Our market committee was always treated as a local authority and exempt under s.10(20). The Assessing Officer now says the Explanation inserted in 2002 has taken that away. Is he right?
Yes. The Supreme Court held that the Explanation to s.10(20) inserted by the Finance Act 2002 with effect from 1 April 2003 is an exhaustive definition, not an inclusive one, and that an Agricultural Produce Market Committee is not within it. Parliament deliberately left out the words 'other authority' that appear in s.3(31) of the General Clauses Act, so the functional test built on R.C. Jain no longer decides who is a local authority for s.10(20).
Decided by the Supreme Court (S.H. Kapadia J and B. Sudershan Reddy J) on 2008-08-21, reported as Civil Appeal arising out of S.L.P. (C) No. 6757 of 2007 (Supreme Court of India), decided with a batch of connected civil appeals. It bears on section 10(20) of the Income Tax Act 1961, in Capital Gains Exemptions, How Tax Law Is Read and Assessment & Scrutiny matters.
This is the decision behind the wave of demands on market committees, improvement trusts, development authorities, water boards and similar bodies from AY 2003-04 onwards. The point is not that these bodies stopped performing public functions; it is that s.10(20) now closes at four categories — Panchayat, Municipality, Municipal Committee and District Board legally entitled to or entrusted by the Government with the control or management of a municipal or local fund, and Cantonment Board — and anything outside them is out, however local-authority-like it looks. The practical consequence is that the argument has to move: to s.11 with s.12A/12AB registration, to s.10(46) notification, or to s.10(46A) for a body constituted for public functions. It is also the reason CIT v. Gujarat Maritime Board and ACIT v. Ahmedabad Urban Development Authority matter — those are the routes left open once s.10(20) is gone.
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The appellant was an Agricultural Produce Market Committee constituted under the Delhi Agricultural Produce Marketing (Regulation) Act 1998. For assessment year 2003-04 it claimed exemption under s.10(20) as a local authority. The Assessing Officer, relying on CBDT Circular No. 8/2002, rejected the claim on the ground that the Explanation inserted in s.10(20) by the Finance Act 2002 with effect from 1 April 2003 does not cover a market committee. The Commissioner (Appeals) and the Tribunal upheld the rejection and the Delhi High Court dismissed the appeal. A batch of connected appeals by other market committees was heard together.
The appeals were dismissed with no order as to costs. An Agricultural Produce Market Committee is not entitled to exemption under s.10(20) after the insertion of the Explanation by the Finance Act 2002 with effect from 1 April 2003 (paras 33 and 34).
Before the Finance Act 2002 s.10(20) carried no definition of 'local authority', so the courts borrowed s.3(31) of the General Clauses Act 1897 and, on the strength of the words 'other authority' appearing after 'Municipal Committee, District Board, Body of Port Commissioners', developed the functional or 'like nature' test in R.C. Jain. Parliament then inserted an Explanation which enumerates the bodies that qualify and, in doing so, omitted the words 'other authority' altogether. Because that residuary expression is gone, the ejusdem generis reasoning that produced the functional test has nothing to attach to, and the Explanation must be read as exhaustive (para 29). The enumerated categories do not include a market committee, so the exemption fails from 1 April 2003 (para 33).
However, as stated, earlier Parliament in its legislative wisdom has omitted the words "other authority" from the said Explanation to Section 10(20) of the 1961 Act.
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held that the Explanation to s.10(20) inserted by the Finance Act 2002 with effect from 1 April 2003 is an exhaustive definition, not an inclusive one, and that an Agricultural Produce Market Committee is not within it. Parliament deliberately left out the words 'other authority' that appear in s.3(31) of the General Clauses Act, so the functional test built on R.C. Jain no longer decides who is a local authority for s.10(20). This was decided by the Supreme Court (S.H. Kapadia J and B. Sudershan Reddy J) and bears on section 10(20) of the Income Tax Act 1961. It is reported as Civil Appeal arising out of S.L.P. (C) No. 6757 of 2007 (Supreme Court of India), decided with a batch of connected civil appeals. This is the decision behind the wave of demands on market committees, improvement trusts, development authorities, water boards and similar bodies from AY 2003-04 onwards. The point is not that these bodies stopped performing public functions; it is that s.10(20) now closes at four categories — Panchayat, Municipality, Municipal Committee and District Board legally entitled to or entrusted by the Government with the control or management of a municipal or local fund, and Cantonment Board — and anything outside them is out, however local-authority-like it looks. The practical consequence is that the argument has to move: to s.11 with s.12A/12AB registration, to s.10(46) notification, or to s.10(46A) for a body constituted for public functions. It is also the reason CIT v. Gujarat Maritime Board and ACIT v. Ahmedabad Urban Development Authority matter — those are the routes left open once s.10(20) is gone. If it applies to you, the first step is this: Read the four categories in the Explanation against your constituting statute and stop arguing the functional test — the Court expressly held R.C. Jain's 'like nature' reasoning no longer applies because 'other authority' was omitted.
