THE COMMISSIONER OF INCOME TAX. V. AGRICULTURAL MARKET COMMITTEE ADONI.

RC/88/1997

AI Insights

The case revolves around the tax exemption status of the Agricultural Market Committee, Adoni (AMC), which claimed that its income was exempt under Section 10(20) of the Income Tax Act, 1961, as it was a local authority. The Income Tax Officer initially rejected this claim, categorizing AMC as an 'Artificial Juridical Person', thus liable to income tax. However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal reversed this decision, supporting AMC's claim of being a local authority. The revenue, aggrieved by this decision, sought a reference to the High Court. The court, referencing a prior judgment and various legal interpretations, upheld the exemption for the period before the Finance Act, 2002, which specifically amended the definition of 'local authority' to exclude such committees from April 1, 2003, onwards.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 727533 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 29-11-2011
• Assessment Year: misc
• Other Referred Cases: CIT v. Agriculture Market Committee, Union of India v. R.C. Jain, Calcutta State Transport Corporation v. CIT, Agricultural Market Produce Committee, Budha Veerinaidu v. Agricultural Market Committee
• Laws Referred To: Income Tax Act, 1961, Andhra Pradesh (Agricultural Produce and Live Stock) Markets Act, 1956, General Clauses Act, 1897
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Agricultural Market Committee; Income Tax; Legal Definition; Local authority; Tax Exemption
• Section: 148; 10(20); 256(1); 139(2)

Judgement Text

"THE HON'BLE SRI JUSTICE V.V.S. RAO AND THE HON'BLE SRI JUSTICE B.N. RAO NALLA REFERENCE CASE No.88 OF 1997 ORDER: (Per Hon’ble Sri Justice V.V.S. Rao) The reference under Section 256(1) of the Income Tax Act, 1961 (the Act) is at the instance of the Commissioner of Income Tax, Guntur (now at Vijayawada). “Whether on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the assessee is a local authority and that the gains derived by it are exemption from tax.” This question is referred for the opinion of this Court in the following background and facts. The respondent-assessee is an Agricultural Market Committee, Adoni (AMC) constituted under Section 4(1) of the Andhra Pradesh (Agricultural Produce and Live Stock) Markets Act, 1956. The said AMC was issued a notice under Section 139(2)/148 of the Act by the Income Tax Officer, Adoni. The assessee filed its return as ‘nil’ along with a computation of statement of total income showing the excess of income over expenditure as per income and expenditure account and claimed that the income derived by it is exempt under Section 10(20) of the Act. However, the Income Tax Officer rejected the claim of the assessee finding that it is an “Artificial Juridical Person”, as such, its income is liable to income tax. The appeal by the AMC was allowed by the Commissioner of Income Tax (Appeals) holding that the AMC being a Local Authority under Section 10(20) of the Act, their income is exempt from the tax. The view was also affirmed by the Income Tax Appellate Tribunal and aggrieved thereby the revenue sought the reference to this Court. During the course of the submissions, both the counsel brought to our notice a latest judgment of this Court in CIT v. Agriculture Market Committee [1] to which one of us (VVSR,J) is a Member. Therein, noticing the law as it existed prior to the Finance Act, 2002, with effect from 01-04-2003, this Court held that the AMC is a local authority under Section 10(20) of the Act. The relevant observations are as follows. Section 10(20) of the Act, extracted hereinabove, exempts a local authority from tax. The term “local authority” was not defined prior to the Finance Act, 2002. The Supreme Court in Union of India v . R.C. Jain , AIR 1981 SC 951 ; [1981] 2 SCC 308, Calcutta State Transport Corporation v . CIT [1996] 219 ITR 515 (SC) ; [1996] 8 SCC 758 and the Delhi High Court in Agricultural Market Produce Committee [2011] 250 ITR 369 (Delhi) adopted the meaning of “local authority” as defined in section 3(31) of the General Clauses Act, 1897. In Budha Veerinaidu [1983] 143 ITR 1021 (AP) and Agricultural Market Committee [1983] 143 ITR 1020 (AP), this court, having regard to various provisions of the Agricultural Market Committee Act, held that a market committee is a local authority. The Finance Act, 2002, inserted an Explanation defining the expression “local authority” from April 1, 2003. As a result, units of local self-Government like Panchayats and Municipal bodies governed by Part IX and Part IX-A of the Constitution of India, and Cantonment Boards, were alone brought within the expression “local authority”. The immediate effect is that from the financial year 2003-04 onwards all agricultural market committees were barred from claiming exemption as local authorities under section 10(20) of the Act. In view of the above decision of the jurisdictional High Court, the reference is answered in the affirmative in favour of the assessee and against the revenue. The Reference Case is disposed of accordingly. _______________ (V.V.S. RAO, J) ____________________ (B.N. RAO NALLA, J) November 29, 2011. PV [1] [2011] 337 ITR 299 (AP) "