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Krishi Utpadan Mandi Samiti v. Union Of India And Another
Factual and Procedural Background
These two writ petitions were filed by the Krishi Utpadan Mandi Samiti, Bulandshahr (constituted under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964). The petitioner challenged impugned orders dated 15 October 2003 and 4 March 2004 which required it to furnish income-tax returns for the assessment year 2003–2004 and to show cause why penalty should not be imposed for not furnishing returns in time.
The petitioner contended that it is a "local authority" and therefore exempt from income-tax under section 10(20) of the Income-tax Act. Counsel for the petitioner relied on the definition of "local authority" in section 3(31) of the General Clauses Act and on definitions in other Acts. It was also pointed out that for the assessment year 1978–79 an assessment order was passed against the petitioner on 25 May 1982; an appeal to the Commissioner of Income-tax (Appeals), Meerut was allowed by order dated 6 September 1982 which held that the petitioner was a local authority (a copy of that order was annexed to the writ petition).
The court noted legislative change by the Finance Act, 2002 which inserted an Explanation to section 10(20) of the Income-tax Act defining "local authority" and observed that section 10(29) (on which the petitioner also relied) had been abolished by the Finance Act, 2002.
Legal Issues Presented
- Whether Krishi Utpadan Mandi Samiti, Bulandshahr falls within the meaning of "local authority" for the purposes of section 10(20) of the Income-tax Act in view of the Explanation inserted by the Finance Act, 2002.
- Whether earlier, broader definitions of "local authority" (for example under the General Clauses Act or other statutes) can be used to extend the meaning of "local authority" in section 10(20) where the Income-tax Act now contains its own Explanation using the word "means".
- Whether the petitioner's claim that treating some statutory bodies as local authorities but not others constitutes a violation of Article 14 of the Constitution is sustainable.
Arguments of the Parties
Petitioner's Arguments
- The petitioner is a local authority and therefore exempt from income-tax under section 10(20) of the Income-tax Act.
- Reliance on the definition of "local authority" in section 3(31) of the General Clauses Act and on definitions in other Acts to support that contention.
- Reference to an earlier order in respect of assessment year 1978–79 (Commissioner of Income-tax (Appeals) order dated 6 September 1982) in which the petitioner was held to be a local authority.
- Submission that treating some statutory bodies as local authorities and not others violates article 14 of the Constitution (claim of discrimination / inequality).
- Submission that the court's strict construction could cause hardship to the petitioner.
The opinion does not contain a detailed account of any specific arguments advanced by the revenue or other respondents in the litigation; the court's reasoning primarily addresses the petitioner's submissions and the statutory text.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| P. Kasilingam v. P.S.G. College, 1995 Supp (2) SCC 348 : AIR 1995 SC 1395 | Authority for not extending statutory definitions beyond their terms. | Used to support the proposition that the court cannot extend the definition of "local authority" where the statute uses an exhaustive definition. |
| Hiralal Rattan Lal v. STO, (1973) 1 SCC 216 : AIR 1973 SC 1034 | Primacy of literal/textual construction where provision is unambiguous. | Cited for the rule that if legislative intent is clear from unambiguous language, the court must apply it and not call other rules into aid. |
| Income Tax Officer, Tuticorin v. T.S. Devinath Nadar & Others, [1968] 68 ITR 252 (SC) | Application of the literal rule with particular emphasis in tax matters. | Reinforced the court's reliance on strict construction in taxing statutes. |
| Surendra Kumar Verma v. Central Government Industrial Tribunal-cum-Labour Court, (1980) 4 SCC 443 : AIR 1981 SC 422 | Contrast between interpretation of taxing statutes and beneficial legislation. | Used to emphasize that taxing statutes are not to be liberally construed like beneficial legislation. |
| State Trading Corporation of India Ltd. v. CTO, [1963] 33 Comp Cas 1057 (SC) | Contextual reference about differing principles for other types of statutes (e.g., Constitution). | Cited as part of the discussion on different interpretive approaches for different statutes. |
| Cape Brandy Syndicate v. IRC, [1921] 1 KB 64 | Classic statement on strict interpretation of taxing Acts: "look merely at what is clearly said". | Quoted to state the foundational principle that nothing is to be read in or implied into a taxing statute. |
| CIT v. G. Hyatt, [1971] 80 ITR 177 : (1971) 1 SCC 466 : AIR 1971 SC 725 | Plain and unambiguous statutory language must be applied even if result is unfavorable to a party. | Cited to support treating statutory language as decisive where it is plain; applied to reject attempts to re-characterise amounts where statute was clear. |
