Vildirect: IncomeTax-caselaws-2008-VIL-579-MP-DT

2008-VIL-579-MP-DT

Equivalent Citation: [2009] 308 ITR 380 (MP)

MADHYA PRADESH HIGH COURT

11 to 51 of 2007

Date: 08.01.2008

COMMISSIONER OF INCOME-TAX

KRISHI UPAJ MANDI SAMITI (NO. 1)

R. D. Jain D. P. S. Bhadoriya and Rajmani Bansal for the appellant
T. C. Singhal, M. P. S. Raghuvanshi and S. P. Jain for the respondents.

BENCH

S. SAMVATSAR and SANJAY YADAV JJ.

JUDGMENT

The Judgment of the court was delivered by

S. SAMVATSAR J.- This common Judgment shall govern the disposal of the following connected appeals. Misc. Appeal (IT) 12 of 2007 shall be the lading case.

Misc. Appeal (IT) 11/2007 CIT v. Krishi Upaj Mandi Samiti, Kailaras.

Misc. Appeal (IT) 13/2007 CIT v. Krishi Upaj Mandi Samiti, Ambah.

Misc. Appeal (IT) 14/2007 CIT v. Krishi Upaj Mandi Samiti, Porsa.

Misc. Appeal (IT) 15/2007 CIT v. Krishi Upaj Mandi Sarniti, Sabalgarh.

Misc. Appeal (IT) 16/2007 CIT v. Krishi Upaj Mandi Samiti, Joura.

Misc. Appeal (IT) 17/2007 CIT v. Krishi Upaj Mandi Samiti, Mehgaon

Misc. Appeal (IT) 18/2007 CIT v. Krishi Upaj Mandi Samiti, Lahar.

Misc. Appeal (IT) 19/2007 CIT v. Krishi Upaj Mandi Samiti, Bhind.

Misc. Appeal (IT) 20/2007 CIT v. Krishi Upaj Mandi Samiti, Alampur.

Misc. Appeal (IT) 21/2007 CIT v. Krishi Upaj Mandi Samiti, Mau.

Misc. Appeal (IT) 22/2007 CIT v. Krishi Upaj Mandi Samiti, Gohad.

Misc. Appeal (IT) 23/2007 CIT v. Krishi Upaj Mandi Samiti, Rannod District Shivpuri.

Misc. Appeal (IT) 24/2007 CIT v. Krishi Upaj Mandi Samiti, Karera, District Shivpuri.

Misc. Appeal (IT) 25/2007 CIT v. Krishi Upaj Mandi Samiti, Shivpuri, District Shivpuri.

Misc. Appeal (IT) 26/2007 CIT v. Krishi Upaj Mandi Samiti, Vijaipur, District Sheopur Kalan.

Misc. Appeal (IT) 27/2007 CIT v. Krishi Upaj Mandi Samiti, Khaniyadhana, District Shivpuri.

Misc. Appeal (IT) 28/2007 CIT v. Krishi Upaj Mandi Samiti, Magroni, District Shivpuri.

Misc. Appeal (IT) 29/2007 CIT v. Krishi Upaj Mandi Samiti, Sheopur Kalan.

Misc. Appeal (IT) 30/2007 CIT v. Krishi Upaj Mandi Samiti, Khatora, District Shivpuri.

Misc. Appeal (IT) 31/2007 CIT v. Krishi Upaj Mandi Samiti, Kolaras, District Shivpuri.

Misc. Appeal (IT) 32/2007 CIT v. Krishi Upaj Mandi Samiti, Baroda, District Sheopur Kalan.

Misc. Appeal (IT) 33/2007 CIT v. Krishi Upaj Mandi Samiti, Pichhore, District Shivpuri.

Misc. Appeal (IT) 34/2007 CIT v. Krishi Upaj Mandi Samiti, Badarwas, District Shivpuri.

Misc. Appeal (IT) 35/2007 CIT v. Krishi Upaj Mandi Samiti, Bhander, District Datia.

Misc. Appeal (IT) 36/2007 CIT v. Krishi Upaj Mandi Samiti, Isagarh, District Guna.

