Sujata Manohar, J. The assessees in Income-tax Reference Number 98 of 1971 and Income-tax Reference Number 194 of 1975 are partners in the firm of M section K, C. Shah and Company.

Apart from these two asses-sees the partnership firm of M section K. C. Shah and Company also has a third partner.

For the assessment year 1962-63 the assessees in both these references could not file their income-tax returns under Section 139(1) of the I.T. Act, 1961, since the accounts of the partnership firm of M section K. C. Shah and Company were not finalised.

The partnership firm of M section K. C. Shah and Company also could not file its income-tax return for this assessment year since the firm was engaged in some urgent military contracts at the border.

The ITO thereupon served on the firm as well as on the assessees notices under Section 139(2) of the I.T. Act, 1961.

Pursuant to these notices the firm as well as the assessees filed their returns.

The firm showed an income of Rs. 60,000, while the assessees in both the references showed their income at Rs. 25,079 each.

Thereafter, notices under Section 142 were issued against the firm and the assessees failed to comply with these notices, whereupon the ITO completed the assessment against them under Section 144 on or about 30th December, 1963.

On the basis of his assessment of the firms income for the relevant assessment year, the ITO apportioned to the assessees their share of profit in the firm under Section 158 of the I.T, Act.

The share of each of the partners so assessed by the ITO was Rs. 70,000.

The firm of M s, K. C. Shah and Company filed an appeal against the ex parte assessment made against it before the AAC.

By his order dated 9th November, 1964, the AAC set aside the assessment of the firm made under Section 144 of the I.T. Act and directed the ITO to make a fresh assessment.

It seems that thereafter the revenue preferred an appeal before the Income-tax Appellate Tribunal, but the same was dismissed on I7th May, 1966, The assessees did not prefer any appeals against the ex parte assessments made against them on the basis of their share in the profits of the firm as determined by the assessment made against the firm and its partners.

However, after the order of the AAC dated 9th November, 1964, setting aside the assessment against the firm, the assessees made an application dated 20th November, 1964, to the ITO for a rectification of the assessment order made against them.

In this application the assessees requested the ITO to substitute their income on the basis of the returns filed by them instead of on the basis of their share in the profits of the firm as per the ex parte assessment made against the firm, since the order of ex parte assessment made against the firm had been set aside by the AAC.

By his order dated 24th December, 3964, the ITO rejected the application of the assessees for rectification.

The assessees went in appeal to the AAC from this order.

By his order dated 18th October, 1966,-the AAC allowed the appeals of the assessees and directed the ITO to modify the assessments of the assessees under the provisions of sections 154 and 155 of the I.T, Act.

The revenue went in appeal from the order of the AAC on the ground, apparently, that the directions which were given by the AAC to modify the assessments of the assessees were not specific.

In view of this grievance made by the revenue, the Tribunal clarified that the ITO should accept the figure of income as shown by the assessees in their returns, subject to it being modified at a later date, after the completion of the assessment of the firm.

This order was passed by the Tribunal on 13th March, 1967.

Thereafter on 17th July, 1967, the ITO rectified the assessments of the assessees and made an order for refund of the excess amounts.

The ITO, however, did not award any interest to the assessees, on the amounts ordered to be refunded, under the provisions of Section 240 of the I.T. Act.

The assessees thereupon preferred appeals to the AAC in respect of not awarding to them interest on the amounts refunded.

By his order dated 29th July, 1968, the AAC rejected the appeals of the assessees and held that their claim for interest was not tenable, since the refund was given within six months of the Tribunals order dated 13th March, 1967.

The assessees went on appeal from this order to the Tribunal.

The Tribunal by its order dated 26th May, 1970, allowed the appeals of the assessees and held that the assessees were entitled to interest on the amounts refunded.

According to the Tribunal, the assessees became entitled to a refund immediately on the order of the AAC dated 9th November, 1964, setting aside the ex parte assessment of the firm.

The Tribunal held that the ITO ought to have immediately rectified the assessments of the assessees and given them refunds within a period of six months from the date of the order setting aside the ex parte assessment against the firm.

The Tribunal thereupon awarded interest to the assessees for the period of delay after the expiry of six months from 10th November, 1964.

Before the Tribunal the revenue had urged that no appeal lay to the AAC from the order of the ITO refusing interest.

The revenue also urged that no appeal lay to the Tribunal from the order of the AAC refusing to award interest.

Both these contentions were negatived by the Tribunal.

Thereafter, under the provisions of Section 256(1) of the I.T. Act, 1961, a reference has been made to us.

In Income-tax Reference Number 98 of 1971, the following three questions have been referred to us for determination : Whether, on the facts and in the circumstances of the case, it was open to the revenue to contend before the Tribunal for the first time that the assessees appeal before it was not tenable, as the assessee had no right of appeal before the Appellate Assistant Commissioner ? If question Number 1 is answered in the affirmative, whether the assessee had a right of appeal before the Appellate Assistant Commissioner against not granting of interest for the period of delay in granting refund ? Whether, on the facts and in the circumstances of the case, the assessee was entitled to interest under Section 244 of the Income-tax Act.

