Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.            OF 2008

(Arising out of S.L.P. (C) No.6757 of 2007)

Agricultural Produce Market Committee, Narela, Delhi … Appellant (s)

versus

Commissioner of Income Tax & Anr.     .... Respondent (s)

WITH

Civil Appeal No. …………of 2008 arising out of S.L.P. (C) No.6761 of 2007 Civil Appeal No. …………of 2008 arising out of S.L.P. (C) No.6760 of 2007

J U D G M E N T

S.H. KAPADIA, J.

1. Leave granted.

2. In  this  batch  of  civil  appeals  a  short  question  which

arises  for  determination  is  :  whether  Agricultural  Market

Committee (“AMC”, for short) is a “local authority” under the

Explanation  to  Section  10(20)  of  the  Income-tax  Act,  1961

(“1961 Act”, for short).

3. For  the  sake  of  convenience  we  refer  to  the  facts

mentioned in Civil Appeal No……………. of 2008 (arising out of

S.L.P. (C) No.6757 of 2007) filed by AMC, Narela, Delhi.   

4. Appellant-Committee  is  established  under  the  Delhi

Agricultural Produce Marketing (Regulation) Act, 1998 (“1998

Act”, for short).   The provisions of the said 1998 Act enjoin

upon the appellant to provide the facilities for marketing of

agricultural  produce  in  Narela, Delhi.   This  is  apart  from

performing  other  functions  and  duties  such  as

superintendence,  direction  and  control  of  markets  for

regulating the marketing of agricultural produce.

5. For  the  assessment  year  2003-04,  the  appellant-

Committee  claimed  exemption  from  payment  of  tax  under

income  earned  by  it  on  the  ground  that  it  was  a  “local

authority”  within the meaning  of  Section 10(20)  of  the  said

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1961 Act.  It relied upon the definition of “local authority” in

Section  2(l)  of  the  said  1998  Act.   The  A.O.  rejected  the

appellant’s  claim  for  exemption  relying  upon  Circular

No.8/2002 dated 27.8.02 issued by CBDT.  The view taken

was that the amended provisions of Section 10(20) of the 1961

Act  were  not  attracted  to  “Agricultural  Produce  Marketing

Societies”  or  “Agricultural  Market  Boards”  even  when  they

may be local authorities under Central or State Legislations.

6. Aggrieved  by  the  said  order,  appellant  filed  an  appeal

before  CIT(A)  who  upheld  the  view  taken  by  the  A.O.  and

declined the exemption claimed by the appellant.

7. A further appeal  by the appellant,  before  the Tribunal,

also failed.

8. Aggrieved by the decision of the Tribunal, the appellant

moved  the  High  Court  by  way  of  Income  Tax  Appeal

No.819/2006  under  Section  260A  of  the  1961  Act.   By

impugned decision dated 2.6.06,  Delhi  High Court following

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its  earlier  judgment  in  the  case  of  Agricultural  Produce

Market Committee, Azadpur v. Commissioner of Income-

tax – (I.T.A. No.749/2006) dismissed the appellant’s appeal.

Hence this civil appeal.

9. At the outset, it may be stated that all AMCs at different

places  were  enjoying  exemption  from  income  tax  under

Section  10(20)  of  the  1961  Act  prior  to  its  amendment  by

Finance Act, 2002 w.e.f. 1.4.03.

10. Prior to the amendment by Finance Act, 2002, Section 10

(20) of the Income-tax Act, 1961 provided as under:

“CHAPTER III

INCOME WHICH DO NOT FORM PART  

OF TOTAL INCOME

Incomes not included in total income.

10.  In  computing the total  income of  a previous year of any person, any income falling within any of the following clauses shall not be included –

(20) 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

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which  accrues  or  arises  from  the  supply  of  a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of  water  or  electricity  within  or  outside  its  own jurisdictional area.”

11. Through  the  aforementioned  amendment  (Finance  Act,

2002) the following Explanation stood added to Section 10(20)

of the Income-tax Act, 1961 which reads 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);”

12. Mr.  M.L.  Verma,  learned  senior  counsel  appearing  on

behalf of the appellants, submitted that AMC(s) has been held

to be a “local authority” under Section 10(20) of the 1961 Act

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falling  outside  the  taxing  net.   In  this  connection,  learned

counsel  placed  reliance  on  the  judgment  of  the  Delhi  High

Court  in  the  case  of  Commissioner  of  Income-tax  v.

Agricultural  Marketing Produce Committee – [2001]  250

ITR 369 and the reasoning given by this Court in the case of

Union of India and others v. R.C. Jain and others - 1981

(2) SCC 308.   According to learned counsel,  even after  the

amendment to Section 10(20) of the 1961 Act, by inserting the

Explanation thereto, the AMC(s)  continues to be covered by

Item (iii)  in the said Explanation as it  is a “local  authority”

performing the municipal functions and is legally entitled to

the control of local fund, namely, Market Fund under the said

1998 Act.  In this connection, learned counsel urged that vide

Finance Act, 2002, Parliament has bodily lifted the definition

of  the “local  authority”  under  Section 3 (31)  of  the General

Clauses Act, 1897 (“1897 Act”, for short) and has incorporated

the said definition vide Explanation inserted in Section 10(20)

and consequently AMC(s) is a “local authority” and continues

to  be  a  local  authority  even  after  the  said  amendment  to

Section 10(20) of the 1961 Act.  According to learned counsel,

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since Section 3(31) of the 1897 Act is bodily incorporated into

Section 10(20) of the 1961 Act, it follows that the judgments of

various  High  Courts  earlier  delivered  prior  to  Finance  Act,

2002 holding AMC(s) to be a “local authority”, would continue

to apply and the tests laid down in those judgments would

continue to apply even after the said amendment to Section 10

(20) of the 1961 Act.  Therefore, according to learned counsel,

the said Explanation does not adversely affect the appellant(s)

as the appellant(s) is covered by Item (iii) in the Explanation,

which according to the appellant(s), is identical to Section 3

(31) of the 1897 Act on the basis of which AMC(s) is a “local

authority”.   