| Polestar & Co. Ltd. v. Addl. Commr. of Sales Tax, (1978) 1 SCC 636 : AIR 1978 SC 897 | Literal meaning governs when statute uses plain language ("resale" simpliciter meant all resales). | Used to demonstrate adherence to plain statutory language rather than legislative intention speculation. |
| Hemraj Gordhandas v. H.H. Dave, Asst. Collector, [1978] 2 ELT 350 (SC) | Where notification language is clear, the court will not investigate legislative intention beyond that language. | Cited to show that clear exemption wording must be applied as written. |
| Assessing Authority-cum-Excise and Taxation Officer v. East India Cotton Mfg. Co. Ltd., [1981] 48 STC 239 (SC) | Literal rule applied to tax/concession provisions — statutory words determine entitlement. | Cited as precedent for following the literal rule in tax/concessional cases. |
| Commissioner Of Wealth Tax, Gujarat-III v. Ellis Bridge Gymkhana, (1998) 1 SCC 384 : AIR 1998 SC 120 | Charging provisions must be read strictly; words like "individual" cannot be stretched to include other entities. | Used to support the proposition that tax charging language cannot be extended to include persons not clearly within the provision. |
| A. V. Fernandez v. State of Kerala, AIR 1957 SC 657 | Principle that tax must fall strictly within the provisions of law; no taxation by inference or analogy. | Quoted to underline that where the taxing statute does not cover a case, tax cannot be imposed by analogy or inference. |
| Partington v. Attorney-General, [1869] LR 4 HL 100 | Expression that "tax and equity are strangers" — if not within letter of law, cannot be taxed. | Quoted to illustrate the traditional view that legal text governs taxation regardless of perceived fairness. |
| Anant Mills Co. Ltd. v. State of Gujarat, (1975) 2 SCC 175 : AIR 1975 SC 1234 | Government's latitude to tax some categories and not others; taxing statute not open to attack simply because it discriminates in selection. | Cited in the court's reasoning rejecting the Article 14 challenge concerning selective treatment in tax law. |
| R.K. Garg v. Union of India, [1982] 133 ITR 239 (SC) | Support for the principle that the State may select objects/persons for tax treatment. | Part of a series of authorities the court relied on to reject equality challenge in tax matters. |
| Malwa Bus Service P. Ltd. v. State of Punjab, (1983) 3 SCC 237 | Similar authority on State discretion in taxation. | Cited among authorities showing State can pick and choose taxpayers and rates. |
| ITO v. N. Takin Roy Rymbai, [1976] 103 ITR 82 : (1976) 1 SCC 916 : AIR 1976 SC 670 | Authority illustrating permissibility of selective taxation. | Included in the line of precedents confirming government's latitude to tax selectively. |
| Amalgamated Tea Estates Co. Ltd. v. State Of Kerala, [1974] 94 ITR 479 | Another authority on tax selectivity and State discretion. | Used with other cases to support rejection of Article 14 challenge. |
| East India Tobacco Co. v. State of A.P., [1962] 13 STC 529 : AIR 1962 SC 1733 | Taxing statute not open to attack for taxing some persons/objects and not others. | Cited in support of the principle that selective taxation is permissible. |
| Orient Weaving Mills P. Ltd. v. Union of India, AIR 1963 SC 98 | Supports State discretion in selecting objects/areas/persons to tax. | Cited among authorities on permissible selectivity in taxation. |
| State Of Madhya Pradesh v. Bhopal Sugar Industries Ltd., AIR 1964 SC 1179 : 52 ITR 443 (1964) | Authority for the proposition of State discretion in taxation design. | Part of the array of precedents relied on to dismiss equality challenge. |
| V. Venugopala Ravi Varma Rajah v. Union of India, (1969) 1 SCC 681 : AIR 1969 SC 1094 | Supports governmental latitude in tax matters. | Included in the series of cases cited to reject Article 14 submission. |
| Gopal Narain v. State of U.P., AIR 1964 SC 370 | Authority referenced on taxation and State discretion. | Cited in the court's discussion on permissible discrimination in tax law. |
| Khyerbari Tea Co. Ltd. v. State of Assam, AIR 1964 SC 925 | Another case supporting State discretion in taxation. | Part of the precedent cluster relied upon to reject Article 14-based attack. |
| T.G. Venkataraman v. State of Madras, (1969) 2 SCC 299 : AIR 1970 SC 508 | Authority on taxing statutes and State discretion. | Included among precedents showing the State's wide discretion to tax selectively. |
| Lalooji and Sons v. State of U.P., [2003] UPTC 900 | Decision of the court following the line of authority on State's tax discretion. | Noted as a local decision of this court following the cited Supreme Court authorities. |
Court's Reasoning and Analysis
The court's analysis proceeded along these lines:
- Legislative amendment: The Finance Act, 2002 inserted an Explanation to section 10(20) of the Income-tax Act which now defines "local authority" by listing four categories: (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; (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; (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924.
