Income Tax Appellate Tribunal - Delhi
Agricultural Produce Marketing ... vs Assistant Commissioner Of Income-Tax on 26 December, 1995
Equivalent citations: [1996]57ITD109(DELHI)
ORDER
B.S. Saluja, Judicial Member
1. The assessee is in appeal against the order of CIT(A)-XII, New Delhi dated 2-12-1994 on various grounds. Ground No. 1 urged by the assessee is as follows :--
1. (a) That the fees and other charges which the appellant 'market-committee' established by an Act of Parliament is empowered to levy on specified persons who enter the market and which are to be deposited into a fund called "The Marketing Fund" cannot be regarded as the 'income' of the appellant for purposes of taxation under the I.T. Act. They are in the nature of tax or fees levied by the State.
(b) Assuming that such fees and charges are income of the State, they are immune from Union taxation under Article 289 of the Constitution of India.
(c) That the learned Income-tax authorities below have also wrongly construed the provisions of Section 10(29) which suggest that the fees and other charges levied by the appellant market-committee being an 'Authority' constituted under the law do not constitute its income for purposes of levy of income-tax.
2. The brief facts relating to this ground are that the assessee is a Market Committee constituted under the Delhi Agricultural Produce Marketing (Regulation) Act, 1976. It is entrusted with certain duties Under Section 25 of the said Act and the duties, inter alia, relates--
(a) to implement the provisions of the said Act and of the rules and bye-laws made thereunder for the market area;
(b) to provide such facilities for marketing of agricultural produce therein as the Delhi Agricultural Marketing Board constituted Under Section 5 of that Act may, from time to time, direct;
(c) to do such other acts in relation to the superintendence, direction and control of markets or for regulating marketing of agricultural produce, in any place in the market area and for purposes connected therewith as may be required and for that purpose it may exercise such powers and perform such duties and discharge such functions as are provided by or under that Act.
In addition to the said duties the Market Committee may regulate the entries of persons and of vehicular traffic into the market, supervise the conduct of persons who enter the market for transacting business; grant, renew, refuse, suspend or cancel licences, prosecute persons for violating the provisions of that Act and the rules and bye-laws made thereunder; arrange for collection of such agricultural produce in the market area in which all trade is to be carried on exclusively by the Government by or under any law for the time being in force or arrange the collection of such other agricultural produce in the market area as the Administrator may notify in the official gazette. It is also empowered to take all possible steps to prevent adulteration and to promote grading and standardisation of such agricultural produce as may be prescribed by rules. It is further empowered to enforce the provisions of the said Act and the conditions of the licence granted under the said Act. The said Committee is further empowered Under Section 28 of the said Act to levy and collect market fees, as may be determined by the Administrator from every purchaser of agricultural produce sold in the market area.
2.1 The Department issued notices Under Section 142(1) to the assessee to file return of income for the asst. year 1991-92. The AO observed that the assessee did not file any return even though authorised representatives appeared from time to time. The AO has further observed that the assessee claimed vide letter dated 9-3-1994 that its entire income was exempt from income-tax Under Section 10(20) of the I.T. Act. 1961 on the ground that Agricultural Produce Marketing Committee (APMC), Azadpur was a local authority. It further claimed that since it was exempt from income-tax, being a public authority, the notices issued were infructuous and that the same may be treated as withdrawn and the proceedings may be closed and dropped. The AO also observed that the question as to whether the assessee is a taxable entity or not could be determined only when the assessee had filed a return along with necessary documents and evidences. The AO further observed that various notices had been issued Under Section 142(1) and the date of submitting the return was fixed for 6-3-1992. Since the assessee failed to file its return of income, the AO held that he was constrained to make best judgment assessment Under Section 144 based on information on record.
2.2 While making the best judgment assessment Under Section 144, the AO examined the provisions of Section 10(20) and proceeded to enquire as to whether APMC, Azadpur was a local authority or not. He referred to the provisions of Section 3 (31) of the General Clauses Act, 1897, wherein "local authority" has been defined to mean a Municipal Committee, District Board, Body of Port Commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund. He observed that APMC, Azadpur, Delhi had not been entrusted with any municipal fund and it levies and collects market fees from every purchaser of agricultural produce sold in the market. He further observed that the said fees were collected and used by APMC, Azadpur for acquisition of sites for the market, maintenance, development and improvement of the market and construction and repair to the buildings, etc., in the market. He also noted the claim of the assessee that the said fees constitute a local fund, for which the assessee relied on the decision of the Hon'ble Supreme Court in the case of Union of India v. R.C. Jain AIR 1981 SC 961 and the decision of the Hon'ble Andhra Pradesh High Court in Budha Veerinadu v. Slate of Andhra Pradesh[1983] 143 ITR 1021. The AO observed that the said decisions had not been accepted by the department and the department had been granted Special Leave Petition by the Hon'ble Supreme Court. The AO also observed that the decision of the Hon'ble Supreme Court in the case of R.C. Jain (supra) was distinguishable on facts, as the same related to DDA which was partly funded by the Government, whereas APMC, Azadpur was not funded by the Government. The AO gave an opportunity to the assessee to explain as to why no reliance could be placed on the case of R.C. Jain (supra). The assessee stated in reply dated 28-3-1994 that as per Section 38(4)(vii) of the Delhi Agricultural Produce Marketing (Regulation) Act, 1976, the Delhi Agricultural Marketing Board is required to give aid to financially weak Market Committees in the shape of loans or grants or both and that in that sense the assessee was also funded by the Government. The AO further examined the constitution of the said Marketing Board in terms of the provisions of the said Act and observed that it was a mere conglomeration of some Government officials and members of the public to safeguard their interest. He, therefore, held that such a Body could not be treated as Government and any aid or fund given by such a body could not constitute a fund given by the Government. In this context he also observed that in the constitution of the DDA there was no provision for any member of the public to be a member of the Board of DDA. He, therefore, held that APMC, Azadpur was not a local authority but it was an Association of Persons (AOP).