1961, on the amount of refund due to him for the period of delay after the expiry of six months from 10th November, 1964 ? In I.T. Ref. Number 194 of 1975 the following two questions have been referred to us for determination : Whether the order dt.

July 17, 1967, could be appealed against to the AAC under Section 246 of the Act ? Whether the assessee was entitled to any interest under Section 244 on the amount of refund due to him for the period of delay after the expiry of six months from November 10, 1964 ? The main question that arises for determination is question Number 3 in Income-tax Reference Number 98 of 1971 and question Number 2 in Income-tax Reference Number 194 of 1975, namely, whether the assessees were entitled to claim any interest under Section 244 of the I.T. Act on the amount of refund due to them for the period of delay after the expiry of six months from 10th November, 1964.

Under Section 244 of the I.T. Act, as it then was, it was provided that where a refund was due to the assessee in pursuance of an order referred to in Section 240 and the ITO did not grant the refund within a period of six months from the date of such order, the Central Govt.

shall pay to the assessee simple interest at the rate of 6 per cent per annum on the amount of refund due from the date immediately following the expiry of the period of six months aforesaid to the date on which the refund is granted.

Thus, the refund has to be made to the assessee within a period of six months from the date of the order pursuant to which a refund becomes due to the assessee.

If such payment is not made within a period of six months, interest is required to be paid to the assessee.

Mr. Joshi, learned counsel for the revenue, submitted that the relevant order for the purpose of Section 244 of the I.T. Act is the order of the Tribunal dated 13th March, 1967.

According to Mr. Joshi, it was pursuant to the order of the Tribunal dated 13th March, 1967, that the ITO rectified the assessments in question and made a refund order.

In the alternative, Mr. Joshi submitted that the relevant date would be the date of the order of the AAC dated 18th October, 1966, which allowed the appeal of the assessee against the order of the ITO refusing to rectify the assessments in question.

Both these submissions of Mr. Joshi cannot be accepted.

What requires consideration is the date when the assessee became entitled to a refund.

In the present case, the assessments, which were originally made on the assessees, were based upon the ex parte assessment which was made against the firm of which they were partners.

The only income of the assessees is the profit which they derived from the business of the firm apart from a small sum of Rs. 200, which was by way of interest on securities, which is also shown in the firms return.

Their share in the profits of the firm was apportioned to them by the ITO under the provisions of Section 158 of the I.T. Act on the basis of the ex parte assessment which he made against the firm itself.

If this ex parte assessment against the firm was set aside by the AAC by his order dated 9th November, 1964, and a fresh assessment was directed to be made against the firm, it is clear that the assessment against the partners of the firm which was based entirely on the ex parte assessment against the firm also could not be sustained.

In fact, it was incumbent upon the ITO under the provisions of as.

154 and 155 of the I.T. Act to immediately rectify the assessments of the partners also without waiting for any application in that behalf from the assessees.

The right, therefore, of the assessees to obtain a refund arose as a result of the order dated 9th November, 1964, setting aside the ex parte assessment against the firm.

The assessments against the partners of the firm on the basis of the ex parte assessment against the firm could not stand when the assessment against the firm itself was set aside.

The assessees, therefore, became entitled to a refund pursuant to the order of the AAC dated 9th November, 1964.

There is no dispute that the actual refund was granted to them long after the expiry of six months after the order dated 9th November, 1964.

The assessees application for rectification dated 20th November, 1964, was made by the assessees because they wanted the refund due to them to be adjusted towards the pending demand for other assessment years.

Even without such an application the ITO was bound in law to rectify the assessments already made.

The subsequent proceedings, therefore, which arose out of the ITOs rejection of the assessees application for rectification could not affect the right, which the assessees acquired, to obtain a refund, pursuant to the order dated 9th November, 1964.

Under the order dated 9th November, 1964, the assessment made under Section 144 of the I.T. Act was set aside and the ITO was directed to pass a fresh assessment order according to law.

Impliedly, the assessments against the partners of the firm which were based upon the assessment order under Section 144 were also set aside and the ITO was required to make a fresh assessment against the partners also.

The right, therefore, of the partners to receive a refund arose under the order dated 9th November, 1964.

The order of the AAC dated 18th October, 1966, did not give rise to any fresh right to obtain a refund.

Hence, the only relevant order for the calculation of interest on refund under Section 244 is the order dated 9th November, 1964.

The contention of Mr. Joshi that the assessees became entitled to a refund pursuant to the order of the Tribunal dated 13th March, 1967, also cannot be accepted for the above reasons.

In fact, the order dated 13th March, 1967, in terms merely clarified the order of the AAC dated 18th October, 1960, and gave to the ITO a specific direction to complete the assessments of the partners on the basis of the returned income, which assessments he may modify later after the completion of the assessement of the firm.

The Tribunal, therefore, rightly came to the conclusion that the assessees were entitled to interest on the amounts refunded after the expiry of the period of six months from the order dated 9th November, 1964.

In this connection, a reference may be made to the case of Purshottam Dayal Varshney v. CIT .

The Allahabad High Court in this case has observed that as soon as the assessment order is set aside, the tax paid by the assessse under the assessment order becomes refundable to him.