- Statutory scope: A plain reading of that Explanation shows that the list is exhaustive for the purposes of section 10(20). The Explanation uses the word "means" (not "includes"), which the court treated as signifying a complete definition rather than an illustrative or non-exhaustive list.
- Application to petitioner: Krishi Utpadan Mandi Samiti is not one of the four entities enumerated in the Explanation. Therefore it does not qualify as a "local authority" for the purposes of section 10(20).
- Limits on judicial extension: Because the Income-tax Act itself now specifically defines "local authority", the court held it cannot extend that statutorily prescribed meaning by reference to the General Clauses Act or definitions in other Acts. The court relied on precedent establishing that courts cannot read into taxing statutes by inference, equity or analogy.
- Interpretive principle for taxing statutes: The court reiterated the settled rule that taxing statutes are to be construed strictly and literally; there is no equity in tax and considerations of hardship are irrelevant in changing a plain statutory result.
- Article 14 challenge: The court rejected the submission that article 14 is violated by selective tax treatment. It relied on authorities recognizing a broader latitude for the Government in tax matters to treat different classes differently, and concluded that a taxing statute is not vulnerable simply because the State has chosen to tax some categories and not others.
- Procedural/other observations: The court noted that section 10(29) (which the petitioner also relied on) had been abolished by the Finance Act, 2002, thereby removing that basis for exemption.
Holding and Implications
DISMISSED.
Implications:
- The writ petitions filed by Krishi Utpadan Mandi Samiti, Bulandshahr were dismissed for lack of merit.
- The court held that, in view of the Explanation to section 10(20) as inserted by the Finance Act, 2002, the petitioner is not a "local authority" for the purpose of that provision and therefore cannot claim exemption under section 10(20) on that basis.
- The court rejected the petitioner's submissions based on earlier definitions in other Acts, on the earlier Commissioner (Appeals) order for 1978–79, on arguments of hardship, and on an Article 14 challenge.
- No broader precedent beyond the application of established principles of literal and strict construction in tax law was claimed to be created by this decision; the judgment applies those established interpretative principles to the facts of these petitions.
M. Katju, J.:— These two writ petitions raise a common question of law and are hence being disposed of by a common judgment.
2. The petitioner is the Krishi Utpadan Mandi Samiti, Bulandshahr, which has been constituted under the U.P Krishi Utpadan Mandi Adhiniyam, 1964. The petitioner has challenged the impugned orders dated March 4, 2004, and October 15, 2003, requiring it to furnish income-tax returns for the assessment year 2003-2004 and also to show cause why penalty be not imposed for not furnishing the returns in time. The short contention of learned counsel for the petitioner is that the petitioner is a local authority and is hence exempt from income-tax under section 10(20) of the Income-tax Act.
3. Sri B.D Mandhyan, learned counsel for the petitioner, has submitted that earlier for the assessment year 1978-79 an assessment order was passed against the petitioner by the Income-tax Officer, A-Ward, Bulandshahr, on May 25, 1982, against which an appeal was filed before the Commissioner of Income-tax (Appeals), Meerut, who by order dated September 6, 1982, allowed the appeal and held that the petitioner is a local authority and hence exempt from income-tax. True copy of the order dated September 6, 1982, is annexure 3 to the writ petition.