2.3 In view of the foregoing the AO held that the income from fees collected by APMC, Azadpur was chargeable under the head "Income from other sources". In this connection he further held that the provisions of Section 10(29) of the I.T. Act were applicable in the case of the assessee, whereunder any income derived by an authority constituted under any law for the time being in force for the marketing of commodities, from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities was exempt. The AO computed the income from various fees imposed by the assessee at Rs. 9,54,07,851 and the expenditure at Rs. 3,88,61,775 and arrived at net income from fees at Rs. 5,65,46,076. The AO also computed the parking charges collected by APMC, Azadpur at Rs. 25,59,181.90, as income from other sources. He further computed the trip fees and maintenance charges collected by APMC, Azadpur at Rs. 18,79,403. He further computed the interest on fixed deposit receipts at Rs. 7,60,84,000, as assessable under the head "Income from other sources". The total assessment was thus made at Rs. 13,70,68,660. He also made orders for charging interest Under Sections 234A, 234B and 234C.
3. On appeal before the CIT(A), the learned counsel for the assessee first attacked the assessment made Under Section 144 of the I.T. Act. He referred to the replies filed by the assessee to the effect that it was a local authority and its entire income was exempt Under Section 10(20) of the I.T. Act and that the notices may be treated as withdrawn and the proceedings be closed and dropped. He further referred to the letter dated 30-3-1994 wherein the assessee contended that it had not received any notice for filing of returns from the department. The learned counsel further contended that the AO was not justified in passing orders Under Section 144 without satisfying the statutory requirements laid down in Section 139(2), 142(1) or 148 of the I.T. Act. He also contended that the notices Under Section 142(1) dated 27-2-1992, 8-9-1992 and 21-6-1993 were never served upon the assessee. The learned CIT(A), however, upheld that the asst. Under Section 144 has been validly made.
3.1 With reference to the claim that the assessee was a local authority, the learned counsel for the assessee filed written submissions before the learned CIT(A), wherein it was explained that the assessee came into existence as a result of enactment of Delhi Agricultural Produce Marketing (Regulation) Act, 1976, which was enacted to provide for better regulation of the purchase, sales, storage and processing of agricultural produce and the establishment of markets for agricultural produce in the Union Territory of Delhi and for matters connected therewith or incidental thereto. It was further submitted tha't the Committee was constituted in terms of Section 6 of the said Act and had been entrusted with the duty, being the local authority, to provide for marketing of agricultural produce in the Union Territory of Delhi and also to carry out all such acts as were necessary in relation to the superintendence, collection and control of market for regulating the marketing of agricultural produce. He also referred to the provisions of Section 28 of the Act which empowered the assessee to levy and collect fees from every purchaser of agricultural produce sold in the market. The learned counsel further submitted that the assessee did not file any return of income as it was a local authority and the income derived by it was not liable for assessment and further there was no statutory obligation upon it to file a return, more particularly when no notice Under Section 148 of the I.T. Act, within the meaning of Section 147 had been issued or served upon it. He further reiterated that the case of the assessee was covered by the provisions of Section 10(20) of the I.T. Act, whereunder the income of a local authority which is chargeable under the head "Income from house property", "capital gains" or "income from other sources", or from a trade or business carried on by it which accrues or arises from supply of commodity or service (not being water or electricity) within its own j urisdictional area or from the supply of water or electricity within or outside its own jurisdictional area is exempt. The learned counsel invited the attention of the learned CIT(A) to various sections of the aforesaid Act and submitted that the assessee was only a regulatory body and a law implementing agency. He further observed that the assessee was required to generate funds known as "market fund" and was required to utilise the same only for better regulation of the purchase, sale, storage, etc., of agricultural produce in public interest. He further referred to the provisions of Section 40 of the said Act, wherein specific purposes are outlined for which the market fund may be expanded. In view of the foregoing the learned counsel reiterated that the assessee was a local authority. He also invited attention of the learned CIT(A) to the observations made by the Hon'ble Supreme Court in the case of R. C. Jain (supra) at page 951 :--
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. The authorities must have separate legal existence as corporate bodies. They must not be mere Governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the areas. Next, they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy effecting the area administered by them. The autonomy may not be complete and the degree of the dependence may very 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 muni-cipal bodies. Be broadly, they may be entrusted with the performance of civic duties and functions which would otherwise be Government 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.
The learned counsel urged that if the above test laid down by the Hon'ble Supreme Court was applied, the assessee could not but be regarded as a local authority. In this connection he highlighted the following aspects:--
(i) It is submitted that the assessee has a separate legal existence.