No doubt, the ITO is entitled to withhold the refund with the previous approval of the Commissioner during the pendency of remand proceedings under the provisions of Section 241 of the I.T. Act.

But even in such a case, under the provisions of Section 244, Sub-section (2), interest becomes payable on the amount of refund ultimately determined to be due for the period commencing after the expiry of six months from the end of the month in which the order referred to in Section 241 is passed, to the date the refund is granted.

There is no dispute that the refund has not been withheld in the present case by the ITO under the provisions of Section 241.

The next question that arises for determination is whether the assessees had a right of appeal before the AAC against the order of the ITO not granting interest for the period of delay in granting refund.

Under the provisions of Section 246(1)(f) of the I.T. Act, an order under Section 154 or Section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under the said sections is an appealable order.

In the present case by his order dated 1 7th July, 1967, the ITO rectified the assessment of the partner under the provisions of Section 154 read with Section 155 of the I.T. Act.

By his order although he granted a refund, he did not grant any interest on the refund amount.

His order, therefore, had the effect of reducing the amount repayable to the assessees.

His order can, therefore, be construed as an order tinder Section 154 read with Section 155 of the I.T. Act, reducing the amount of refund payable to the partners.

In any case his order can also be construed as an order which refused to allow the assessees claim for interest on the refund amount to which they would have been entitled on the rectification made under these two sections.

Such an order of the ITO clearly falls within Section 246(1)(f) and is appealable.

Mrs. Jagtiani, who appears for the assessees in both the references, also urged that the order of the ITO dated 17th July, 1967, is appealable because it can also be construed as an order which can fall under Section 246, Sub-section ()(c) or Section 246, Sub-section (1)(n).

Since we have held that the order in question is covered by Section 246(1)(f), it is not necessary to examine these two additional contentions.

The last point that requires determination is whether it was open to the revenue to contend before the Tribunal for the first time that the assessees appeals before it were not tenable as the assessees had no right of appeal before the AAC.

Since we have held that the assessees had a right of appeal before the AAC from the order of the ITO dated 17th July, 1967, it is not strictly necessary to go into this question at all.

Our attention was, however, drawn to the observations of the Madras High Court in the case of Addl.

CIT v. Dalmia Magnesite Corporation 1979 117 ITR 930.

In that case the Madras High Court observed as follows (p. 937): It is a well-established principle that if an intermediary appellate authority purported to deal with a matter in appeal as if that intermediary authority had jurisdiction to deal with that appeal though in fact that authority had no jurisdiction to deal with the appeal, the order of that appellate authority would become appealable to a higher appellate authority.

It should, however, be pointed out that there is a distinction between cases where the court or tribunal inherently lacks jurisdiction and casts where the jurisdiction is exercised irregularly by courts or tribunals In Mullas Code of Civil Procedure, 13th edn.

, vol.

I, at p. 157 it is observed as follows: It is a fundamental rule that a judgment of a court without jurisdiction is a nullity.

Where by reason of any limitation imposed by statute, charter, or commission, a court is without jurisdiction to entertain any particular action or matter, neither the acquiescence nor the express consent of the parties can confer jurisdiction upon the court nor can consent give a court jurisdiction if a condition which goes to the jurisdiction has not been performed or fulfilled The right of appeal is a statutory right, and if the statute does not give a right of appeal in a given category of cases, then any judgment given in appeal ia such matters would be a nullity, and it would be possible for a party to point this out in a further appeal.

However, as we have held that an appeal to the AAC in the present case was competent, answering the question at issue would be academic.

It is, therefore, unnecessary to answer the question.

Under the circumstances, the questions which have been raised in these references are answered as under : Income-tax Reference Number 98 of 1971 : It is unnecessary to answer question Number 1, for the reasons which are set out in the judgment.

The assessee had a right of appeal to the AAC against the order of the ITO not granting interest to the assessee on the amount of refund for the period of delay in granting refund.

The assessee is entitled to interest on the amount of refund due to him for the period of delay after the expiry of six months from 9th November, 1964.

Income-tax Reference Number 194 of 1975 : Both the questions are answered in the affirmative, that is, in favour of the assessee and against the revenue.

The applicant in both these references to pay to each of the respondents herein the costs of these references.

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Mohta, J. Though the notices under sections 139(2) and 148 of the Income-tax Act and so also certain assessment orders passed by the income-tax authorities are challenged in this batch of petitions, the real controversy centres round a point whether the Market Committee as defined under section 2(j) of the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963 (APMC Act), is a local authority as contemplated under section 10(20) of the Income-tax Act (I.T. Act).

Section 10 which falls in Chapter III of the Income-tax Act gives a long list of incomes not included in total income.

One such category is to be found in section 10(20) which reads thus : the income of a local authority which is chargeable under the head Interest on securities, Income from house property, Capital gains or Income from other sources or from a trade or business carried on by it which accrues or arises from 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.

The term local authority is not defined under the Income-tax Act, with the inevitable result of the necessity of looking to the General Clauses Act, 1897 (GC Act), which gives the following definition of the term, vide section 3(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.

Very clearly, Market Committee is neither a municipal committee nor district board nor a body of port commissioners.

Is it (i) other authority and if yes, (ii) either entitled to or in fact entrusted by the Government with the control or management of a local fund, are the two issues.