13. Learned  counsel  next  contended  that  even  after  the

amendment to Section 10(20), the appellant(s) is covered by

Item (iii)  of  the said Explanation as it  is  a “local  authority”

performing municipal functions and as it is legally entitled to

the  control  of  local  fund,  namely,  Market  Fund.   In  this

connection, learned counsel pointed out that the appellant(s)

has the  power  and authority  to  levy  and collect  fees  called

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“Market Fees” and in fact it levies and collects “Market Fees”

and the fact that the Government exercises control, does not

take  away  the  statutory  power  of  the  appellant(s)  under

Section 62 of the 1998 Act.   

14. Learned counsel next contended that it is true that the

words “other authority” appearing in Section 3(31) of the 1897

Act do not find place in the Explanation to Section 10(20) of

the  1961 Act,  however,  that would  not change  the  basis  of

decision  of  this  Court  in  the  case  of  R.C.  Jain  (supra).

Learned counsel urged that the judgment of this Court in the

case of R.C. Jain (supra) is squarely applicable to the facts of

the present case and applying the tests laid down in the said

judgment the position which emerges is that AMC(s) is a “local

authority”  of  “like  nature  and  character” as  a  Municipal

Committee performing municipal functions and legally entitled

to  the  control  of  the  local  fund,  namely,  the  Market  Fund.

One more aspect needs to be mentioned.  An Explanatory Note

(at pages 114 to 116 of the paper book of S.L.P.(C) No.6757 of

2007)  states  that  “Agricultural  Produce  Marketing  Boards”

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and  “Agricultural  Marketing  Societies”  are  not  entitled  to

exemption after insertion of the said Explanation in Section 10

(20) of the 1961 Act.  According to learned counsel AMC(s) is

neither  “Agricultural  Produce  Marketing  Board”  nor

“Agricultural  Marketing  Society”.   Therefore,  according  to

learned counsel even the Explanatory Note indicates that AMC

(s)  is  covered  by  the  Explanation  and,  therefore,  AMC(s)  is

entitled to the continuance of the benefit of exemption even

after  Finance  Act,  2002.   Further,  in  the  Explanation  to

Section  10(20)  there  are  three  items  –  Item  (i)  refers  to

“Panchayat”, Item (ii) refers to “Municipalities” whereas Item

(iii)  refers  to  “Municipal  Committees”  and  “Development

Boards”.   According  to  learned  counsel,  there  is  no

independent definition of “Municipal Committee”.  According

to learned counsel, the Department is also not able to answer

whether  any  Municipal  Committee  still  exists  so  as  to

constitute  a  separate  category  or  whether  they  would  be

covered under Item (ii) in the said Explanation which refers to

“Municipality”.  Therefore, according to learned counsel, AMC

(s)  is  a  “local  authority”  of  like  nature  and  character  as  a

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Municipal  Committee  performing municipal  functions legally

entitled to control the local fund.   

15. Lastly, learned counsel urged that in any event it is well-

settled rule of construction of taxing statutes that if two views

are  possible  then  the  view  that  is  favourable  to  assessee

should be executed and in case of doubt it should be resolved

in favour of that assessee.         

16. Mr.  Parag  P.  Tripathi,  learned  Additional  Solicitor

General  of  India,  submitted  that before  the insertion of  the

Explanation, under Section 10(20) of the 1961 Act, by Finance

Act,  2002,  various  High Courts  were  of  the view that  since

“local  authority”  has not  been  defined  under  1961  Act,  the

definition may be borrowed from Section 3(31) of the 1897 Act.

However, according to learned counsel, after the insertion of

the  Explanation,  vide  Finance  Act,  2002  whereby  “local

authority” stood defined exhaustively, it was not necessary to

invoke Section 3(31) of the 1897 Act.  He further contended

that the Notes on Clauses in the Finance Bill 2002 shows that

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Parliament  intended  to  restrict  the  exemption  to  Panchayat

and Municipality, as referred to in Article 243(d) and Article

243P(e)  of  the  Constitution  of  India,  Municipal  Committees

and  District  Boards,  legally  entitled  to  or  entrusted  by  the

Government with the control or management of a local fund as

well as Cantonment Boards as defined under Section 3 of the

Cantonment Act, 1924.  In this connection, learned counsel

urged  that  AMC(s)  is  not  mentioned  in  the  Explanation.

Therefore,  according  to  learned  counsel,  it  would  not  be

proper to read AMC(s) into the Explanation particularly when

Section 10(20) of the 1961 Act is an exemption provision.

17. It was next contended that Section 3(31) of the 1897 Act

was not bodily incorporated in the Explanation to Section 10

(20) of the 1961 Act as it sought to be contended on behalf of

the appellant(s).  Learned counsel submitted that Parliament

in its wisdom has excluded the expression “other authority”,

found  under  Section  3(31)  of  the  1897  Act,  from  the

Explanation to Section 10(20) of the 1961 Act.  According to

learned  counsel,  this  conspicuous  absence  has  to  be

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understood in the context,  namely, that in the case of  R.C.