The appellant was an Agricultural Produce Market Committee constituted under the Delhi Agricultural Produce Marketing (Regulation) Act 1998. For assessment year 2003-04 it claimed exemption under s.10(20) as a local authority. The Assessing Officer, relying on CBDT Circular No. 8/2002, rejected the claim on the ground that the Explanation inserted in s.10(20) by the Finance Act 2002 with effect from 1 April 2003 does not cover a market committee. The Commissioner (Appeals) and the Tribunal upheld the rejection and the Delhi High Court dismissed the appeal. A batch of connected appeals by other market committees was heard together. The matter was decided on 2008-08-21 by the Supreme Court (S.H. Kapadia J and B. Sudershan Reddy J). On those facts the Supreme Court held as follows. The appeals were dismissed with no order as to costs. An Agricultural Produce Market Committee is not entitled to exemption under s.10(20) after the insertion of the Explanation by the Finance Act 2002 with effect from 1 April 2003 (paras 33 and 34).
Before the Finance Act 2002 s.10(20) carried no definition of 'local authority', so the courts borrowed s.3(31) of the General Clauses Act 1897 and, on the strength of the words 'other authority' appearing after 'Municipal Committee, District Board, Body of Port Commissioners', developed the functional or 'like nature' test in R.C. Jain. Parliament then inserted an Explanation which enumerates the bodies that qualify and, in doing so, omitted the words 'other authority' altogether. Because that residuary expression is gone, the ejusdem generis reasoning that produced the functional test has nothing to attach to, and the Explanation must be read as exhaustive (para 29). The enumerated categories do not include a market committee, so the exemption fails from 1 April 2003 (para 33). In the words reproduced by the source cited on this page: "However, as stated, earlier Parliament in its legislative wisdom has omitted the words "other authority" from the said Explanation to Section 10(20) of the 1961 Act." The decision followed or applied Union of India v. R.C. Jain — the functional test in that case held inapplicable to s.10(20) after the 2002 Explanation (para 29).
It was decided by the Supreme Court on 2008-08-21 and is reported as Civil Appeal arising out of S.L.P. (C) No. 6757 of 2007 (Supreme Court of India), decided with a batch of connected civil appeals. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 10(20), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeals were dismissed with no order as to costs. An Agricultural Produce Market Committee is not entitled to exemption under s.10(20) after the insertion of the Explanation by the Finance Act 2002 with effect from 1 April 2003 (paras 33 and 34). It arises in Capital Gains Exemptions, How Tax Law Is Read and Assessment & Scrutiny matters, on section 10(20) of the Income Tax Act 1961, and was decided by S.H. Kapadia J and B. Sudershan Reddy J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Date the demand. The Explanation operates from 1 April 2003, so an assessment year up to 2002-03 is governed by the pre-amendment law and by the General Clauses Act definition. If the body is out of s.10(20), move to the alternatives immediately rather than appealing s.10(20) alone: s.12A/12AB registration with s.11, a s.10(46) notification application for specified income, or s.10(46A) if the body is constituted under a Central or State Act for a public purpose. Check separately whether s.10(20A) was ever the real source of the exemption, because that clause was omitted altogether by the same Finance Act 2002 from the same date. Do not rely on the constitutional argument that the body's income is State income — see Adityapur Industrial Area Development Authority, where that argument failed.
Still good law. Applied by the Allahabad High Court in CIT-I v. U.P. Jal Nigam (Income Tax Appeal No. 128 of 2008, decided 22 September 2011), which I read: the Bench there differed on whether U.P. Jal Nigam is a local authority and referred the question, so that decision settles nothing, but it treats this judgment as governing. No decision doubting or distinguishing this judgment was located. A systematic later-treatment check was not completed. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The text I read prints the cause title as arising out of S.L.P. (C) No. 6757 of 2007 and does not give the civil appeal number a year-completed form ('Civil Appeal No. of 2008'), so the appeal number is reproduced as printed. No ITR citation appeared in the text read. The quoted sentence from para 29 was retrieved twice and came back identically, including the slightly awkward placement of 'earlier'. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with no order as to costs. An Agricultural Produce Market Committee is not entitled to exemption under s.10(20) after the insertion of the Explanation by the Finance Act 2002 with effect from 1 April 2003 (paras 33 and 34).
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