1. The asscssec in appeal is Hawalbagh Panchayat Udyog, Almora, assessed in the status of an 'Association of Persons' (AOP). The year of the assessment involved is 1978-79 for which the previous year ended 31-3-1978.
2. In the course of its assessment for the year under consideration, the stand of the assessee was that its income was exempt under Section 10 (20 A) of the Income-tax Act, 1961 ('the Act'), inasmuch as the assessec-udyog was an authority constituted by or under the UP Panchayat Raj Act, 1947 ('the 1947 Act') and its income being for the purposes of planning and development of gaon sabhas' who constituted the membership of the assessee-udyog. This stand of the assessee has been rejected both by the ITO and the AAC on the ground that neither the assessee is an authority constituted in India by or under the authority of any law nor was its income earmarked for the purposes of planning, development or improvement of the villages.
3. In the appeal before the Tribunal the learned counsel for the assessee, Mr. Agnihotri, took the Tribunal through the scheme of the 1947 Act as disclosed by the preamble thereto and the provisions of Sections 2, 3, 15, 16, 17, 18, 19, 19A, 20 and 30 and urged that the assessee-udyog was a joint committee of more than two gaon sabhas by virtue of a written instrument. Shri Agnihotri also took the Tribunal through Section 31 and the rules made under the 1947 Act, more particularly Rules 53 to 57 as also the approved bye-laws of the assessee-udyog at pages 18 to 28 of the paper book filed by the assessee. On the strength of the aforesaid provisions, it was urged that the income in question of the assessee-udyog, which was constituted by or under the 1947 Act enacted for the purpose of planned development of the villages of the gaon sabhas who are the members thereof, was exempt under Section 10(20A). These arguments are controverted by the departmental representative, who has relied on the orders of the tax authorities.
4. We have given consideration to the above arguments. Section 10(20A) lays down that any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, was exempt. To put in other words the following two conditions must be satisfied, to claim the exemption under Section 10(20A), namely: (i) the income should be of an authority constituted in India by or under any law and (ii) that the law in question should be enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both.
The short point for decision in this appeal is as to whether these conditions are satisfied in the present case. The stand of the revenue is that these conditions arc not satisfied. According to the assessee, these conditions are satisfied.
5. The assessee has been set up by virtue of Section 30 of the 1947 Act which lays down that subject to such rules as may be prescribed, two or more 'gaon sabhas' may combine by means of written instrument to appoint a joint committee consisting of their representatives for the purpose of transacting any business in which they are jointly interested and may- (a) delegate to such committee power, with such conditions as they may think proper to impose, to frame any scheme binding on each gaon sabha as to the construction and maintenance of any joint work and as to the power which may be exercised by any such sabha in relation to such scheme; and (b) frame or modify rules regarding the continuation of such committee and the term of office of members thereof and the method of conducting proceedings and correspondence.
It may be added over here that the 1947 Act was enacted, as is clear from the preamble thereof, to establish and develop local self-government in the rural areas of UP and to make better provision for village administration and development. The scheme of the 1947 Act, as disclosed in the provisions relied upon by the learned counsel for the assessee, is that under Section 3(1) the State Government shall by notification in the Official Gazette establish a gaon sabha for a village or group of villages. Section 4 lays down that every gaon sabha shall, by the name notified in the Official Gazette under Section 3 be a body corporate having perpetual succession and a common seal. Section 5 Jays down details regarding the membership of the gaon sabha. Section 12 details the constitution of the gaon panchayat. Section 15 lays down the powers, duties and functions as well as the administration of gaon panchayat, including construction, repair, maintenance, cleansing and lighting of public streets, construction, repair and maintenance of public wells, tanks and ponds for the supply of water for drinking purposes, washing and bathing purposes and regulation of sources of water supply for drinking, regulating the construction of a new building or the extension or alteration of any existing building, assisting the development of agriculture, commerce and industry, the administration of civil and criminal justice, allotment of places for storing manure and for tanning and curing of hides, the maintenance and control of class I and Kaiser-I-Hind forests, waste land, water channels and drinking places in the hill patties of the Kumaon Division; construction, repair and maintenance of such small irrigation projects of such classes or types thereof as may be specified by the State Government by general or special order in this behalf, etc.