(ii) The assessee functions in defined area and is run as the constituted Market Committee.
(iii) It enjoys a certain degree of autonomy.
(iv) It decides for itself the question of policy effecting the area administered by it.
(v) It has been entrusted by Statute with such Govt. functions as are usually entrusted to Municipal Bodies.
(vi) The Committee has been empowered by the Statute to raise funds for the furtherance of its objective by levying fees, rates, penalties, etc. He further stated that the abovementioned fund could be in addition to moneys provided by the Government or obtained by the assessee by borrowing or otherwise. He also added that there was no requirement that the assessee must be provided with basic funds and could not raise funds by itself.
3.2 The learned counsel further stated that the AO has erroneously held that the assessee could not be regarded as local authority and the AO has attempted to draw support from Section 3(31) of the General Clauses Act, 1897. He stated that in the opinion of the AO the authority conceived in Section 3(31) of the said Act should be legally entitled to, or entrusted by the Govt. with, the control and management of municipal or local fund and as in the opinion of the AO the assessee had not been shown as entrusted with any municipal fund it could not be regarded as local authority. The learned counsel stressed that in the impugned asst. order the AO has not disputed that the assessee is constituted under an Act of Parliament and it levies and collects market fees from every purchaser of agricultural produce sold in the market, which fees are collected and used by the assessee for acquisition of sites for the market, maintenance, development and improvement of the market and construction and repair of the buildings, roads, sanitary work, medical facility to the market users, security and traffic regulation, etc., in the market and that the same constitute a local fund. He also submitted that the AO had erred in failing to appreciate the meaning of local authority and if the various provisions of Delhi Agricultural Produce Marketing (Regulation) Act, 1976 are closely perused, it would be evident that the assessee could not be disregarded as a local authority, particularly keeping in view the principles laid down by the Hon'ble Supreme Court in the aforesaid case of R.C. Jain (supra). He further reiterated that there was no requirement of law that an authority constituted as a local authority must necessarily be funded by the Government. The learned counsel also attacked the observations of the AO that the Marketing Board constituted under the said 1976 Act formed a mere conglomeration of some Government officials and members of the public to safeguard their interest. He stated that the said observations made by the AO were based on complete misconception of facts and failing to appreciate the detailed submissions made by the assessee in its correct perspective. The learned counsel also relied on the judgment of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Agricultural Market Committee [1983] 143 ITR 1020, wherein Agricultural Marketing Committee has been held to be a local authority within the meaning of Section 10(20) of the IT. Act. The Hon'ble Andhra Pradesh High Court in holding so relied on its judgment reported in Budha Veerinadu's case (supra), wherein it was held as under :--
The question whether the Marketing Committee is a local authority or not has to be considered in a very narrow compass. There is no definition of the word "Local Authority" in the Land Acquisition Act. But in the General Clauses Act "Local Authority" has been defined in Clause (31) of Section 3 to mean "a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Govt. with the control or management of municipal or local fund". In Fatal Premji Jive v. State of Gujarat [1970] 2 SC WR 460, the Supreme Court has held that a Marketing Committee functioning under the Gujarat Agricultural Produce Markets Act, 1963, is a local authority for the purpose of Section 6 of the I.T. Act. In para 4 of the judgment (at page 461) Shah J. (as he then was), speaking for the Supreme Court, observed : The expression 'local authority' is not defined in the Land Acquisition Act. But by the General Clauses Act, 10 of 1897, the expression 'local authority' is defined as meaning a municipal committee, district board, body of port commissioners or other authority, legally entitled to, or entrusted by the Govt. with the control or management of a municipal or local fund. By virtue of Section 10(2) of the Gujarat Agricultural Produce Markets Act, 1963, the market committee is a local authority within the meaning of the Bombay General Clauses Act, 1904, a body which is entrusted by Govt. with control or management, inter alia, of a local fund, there is no scope for the argument that the market committee constituted under the Gujarat Agricultural Markets Act, 1963, is not a local authority within the meaning of Section 6 of the Land Acquisition Act. It is true that this decision of the Supreme Court rests on two conclusions. The first conclusion is that by virtue of Section 10(2) of the Gujarat Agricultural Produce Markets Act, 1963, a Market Committee is a local authority within the meaning of the Bombay General Clauses Act. But it is also pointed out that if a body is entrusted by the Govt. with control over management of a local fund, there is no scope for the argument that the markets committee established is not a local authority. The test, therefore, which the Supreme Court applied was entrustment of local fund by the Government to a market committee.
The learned counsel further referred to the provisions of Section 12 of the Maharashtra Agricultural Produce Market (Regulation) Act, 1953 and Section 18 of the Punjab Agricultural Produce Market Act, 1961, wherein it has been provided that the Market Committees established under the said Act shall be Bodies Corporate as also local authorities. In view of the foregoing the learned counsel reiterated that APMC, Azadpur was a local authority and that all the receipts were such as were exempted under the provisions of Section 10(20) of the IT. Act. He prayed that the asst. order be set aside.
