If a trust fulfills all conditions of section 12A/12AA, registration cannot be denied on ground that some conditions of section 11 and 12 not fulfilled
Where a trust/institution fulfills all conditions of section 12A/12AA, registration cannot be denied on ground that some conditions of section 11 and 12 are not fulfilled.
CASE LAW DETAILS
Decided by: HIGH COURT OF ALLAHABAD, In The case of: CIT v Krishi Utpadan Handi Samiti, Appeal No.: ITA Nos. 80 to 83 of 2007,
Decided on: December 2, 2009
28. It is an admitted fact that the assessees were created under the Krishi Utpadan Mandi Adhiniyam, 1964. Section 12 of the said Act provides for establishment and incorporation of Committee (Samiti), the same reads as follows:-
“12. Establishment and incorporation of Committee.-( 1) For every Market Area there shall be a Committee to be called the Mandi Samiti of that Market Area, which shall be a body corporate having perpetual succession, and an official seal and, subject to such restrictions for qualifications, if any, as may be imposed by this or any other enactment, may sue or be sued in its corporate name and acquire, hold and dispose of property and enter into contract: Provided that the Committee shall not transfer any immovable property except in accordance with a resolution duly passed at any of its meetings by a majority of not less than three fourths of the total number of its members and with the previous approval in writing of [the Board].
(2) The Committee shall be deemed to be a local authority for the purposes of Land Acquisition Act, 1894 [and any other law for the time being in force]“.
29. Accordingly, the Samitis were considered as `local authorities’ and were exempted from the clutches of Income-tax Act by virtue of Section 10(20) of the Income Tax Act prior to 1.4.2003 when Section 10(20) was amended.
30. Functions and duties of the Committees are defined under Section 16 of the said Act. The same reads as follows:-
“16. Function and duties of the Committee.- (1) A Committee shall enforce the provisions of this Act, the rules and bye-laws made thereunder in the 15 Market Area, provide such facilities for sale and purchase of specified agricultural produce therein, [as may be specified in any directions given by Board to the Committee from time to time] or considered necessary by the Committee and do such other acts as may be necessary for regulating sale and purchase of specified agricultural produce in that Market Area, and for that 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 provisions contained in sub-section (1), a Committee shall-
(I) ensure fair dealing between the producers and persons engaged in the sale or purchase of specified agricultural produce;
(II) ensure prompt payment to the [sellers] in respect of specified agricultural produce sold by them in the Principal Market Yard or Sub-Market Yards;
(III) grade and standardize specified agricultural produce;
(IV) check and verify weights, measures, weighing and measuring instruments used in the Market Area, and report infringement of the provisions of the U.P. Weights and Measures (Enforcement) Act, 1959, to the authorities concerned;
(V) collect and disseminate all such informations as may be of advantage to the producers and other persons engaged in the sale or purchase of specified agricultural produce and in particular keep itself informed of the prevailing prices of such agricultural produce at places where it can be profitably exported 16 and from where it can be economically imported in the Market Area;
(VI) standardize and regulate trade charges, market practices and customary methods of sale and purchase of specified agricultural produce;
(VII) provide suitable amenities in the Principal Market Yard and Sub-Market Yards to the producers and persons engaged in transactions of sale or purchase therein, and in particular to construct, repair and maintain roads, pathways, market lanes and bye-lanes, shops, shelters, parking places, accommodation for storage, and such other amenities and facilities as may be prescribed in this behalf;
(vii-a)provide suitable facilities, for the proper development of hats and painths in the market area and to the persons engaged in transactions of sale and purchase therein; (vii-b) construct, repair and maintain link roads, path ways, market lanes and bye-lanes in the market area;]
31. Further, Section 19 of the Act provides for establishment of market funds and its utilization, the same reads as under:-
“19. Market Committee Fund and its
utilization. -(1) There shall be established far each
Committee, a fund to be called “Market Committee
Fund” to which shall be credited all moneys
received by it including all loans raised by it, and
advances and grants made to it.
(2) All expenditure incurred by the Committee in carrying out the purposes of this Act, shall be defrayed out of the said fund, and the surplus, if any, 17 shall be invested in such manner as may be prescribed.