Jain  (supra),  the  focus  of  this  Court  was  on  the  said

expression “other authority” under Section 3(31) of the 1897

Act and, therefore, reliance placed by the appellants herein on

the judgment of this Court in the case of  R.C. Jain (supra)

was misplaced.   

18. Learned  counsel  further  submitted  that  the

explanation/definition clause inserted by Finance Act, 2002 is

exhaustive as it uses the expression “means” as contradistinct

from the expression “includes”.   Learned counsel  submitted

that  borrowing  definition  from other  statutes  is  not  a  safe

guide,  particularly,  when  the  explanation  is  a  definition

section, specifically designed for grant of the exemption under

Section 10(20) of the 1961 Act.   

19. Learned counsel  next  contended that in the hierarchy,

mentioned  in  1998  Act,  the  Delhi  Agricultural  Marketing

Board, as defined under Section 5, is in complete control of

the  finances  of  AMC(s)  and,  therefore,  according  to  learned

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counsel,  the  clarification,  issued  by  CBDT,  expressly  states

that  Agricultural  Marketing  Societies  and  Agricultural

Marketing  Boards  shall  stand  excluded  from  the  said

Explanation.   According  to  learned  counsel,  since  the  said

Board is the highest authority under the 1998 Act, the CBDT

Circular clarifies that the exemption shall not be admissible to

such  Agricultural  Marketing  Boards  and  when  such  an

exemption is not admissible to Agricultural Marketing Boards

it would not be admissible to a subordinate body under the

1998 Act, namely, AMC(s).

20. Mr.  P.  Vishwanatha  Shetty,  learned  senior  counsel

appearing for the Department, has adopted the arguments of

the  learned  Addl.  Solicitor  General.   Learned  counsel

submitted  that  earlier  in  1897  when  General  Clauses  Act

stood  enacted  there  were  District  Boards  and  Municipal

Committees in certain areas.  Those District Boards, according

to  learned  counsel,  were  different  from  the  Municipalities.

Learned  counsel  urged  that  if  one  looks  at  the  said

Explanation in its entirety, it would be clear that Parliament

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intended  to  grant  exemption  to  Panchayat,  Municipality,

Municipal  Committee  and District  Boards  legally  entitled to

the control or management of a local fund.  Learned counsel

contended that an AMC(s) is not a Municipal Committee.  He

contended that the constitution of Panchayat and Municipality

indicated them to be a representative body which is not there

in the case of AMC(s).  Learned counsel submitted that even in

the  case  of  a  Municipal  Committee  the  body  consists  of

representatives of the people whereas in the AMC(s) that is not

the case.   In  the circumstances,  learned counsel  submitted

that AMC(s) cannot be equated to the Municipal  Committee

under the said Explanation.   

21. Learned counsel lastly urged that the entire finances of

AMC(s) are under the control of Agricultural Marketing Board

as defined under Section 5 of the 1998 Act and, therefore, it

cannot be said that AMC(s) is legally entitled to the control or

management  of  a  local  fund.   In  this  connection,  learned

counsel submitted that even in the matter of prescription of

fees  the  upper  and  lower  limits  regarding  the  fees  to  be

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charged by AMC(s) are fixed by the Government.  Therefore,

according to learned counsel there is no merit in these civil

appeals.     

22. Before  analyzing  the  submissions  made,  we  quote

hereinbelow  the  relevant  sections  of  the  Delhi  Agricultural

Produce  Marketing  (Regulation)  Act,  1998  which  read  as

under:  

“CHAPTER I

PRELIMINARY

2. Definitions -(1) In this Act, unless the context otherwise requires,  

(c) “ Board” means the Delhi Agricultural Marketing Board constituted under section 5;  

(l) “local authority” means, in relation to an area within the local limits of:-  

(i) The Municipal Corporation of Delhi, that Corporation;  (ii) the New Delhi Municipal Council, that Council; and  (iii) the Delhi Cantonment Board, that Board;  

Explanation- It is hereby clarified that, for the purpose of this Act,  the  Delhi  Development  Authority  constituted  under  the Delhi Development Act, 1957 and the Board and a marketing committee established under this  Act,  shall  be deemed to  be local authority;  

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CHAPTER III

CONSTITUTION AND POWERS OF DELHI AGRICULTURAL MARKETING BOARD

17. Powers and functions of the Board – (1) The Board shall exercise  superintendence  and  control  over  the  marketing committees.

(2) The Government or the Chairman or the Vice-Chairman of the Board or any other official of the Board authorized in this behalf by the Board may call for from any marketing committee or  any  trader,  godown-keeper  or  any  other  functionary operating  within  the  market  area  any  information  or  return relating  to  agricultural  produce  and shall  have  the  power  to inspect the records and accounts of such marketing committee, trader, godown-keeper or other functionary and shall also have power to seize or take into possession against proper receipt the records accounts books stocks of notified agricultural produce alongwith its containers and carriers.  

(3)  It  may  authorise  officer/officers  of  the  Board  and/or marketing  committees  to  inspect  works  undertaken  by  the marketing  committees  and  Board  and  to  take  corrective measures.

(4)  Subject  to  the  provisions  of  this  Act  and  the  rules  and regulations  made  thereunder,  the  Board  may  employ  such persons for the performance of its functions as it may consider necessary and the method of recruitment, the scale of pay and other  conditions  of  service  of  such persons  shall  be such as may be provided in the regulations made by the Board in this behalf.