3.3 The learned CIT(A) considered the submissions made by the learned counsel and also examined the provisions of Section 10(20) of the I.T. Act, Section 3(37) of the General Clauses Act, 1897, Article 12 of the Constitution of India whereunder the expression "State" has been defined entry 5 in List-II - State List of the 7th Schedule to the Constitution, the decision of the Hon'ble Supreme Court of India in the case of Municipal Corpn. of Delhi v. Birla Cotton Spg. & Wvg. Mills AIR 1968 SC 1232 and the decision of the Hon'ble Supreme Court in the case of R.C. Jain (supra). In view of the said provisions and the decision, the learned CIT(A) observed that there was no doubt in holding that firstly a local authority has to be a unit of administration, that it has a definite area which cannot be wider than that of a State, that it has a separate legal existence and is not merely a Govt. agency, that it has to be a democratic institution managed by the representatives of the inhabitants of the locality, that it enjoys a certain degree of autonomy in the matter of administration of the locality, that it performs civic functions like providing health and education services, town planning and development, roads, municipal markets, transportation, etc. He further observed that such functions of the local authority have to be different from State functions which are normally performed by the State machinery, represented by Collector, SDO, etc. He also observed that the local authorities right from village Panchayat to Municipal Corporations have powers to levy tax, rates and fees which may be in addition to money provided by the Govt. or obtained by borrowing or otherwise. He also observed that there was no generic difference between a tax and a fee inasmuch as both are compulsory exactions of money by public authorities. In the light of these observations the learned CIT(A) proceeded to hold that APMC, Azadpur was not a unit of administration like Municipal Corpn. or Village Panchayat, that it was not a local authority in the true sense, that Under Section 9 of the Delhi Agricultural Produce Marketing (Regulation) Act, 1976 certain members were to be elected by the agriculturists and certain members were to be nominated by the Administrator representing agriculturists from adjoining States, which made the APMC, Azadpur zonal authority/body rather than a local authority; that APMC, Azadpur does not have a separate legal existence but it was under the direct control of the Administrator who was appointed by the President of India under Article 239 of the Constitution and thus the APMC was an agency of the Central Government, that it was not a democratic institution as the inhabitants of Delhi were poorly represented therein. He further observed that from August, 1978 there was no Market Committee constituted under the said Act and the officer working under the Govt. of Delhi had been appointed from time to time as an administrator to perform all the functions of the Market Committee. He, therefore, concluded that the APMC, Azadpur was not a wholly or partly elected body. He also held that the APMC, Azadpur does not perform any of the civic functions which the local authorities were supposed to perform and, therefore, it could not be treated as a local authority. He also held that Under Section 28 of the aforesaid Act, the APMC has authority to levy and collect fees only but it did not. have any authority to any taxes and since it did not have power to levy taxes it could not be regarded as a local authority. He, therefore, concluded that the assessee was not a local authority as stipulated Under Section 10(20) of the I.T. Act and, therefore, its income was taxable and not exempt. He, therefore, confirmed the orders of the AO. The assessee is aggrieved.
4. The learned counsel for the assessee Shri G.C. Sharma made detailed submissions before us and referred to various provisions of the Delhi Agricultural Produce Marketing (Regulation) Act, 1976. The main points made by the learned Counsel were as under:--
(a) That the assessee is a local authority within the meaning of Section 3(31) of the General Clauses Act, 1897 and has been constituted under an Act of Parliament;
(b) That the fees collected by the assessee under the said Act and which are deposited into a fund called "Market Fund" cannot be regarded as income of the assessee;
(c) That even if the fees collected are treated as income, the same is exempt under the provisions of Section 10(20) of the I.T. Act;
(d) That the AO has made assessment in the status of AOP and the same is null and void in view of the claim of the assessee that it is a local authority;
(e) In the alternative, if the assessee is not an AOP and still asst. is to be made the assessee, being a part of State, its income is exempt from taxation under the provisions of Article 289 of the Constitution.
4.1 In support of his claim that the assessee, APMC, Azadpur was a local authority, the learned counsel invited our attention to the preamble of the Delhi Agricultural Produce Marketing (Regulation) Act, 1976, which provides that the legislation is for better regulation of purchase, sale, storage and processing of agricultural produce and the establishment of markets for agricultural produce in the Union Territory of Delhi and for matters connected therewith or incidental thereto.