The first unavoidable exercise would be to examine the scheme of the APMC Act which is the source of its life and existence.

Before the APMC Act was brought on the statute book, there operated in the field in various regions which now form the State of Maharashtra (a) Bombay Agricultural Produce Market Act, 1939, (b) The Central Provinces and Berar Agricultural Produce Market Act, 1935, and (c) The Hyderabad Agricultural Produce Market Act, 1939.

As a result of the States reorganisation, this consolidated legislation on the subject was brought about.

It repealed the enactments mentioned earlier, subject, of course, to the usual provisions in the repeal and saving clause contained in section 64.

Its preamble reads thus : Whereas it is expedient to regulate the marketing of agricultural and certain other produce in market areas and markets to be established therefor in the State to confer powers upon Market Committees to be constituted in connection with or acting for purposes connected with such markets to establish Market Fund for purposes of the Market Committees and to provide for purposes connected with the matters aforesaid It is hereby enacted in the Fourteenth Year of the Republic of India as follows.

Section 2 (g) defines local authority as including Panchayat Samiti.

Under section 4, the State Government is authorised to declare that the marketing of the agricultural produce specified in the notification shall be regulated under the APMC Act, in the specified area.

On issuance of such notification, local authorities, notwithstanding anything contained in any other law for the time being in force, are prohibited from establishing authorising, continuing or allowing to be established or continue any place in the market area for the marketing of that agricultural produce.

Section 5 provides for establishment of the principal market and subsidiary market in the area section 6 for regulation of marketing of agricultural produce section 7 for grant of licences section 8 for cancelling or suspending licences section 9 for filing an appeal in the matter section 10 for settling disputes between buyers, sellers or their agents including any disputes regarding the quality or weight of, or payment for any agricultural produce, or any matter connected with the regulation of marketing by a Board.

Section 11 deals with establishment of market committee.

Section 12 mentions that the market committee shall have perpetual succession and a common seal and may in its corporate name sue and be sued.

Section 13 gives the constitution of market committee and section 14 provides for election and terms of office of members.

Section 14A deals with the constitution of an election fund.

Section 29 enumerates the powers and duties of market committee.

Market committee is obliged to provide such facility for marketing of agricultural produce in the market as the director may from time to time direct and for that purpose may exercise such powers and perform such duties as are provided under the APMC Act.

Sub-section (2) of section 29 gives a list which by no means can be said to be exhaustive.

They include (i) regulation of entry of persons and vehicular traffic, (ii) settlement of disputes, (iii) prosecution for violation of the provisions of the Act and rules, (iv) maintenance of the market, (v) acquiring, holding or disposing of properties, (vi) collecting or maintaining information in respect of production, sale, storage, processing, prices and movement of agricultural produce, (vii) taking all possible steps to prevent adulteration and to promote grading and standardisation to enforce provisions of the APMC Act, Rules, bye-laws and conditions of licence, and (viii) to perform such other duties as may be prescribed from time to time.

Section 31 contains the power to levy fees and section 32 to take loans subject to certain conditions.

Section 34 deals with the settlement of the disputes regarding construction of rules, weights and measures notwithstanding anything contained in the Bombay Weights and Measures (Enforcement) Act, 1958.

Chapter VI deals with the market fund.

Section 36 provides that all money received by the market committee (barring the fees credited to the election fund under section 14A), all sums realised by way of penalty (excepting fine in a criminal case), all loans raised by the committee, all grants, loans or contributions made by the State Government to the Committee, etc., shall form part of a fund to be called the market fund, the amount to the credit of which can be kept or invested in such manner as may be prescribed.

Section 37 enumerates the purposes for which the said fund can be expended.

They include acquisition of sites for the market, maintenance of market, maintenance of standard weights and measures, salaries of servants, payment of interest on loan, collection and dissemination of information regarding matters relating to crop statistics, propaganda in favour of agricultural improvement and orderly marketing and payment of allowances to the members.

grant of donation to body conducting any educational or welfare activities for the benefit of the agriculturists on certain conditions and also for any other purpose but with the previous approval of the Government.

Section 38 makes the audit of the accounts, preparation of budget estimate, etc., mandatory.

Chapter VII deals with total prohibition against making or recovering any trade allowance in any market area in any transaction in respect of agricultural produce.

Section 45 provides for supersession of market committees in a given set of circumstances.

Section 45 (2) (b) mentions that in that event all property vested in the market committee shall vest in the State Government.

Section 54 mentions that the Chairman, the Vice-Chairman, the Members, the Secretary and other officers and servants of the Market Committee shall be deemed to be public servants within the meaning of section 21 of the Indian Penal Code.

The director or any officer authorised by him or any person authorised by the market committee alone can institute certain prosecutions in view of section 56.

Section 57 makes certain dues recoverable as an arrear of land revenue.

Section 60 is a rule-making power and section 61 deals with the making of bye-laws by the market committee.

Inter alia, the bye-law may provide that any contravention thereof may be punishable with a fine up to Rs. 100.

The case of Union of India v. R. C. Jain, , lays down the various tests for determining whether section 3(31) of the General Clauses Act is attracted or not (p. 952) : 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 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.