(3) Without prejudice to the generality of the provisions contained in Section 16, the Committee may utilize its funds for payment of all or any of the following:
(I) expenses incurred in auditing the accounts of the Committee;
(II) salaries, pensions and allowances including allowances for leave, gratuities, compassionate allowance, medical aid and contributions towards provident fund and pensions of the officers and servants employed by or for it;
(III) expenses of and incidental to elections under this Act;
(IV) the principal amount of or interest on loans and advances referred to in clause (x) of subsection (2) of Section 16;
(iv-a) the rent of and taxes on any land and building in possession of the Committee;]
(v) expenses on collection, maintenance, dissemination and supply of all such information as may be of interest to the producers and other persons engaged in sale and purchase of agricultural produce including that relating to crop statistics and market intelligence;
(vi) cost of land or buildings acquired for the purposes of this Act;
(vii) cost of construction and repairs of buildings necessary for the Market Yards and for the health, convenience and safety of the persons using them;
(viii) cost of maintenance, development and improvement of the Market Yards;
(ix) expenses in providing facilities and comforts such as shelter, shed, parking accommodation and water for persons, draughtcattle, pack animals and vehicles coming to the Market Area and on agricultural improvement and development of agricultural marketing in the Market Area including the construction, maintenance and repair of link roads, culverts, bridges and other such purposes;]
(x) travelling and other allowances to the members of the Market Committee;
(xi) loans and advances to the employees of the Market committee; and
(xi-a) financial assistance to charitable institutions approved by the Board or recognized educational institutions, subject to a maximum of two per cent of total receipt (excluding money raised under clause (v) of Section 17 and grants made by Government) in the previous financial year;]
(xii) such other expenses as may be prescribed: [Provided that the annual expenditure in respect of matters specified in clause (ii) shall not exceed ten per cent of the total annual receipts of the Committee, excluding loans raised by it and advances or grants made to it except with the prior approval of the [Board) [Provided further that all moneys realized as additional market fee under the Uttar Pradesh Krishi Utpadan Mandi (Amendment) Ordinance, 1983 (U.P. Ordinance No.40 of 1983), shall be utilized in the 19 Market Area only for the purposes specified in clause (ix)
(5) Every Committee shall, out of its total receipts [excluding moneys raised under clause (v) of [Section 17, money realized as development cess and grants made] by the State or Central Government in the financial year, pay to the Board as contribution such amount not exceeding fifty per cent of the first fifty lakh rupees of the receipts as the State Government may, by notification, declare from time to time, and all receipts exceeding fifty
(6) Every Committee shall pay to the Board every month all moneys realized as development cess which shall be credited to the Central Mandi Fund established under Section26-PPP] 32. Section 26-PP and 26PPP of U. P. Krishi Utpadan Mandi Adhiniyam,1964 provides the utilization and control of the funds and said Section reads as follows:-
“26-PP. Uttar Pradesh State Marketing Development Fund.-(1) There shall be established for the Board, a Fund, to be called the “Uttar Pradesh State Marketing Development Fund” to which the following amounts shall be credited, namely:
(a) all contributions received from the Committees under sub-section( 5) of Section 19 except such percentage thereof as the State Government may direct to be credited to the Board’s Fund;
(b) such other amounts as the State Government or the Board may direct. 20
(2) The fund established under sub-section( 1), shall subject to the provisions of this Act, be utilized by the Board for the following purposes, namely;
(i) facilities to the agriculturists, other producers and payers of market fee in the market area;
(ii) development of principal market yards, sub-market yards, hats and painths and construction of new Market Yards in the market area;
(iii) construction, maintenance and repairs of link roads, market lanes and other development works in the market area;
(iv) market survey and research, grading and standardization of specified agricultural produce;
(v) propaganda, publicity and extension services and the matters relating to the general improvement of the conditions of buying and selling of specified agricultural produce;
(vi) aid to financially weak and underdeveloped committees in the form of loans and grants;
(vii) acquisition or construction, or hiring on lease or otherwise of buildings or land for performing the duties of the Boards;
(viii) better development of market areas and control of market committees.
(ix) Meetings and legal expenses;
(x) training of officers and staff of the market committees in the State;
(xi) technical assistance to the market committees in the preparation of site plans and estimates of construction and in the preparation of project reports of master plants for development of principal market yards and sub-market yards and market areas;
(xii) internal audit of the Board and the market committees;
(xiii) matters specified in Sections 16, 19 and 19-B not covered by the preceding clauses; (xiv) any other purpose, to give effect to the provisions of this Act or generally to regulate marketing of specified agricultural produce.
“[26-PPP. Central Mandi Fund.-(1) There shall be established a Fund to be called the 'Central Mandi Fund' to which the following amount shall be credited, namely:
(a) all moneys paid to the Board under sub-section (6) of Section 19;
(b) such other amount as the State Government or the Board may direct.
(2) The Central Mandi Fund shall be utilized by the Board for the following purposes namely:
(a) assistance to financially weak and underdeveloped Committees in the form of loans or grants
(b) construction, maintenance and repairs of market yards, links roads, culverts and other development works in the market area;
(c) grants or loans to the Committees for development works;
(d) such other purposes as may be directed by the State Government or the Board in such manner as may be prescribed]“
33. As stated above, vide Section 12(2) of the U.P.Krishi Utpadan Mandi Adhiniyam, 1964, Mandi Samitis were declared as local authorities. Hence prior to 1.4.2003, they were enjoying the exemption under Section 10(20) and 10(29) of the Income Tax Act. When these provisions were amended w.e.f. 1.4.2003, then the necessity arose to register these institutions under Section 12A of the Income Tax Act. It may also be mentioned that in view of the objects, we do not see any good reason for holding that statutory bodies like market board and market committees under reference could not be treated as “charitable” within he meaning of S.2(15) of the IT Act.