[Emphasis supplied) The learned counsel submitted that the APMC, Azadpur was functioning within the market area and maintaining roads and making arrangements for lighting thereof and was acting like Municipal Corpn. of Delhi in such area. He further invited our attention to the provisions of Section 4(3), which provide that on a declaration made under Sub-section (1), no local authority, shall, notwithstanding anything contained in any other law for the time being in force, establish, or authorise, or allow to be established, or continue, or authorisethe continuation of, any place in the market area for the marketing of agricultural produce specified in the declaration. The learned counsel stressed that no other local authority could perform functions within the market area notified under Section 3(1) of the said Act. He further invited our attention to the provisions of Section 5 of that Act; whereunder the Delhi Agricultural Marketing Board is established by the Administrator and which has public representation as provided in that section. He further mentioned that Under Section 5(3), the Board.has been declared to be a Body Corporate having perpetual succession and a common seal with powers to acquire and hold property and to contract, and shall by the said name, sue and be sued. He further invited our attention to the provisions of Section 8, whereunder the Administrator has to constitute a Market Committee for every market area declared under the Act. He submitted that the assessee APMC, Azadpur belonged to this category. He further referred to the provisions of Section 9 which provide for the composition of market committees. Under that section each Market Committee will consist of 14 members, six members to be elected by agriculturists residing in the market area and holding agricultural land in the Union Territory of Delhi. The Administrator has, however, power to nominate 3 members representing agriculturists from among the residents of 6 neighbouring States, namely, Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan and Uttar Pradesh. Further 2 members are required to be elected by traders and commission agents holding licence to operate as such in the market area. Similarly, certain other members are to be elected by members of the local authority within the local limits of whose jurisdiction the principal market in relation to that Market Committee is situated and also by Metropolitan Council of Delhi. He further referred to the provisions of Section 25 of that Act, whereunder the duties and powers of Market Committee are specified. The important powers include power to grant, renew, refuse, suspend or cancel licences, prosecution of persons violating the provisions of the Act, to take steps to prevent adulteration and to promote grading and standardisation of such agricultural produce as may be prescribed and enforce the provisions of the Act. He further referred to the provisions of Section 26, whereunder a Market Committee can constitute one or more sub-committees and can also co-opt any person as member of such sub-committees. He further referred to the provisions of Section 28 which empower a Market Committee to levy and collect fees from every purchaser of agricultural produce sold in the market area. Such fees can be levied within the limits prescribed by the Act. He further referred to Section 29 which empower the Market Committee to raise moneys required for carrying out the purpose for which it is established, on the security of any property vested in it and of any fees leviable by it under the Act. Section 29(2) further empowers the Market Committee to obtain loan from the Administrator for certain purposes specified therein. He further referred to the provisions of Sections 34 and 35 whereunder the Market Committee is empowered to grant licences and to cancel or suspend licences. The learned counsel further referred to the provisions of Section 38, which provide that all moneys received by the Board (supra) shall be credited into a fund to be called the "Market Development Fund". Section 38(4)(vii) empowers the Board to give aid to financially weak Marketing Committees in the shape of loans or grants or both. He further referred to the provisions of Section 39 which provide that all fees and other money (Emphasis supplied) received by a Market Committee (except the amount of such fee credited to the election fund Under Section 12), all sums realised by way of penalty (otherwise than by way of fine in a criminal case), all loans raised by the Administrator to the Committee shall form part of a fund to be called "The Market Fund". Section 39(3) further provides that every Market Committee, shall, out of the market fund, pay to the Board as contribution, such percentage of its income derived from licence fee and market fee, as is specified in that sub-section so as to enable the Board to defray its expenses on the office establishment and other expenses incurred by it in the interest of the Market Committee. The learned counsel emphasised that these provisions meet with the basic test that as local authority the Market Committee should have its own fund. He further referred to the provisions of Section 40 which specifies the purposes for which the market fund may be expanded. The important purposes include provision and maintenance of standard of weights and measures, maintenance, development and improvement of the market, construction of buildings and repairs thereto necessary for purposes of the market and for the health convenience and safety of persons using it, the payment of interest on loan, if any, raised by the Market Committee and the provision of sinking fund in respect of such loan, giving grants or donations to institutions or Bodies conducting educational or welfare activities for the benefit of agriculturists in the market area. He further referred to the provisions of Section 57, whereunder the Chairman, Members, the Secretary and other officers and servants of the Board and of a Market Committee shall be deemed to be public servants within the meaning of Section 21 of the Indian Penal Code. In this connection he also referred to the provisions of Section 58 which bar the Institution of any suit or other legal proceedings against the Board or any Market Committee or any Member, Officer or servant thereof or any person acting under the direction of any such Board and Market Committee. He further referred to the provisions of Section 59(4) which provide that all fines received by a Court from an offender shall be credited to the Govt. revenues and an amount equivalent to such fine shall be paid by the Govt. to the Board or the Market Committee, as the case may be. He also referred to the provisions of Section 60(2) which provide that any sum due to the Board or a Market Committee on account of any charge, costs, expenses, fees, rent or on any other account shall be recoverable from the person from whom such sum is due in the same manner as if it were an arrear of land revenue. The learned counsel further submitted that the aforesaid Act of 1976 was based on similar legislation in force in the State of Maharashtra. In this connection he referred to the provisions of Section 72 whereby the Bombay Agricultural Produce Markets Act, 1939, as in force in Delhi, was repealed.
4.2 The learned counsel further submitted that the tax authorities have treated the assessee as an Association of Persons, which was legally not correct. He submitted that an Association of Persons is formed when two or more individuals join in a common purpose or common action voluntarily for the purpose of earning profit. In support he relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Indira Balkrishna[1960] 39 ITR 546. He submitted that in the present case the Market Committee has been constituted under an Act of Parliament and is a creation of the statute and the basic element of constitution of an AOP is missing. Further the Market Committee has not been constituted for earning any profit and sharing it. He, therefore, stressed that the treatment of the assessee as an Association of Persons by the tax authorities is obviously incorrect in law.