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.

The Market Committee clearly satisfies all these tests.

It is a body corporate having separate legal existence and autonomous status.

It is independent of the Government and operates in a defined area.

Its office-bearers are elected and are free to take their own policy decisions.

It performs governmental functions such as running market, providing civic amenities and doing civic duties.

It also performs judicial, legislative, executive and fiscal functions.

It can raise funds for its objects by levying fees, can raise loans and control and management of this fund vests in the Committee.

Clearly this is a local fund as envisaged by section 3(31) of the GC Act.

In this connection, useful reference may also be made to certain other relevant provisions.

The Bombay Local Fund Audit Act, 1930, defines local authority as well as local fund.

Local authority means local authority as defined under clause (26) of section 3 of the Bombay General Clauses Act, 1904 (BGC Act), and includes several institutions.

Local fund means any fund to the control or management of which the local authority is legally entitled and includes the proceeds of any cess, rate, duty or tax which such authority is legally entitled to impose and any property vested in such authority.

At this stage, it may be noticed that the definitions of the term local authority under the BGC Act and the GC Act are in pari materia.

The Maharashtra Treasury Rules, 1968, in clause 523, explains the term local fund thus : The expression local fund denotes (i) revenue administered by bodies which by the law or rule having the force of law come under the control of the Government, whether in regard to the proceedings generally or to specific matters such as the sanctioning of their budgets, sanction to the creation or filling up of particular appointments, the enactment of leave, pension or similar rules the revenue of any body which may be specially notified by the Government as such.

The Bombay Financial Rules, 1959, in clause 183, explains the term local fund thus : revenues administered by bodies which by law or rule having the force of law come under the control of the Government, whether in regard to the proceedings generally or to specific matters such as sanctioning of their budgets, sanction to the creation or filling up of particular appointments, the enactment of leave, pension or similar rules (2) the revenue of any body which may be specially notified by the Government as such.

The conclusion is thus inescapable that the petitioners have all the attributes of local authority as contemplated by section 10(20) of the Income-tax Act.

The authorities on the point are in abundance.

We quote a few.

In Patel Premji, Jiva v. State of Gujrat , the Supreme Court has held that the Market Committee constituted under the Gujarat Agricultural Produce Markets Act, 1963, is a local authority as defined under the GC Act.

The Andhra Pradesh High Court in the case of Budha Veerinaidu v. State of Andhra Pradesh , has held that the Market Committee under the Andhra Pradesh Agricultural Produce Market Act, 1966, is a local authority.

This decision was followed in the case of CIT v. Agricultural Market Committee .

There is yet one more aspect which deserves notice.

The Indian Income-tax Act, 1922, also had a pari materia provision and the market committees are functioning in various parts of the State since long before even the APMC Act was brought into force.

Despite this, till 1982, the Income-tax Department never questioned the market committees status as local authority.

It is not as if the matter had escaped its attention inadvertently.

As far back as on December 18, 1956, the Ministry of Revenue and Civil Expenditure, Government of India, had issued a D.O. letter bearing Number 5130 MRCE-56 reading as under : Will you please refer to letter regarding income of Agricultural Produce Committee in Bombay.

We have been advised that these committees are local authorities for the purposes of section 10(20) of the Income-tax Act.

Instructions have been issued to the income-tax authorities accordingly to examine the income in such committees and to consider in favour of the assessees, the appeals filed by them against assessments already made.

This communication was brought to the notice of the Income-tax Officer, Yeotmal, the respondent in Writ Petition Number 1520 of 1983.

It was not and is not being disputed before us that this is the last and final communication on the subject, from the Ministry of Revenue.

No doubt, this Circular is issued under the Indian Income-tax Act, 1922, but that makes no difference.

There are no inconsistent provisions in the Indian Income-tax Act, 1922, and the current Income-tax Act on the subject and as a result, the instructions will be deemed to have been issued under the present Act in terms of section 297 dealing with repeals and savings.

Section 119 of the Income-tax Act makes these instructions binding on the Department.

Useful reference may be made in this connection to the case of Addl.

CIT v. Sarvaraya Textiles Limited .

Shri Chandurkar, the learned counsel for the Department, in the first place contended that in view of the availability of an alternate remedy under the Income-tax Act, the petition should not be entertained at this premature stage.

Several authorities, in support of this submission, were also brought to our notice.

We do not think that this preliminary point can succeed.

The respondents have taken a positive stand in the matter and driving the petitioners to remedies under the Income-tax Act would be an exercise in futility.

A pure question of law having an impact on several public bodies is involved and the petitions are already admitted more than twelve months before.

Moreover, the existence of an alternate remedy is no bar to entertain a writ petition.

It is next contended that several decisions relied upon by the petitioners are not under the Income-tax Act and the ratio therein, therefore, cannot apply.

The submission has no merit for what fell for consideration there and what falls for consideration here is the same definition, namely, section 3(31) of the GC Act.

Equally devoid of merit is a submission that the scheme of the Gujarat Act is basically different from the APMC Act.

No doubt, the definitions of the term local authority in the two enactments are not exact.

Both are inclusive definitions and include Panchayat Samities.

