entities—Panchayats, Municipalities, Municipal Committees/District Boards, and Cantonment Boards—qualify as local authorities, leaving no scope for adding other entities. (Para 9 , 14 , 37 , 43 , 52 , 53 )
8. Can a functional test be used to determine if an entity is a local authority under Section 10(20) after the 2002 amendment?
No. The functional test, which analyzed attributes like corporate existence and performance of civic duties, is no longer applicable because the Finance Act, 2002 removed the phrase other authority from the definition, making the list exhaustive. (Para 36 , 37 )
9. How should fiscal statutes and exemption provisions be interpreted by courts?
Fiscal statutes must be interpreted strictly according to the letter of the law. Exemption provisions must be construed strictly, and the burden is on the person invoking the exemption to establish they are clearly covered by the provision. (Para 43 , 44 , 49 )
JUDGMENT :
Ashok Bhushan, J.
The appellant by these appeals has challenged the Division Bench judgment of Allahabad High Court dated 28.02.2011 dismissing the writ petition filled by the appellant challenging the notices issued by the Income Tax Authority under Section 142 of the Income Tax Act, 1961 as well as the judgment dated 04.11.2011 rejecting the review application.
2. The facts giving rise to these appeals are: The appellant-New Okhla Industrial Development Authority (hereinafter referred to as the “Authority”) has been constituted under Section 3 of the U.P. Industrial Area Development Act, 1976 (hereinafter referred to as the ‘Act, 1976’) by notification dated 17.04.1976. The Act, 1976 was enacted by State Legislature to provide for the constitution of an Authority for the development of certain areas in the State into industrial and urban township and for matters connected therewith. Under the Act, 1976 various functions have been entrusted to the Authorities. Notices under Section 142 of the Income Tax Act dated 28.07.1998 and 08.08.1998 were issued to the appellant. The appellant challenging the said notices filed writ petition contending that appellant is a local authority, hence, is exempted from payment of income tax under Section 10(20) and Section 10(20A) of Income Tax Act, 1961 (hereinafter referred to as “I.T. Act, 1961). The writ petition was allowed by the Division Bench of the Allahabad High Court on 14.02.2000 holding that the appellant is a local body. It was held that it is covered by the exemption under Section 10(20A) of I.T. Act, 1961. The Division Bench, however, did not go into the question whether it is also exempt under Section 10(20).
3. By the Constitution (74th Amendment) Act, 1992, the Parliament had inserted Part IXA of the Constitution providing for the constitution of Municipalities. A notification dated 24.12.2001 was issued by the Governor in exercise of the power under the proviso to clause (1) of Article 243Q of the Constitution of India specifying the appellant to be an “industrial township” with effect from the date of the notification in the Official Gazette. A notice dated 29.08.2005 was issued by the Assistant Commissioner of Income Tax to the appellant for furnishing Income Tax Return for the assessment year 2003-2004 and 2004-2005. Notice mentioned that after omission of Section 10(20A) w.e.f. 01.04.2003 the Authority has become taxable. Notice under Section 142(1) was also enclosed for the above purpose.
4. Notices were also issued to different Banks requiring different information. The appellant vide its letter dated 20.09.2005 replied the notice dated 29.08.2005 stating that it is a local authority and exempt from Income Tax hence notice under Section 142 be withdrawn. The Income Tax authorities also issued notice to the different Banks to deduct TDS as required under Section 194A of the Income Tax Act and remit the same to the Central Government Account.
5. The appellant filed a writ petition praying for quashing the notice under Section 142 of the Income Tax Act dated 29.08.2005. The appellant also challenged notice dated 31.08.2005 issued under Section 131 to the Bankers of the appellant. Notice dated 21.09.2005 under Section 194A was also sought to be quashed. The writ petition was contested by the Income Tax Department. The High Court in the writ petition decided the only question “whether New Okhla Industrial Development Authority (NOIDA) is a local authority after 01.04.2003 within the meaning of Section 10(20) of the Income Tax Act, 1961”. The Division Bench of the High Court relying on two judgments of this Court in Agricultural Produce Market Committee, Narela, Delhi vs. Commissioner of Income Tax and another, (2008) 9 SCC 434 and Adityapur Industrial Area Development Authority vs. Union of India and others, (2006) 5 SCC 100, held that after 01.03.2003 the NOIDA is not a local authority within the meaning of Section 10(20) of the I.T. Act, 1961. The writ petition was c