4. Learned counsel for the petitioner has relied on the definition of “local authority” in section 3(31) of the General Clauses Act, and the definitions in some other Acts.
5. In our opinion there is no merit in this petition. It may be mentioned that although earlier the expression “local authority” was not defined in the Income-tax Act, subsequently by the Finance Act of 2002, it has been defined in the Explanation to section 10(20) of the Income-tax Act 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);”
6. Section 10(29) on which also the petitioner relied has been abolished by the Finance Act, 2002.
7. A bare perusal of the Explanation to section 10(20) shows that now only four entities are local authorities for the purpose of section 10(20) namely, (i) Panchayat; (ii) Municipality; (iii) Municipal Committee and District Board; (iv) Cantonment Board. Krishi Utpadan Mandi Samiti is not one of the entities mentioned in the Explanation to section 10(20).
8. It may be noted that the Explanation to section 10(20) uses the word “means” and not the word “includes”. Hence it is not possible for this court to extend the definition of “local authority” as contained in the Explanation to section 10(20), vide P. Kasilingam v. P.S.G College of Technology, 1995 Supp (2) SCC 348 : AIR 1995 SC. 1395 (para. 19). It is also not possible to refer to the definitions in other Acts, as the Income-tax Act now specifically defines “local authority”.
9. It is well settled that in tax matters the literal rule of interpretation applies and it is not open to the court to extend the language of a provision in the Act by relying on equity, inference, etc.
10. It is the first principle of interpretation that a statute should be read in its ordinary, natural and grammatical sense. As observed by the Supreme Court of India:
“In construing a statutory provision, the first and the foremost rule of construction is the literary construction. All that the court has to see at the very outset is what does the provision say. If the provision is unambiguous and if from that provision the legislative intent is clear, the court need not call into aid the other rules of construction of statutes. The other rules of construction of statutes are called into aid only when the legislative intent is not clear”, vide Hiralal Rattan Lal v. STO, (1973) 1 SCC 216 : AIR 1973 SC 1034 : [1973] 31 STC 178 (SC)”.
11. This principle is applied with particular emphasis while interpreting the taxing statutes vide Income Tax Officer, Tuticorin v. T.S Devinath Nadar & Others, [1968] 68 ITR 252 (SC), and the fundamental principle of interpreting taxing statutes is the principle of strict construction. In this respect taxing statutes are to be interpreted differently from beneficial legislation (e.g, labour laws) vide Surendra Kumar Verma v. Central Government Industrial Tribunal-cum-Labour Court, [1980] 57 FJR 67 : (1980) 4 SCC 443 : AIR 1981 SC 422, or the Constitution vide State Trading Corporation of India Ltd. v. CTO, [1963] 33 Comp Cas 1057 (SC), where the principle of liberal interpretation applies.
12. The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt J., in his classic statement in Cape Brandy Syndicate v. IRC, [1921] 1 KB 64 (page 71):
“… in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”
13. Learned counsel for the petitioner has submitted that such a view, which we are taking, will cause hardship to the petitioner. It is a well-settled principle of interpretation of taxing statutes that there is no equity in tax, and hence considerations of hardship are irrelevant.
14. In CIT v. G. Hyatt, [1971] 80 ITR 177 : (1971) 1 SCC 466 : AIR 1971 SC 725, the question was whether under section 17(3) of the Income-tax Act, 1961, the interest on the assessee's own contribution to an unrecognised provident fund could be treated as salary. The Supreme Court of India held that the language of section 17(3) was plain and unambiguous, and hence the said amount was not salary but income from other sources and hence taxable under section 56.
15. In Polestar and Co. Ltd. v. Addl. Commr. of Sales Tax, (1978) 1 SCC 636 : AIR 1978 SC 897 : [1978] 41 STC 409 (SC), the question was whether sales outside Delhi would also be included in taxable income. The Supreme Court held that the section used the word “resale” simpliciter, and hence it referred to all resales and could not be limited to resales within Delhi alone. Thus, the Supreme Court went by the plain language of the statute, and did not speculate on the intention of the Legislature.