Misc. Appeal (IT) 37/2007 CIT v Krishi Uipaj Mandi Samiti, Guna

Misc. Appeal (IT) 38/2007 CIT v. Krishi Upaj Mandi Samiti, Binaganj.

Misc. Appeal (IT) 39/2007 CIT v. Krishi Upaj Mandi Samiti, Dabra, District Gwalior.

Misc. Appeal (IT) 40/2007 CIT v. Krishi Upaj Mandi Samiti, Piprai

Misc. Appeal (IT) 41/2007 CIT v. Krishi Upaj Mandi Samiti, Mungaoli.

Misc. Appeal (IT) 42/2007 CIT v. Krishi Upaj Mandi Samiti, Maksudangarh.

Misc. Appeal (IT) 43/2007 CIT v. Krishi Upaj Mandi Samiti, Lashkar, District Gwalior.

Misc. Appeal (IT) 44/2007 CIT v. Krishi Upaj Mandi Samiti, Aron.

Misc. Appeal (IT) 45/2007 CIT v. Krishi Upaj Mandi Samiti, Pohri District Shivpuri.

Misc. Appeal (IT) 46/2007 CIT v. Krishi Upaj Mandi Samiti, Ashoknagar.

Misc. Appeal (IT) 47/2007 CIT v Krishi Upaj Mandi Samiti, Datia

Misc. Appeal (IT) 48/2007 CIT v. Krishi Upaj Mandi Samiti, Seondha, District Datia.

Misc. Appeal (IT) 49/2007 CIT v. Krishi Upaj Mandi Samiti, Raghogarh.

Misc. Appeal (IT) 50/2007 CIT v. Krishi Upaj Mandi Samiti, Shadora. and

Misc. Appeal (IT) 51/2007 CIT v. Krishi Upaj Mandi Samiti, Kumbhraj

2. The aforesaid appeals filed by the Income-tax Department under section 260A of the Income-tax Act, 1961 (in short "the IT Act) challenging the common order dated March 29, 2007, passed by the Income-tax Appellate Tribunal, Agra, whereby the appeals filed by different krishi upaj mandi samitis challenging the order of the Commissioner of Income-tax refusing to grant exemption certificate under section 12AA(1)(b)(ii) of the Income-tax Act was allowed.

3. Brief facts of the case are that respondent, krishi upaj mandi samiti is established under section 7 under the provisions of M. P. Krishi Upaj Mandi Adhiniyam, 1972. Powers and functions of the said market committees are under section 19 of the said Adhiniyam which empowers the market committee to collect market fee from the agricultural produce brought and sold in the market area. The powers to levy market fee is provided under section 19 of the Adhiniyam. Section 38 provides for constitution of market committee fund, and all the moneys received by the committee is paid into a fund called market committee fund. Section 39 of the Adhiniyam provides for application of the committee fund and as per the said provisions, the funds can be utilised only for the purposes laid down under section 39, which are as under:

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

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

(iii) the construction and repairs 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 payments and contributions towards provident fund, pension and gratuity of the officers and servants employed by a market committee;

(vi) 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;

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

(viii) (a) the expenses incurred in auditing the accounts of the market committee;

(b) payment of honorarium to chairman, travelling allowance of chairman, vice-chairman and other members of the market committee and sitting fees payable to member for attending the meeting.

(d) meeting any expenditure for carrying out order of the State Government and any other work entrusted to market committee under any ether Act,

(e) contribution to any scheme for increasing agricultural production and scientific storage,

(f) to develop necessary infrastructure within a radius of one kilometre from the market yard/sub-market yard for facilitating the flow of notified agricultural produce with the prior sanction of the director and with the prior permission of the local authority concerned for using their land for this purpose;

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

(h) payment of expenses on elections under this Act.

(ix) any other purpose whereon the expenditure of the market committee fund is in the public interest, subject to the prior sanction of the State Government.

4. The respondent-market committees filed applications for registration under sections 12A and 12AA of the Income-tax Act.