The Gujarat definition additionally includes Corporations as well as Municipalities.

The other distinguishing feature is that in the Gujarat Act, there exists since inception a deeming provision in section 10(2) reading that A market committee shall be deemed to be a local authority within the meaning of clause (26) of section 3 of the Bombay General Clauses Act, 1904, (Bom I of 1904) and that in the APMC Act such a pro vision has been introduced only recently by the Maharashtra Act Number 10 of 1984, but these distinguishing features do not make any impact on the ratio laid down in several decisions referred to above as the basic scheme of the two enactments is very similar if not exact.

Our first impression about the Act Number 10 of 1984 is that it is merely explanatory in nature but the debate on the point for the reasons already mentioned is unnecessary.

The respondents contend that the fund which is built up only on the basis of the fees and not taxes cannot be termed as a local fund.

Difference between a tax and a fee is well known.

Quid pro quo which is the basis of valid fees is absent in taxes.

Compulsion is not the sole or even material criterion for distinguishing fee from taxs is held in Municipal Corporation of Delhi v. Mohd. Yasin 1983 142 ITR 737 (SC)), on which reliance was placed by the respondents but we fail to see how that aspect has any bearing on the point at issue.

What is material is that there is authority and there is power to raise money by permissible mode of exaction.

Reliance was placed on certain observations in R. C. Jains case, .

We are clear that the word taxation is used in the sense of imposition and not taxes as such.

Equally untenable is the submission that the market committee does not perform any governmental functions.

Reasons need not be repeated.

Our attention was invited to the case of Calcutta State Transport Corporation v. CIT , which Road Transport Corporation under the Road Transport Corporations Act, 1950, as amended by the Road Transport Corporations (West Bengal Amendment) Act, 1959, was held not to be a local authority within the meaning of section 10(20) of the Income-tax Act.

In that case, the scheme of the Transport Corporations Act had been considered and it was held that the Corporation neither per-forms any governmental function nor has a local fund.

Hence, that case renders no support to the stand of the respondents.

To conclude, the petitions are allowed and the rules are made absolute to the extent that the petitioners are local authorities in terms of section 10(20) of the Income-tax Act.

There are no total exemptions to local authority.

Certain incomes are taxable.

Needless to mention that the respondents are free to issue notices or assess the income on the basis of they being a local authority.

There shall, under the circumstances, be no order as to costs.

Needless to mention that securities or guarantees, if furnished by the petitioners, stand discharged.

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P. Devadhar, J. Heard learned counsel on both sides.

Rule made returnable forthwith.

By consent of the parties, the petition is taken up for final hearing.

In this petition, the petitioner has challenged two notices issued under Section 148 of the IT Act, 1961 relating to the asst.

1996-97 and 1997-98.

The petitioner is engaged in the business of manufacture of various abrasives.

In the returns of the income filed for the respective assessment years, the petitioner had claimed relief under Sections 80-I and 80-IA of the IT Act, 1961 (hereinafter called as the said Act).

During the course of the assessment proceedings, the AO issued notices under Section 143(2) of the said Act calling upon the petitioner to give further particulars regarding the claim filed under Sections 80-I and 80-IA of the said Act.

The assessee from time to time furnished the particulars and in the note relating to bond plant (p. 65 of the petition), it was submitted that the assessee had started the bond plant in the year 1991-92 for the manufacture of various bonds which are used in the manufacture of grinding wheels.

It was stated that the bonds are major raw material for the manufacture of grinding wheels, because it is these bonds that hold the abrasive grains together in a grinding wheel.

It was also stated that before the assessee started its own bond plant, it used to import these bonds from Norton Company, USA.

It was stated that Section 80-IA of the said Act postulates that where products manufactured by the manufacturing unit are used for internal consumption, the profit for the purpose of 80-IA has to be calculated based on the market value of the products manufactured by the unit.

It was stated that the market value of the various bonds has been calculated by the assessee as follows : In respect of bonds which are developed by Grindwell Norton Limited, we have been successful to export the same to Dubai Singapore and in respect of these bonds, we have considered the export price as the market value of the bonds.

We enclose copies of export invoices giving the export prices of these bonds.

Other bonds are not sold to any outsider in India as a matter of strategy, and because of stringent secrecy requirements.

The company, therefore, has considered the Norton Company price as the market value of these bonds.

We have obtained price list of Norton Company, a copy of which is enclosed.

If the bonds were to be imported into India by any person, including your assessee, this is the price which the said product would cost.

Accordingly, the assessee submitted before the AO that it has rightly considered the import export price as the market value of the bonds manufactured in the bond plant.

The AO being satisfied with the explanation given by the assessee, passed the assessment order granting relief under Section 80-IA of the said Act as claimed by the assessee.

After lapse of four years from the end of the relevant assessment year, the impugned notices dt.

25th March, 2003, were issued under Section 148 of the said Act seeking to reopen the assessment for the asst.

1996-97 and 1997-98.

Challenging the said notices, the present petition is filed.

During the course of hearing, counsel for the Revenue furnished reasons for reopening the assessment.

Mr. Pardiwala, learned counsel appearing on behalf of the petitioner, submitted that in the reasons recorded for reopening the assessment, nowhere it is stated that there is failure on the part of the assessee in disclosing any material.