4.3 The learned counsel then proceeded to demonstrate vis-a-vis the provisions of Section 3(31) of the General Clauses Act, 1897 that the assessee is a local authority. In this connection he invited our attention to the decision of the Hon'ble Supreme Court in the case of R. C. Jain (supra), wherein the provisions of Section 3(31) of the General Clauses Act, 1897 have been interpreted. The relevant extract occurring at pages 951 -952 of the said decision has already been reproduced at pages 8 and 9 of this order while dealing with the submissions of the counsel before the learned CIT(A). The learned counsel stressed that the said decision of the Hon'ble Supreme Court, though rendered in relation to the Delhi Development Authority, is still valid and an authority for examining as to whether any authority can be deemed to be a local authority within the meaning of Section 3(31) of the General Clauses Act. The learned counsel further invited our attention to the decision of the Hon'ble Gujarat High Court in the case of Agricultural Produce Market Committee, Unjha v. ITO, which was rendered in the petition filed under Article 226 of the Constitution of India and wherein the Hon'ble High Court has considered the meaning of "local authority" as mentioned in Section 10(20) of the I.T. Act. The Hon'ble High Court referred to the decision of the Hon'ble Supreme Court in the case of Patel Premji Jive v. State of Gujarat 1971 (3) SCC 815 where the Supreme Court had held that the Market Committee functioning under the Gujarat Agricultural Produce Markets Act, 1963 was a local authority. The Supreme Court had observed in that case as under :--
The expression 'local authority' is not defined in the Land Acquisition Act. But by the General Clauses Act, 10 of 1897, the expression 'local authority' is defined as meaning 'a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with the control and management of a municipal or local fund'. By virtue of Section 10(2) of the Gujarat Agricultural Produce Markets Act, 1963, the market committee is a local authority within the meaning of the Bombay General Clauses Act. A local authority being by virtue of Section 3(26) of the Bombay General Clauses Act, 1904, a body which is entrusted by Government with control or management, inter alia, of a local fund there is no scope for the argument that the market committee constituted under the Gujarat Agricultural Markets Act, 1963, is not a local authority within the meaning of Section 6 of the Land Acquisition Act.
In the said decision the Hon'ble Gujarat High Court also examined the decision of the Hon'ble Andhra Pradesh High Court in the case of Budha Veerinaidu (supra) wherein it was held that the Market Committee under the Andhra Pradesh Agricultural Produce Markets Act, 1966 was a local authority. It also noted that the said decision was followed by the Hon'ble Bombay High Court in the case of Krishi Utpanna Bazar Samiti v. ITO [1986] 158 ITR 742. In the said decision the Hon'ble Gujarat High Court further considered the provisions of Section 10(20) and Section 10(29) of the I.T. Act and after going into the history of the provisions of Section 10(29), it held that the Market Committee constituted under the Agricultural Produce Markets Act was not constituted for marketing commodities and that the provisions of Section 10(29) of the I.T. Act cannot be attracted and that the impugned notices issued on the said erroneous premises were illegal and deserved to be quashed. It further held that the conclusion is thus inescapable that the petitioner-Market Committee constituted under the Gujarat Agricultural Produce Markets Act was a local authority within the meaning of Section 10(20) of the I.T. Act, 1961 and is exempted and its income cannot be included in total income. In view of the foregoing, the learned counsel emphasised that the aforesaid decision of the Hon'ble Gujarat High Court also clinches the issue in favour of the assessee, APMC, Azadpur.
4.4 The learned counsel further invited our attention to the decision of the Hon'ble Bombay High Court in the case of Krishi Utpanna Bazar Samiti (supra), wherein the Hon'ble High Court considered the decision of the Hon'ble Supreme Court in the case of R.C. Jain (supra) and observed at page 747 that the Market Committee clearly satisfies all the tests. It is a Body Corporate having separate legal existence and autonomous status. It is independent of the Government and operates in a defined area. Its office bearers are elected and are free to take their own policy decision. It performs Governmental functions such as running markets, providing civic amenities and doing civic duties. It also performs judicial, registration, execution and fiscal functions. It can raise funds for its objects by levying fees, can raise loans and control and management of this fund vests in the Committee. Clearly this is a local fund as envisaged by Section 3(31) of the General Clauses Act. He further invited our attention to the decision of the Hon'ble Allahabad High Court in the case of CIT v. Krishi Udyog Evam Saurkusha Pradershini [1981] 128 ITR 214, wherein it was held that the District Board was a local authority and was entitled to exemption Under Section 10(20) of the I.T. Act in respect of the income derived from the mela and exhibition.
4.5 The learned counsel further invited our attention to the Notification No. 102 (F. No. 275/64/70-ITJ) dated 16-6-1970, issued Under Section 194A(3)(iii)(f) of the I.T. Act, 1961 whereunder the Market Committees established under the State Agricultural Produce Markets Acts in various States have been notified for the purposes of the said Sub-Clause (f).
4.6 The learned counsel further referred to the provisions of Section 2(31) of the I.T. Act, which define the expression "person". The said definition is an inclusive definition and Sub-Clause (vi) includes a local authority within the meaning of "person". He submitted that in case the person as referred to in Section 2(31) is non-existing, no tax could be imposed. In this connection, he submitted that the assessment in the present case has been made on APMC, Azadpur in the status of AOP which is non-existing and, therefore, no tax can be imposed in the case of the assessee. In this connection he further submitted that whereas in the case of an AOP income is generated for the advantage of the AOP, in the present case the fees collected by the APMC, Azadpur are credited to the Market Fund and are spent for public purpose of maintaining the market and providing other facilities to the market users.