(5)   The  Board  shall,  subject  to  the  provisions  of  this  Act, perform the following functions and shall have the power to do such things as may be necessary or expedient for carrying out these functions, namely:-

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(i)  Coordination  of  the  working  of  the  marketing committees  and  other  affairs  thereof  including programmes undertaken by such marketing committees for the maintenance of markets, sub-markets, check posts and other sites in the market areas;

(ii)  undertake the planning and development of markets for agricultural produce;

(iii) administer the Market Development Fund;

(iv) issue direction to Marketing Committees in general or  to  one or  more Marketing  Committees  in  particular with a view to ensuring improvement thereof;

(v)  any other  function  specially  entrusted  to  it  by this Act;

(vi)  such  other  functions  of  like  nature  as  may  be entrusted to the Board by the Government.

(6) Without  prejudice  to  the  generality  of  the  foregoing provision, such functions of the Board shall include :-

(a) to consider proposals for selection of new site(s) for establishment  of  the  markets  and  to  make recommendations  to  the  Director  for  establishing principal  market  and  sub-markets  as  per  provisions  of sub-section (2) of section 22;

(b)  to  approve  proposal  for  providing  infrastructural facilities in the market and market area;

(c) to construct a market or to approve plans, designs and estimates for constructing markets;

(d)  to  sanction,  supervise  and  guide  a  Marketing Committee in the preparation of plans and estimates for maintenance and improvement works undertaken by the Marketing Committee;

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(e)  to  execute  all  works  chargeable  to  the  Market Development Fund;

(f) to encourage marketing of the agricultural produce on cooperative basis;

(g)  to  maintain  accounts  in  such  forms  as  may  be prescribed and get the same audited in such manner as may be prescribed;

(h) to publish annually at the close of the financial year, its progress report, balance sheet and statement of assets and liabilities and send copies thereof to all the members of the Board and a copy to the Government;

(i) to make necessary arrangements for dissemination of information on matters relating to regulated marketing of notified agricultural produce;

(j)  to  provide  facilities  for  the  training  of  officers  and members of the staff of the Board as also the Marketing Committees;

(k) to prepare and adopt its budget for the ensuring year;

(l) to sanction the budget of the Marketing Committees;

(m)  to  grant  subventions  of  loans  to  the  Marketing Committees for the purposes of this Act on such terms and conditions as the Board may determine;

(n)  to  arrange  or  organize  seminars  or  workshops  or exhibitions,  etc.  on  subjects  related  to  agricultural marketing;

(o) to perform such other functions as may be of general interest  to  the  Marketing  Committees  or  considered necessary for efficient  functioning of the Board or  the Marketing Committees.

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(p) to transfer  or to provide marketing technology and market  assistance to the  Marketing  Committees as  and when required.

CHAPTER V

MARKET OF NATIONAL IMPORTANCE

26.  Establishment  of  market  of  national  importance  and Marketing  Committee  thereof  –  (1)   Notwithstanding anything  contained  in  this  Act,  where  the  Government  is satisfied  that  on  account  of  the  national  importance  of marketing  of  any commodity,  in  any area,  it  is  expedient  to ensure  the  efficient  regulation  of  the  marketing  of  such commodity in such area, it may establish –

(a) in such area, special market,  known as “Markets of National Importance” for such commodities; and

(b)  independent  Marketing  Committees  known  as “Marketing  Committees  of  Market  of  National Importance” in relation to such markets, notwithstanding that  such  area  falls  within  the  local  limits  of  the jurisdiction  of  any  other  Marketing  Committee  or Committees already functioning in that area.

(2)  The Government may, after consideration of such aspects as,  the  turnover,  upstream  catchment  area,  down-steam servicing (number of consumers served), and price leadership (whether the market influences the price at the national level), declare an area as a special market area known as “Market area of the market of National Importance”.

Provided that no such market shall be established:-

(a) if it handles less than one lakh tones of produce per year;

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(b) if,  out of the total produce handled by it,  less than thirty percent thereof is received from two or more State or Union Territories; and  

(c)  if  the  market  does  not  influence  the  price  of  the commodity referred to in sub-section (1) at the national level.

CHAPTER VII

MARKETING COMMITTEES – POWERS AND DUTIES

55.  Powers  and  duties  of  the  Marketing  Committees-  (1) Subject to the provisions of this Act, it shall be the duty of a Marketing Committee:

(i)  to  implement  the provisions  of  this  Act,  and rules, regulations  and  bye-laws  made  there  under  for  the market area;

(ii)  to  provide  such facilities  for  marketing  of  notified agricultural produce therein as the Board may, from time to time, direct;

(iii)  to  perform other  functions  as  may be  required  in relation to the superintendence, direction and control of markets, or for regulating and control of markets, or for regulating  the  market  area  and for  purposes  connected with  the  matters  aforesaid,  and,  for  this  purpose,  may exercise  such  powers  and  perform  such  duties  and discharge such functions as may be provided by or under this Act.

(2)  Without  prejudice  to  the  generality  of  the  foregoing provisions, a Marketing Committee may –

(a)  regulate  the  entry  of  the  persons  and  of  vehicular traffic into the market;

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(b) supervise the conduct of those who enter the market for transacting business;

(c) grant, renew, refuse suspend or cancel licences;

(d) provide for settling disputes arising out of any kind of  transaction  connected with  the marketing o notified agricultural produce and all matters ancillary thereto;

(e) prosecute persons for violating the provisions of this Act  and  to  the  rules  regulations  and  bye-laws  made thereunder;

(f)  maintain  and  merge  the  market,  including  the regulation of admissions to,  and conditions for use of, the market;

(g)  regulate  the  marketing  of  notified  agricultural produce  in  the  market  area  and  the  market,  and weighment,  delivery  of  and  payment  for,  such agricultural produce;

Explanation –  For the purposes of clause (g) the word ‘regulate’ shall include –

(i) making, carrying out, enforcing or cancelling of nay  contract  of  sale  of  a  notified  agricultural produce;

(ii) conducting or supervising of a transaction of sale or purchase of a notified agricultural produce in accordance with the procedure laid down under this Act, or rules, regulations and bye-laws made thereunder;

(iii) specifying any place or spot where a notified agricultural  produce  shall  be stored  or  displayed for purpose of sale by open auction;

(iv) fixing the time for holding auction; and

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(v)  cancelling  an auction  if  it  is  not  held in  the presence  of  the  employees  of  the  marketing committee.