It was submitted that where there is no failure on the part of the assessee to disclose fully and truly all material facts, the assessment sought to be reopened after lapse of four years from the end of the relevant assessment year, cannot be sustained.

He relied upon the decisions of this Court in the case of IPCA Laboratories Ltd v. Gajanand Meena, Dy.

CIT and Ors.

(2001) 251 ITR 416 (Bom) and in the case of Bhor Industries Limited v. Asstt.

CIT and Ors.

Accordingly, it was submitted that the impugned notices issued by the AO are without jurisdiction and are liable to be quashed and set aside, Mr. Desai, the learned senior advocate appearing on behalf of the respondents raised a preliminary objection regarding the maintainability of the petition in the light of the judgment of the apex Court in the case of GKN Driveshafts (India) Limited v. ITO and Ors.

(2003) 259 ITR 19 (SC).

According to the learned advocate, on receipt of the notices issued under Section 148 of the said Act and on furnishing the reasons for reopening the assessment, it was obligatory on the part of the assessee to file objections to the issuance of notice before the AO and make submissions regarding the issuance of show-cause notice, and only after the AO passes a speaking order regarding the objection raised by the assessee.

Writ petition could be filed if at all the assessee is aggrieved by the order of the AO.

Mr. Desai further submitted that from the reasons recorded for reopening of the assessment, it is clear that in the relevant assessment years, the assessee had failed to disclose material facts as a result, income liable to tax has escaped assessment and accordingly, the AO was justified in reopening the assessment.

Thus, it was submitted that no interference is called for in a writ jurisdiction under article 226 of the Constitution of India.

We have heard learned counsel on both sides.

As regards the preliminary objection raised on behalf of the respondents, this Bench in the case of Ajanta Pharma Limited v. Asstt.

CIT, bearing Writ Petition Number 1705 of 2003/decided on 29th Nov., 2003 has held that the decision of the apex Court in GKNs case (supra) does not lay down any proposition of law that in no circumstances the writ petition against the issuance of notices under Section 148 of the said Act can be entertained.

Accordingly, there is no merit in the preliminary objection raised on behalf of the respondents.

Now turning to the facts of the present case, from the reasons recorded for reopening of the assessment, it is clear that the sole reason for reopening of the assessment is the net profit at 17 per cent of the total costs adopted by the AO for the asst.

yr, 2000-01.

Nowhere in the reasons recorded by the AO, it is stated that there is a failure on the part of the assessee to disclose material facts in the return filed by the assessee.

It is not in dispute that in the present case, reopening of the assessment is beyond the period of four years from the end of the relevant assessment year.

This Court in the case of IPCA Laboratories (supra) and Bhor Industries Limited (supra), has held that if one reads Expln.

2 to Section 147 including the proviso thereto, then it is clear that the cases where the Department reopens assessment within a period of four years, it can do so on the ground of income having escaped assessment even if there is no failure on the part of the assessee to disclose fully and truly all material facts.

However, in the cases of reopening after four years, the AO must have reason to believe that the income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts.

It is held that the Expln.

2 cannot be read without reading the proviso to Section 147 of the said Act.

Applying the ratio laid down in the aforesaid cases, it is clear that in the present case, in the absence of any failure on the part of the assessee to disclose fully and truly all material facts, the reopening of the assessment beyond the period of four years cannot be sustained.

Accordingly, the petition succeeds.

Rule is made absolute in terms of prayer (a).

However, there will be no order as to costs.

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Rule, returnable forthwith.

Heard finally by consent of parties.

In this petition, the petitioner is challenging the notice dt.

31st March, 2005, issued by respondent Number 1 for reopening assessment for the asst.

1998-99, under Section 148 of the IT Act, 1961 (Act for short).

Facts : The petitioner is a co-operative society registered under the Maharashtra Cooperative Societies Act, 1960.

It carries on business of dairy and allied products at Warnanagar, taluka-Panhala, district-Kolhapur.

The petitioner had filed its return of income for the asst.

On 22nd Sept., 2000, the respondent Number 1 issued notice under Section 143(2) read with Section 142(1) of the Act calling upon the petitioner to furnish necessary details.

The petitioner, accordingly, supplied all details asked for and complied with the said notice dt.

22nd Sept., 2000.

The respondent Number 1 vide assessment order dt.

2nd Jan., 2001 concluded the assessment after taking into consideration all the relevant material sought by him and disclosed by the petitioner.

The respondent Number 1, on 31st March, 2005, issued notice under Section 148 of the Act seeking to reopen the concluded assessment of the petitioner for the asst.

The petitioner vide its letter dt.

16th May, 2005 called upon the respondents to disclose the reasons recorded for reopening the assessment before issuing notice under Section 148 of the Act.

The respondents failed to furnish said reasons.

Consequently, left with no other alternative, the petitioner invoked writ jurisdiction of this Court under Article 226 of the Constitution of India.

On being noticed, the respondents appeared and filed their counter-affidavits wherein they disclosed the reasons recorded prior to issuing notice dt.

31st March, 2005.