4.7 In view of the foregoing submissions the learned counsel concluded that the assessee is a Market Committee constituted under an Act of Parliament and is a local authority within the meaning of Section 3(31) of the General Clauses Act and is thus covered under the provisions of Section 10(20) of the I.T. Act and its income is exempt. He, therefore, prayed that the asst. made in this case may be quashed.
5. The learned DR, Shri Abrar Ahmed relied heavily on the orders of the tax authorities and his submissions were reiteration of the arguments advanced by the tax authorities for not treating the assessee as local authority. He further submitted that the conclusions by various High Courts treating the Market Committees as local authorities were after examining the relevant provisions of the concerned Acts. He further submitted that the Delhi Act has not been examined by any High Court and that the assessee has not filed the copy of the Gujarat Agricultural Produce Markets Act, 1963, in relation to which the Hon'ble Gujarat High Court had given the decision under a petition filed under Article 226 of the Constitution. He submitted that the Tribunal must examine the provisions of Section 2(xiv) of the said Gujarat Act, which defines the expression "Market Committee". He further submitted that the elements of Democratic Institution were missing in the case of the assessee as most of its members were nominated. He further submitted that the market fund being administered by a local authority ought to be funded by the Govt. but in the present case private persons were contributing to the fund by way of fees. He further submitted that the Market Committee was not responsible for providing any civic amenities and, therefore, the essential attributes of a local authority were missing in the present case. He further submitted that the present Market Committee was not meant for local people and was in the nature of a zonal authority and, therefore, could not be treated as a local authority. He further submitted that no representative of the localities comprised within the market area were on the Market Committee. He further submitted that the Market Committee had no power to tax and that it could only levy fees and, therefore, lacked the essential attribute of a local authority. He further submitted that the Administrator has power to suspend elected members as well as the Market Committee. He also added that the remaining arguments incorporated in the order of learned CIT(A) may be taken as relied upon by him.
6. The learned counsel in his rejoinder submitted at the outset that there was no dispute that the provisions of the Delhi Act have not come before any High Court for interpretation and that the matter is not covered. He hastened to add that the decisions of other High Courts on interpretation of the expression "local authority" were there and that the said decisions, including the decision of the Hon'ble Supreme Court in the case of R.C. Jain (supra) are in favour of the assessee and also have precedent value. He further submitted that the learned DR has not pointed out that the provisions of the Delhi Act are materially different or the provisions of this Act are so different as compared to the provisions of other Acts that a different view is warranted. He further submitted that the Market Com-mittee was constituted in January 1977 and that there was a period of supersession for the Market Committee in the year under consideration. He further submitted that the accounts of the Market Committee were under audit but were not finalised. He also submitted that there were 6 other Committees in Delhi and only APMC, Azadpur has been taxed. With reference to the plea of the learned DR that the local fund must consist of funds provided by the Govt., the learned counsel mentioned that the Hon'ble Supreme Court in the basic decision in R.C. Jain's case (supra) had laid down certain tests/attributes of a local authority and observed that in addition to local funds the funds may also come from the Govt. He submitted that the local fund can be built-up of fees also and it is not necessary that only taxes should go into the fund. He again referred to the provisions of Section 29 of the Delhi Act, whereunder the Market Committee can borrow from the Administrator. With reference to the plea of the learned DR relating to test of democracy, the learned counsel submitted that the test of democracy is not only of election/nomination but also of expression of opinion, voting, complete autonomy, power to levy fee, tax, etc.
7. We have carefully considered the rival submissions and have also perused the orders of the AO and the learned CIT(A) in detail. We have also perused the relevant records, including various provisions of the Delhi Agricultural Produce Marketing (Regulation) Act, 1976, to which our attention was invited during the course of hearing. We have also examined the relevant provisions of the Gujarat Agricultural Produce Markets Act, 1963, a copy whereof was subsequently filed by the learned counsel. We have further carefully seen that case law relied upon by the parties. It is observed from the relevant provisions of the Delhi Act, which is enacted by Parliament, that the Market Committee has been constituted Under Section 8 of that Act and majority of its members are required to be elected under the provisions of Section 9. Further the Market Committee is empowered to perform various functions and duties Under Section 25 of the said Act. It has also powers to appoint sub-committees and can delegate its powers to the sub-committees. Further it has power to levy and collect fees Under Section 28. It has further power to borrow moneys Under Section 29 as also obtain loans from the Administrator under that section. It has also powers to grant and to cancel or suspend licences under Sections 34 and 35. There are also provisions for the Market Fund Under Section 39 wherein all fees and other moneys received by the Market Committee are credited. The Market Committee defrays some percentage of the Market Fund, as a contribution, to the Market Board constituted Under Section 5 of that Act. It is further observed that the Market Fund is expended for various purposes specified in Section 40. Thus a perusal of the said provisions and certain other provisions of the Act makes it very clear that the Market Comrnittee has all the essential attributes of a local authority, i.e., it has a definite area within which to