(h) arrange for the collection –

(i)  of  such  notified  agricultural  produce  in  the market in which all trade therein is to be carried on exclusively  by the  Government  by or  under  any law for the time being in force for that purpose, or

(ii) of such other notified agricultural produce in the market as the Government may, from time to time notify in the official Gazette.

(i)  acquire,  hold  and  dispose  of  any  movable  or immovable  property  (including  any  equipment) necessary for the purpose of efficiently carrying out its duties;

(j) collect, maintain, disseminate and supply information in respect of production, sale storage, processing, prices and  movement  of  notified  agricultural  produce (including  information  relating  to  crop-statistics  and market intelligence) as may be required by the Director or the Board;

(k)  take  all  such  steps  to  prevent  adulteration  and  to promote grading and standardization of such agricultural produce, as may be prescribed;

(l) enforce the provisions of this  Act  and of the  rules, regulations and bye-laws made thereunder including the conditions of the licences granted, under this Act;

(m) perform such other duties as may be prescribed;

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(n) arrange to obtain fitness certificate of health from a veterinary doctor  in  respect  of  animals,  cattle  or  birds brought for sale or sold in the market/sub-market;

(o)  disseminate  information  about  the  benefits  of regulation, the system of transaction, facilities provided in the market yard, etc. through such means as posters, pamphlets,  hoarding,  cinema slides,  film shows,  group meetings, etc., or through nay other means considered by it more effective or necessary;

(p)  ensure  payment  in  respect  of  a  transaction  which takes place in a market to be made on the same day to the seller,  and  in  default  thereof  to  seize  the  agricultural produce  in  question  alongwith  other  property  of  the commission agent or purchaser if no commission agent is involved in the transaction;

(q)  make  arrangement  for  weighmen  palledars  for weighing  and  transporting  of  goods  in  respect  of transactions held in the market yard/sub-yard;

(r)  recover  the  charges  in  respect  of  weighmen  and palledars  and  distribute  the  same  to  weighmen  and palledars  if  not  paid  by the  purchaser  or  seller,  as  the case may be.  

   62.  Power  to  levy  and  collect  market  fee—Every Marketing  Committee  shall  levy  and  collect  such  fee (hereinafter referred to as the ‘market fee”) not being in excess of, or less than, the amount determined by the Government by notification published  in  the  official  Gazette  from  every purchaser of notified agricultural produce sold in a market area.

Provided  that  the  amount  to  be  determined  by  the Government shall not be less than one rupee per one hundred rupees of the sale price of the notified agricultural produce.

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66.  Assessment  market  fee  payable  by  commission  agent and payment thereof—(1) If no return is furnished in respect of  any  period  by  the  specified  date,  or  if  the  Marketing Committee  is  not  satisfied  that  the  return  furnished  by commission  agent  is  correct  or  complete,  an  officer  of  the Marketing  Committee  specifically  authorized  by  it  in  this behalf  (hereinafter  referred  to  as  the  assessing  officer)  shall proceed in such manner, as may be prescribed in the bye-laws to assess, to the best of his judgment, the amount of market fee due from such commission agent.

Provided that before finalizing any such assessment, the commission  agent  concerned  will  be  given  a  reasonable opportunity of showing cause as to why the assessment should not be finalized.

(2) The amount of the market fee assessed under sub-section (1),  less  than sum, if  any, already paid,  shall  be paid by the commission  agent  within  fifteen  days  from  the  date  of  the receipt of the assessment order by him.

(3) If  any  commission  agent  fails  to  pay  the  amount  of market fee as required by sub-section (2), he shall, in addition to  market  fee  due,  be  liable  to  pay  simple  interest  on  the amount  so  due  at  two  per  cent  per  month  from  the  date immediately following the last  date  for  submission  of  return under  clause  (b)  of  section  65,  upto  the  date  of  assessment under sub-section (1) and at the rate of three percent per month thereafter till realization.

CHAPTER X

MARKET DEVELOPMENT FUND AND MARKET FUND AND AUDIT THEREOF

84.  Constitution  of  Market  Development  Fund—(1)  All moneys received by the Board shall be credited into a fund to be called the Market Development Fund.

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(2) No  expenditure  from  the  Market  Development  Fund shall  be  defrayed  unless  it  is  sanctioned  by  the  competent authority.  The Market Development Fund shall be operated in the manner as may be prescribed in the rules.

Explanation—For  the  purpose  of  this  sub-section ‘competent authority’ shall mean the Board, or Vice-Chairman or any other officer of the Board to whom the powers of the Board to  incur expenditure  have been delegated,  as  the  case may be.

(3) The  amount  standing  to  the  credit  of  the  Market Development Fund shall be kept or invested in such manner as may be prescribed.