The said reasons read as under : Assessee is a co-operative society and engaged in procurement of milk and sale of milk and milk products.

The assessee-society purchases milk from primary co-operative societies and are paying regularly for the purchase of the milk from the supplier on the basis of fat content of the milk.

The assessee in its annual report for the financial year 1997-98 relevant to asst.

1998-99 has mentioned that it has made provision of Rs. 7,69,40,091 for final bill of the purchase of milk.

But it has not mentioned how it has arrived at the said provision of Rs. 7,69,40,091.

It appears that provision of final bill was out of profit and not as business consideration.

Whether the payment was made on account of quality or quantity of milk or comparable market price of milk or whether there was sufficient cause to make higher payment to milk producers than actual market price is not clear.

This fact was neither examined by the then AO nor any details were filed by the assessee while assessment proceeding was going on.

I have, therefore, reason to believe that amount of provision supposed to be paid to the producers is a mere division of profit rather than allowable business expenditure and hence the income chargeable to tax to the extent of Rs. 7,69,40,091 has escaped assessment within the meaning of Section 147 of the IT Act, 1961.

Rival contentions : The learned Counsel for the petitioner contends that notice issued under Section 148 of the Act is barred by limitation in view of proviso to Section 147.

He further submits that nowhere in the reasons recorded it is stated that the petitioner -assessee had failed to disclose fully and truly all material facts necessary for the assessment for the assessment year in question, as such, the AO did not have jurisdiction to reopen the concluded assessment that too after expiry of four years from the last day of the relevant assessment year, i.e., 1998-99.

He, thus, submits that the notice under Section 148 cannot be held to be within limitation and is liable to be set aside.

On merits learned Counsel for the petitioner submits that all the relevant evidence with material facts necessary for assessment for the assessment year in question were fully and truly disclosed to the AO.

He further submits that along with return, documents or information as sought were furnished so as to enable the AO to complete the assessment under Section 143(3) of the Act.

Learned Counsel for the petitioner in support of his submission relied upon various judgments of this Court like Hindustan Lever Limited v. V.K. Pandey, Jt.

CIT and Caprihans India Limited v. Prakash Chandra .

Per contra, Mr. Rao appearing for the Revenue tried to contend that alternate remedy is open to the petitioner wherein the petitioner can raise objections before the AO and the AO can be directed to decide those objections raised by the petitioner before proceeding with the assessment.

He further submits that so far as merits of the case are concerned, the same can be dealt with by the AO.

As such the petitioner be directed to appear before the AO with liberty to raise objections as canvassed hereinabove.

Mr. Rao sought to place reliance on the judgment of the apex Court in the case of GKN Driveshafts (India) Limited v. ITO and Ors.

(2003) 259 ITR 19 (SC).

In rejoinder, learned Counsel for the petitioner placed reliance on the judgment of this Court in the case of Ador Technopack Limited v. Dr. Zakir Hussein, Dy.

CIT to contend that the petitioner should not be relegated to the alternate remedy considering the admitted fact that the notice under Section 148 is (admittedly) beyond the period of limitation.

He, thus, submits that no useful purpose would be served by relegating the petitioner to the alternate remedy.

Consideration : Having heard rival parties, we are of the opinion that this petition can be disposed of on the first contention raised by the petitioner.

The petitioner has contended that from the reasons recorded it is evident that there was no failure on the part of the assessee to disclose fully and truly all material.

facts and, therefore, the reopening of the assessment beyond the period of four years is bad in law.

If there is no failure on the part of the assessee to disclose fully and truly all material facts, then, under proviso to Section 147 of the Act, the assessment cannot be reopened beyond the period of four years.

The petitioner has rightly relied upon the judgment of this Court in the case of Hindustan Lever Limited v. R.B. Wadkar 2004 (3) Mh.

L.J. 517 wherein this Court has held as under : It is for the AO to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year.

It is for the AO to form his opinion.

It is for him to put his opinion on record in black and white.

The reasons recorded should be clear and unambiguous and should not suffer from any vagueness.

The reasons recorded must disclose his mind.

Reasons are the manifestation of mind of the AO.

The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons.

Reasons provide link between conclusion and evidence.

The reasons recorded must be based on evidence.

The AO, in the event of challenge to the reasons, must be able to justify the same based on material available on record.

He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence.

That vital link is the safeguard against arbitrary reopening of the concluded assessment.

The reasons recorded by the AO cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.

Impugned notice quashed.

(Emphasis, italicised in print, supplied) The aforesaid observations of this Court while interpreting the proviso to Section 147 of the Act are fully applicable to the case at hand.

The impugned notice is admittedly beyond the period of limitation prescribed under the proviso to Section 147 of the Act and in the absence of any material to show that there was failure on the part of the assessee to disclose fully and truly all materials, such notice must be held to be barred by limitation.

The same is, therefore, liable to be quashed and set aside.

On this ground alone the petition succeeds.

Since the petitioner is entitled to succeed on this ground alone, the other contentions raised by the petitioner need no consideration.

In the result, the impugned notice dt.

31st March, 2005 issued under Section 148 of the Act is quashed and set aside.

Petition is allowed.

Rule made absolute in terms of prayer Clause (a) with no order as to costs.

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