16. In Hemraj Gordhandas v. H.H Dave, Asst. Collector, [1978] 2 ELT 350 (SC), the Supreme Court of India considered the language of a notification under the Central Excise Tariff and held that all that was required for claiming an exemption was that the cotton fabric must be produced on power looms owned by the co-operative society. There was no further requirement in the language of the notification that the cotton fabric must be produced by the society for itself. The Supreme Court refused to go into the question of the intention behind the exemption since the language of the notification was clear.
17. In Assessing Authority-cum-Excise and Taxation Officer v. East India Cotton Manufacturing Co. Ltd., [1981] UPTC 1319 (SC) : [1981] 48 STC 239 (SC), the concessional rate under the Punjab Sales Tax Act was payable if certain raw materials were used in the manufacture of goods for sale. The contention of the assessee was that the word used in the Act was “for sale” and not “for sale by him” and hence the goods sold by a third party were also covered by the provision. This contention was accepted by the Supreme Court, which followed the literal rule of interpretation.
18. In Commissioner Of Wealth Tax, Gujarat-Iii, Ahmedabad v. Ellis Bridge Gymkhana, [1998] 229 ITR 1 (SC) : (1998) 1 SCC 384 : AIR 1998 SC 120, the Supreme Court held that the word “individual” in the charging section could not be stretched to include an association of persons. The court held that the charging section had to be construed strictly, and if a person could not be brought within the ambit of the charging section by clear words, he could not be taxed at all.
19. In A.V Fernandez v. State of Kerala, AIR 1957 SC 657, the Supreme Court of India stated the principle as follows (page 661):
“If the Revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter.” It is said that tax and equity are strangers vide Partington v. Attorney-General, [1869] LR 4 HL 100. This view was best expressed by Lord Cairns as follows:
“If the person sought to be taxed, comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.”
20. Hence even if prior to the Finance Act, 2002, this court could have treated the petitioner as a local authority relying on the General Clauses Act, it cannot do so now after the above enactment, since now “local authority” has been defined in the Income-tax Act itself.
21. Sri B.D Mandhyan, learned counsel for the petitioner, then submitted that article 14 of the Constitution has been violated because some other statutory bodies are treated as local authorities under the Explanation to section 10(20).
22. In our opinion there is no merit in this submission also.
23. It may be mentioned that in tax matters the Government has a greater latitude to tax one category and not to tax other categories vide Anant Mills Co. Ltd. v. State of Gujarat, (1975) 2 SCC 175 : AIR 1975 SC 1234; R.K Garg v. Union of India, [1982] 133 ITR 239 (SC) : [1982] UPTC 355 (SC); Malwa Bus Service P. Ltd. v. State of Punjab, (1983) 3 SCC 237; ITO v. N. Takin Roy Rymbai, [1976] 103 ITR 82 (SC) : (1976) 1 SCC 916 : AIR 1976 SC 670; Amalgamated Tea Estates Co. Ltd. v. State Of Kerala, [1974] 94 ITR 479 (SC) : [1975] UPTC 89, etc. A taxing statute is not open to attack on the ground that it taxes some persons or objects and not others vide East India Tobacco Co. v. State of A.P, [1962] 13 STC 529 (SC) : AIR 1962 SC 1733. The State has a wide discretion in selecting the objects or persons that it will tax, and in order to tax something it is not bound to tax everything, vide Orient Weaving Mills P. Ltd. v. Union of India, AIR 1963 SC 98; State Of Madhya Pradesh v. Bhopal Sugar Industries Ltd. ., AIR 1964 SC 1179 : [1964] 52 ITR 443. It can pick and choose objects, areas, persons, rates of tax, etc. V. Venugopala Ravi Varma Rajah v. Union of India, [1969] 74 ITR 49 (SC) : (1969) 1 SCC 681 : AIR 1969 SC 1094; Gopal Narain v. State of U.P, AIR 1964 SC 370; Khyerbari Tea Co. Ltd. v. State of Assam, AIR 1964 SC 925; T.G Venkataraman v. State of Madras, [1970] 25 STC 196 (SC) : (1969) 2 SCC 299 : AIR 1970 SC 508, etc. The above decisions have been followed by the decision of this court in Lalooji and Sons v. State of U.P, [2003] UPTC 900.
24. For the reasons given above, we find no merit in these petitions and they are dismissed.
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