89.  Application  of  Market  Fund—(1)  Subject  to  the provisions of section 88, the Market Fund may be expended for the following purposes only, namely:—

(i) the acquisition of a site or sites for the market yard;

(ii) the establishment, maintenance and improvement of the market yards;

(iii) the construction and repair of buildings necessary for the purposes of the market and for convenience or safety of the persons using the market yard;

(iv) the maintenance of standard weights and measures;

(v) the meeting of establishment charges including payment and  contribution  of  provident  fund,  pension,  gratuity, leave  encashment  on  retirement  or  yearly  basis,  actual reimbursement  of  hospitalization  expenses  in  the authorized hospitals or other items as may be laid down in the regulations/rules;

(vi) loans and advances to the employees of the committee;

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(vii) the payment of interest on the loans that may be raised for the purpose of the market and provisions of sinking fund in respect of such loans;

(viii) the collection and dissemination or information relating to crop statistics and marketing of agricultural produce;

(ix) expenses  incurred  in  auditing  the  accounts  of  the marketing committee;

(x) payment  of  honorarium  to  Chairman  travelling allowances  of  Chairman,  Vice-Chairman  and  other members  of  the  Marketing  Committee  and  sitting  fees payable to number for attending the meeting;

(xi) contribution to the Board as prescribed and Consolidated fund  of  the  National  Capital  Territory  of  Delhi  to  the extent  required  for  salary  of  the  employees  of  the Government as provided in clause (b) of sub-section (2) and sub-section (3) of this section;

(xii) contribution  to  any  scheme  for  development  of agricultural marketing including transport and scientific storage;

(xiii) to  provide  facilities  like  grading  services  and communication to agriculturists in the market area;

(xiv) to provide for development of agricultural produce in the market area;

(xv) payment of expenses on elections under this Act;

(xvi) incurring  of  all  expenses  for  research,  extension  and training in marketing of agricultural produce;

(xvii) prevention,  on  conjunction  with  other  agencies,  State, Union Territory, Central and others in relation to distress sale of agricultural produce;

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(xviii)  fostering  co-operative  marketing  and  assisting  co- operative  marketing  societies  in  the  procurement  and organization  of  profitable  disposal  of  produce particularly the produce belonging to small and marginal farmers;

(xix) acquisition  of  land for  construction  of  office  building, guest  house for  farmers  and visitors  and staff  quarters and maintenance thereof; hiring built up accommodation for  office  use,  guest  house  or  for  other  purpose  of agricultural marketing;

(xx) any  other  purpose  connected  with  the  marketing  of agricultural  produce  under  this  Act  whereon  the expenditure  of  the  marketing committee  fund is  in  the public interest subject to the prior sanction of the Board.

(xxi) contribution to centralized pension fund of the Board as may be prescribed.

(2) Without prejudice to the generality of sub-section (1), every marketing  committee  shall,  out  of  the  “market  fund” pay—

(a) to  the  Board,  as  contribution,  such  percentage  of  its income derived from the licence  fee,  market  fee,  fines received  as  specified  below,  to  enable  the  Board  to defray  its  expenses  on  office  establishment  and  other expenses incurred by it in the interest of the marketing committee generally,--

(i) if  the  annual  income  of  a  marketing  committee does not exceed ten thousand rupees, ten percent.

(ii) if  the  annual  income  of  a  marketing  committee exceeds ten thousand rupees but does not exceed fifteen thousand rupees, on the first Rs.10,000 ten percent.

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On the next five thousand rupees or part thereof… fifteen percent

(iii) if  the  annual  income  of  a  marketing  committee exceeds fifteen thousand rupees, on the first

Rs.10,000 Ten percent

on the next Rs.5,000 Fifteen percent

on the remaining income Twenty percent

(b) to the Government, the cost of any special or additional staff employed by the Government, in consultation with the  marketing  committee,  for  giving  effect  to  the provisions of this Act in the market area.

(3) The  Government  shall  determine  the cost  of  the special  or  additional  staff  referred  to  in  clause  (b)  of  sub- section  (2)  and  shall,  where  the  staff  is  employed  for  the purposes  of  more  than  one  marketing  committee,  apportion such cost among the marketing committees concerned in such manner  as  it  things  fit  and  the  decision  of  the  Government determining the amount payable by any marketing committee shall be final.

CHAPTER XI

BUDGET AND ACCOUNTS

91. Budget and Account of a Marketing Committee— (1) Everything marketing committee shall  prepare and pass the budget on its income and expenditure for the ensuing year in the  prescribed  Form  and  shall  submit  it  to  the  Board  for sanction before the prescribed date.  The Board shall sanction the budget with or without modification within three months from the date of receipt thereof.  If the budget is not returned by the  Board within  three months,  it  shall  be  presumed to have been sanctioned.

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(2) No expenditure shall be incurred on any item if there is no provision in the sanctioned budget thereof, unless it can be met by reappropriation from saving under any other Head and has sanction for re-appropriation of the Vice-Chairman of the Board.

95. Preparation of Balance and administrative report— (1) At the end of every year, a marketing committee shall draw up its  final  accounts  of  receipts  and  expenditure  and  a  balance sheet  of  its  assets  and  liabilities  and  prepare  an  annual administrative report in such manner and in such Form as may be prescribed.

(2) Copies  of  accounts,  balance  sheet  and  administrative report  referred to in sub-section (1) shall  be submitted to the Board and the Director by such time as may be prescribed.”