5. These market committees were exempted under section 10, clause (20) pf the Income-tax Act which provides for exemption to the local authorities from payment of income-tax. The market committee being a local authority by virtue of section 7(3) of the Adhiniyam was exempted from payment of income-tax by virtue of clause (20) of section 10 and section 10(29) of the Act up to April 1, 2003. On April 1, 2003, an amendment was introduced and Explanation to sub-section (20) of section 10 was added. By adding of the Explanation, the words "local authority" was defined for the purpose of the Income-tax Act and as per the Explanation, only four types of local authorities, i.e., panchayats, municipalities, municipal committees and cantonment boards were included in the Explanation. Thus, the definition of local authority is restricted only for the aforesaid local authorities for the purpose of section 10(20) of the Income-tax Act.

6. Simultaneously, while adding the same Explanation, sub-section (29) of section 10 was omitted with effect from April 1, 2003. The said omitted sub-section (29) reads as under:

"In the case of an authority constituted under any law for the time being in force for the marketing of commodities, any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities."

7. Thus, due to omission of sub-clause (29), the exemption of market committee from payment of tax was withdrawn. In view of these amendments, the Commissioner rejected the application for registration under sections 12A and 12AA of the Income-tax Act. This order was challenged by the marketing committees by filing an appeal before the Tribunal and those appeals were allowed by the impugned judgment, hence the present appeals.

8. The present appeals are admitted for final hearing on the following substantial two questions of law:

"(1) Whether the Income-tax Appellate Tribunal was justified in directing the Commissioner of Income-tax to permit the registration of the respondent/assessee under section 12AA of the Income-tax Act without considering the omission of sub-section (29) of section 10 of the Income-tax Act with effect from April 1, 2003?"

"(2) Whether in the light of omission of sub-section (29) of section 10, the respondent-krishi upaj mandi samiti. is entitled to exemption of certificate under section 12AA of the Income-tax Act without examining whether the respondent-krishi upaj mandi samiti falls within the definition of the 'local authority' ?"

9. Mr. R. D. Jain, senior counsel submitted that only those assessees are entitled to registration under sections 12A and 12AA of the Income-tax Act who are entitled to exemption under sections 11 and 12 of the Act. For this purpose, he has referred to sections 12A and 12AA of the Income-tax Act which read as under:

"12A. Conditions as to registration of trusts, etc.- The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely : -

(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the first day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA:

Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,-

(i) from the date of the creation of the trust or the establishment of the institution if the Commissioner is, for reasons to be recorded in writing, satisfied the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;

(ii) from the first day of the financial year in which the application is made, if the Commissioner is not so satisfied:

(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds fifty thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

12AA. Procedure for registration. - (1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) of section 12A, shallâ

(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he-

(i) shall pass an order in writing registering the trust or institution;

(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution,

and a copy of such order shall be sent to the applicant:

Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard............

(2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) of section 12A.

(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:

Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard."

10. Mr. R. D. Jain, appearing for the appellant vehemently urged that the impugned judgment passed by the Tribunal is contrary to law. The Tribunal has not properly considered the effect of the amendment in section 10(20) and omission of section 10(29) of the Act. He submitted that prior to the amendment, the local authority included the words "market committee" and were no doubt entitled to exemption but after the amendment they are neither entitled to exemption nor for registration under section 12A or 12AA of the Income-tax Act.

11. In reply to these arguments, Shri T. C. Singhal, learned counsel for the market committees submitted that the market committees are local authorities within the meaning of section 7(3) of the Adhiniyam which lays down that:

"Notwithstanding anything contained in any enactment for the time being in force, every market committee shall, for all purposes, be deemed to be a local authority."

12. He, therefore, contented that even after adding the Explanation in sub clause 20, the market committee still continues to be local authority for all the purpose and is, therefore, entitled to exemption. In alternate, he contented that even if it is held that market committees are not entitled to exemption under section 10, still the market committee is entitled to exemption under sections 11 and 12 or any other provisions of the Income-tax Act and, therefore, merely because section 10 is amended, market committees cannot be deprived of the benefit available to it under sections 11 and 12 of the Act.