operate, it has a separate legal existence and autonomy of working within the allocated field, it is a democratic institution wherein majority of its members are elected, it is providing various amenities within the market area including development and maintenance of markets, its roads, lighting, etc., and is thus performing civic functions like a municipality within the market area, it has power to levy fee, within the ceiling of 11/2% of the value of the agricultural produce, from every purchaser of agricultural produce sold in the market area and is also administering the market fund which consists of lees received by the Market Committee, other moneys received by the Market Committee including sums realised by way of penalty and loans raised from the Administrator. In view of the foregoing provisions of the Delhi Act, the APMC, Azadpur cannot by any stretch of imagination be treated as an Association of Persons, as has been done by the tax authorities. We, therefore, hold that the assessee is not an Association of Persons. The next question to be decided is as to whether the assessee is a local authority and as to whether it is covered by the provisions of Section 10(20) of the I.T. Act. We have carefully considered the provisions of Delhi Act, The Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963, The Punjab Agricultural Produce Markets Act, 1961 and the Gujarat Agricultural Produce Markets Act, 1963, (copies whereof have been furnished to us and are placed on the file) in the light of the decision of the Hon'ble Supreme Court in the case of R.C. Jain (supra), the decision of the Hon'ble Gujarat High Court placed at pages 37 to 44 of the paper book as also other decisions cited by the learned counsel and we feel that the assessee, APMC, Azadpur has all the essential attributes of a local authority, including the administration of the market fund, which is nothing but a local fund of the market committee to be utilised for the purposes specified in Section 40 of the Delhi Act. We further feel that the provisions of Section 48 for supersession of the Market Committees do not detract and affect the basic character of the Market Committee being a local authority, as such provisions exist even in the Delhi Municipal Corporation Act and the same provide a means of maintaining checks and balance for the proper working of the institution. We may also mention that the provisions of Section 12(2) of the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963 specifically provide that every market committees, shall, for all purposes be deemed to be a local authority. Similarly the provisions of Section 10(2) of the Gujarat Agricultural Produce Markets Act, 1963 provide that a Market Committee shall be deemed to be a local authority within the meaning of Section 3(26) of the Bombay General Clauses Act, 1904. As against the said two Acts, the Punjab Act and the Delhi Act do not contain such a provision. We have, therefore, to examine as to whether the said provisions in the Maharashtra Act and the Gujarat Act have been incorporated by way of abundant caution and the absence of such a provision in the Delhi Act will make any difference. We may mention that the provisions of the General Clauses Act, 1897 apply for' the interpretation of a legislation enacted by Parliament and the provisions of Section 3(31) of the Act are relevant for considering the question as to whether an authority can be construed as a local authority within the meaning of the said provisions. We feel that the decision of the Hon'ble Supreme Court in the case of R.C. Jain (supra) is very clear and is still the basic decision for interpretation of the provisions of Section 3(31) of the General Clauses Act and when viewed in the light of the said decision, we have no doubt that the assessee, APMC, Azadpur is a local authority within the meaning of Section 3(31) of the General Clauses Act. In this connection reference may also be made to the decisions of the Hon'ble Supreme Court in the case of Surya Kant Roy v. Imamul Hak Khan[1975] 1 SCC 531, 532, 533 and Patel Premji Jive (supra) at p. 816. We, therefore, feel that the absence of a provision in the Delhi Act on the lines of the provisions of Section 12(2) of the Maharashtra Act and Section 10(2) of the Gujarat Act is not fatal and the claim of the assessee, APMC, Azadpur for being treated as a local authority within the meaning of Section 3(31) of the General Clauses Act, 1897 has to be accepted.
7.1 The further question to be considered is as to whether the assessee, the APMC, Azadpur is covered by the provisions of Section 10(20) of the I.T. Act and its income is exempt from income-tax under that clause. In view of our decision in the above sub-para, which is also based on the decision of the Hon'ble Gujarat High Court in the case of APMC, Unjha v. J.K. Patel, ITO placed at pages 37-44 of the paper book, we hold that the assessee is covered by the provisions of Section 10(20) and its income is exempt under those provisions. It is observed that the entire income of the assessee, APMC, Azadpur has been treated by the AO for the purposes of asst. as "income from other sources". Since the said income is exempt under the provisions of Section 10(20), the asst. is uncalled for and the same is quashed.
8. Ground No. 2 urged by the assessee relates to levy of income-tax at Rs. 13,70,68,660 and further levy of interest under Sections 234A, 234B and 234C of the I.T. Act, besides initiating proceedings Under Section 271 (1)(c) of the I.T. Act. The second limb of ground No. (2) relates to denial of exemption Under Section 10(20) of the I.T. Act. The third limb of ground No. (2) relates to the disallowance of certain deductions from the gross receipts realised by way of fees and other charges. The last limb of ground No. (2) relates to ignoring certain decisions of the Hon'ble Supreme Court and High Courts by the tax authorities.
8.1 In view of our decision in paras 7 and 7.1 above, we do not feel it necessary to decide any of the limbs of this ground of appeal, except saying that the case of the assessee is covered by the provisions of Section 10(20) of the I.T. Act and its entire income assessed under the head "Income from other sources" is exempt under those provisions.
9. Ground No. 3 has not been pressed by the learned counsel. The same has become infructuous in view of our decision in paras 7 and 7.1 above. The same is, therefore, rejected.
10. In the result, the appeal is allowed in part.