(emphasis supplied by us)

23. We also quote Section 3(31) of the General Clauses Act, 1897 herein

below which reads as under:  

“GENERAL DEFINITIONS

“3. DEFINITIONS.- In this Act, and in all Central Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context, -  

(31). “local  authority”  shall  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;”

(emphasis supplied by us)

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24. The  short  question  which  arises  in  this  batch  of  civil

appeals is : whether Agricultural Marketing Committee [AMC

(s)]  is a “local  authority”,  so as to be entitled to the benefit

under  Section  10  of  the  1961  Act  after  insertion  of  the

Explanation in Section 10(20)  vide  Finance  Act,  2002 w.e.f.

1.4.2003.

25. Before  analyzing  the  above  question,  we  quote

hereinbelow a comparative chart containing the Explanation

to Section 10(20) of the 1961 Act on one hand in juxtaposition

to Section 3(31) of the 1897 Act:

Explanation to Section 10(20) of the 1961 Act

Section 3(31) of the 1897 Act

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“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);

3. DEFINITIONS.- In this Act, and in all Central Acts and Regulations made after  the  commencement  of  this  Act, unless there is anything repugnant in the subject or context, -  

(31). “local  authority”  shall  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.

26. At the outset, it may be noted that prior to Finance Act,

2002, the said 1961 Act did not contain the definition of the

word “local authority”.  That word came to be defined for the

first  time  by  Finance  Act,  2002  vide  the  said

Explanation/definition clause.

27. Certain  glaring  features  can  be  deciphered  from  the

above comparative chart.   Under Section 3(31) of the General

Clauses Act, 1897, “local authority” was defined to  mean “a

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municipal  committee,  district  board,  body  of  port

commissioners or other authority legally entitled to the control

or management of a municipal or local fund.  The words “other

authority” in Section 3(31) of the 1897 Act has been omitted

by Parliament in the Explanation/definition clause inserted in

Section  10(20)  of  the  1961  Act  vide  Finance  Act,  2002.

Therefore, in our view, it would not be correct to say that the

entire definition of the word “local  authority” is bodily lifted

from  Section  3(31)  of  the  1897  Act  and  incorporated,  by

Parliament, in the said Explanation to Section 10(20)  of the

1961 Act.  This deliberate omission is important.  It may be

noted that various High Courts had taken the view prior to

Finance Act, 2002 that AMC(s) is a “local authority”.  That was

because there was no definition of the word “local authority”

in the 1961 Act.  Those judgments proceeded primarily on the

functional tests as laid down in the judgment of this Court

vide  para  ‘2’  in  the  case  of  R.C.  Jain  (supra).  We  quote

hereinbelow para ‘2’ which reads as under:

“2. Let  us,  therefore,  concentrate  and  confine  our attention and enquiry to the definition of “local authority”

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in Section 3(31) of the General Clauses Act. A proper and careful scrutiny of the language of Section 3(31) suggests that 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.  What  then  are  the  distinctive attributes  and  characteristics,  all  or  many  of  which  a Municipal  Committee,  District  Board  or  Body  of  Port Commissioners shares with any other local authority? First, 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 area. Next, they must enjoy a certain degree  of  autonomy,  with  freedom  to  decide  for themselves  questions  of  policy  affecting  the  area administered by them. The autonomy may not be complete and the degree of the dependence may vary 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  municipal  bodies,  such  as  those  connected  with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services etc. etc. Broadly we may say that they may be entrusted with the performance of civic duties and  functions  which  would  otherwise  be  governmental 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.”

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28. As  stated  above,  it  has  been  argued  on  behalf  of  the

appellants  that  AMC(s)  is  not a Municipal  Committee.   The

words “Municipal  Committee”  finds place in Item (iii)  of  the

said Explanation.  According to the appellants, although AMC

(s) is not a Municipal Committee still it is a “local authority” of

a like nature and character to that of a Municipal Committee

performing municipal functions legally entitled to control the

local  fund,  namely,  the  Market  Fund.   For that proposition

reliance is placed on para ‘2’ of the judgment in the case of

R.C. Jain (supra), as quoted hereinabove.  However, it may be

noted that this Court  in the case of  R.C. Jain (supra)  was

required  to  consider  the  question  as  to  whether  “Delhi

Development Authority” is a “local authority” as its employees

stood  outside  the  purview  of  Payment  of  Bonus  Act,  1965.

Under Section 32(iv) of the Payment of Bonus Act, 1965 it is

stated  that  nothing  in  the  said  1965  Act  shall  apply  to

employees  employed  by  an  establishment  engaged  in  any

industry  carried  on  by  or  under  the  authority  of  any

Department of the Central Government or State Government

or a local authority.  It is in this context that the Court was

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required to consider  in the case of  R.C.  Jain (supra)  as to

whether DDA is a “local authority”.  There was no definition of

“local authority” in the said 1965 Act.  Therefore, this Court

had to go back to Section 3(31) of the 1897 Act.  As quoted

hereinabove,  Section  3(31)  of  the  1897  Act  defines  “local

authority” to mean – a Municipal Committee, District Board,

body of Port Commissioners or other authority.  In the case of

R.C. Jain (supra) this Court was aware that DDA is neither a

District Board nor a Body of Port Commissioners.  Therefore,

the only question the Court had to address to was : whether

DDA  would  fall  within  the  meaning  of  the  words  “other

authority”  in  Section  3(31)  of  the  1897 Act.   Therefore,  we

have to read para ‘2’ of the judgment in the case of R.C. Jain

(supra) in the context of Section 3(31) of the 1897 Act as the

word  “local  authority”  was  not  defined  in  the  Payment  of

Bonus Act, 1965.  The Court, therefore, in the case of  R.C.

Jain (supra)  had to fall back upon Section 3(31) of the 1897

Act and in doing so this Court in the case of R.C. Jain (supra)

applied the functional and incorporation tests.   