13. The hon'ble apex court in case of State of M. P. v. Krishi Upaj Mandi Samiti [1998] 8 SCC 430 after considering the provisions of section 7(3) of the Adhiniyam rejected the contention of market committee and held that the Explanation for all the purposes under section 7(3) will apply to other Acts. In the aforesaid case, the apex court was considering the liability of the marketing committee to pay tax under the M. P. Nagriya Sthawar Sampatti Kar Adhiniyam, 1964.

14. The Punjab and Haryana High Court has considered the said question in its judgment in the case of CIT v. Market Committee [2007] 294 ITR 563 (P&H), held that (page 577):

"It is not possible for us to accept that section 10(20) of the Income-tax Act, after the same came to be amended so as to exclude 'local authority' from the benefit of tax exemption would render the market committees ineligible for the exemption under other provisions of the Income-tax Act. Although market committees are not entitled to (or eligible for) tax exemption under section 10(20) of the Income-tax Act, yet a claim of exemption is still open to consideration under an alternate provision if made out."

15. Thus, the Punjab and Haryana High Court has held that market committees are not entitled for exemption under section 10.

16. Another judgment on this issue is the judgment of the Delhi High Court in the matter of Agricultural Produce Market Committee v. CIT [2007] 294 ITR 549. In that case, the Delhi High Court has held that section 10(20) of the Income-tax Act, 1961, was amended with effect from April 1, 2003, and Explanation was added to. The most striking feature of the Explanation is that it provides an exhaustive meaning of the expression "local authority". The word "means" used in the Explanation leaves no scope for addition of any other entity as a "local authority" to those listed in the Explanation.

17. Thus, it is clear that market committees are not entitled for exemption under section 10(20) of the Act after April 1, 2003.

18. Now the question is whether the market committee is entitled for exemption under some other provision of the Income-tax Act?

19. Learned counsel for the market committees submitted that they are entitled for exemption under section 11(1)(a). Section 11(1)(a) reads as under:

"11. Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-

(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent. of the income from such property."

20. On a bare perusal of said section, it is clear that for getting exemption under section 11, three requirements must be fulfilled;

(i) income is derived from the property

(ii) property held under trust

(iii) the income is applied wholly for charitable or religious purposes

21. The first question is whether the income of krishi upaj mandi is derived from the property and is held under trust wholly for charitable or religious purpose.

22. Sub-section (2) of section 11 provides that for getting the exemption it is necessary that the income must be applied for charitable or religious purpose in India to the extent of 85 per cent. of the income derived during that year from the property held under trust. In the present case, the Commissioner while rejecting the application for registration has held that the committee charges 2 per cent. from the farm houses come to mandi for sale of their produce, as a mandi fees and out pf 2 per cent., 1.2 per cent. is directly transferred to the State Government;. Thus, the committee is not applying 80 per cent. of its income towards charitable purposes. This finding is reversed by the tribunal.

23. The Punjab and Haryana High Court in the matter of CIT v. Market Committee [2007] 294 ITR 563 has held that by virtue of section 28 of the Act of Punjab, the market committee is required to spend entire amount for public utility. Similar is the position with our Adhiniyam.

24. Section 39 of the Adhiniyam pertains to the purposes for which the amount can be spent by the market committees and the said amount is utilised only for public amenities. Section 2(15) of the Income-tax Act defines charitable purposes which includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.

25. Relying on this definition, the contention of learned counsel for the respondent is that as the amount was spent only on public utility the krishi upaj mandi committees are applying entire income towards charitable purposes and hence the Tribunal has rightly allowed the appeal and reversed the findings of the Commissioner.

26. Applying the entire income towards charitable purposes is not the sole requirement of the Act. The provision further requires that the income must be derived from a property held under trust.