Section 16 details the discretionary functions of a gram panchayat, namely, planting and maintaining trees at the side of public streets and in other places; improved breeding and medical treatment of cattle and prevention of disease in them; filling in of insanitary depressions and levelling of land; development of co-operation and establishment of improved seed and implement stores; extension of 'abadi' and provision for house sites for weaker section of the public and any other measure of public utility calculated to promote the moral and material well-being or convenience of the villagers, etc., etc. Section 17 lays down the powers of gaon panchayats as to public streets, water-ways and other matters. Section 18 empowers a gram panchayat with various powers pertaining to the improvement of sanitation, etc. Section 19 deals with the powers of a gram panchayat in the matter of maintenance and improvement of schools and hospitals. Section 19A details the powers to require compulsory labour in certain cases. Section 20 details the powers of establishment of primary school, hospital, dispensary, road or bridge for a group of gaon sabhas. To put in other words, the above provisions bring out the duties and obligations of a gram panchayat in the matters dealing with/for the purpose of planning, development or improvement of the village(s) within the jurisdiction of a gaon sabha.
Under Section 31, it is laid down that all duties and powers of a goan panchayat except those specified in Chapter III (Sections 30 and 41) shall be exercised, performed or discharged by the gaon panchayat and not otherwise.
6. This takes us to Section 30 which has already been reproduced above.
Pursuant to the powers conferred on two or more gaon sabhas under Section 30, the assessee-udyog was brought into existence by virtue of the agreement amongst 31 gaon sabhas, namely Madena, Mand, Mal, Chinora, Dangibala, etc., detailed at: (a) in the bye-laws of the udyog at page 18 of the paper book. As envisaged in Section 30, the assessee-udyog, pursuant to the powers conferred on the gram panchayats concerned, has been appointed and constituted by the gaon sabhas concerned by means of a written instrument. Since the assessee-udyog has come into existence by virtue of a written instrument amongst the aforesaid gaon sabhas, who are so empowered to constitute the assessee-udyog joint committee, the assessee-udyog is an authority constituted in India under the 1947 Act. We say so because but for the authority conferred on two or more gaon sabhas under Section 30 to bring into existence a joint committee like the assessee-udyog by means of written instrument amongst the gaon sabhas concerned, the assessee would have never come into existence. May be the gaon sabhas concerned have entered into a written instrument to constitute the assessee-udyog yet the source of power of the gaon sabhas concerned to constitute the assessee-udyog is derived from Section 30 and so the assessee-udyog is an authority constituted in India under the 1947 Act. As already stated, Section 30 has been reproduced above. On going through the bye-laws of the assessee-udyog, we find that amongst others the aims and objects of the assessee-udyog is to endeavour the all-round development of the block area and provide proper organisation for the same. The area of the block of the assessee-udyog is the area of all the gaon sabhas, who have joined hands together to bring into existence the assessee-udyog. The aims and objects of the assessee-udyog are at SI. No. 3 of the bye-laws of the assessee-udyog. These bye-laws bring out the functions of the assessee, the manner in which the assessee is to be managed, the term of the assessee-udyog, its office-bearers, functions of the assessee, etc. Since one of the aims and objects of the assessee-udyog is to endeavour all-round development of the block area as brought out above, it can be safely said that this aim and object of the assessee-udyog is wide enough for us to hold that the assessee-udyog has been constituted in India under the 1947 Act for the purpose of planning, development or improvement of the villages within its block area. Further keeping in view the said bye-laws as also the preamble of the 1947 Act and the powers of the gaon panchayat, brought out by us above, the assessee-udyog is an authority constituted in India under law for the purpose of planning, development and/or improvement of villages in its block. That being the position, the income of the assessee-udyog being within the four corners of Section 10(20A) is exempt from tax. We hold likewise.