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29. One more aspect needs to be mentioned.  In the case of

R.C. Jain (supra) the test of “like nature” was adopted as the

words  “other  authority”  came  after  the  words  “Municipal

Committee,  District  Board,  Body  of  Port  Commissioners”.

Therefore,  the words “other  authority”  in Section 3(31)  took

colour from the earlier words, namely, “Municipal Committee,

District Board or Body of Port commissioners”.  This is how

the functional test is evolved in the case of R.C. Jain (supra).

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  said

Explanation to Section 10(20) provides a definition to the word

“local authority”.  It is an exhaustive definition.  It is not an

inclusive definition.  The words “other authority” do not find

place  in  the  said  Explanation.   Even,  according  to  the

appellant(s),  AMC(s) is neither a Municipal Committee nor a

District Board nor a Municipal  Committee nor a Panchayat.

Therefore,  in  our  view  functional  test  and  the  test  of

incorporation as laid down in the case of R.C. Jain (supra) is

no more applicable to the Explanation to Section 10(20) of the

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1961 Act.  Therefore, in our view the judgment of this Court in

the case of R.C. Jain (supra) followed by judgments of various

High Courts on the status and character of AMC(s) is no more

applicable  to  the  provisions  of  Section  10(20)  after  the

insertion  of  the  Explanation/definition  clause  to  that  sub-

section vide Finance Act, 2002.

30. The question still remains as to why Parliament has used

the words “Municipal Committee” and “District Board” in Item

(iii)  of  the  said  Explanation.   In  our  view,  Parliament  has

defined “legal authority” to mean – a Panchayat as referred to

in  clause  (d)  of  Article  243  of  the  Constitution  of  India,

Municipality as referred to in clause (e) of Article 243P of the

Constitution of India.  However, there is no reference to the

Article  243  after  the  words  “Municipal  Committee”  and

“District Board”.  In our view, the Municipal Committee and

District  Board  in  the  said  Explanation  are  used  out  of

abundant caution.  In 1897 when General  Clauses Act was

enacted  there  existed  in  India  Municipal  Committees  and

District  Boards.   They  continued  even  thereafter.   In  some

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remote  place  it  is  possible  that  there  exists  a  Municipal

Committee or a District Board.  Therefore, in our view, apart

from a Panchayat and Municipality, Parliament in its wisdom

decided  to  give  exemption  to  Municipal  Committee  and

District  Board.   Earlier  there  were  District  Board  Acts  in

various States.  Most of the States had repealed those Acts.

However, it is quite possible that in some remote place District

Board may still exists.  Therefore, Parliament decided to give

exemption to such Municipal Committees and District Boards.

Therefore,  in  our  view,  advisedly  Parliament  has  retained

exemption for Municipal Committee and District Board apart

from Panchayat  and  Municipality.   Our  view  finds  support

from the provisions contained in Part IX of the Constitution of

India.  Article 243N provides for continuance of existing laws

and  Panchayats.   It  states,  inter  alia,  that  notwithstanding

anything in Part IX, any law relating to Panchayats in a State

immediately  before  commencement  of  the  Constitution

(Seventy-third Amendment)  Act,  1992,  which is inconsistent

with the provisions of Part IX, shall  continue to be in force

until  repealed by a competent Legislature.   Similarly, under

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Part  IXA  there  is  Article  243ZF  which  refers  to  the

“Municipalities”.   This  Article,  inter  alia,  states  that

notwithstanding anything in Part IXA, any provision of any law

relating to Municipalities in force in a State immediately before

the  commencement  of  the  Constitution  (Seventy-fourth

Amendment)  Act,  1992,  which  is  inconsistent  with  the

provisions  of  Part  IXA,  shall  continue  to  be  in  force  until

amended or repealed by a competent Legislature.  In our view,

Article 243N and Article 243ZF indicates that there could be

enactments  which  still  retain  the  entities  like  Municipal

Committees and District Boards and if they exist, Parliament

intends to give exemption to their income under Section 10

(20) of the 1961 Act.

31. Before  concluding  we  quote  hereinbelow  an  important

principle of law enunciated by this Court in the case of  R.C.

Jain (supra) which reads as under:

“…it is not a sound rule of interpretation to seek the meaning of words used in an Act, in the definition clause of other statutes.”

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32. Since  we  are  of  the  view  that  AMC(s)  is  neither  a

Municipal  Committee  nor  a  District  Board  under  the  said

Explanation to Section 10(20) of the 1961 Act, we refrain from

going into the question : whether the AMC(s) is legally entitled

to the control of the local fund, namely, Market Fund, under

the said 1998 Act.  There is one more reason why we do not

wish  to  express  any  opinion  on  the  said  question.   Vide

Finance Act, 2008, income of AMC(s) is exempt.  Sub-section

26AAB  of  Section  10  comes  into  force  with  effect  from

1.4.2009.   Therefore, we do not wish to express any opinion

on the question as to whether AMC(s) is legally entitled to the

control of the local fund.

33. We  hold  that  AMC(s)  is,  therefore,  not  entitled  to

exemption under Section 10(20) of the 1961 Act after insertion

of the said Explanation vide Finance Act, 2002 w.e.f. 1.4.03.

34. For  the  aforestated  reasons,  we  find  no  merit  in  this

batch of Civil Appeals and accordingly the said Civil Appeals

are dismissed with no order as to costs.

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……………………………J.                                    (S.H. Kapadia)

……………………………J.                                               (B. Sudershan Reddy)

New Delhi; August 21, 2008.

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