27. Learned counsel for the respondent relying on sub-section (4) of section 11 submits that for the purpose of section 11, the property held under trust includes a business undertaking and, therefore, it must be held that income is derived from the property. He also relied on Explanation of section 13(7) of the Income-tax Act, which reads as under

"For the purposes of sections 11, 12, 12A and this section, 'trust' includes any other legal obligation and for the purposes of this section 'relative' in relation to an individual means â

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) any lineal ascendant or descendant of the individual;

(v) any lineal ascendant or descendant of the spouse of the individual;

(vi) spouse of a person referred to in sub-clause (ii), sub-clause (iii), sub-clause (iv) or sub-clause (v)."

28. The another judgment relied on by the counsel for respondent is CIT v. Agricultural Produce and Market Committee [2007] 291 ITR 419; [2007] 210 CTR 386 (Bom), wherein the Bombay High Court has also taken a similar view

29. After perusal of the judgment of the Bombay High Court, we find that in that case one of the considerations of the High Court was that the committee was already registered under sections 12A and 12AA of the Act and, therefore, the Bombay High Court held that unless and until that exemption is cancelled or set aside, it is not open for the Commissioner of Income-tax to hold that market committee is not exempted from payment of tax. However, the Bombay High Court after considering the merits held that the market committees are entitled to exemption under section 11 of the Act.

30. The first contention raised by the counsel for the appellant is that the intention of the Legislature in deleting clause (29) of section 10 and introduction of section 10 sub-clause (20) itself shows that the Legislature did not want to extend the benefit of exemption to krishi upaj mandi samiti. This argument is without any force because sections 10(20) and 10(29) of the Income-tax Act provide for exemption to all the local authorities and exemption under this section was a blanket exemption without fulfilling any condition. Section 11 provides for exemption on fulfilment of certain conditions. Thus, the intention behind the amendment was to remove the blanket exemption to the local authorities and provide exemption only if they fulfil the conditions under section 11. As per section 11, the exemption can be granted to the marketing committees provided that they spend amount for charitable purposes as required by sub-section (2) of section 11. Marketing committees are bound to spend their income as per section 39 of the 1972 Adhiniyam and as per the said section, the amount could be spent only for public amenities like construction of roads, market, etc. Section 2(15) of the Income-tax Act provides that if the amount is spent towards public amenities, it will be deemed that the amount is spent for charitable purposes. Hence, by virtue of section 2(15) of the Income-tax Act, it will have to be deemed that the amount spent by the marketing committees is spent towards public purposes.

31. The apex court in the case of CIT v. A. P. State Road Transport Corporation [1986] 159 ITR 1 has considered this aspect and held that by virtue of section 2(15) of the Income-tax Act, the amount spent by the Road Transport Corporation towards public amenities is a charitable purpose. In view of the aforesaid, we hold that the respondent-assessees are applying their income for charitable purpose.

32. The apex court in the case of CIT v. Gujarat Maritime Board [2007] 295 ITR 561, has held that the expression "charitable purpose" has been defined by way of inclusive definition, so as to include relief to the poor, education, medical relief and other object of public utility. In the aforesaid judgment, the apex court has also held that sections 10(20) and section 11 of the Income-tax Act operate in totally in different spheres and even if the Board has ceased to be a local authority, it cannot be precluded from claiming exemption under section 11(1) of Income-tax Act.

33. So far as the ingredients of section 11(1) of the Income-tax Act are concerned, the apex court in paragraph 11 of the said judgment has held that the income of business undertaking held for charitable purpose falls under section 11 subject to such income fulifis the required conditions of that section.

34. The apex court has interpreted the words "general public utility" as under (page 567) :

"The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry........."

35. Thus, in view of the aforesaid judgment of the apex court in the cases of Gujarat Maritime Board [2007] 295 ITR 561 and CIT v. A. P. State Road Transport Corporation [1986] 159 ITR 1 (SC), we hold that the respondent marketing committees fulfil all the requirements of section 11 to get exemption and, therefore, are entitled to registration under section 12 and sections 12A and 12AA of the Income-tax Act and, hence, the Tribunal has rightly allowed the appeals filed by the krishi upaj mandi samitis and set aside the orders passed by the Commissioner.

36. Thus, all these appeals are without any merit and are dismissed.

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