34. The word ‘charitable’ has been defined in Section 2(15) of the I. T. Act which may be read as under: S.2(15)-”charitable purpose includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest] and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;]
35. As mentioned earlier, the object to establish market committee and board is to regulate purchase, sale, storage and processing of agricultural produce through establishment of market committees, market yards and trusts. The dominant objects of board and committees are to save agriculturists from exploitation of middleman and to provide remunerative price to the agriculturists. It is further to provide better facilities for storage and transportation of food grain. Accordingly, we hold that the object of the boards and committees is to advance objects of general public utility. The learned CIT’s in the impugned orders have not brought any material on record to show that the assessees were non-charitable institutions, established for personal or private gains. Therefore, we do not find any objectionable material to treat these institutions as non-charitable. The registration under Section 12A is mandatory to claim exemption under Sections 11 and 13 of I.T.Act but registration alone cannot be treated as conclusive. It is always open to Revenue authorities, while processing return of income of these asesseess, to examine the claim of the assessees under Sections 11 and 13 of the I.T.Act and given such treatment to these institutions as is warranted by the facts of the case. Revenue authorities are always at liberty to cancel the registration u/s 12AA(3) of the Act which reads as under:-
12AA(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 24 institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution. “
36. Moreover, it may be mentioned that the benefit of Section 11 is not absolute or conclusive. It is subject to control of Sections 60 to 63 of the Act. Section 11 reads as follows:-
“Section 11. Income from property held for charitable or religious purposes- (1) Subject to the provision 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, to where any such income is accumulated to set apart for application to such purposes in India, to the tent to which the income so accumulated or set apart is not in excess of [fifteen per cent] of the income from such property; Thus, sections 60 to 63 would require the income of settled property to be taxed in the hands of the settler as is the case where there is transfer of income without transfer of assets (Section 60), or the transfer is revocable (Sections 61 to 63) or not revocable for specified period (Sections 62 and 63). When income is so assessed in the hands of the settlor by virtue of the operation of the said sections, it will bear full tax without any exemption in the hands of the settlor. So, dealing with the exclusion of any income from out of total income on the ground that it 25 belongs to a charitable or religious trust, an inquiry should in the first instance be made whether any portion of the income arising from the settled properties or from properties otherwise transferred is includible in the total income of the charitable or religious trust. If it is found by keeping in view the provisions of sections 60 to 63 that it is not so includible then such income does not qualify for any relief, in limine, under this section. It shall have to be discarded altogether in the calculation of the fifteen per cent of the income eligible of being accumulated. 37. It may also be mentioned that similar market committees were set up in Punjab and Haryana, Maharashtra, Madhya Pradesh, Rajasthan and other States. In every State, the arrangement for funds and its bifurcation/ allotment collected by and utilization of the same are almost identical. Their Boards or persons, who exercised the control and superintendence of Mandi Samiti are the same in all States.
38. In the similar facts and circumstances of the case, the Income Tax Department has filed an appeal in the case of CIT v. Krishi Upaj Mandi Samiti (2009) 308 ITR 401 MP and the said appeal was dismissed by Madhya Pradesh High Court by observing that the assessee is entitled for registration under Section 12A and 12AA of the Act. Madhya Pradesh Higher has observed that- “Krishi upaj mandis do not have any commercial activity but are constituted under the provisions of the Madhya Pradesh Krishi Upaj Mandi Adhiniyam, 1972, to protect the interest of the farmers and ensure that they are not exploited. The preamble to the Adhiniyam, 1972, under which the Krishi upaj mandi is established refers 26 to providing for better regulation of buying and selling of agricultural produce and the establishment and proper administration of markets of agricultural produce in the State of M.P. Under the 1972 Adhiniyam, the market committee charges fees for various purposes which have the necessary nexus with the services rendered and thus, quid pro quo. Merely because they charge fees that does not militate against the altruistic purpose for these mandis are established.
39. Against the said order, the department has filed SLP before the Hon’ble Apex Court which was dismissed on 10.11.2008 (SLP No. 27701/2008). Thus the observations made by the Madhya Pradesh High Court attains the finality.
40. In the instant cases, there is no doubt that the object of the market committees established under the Krishi Mandi Utpadan Adhiniyam, 1964 Act is to regulate the entire marketing of agricultural and some other produce from the stage of procuring till it reaches the ultimate consumer, which is squarely covered within the meaning of the expression “advancement of any object of general public utility” contained in Section 2(15) of the Income Tax Act.
41. It is contended by the Revenue that the assessees are established with profit motive because they are not rendering free services but they are charging cess/fees for their services and, therefore, the assessees are not established for charitable purposes. There is no merit in this contention. The cess/fees are charged by the assessees from the purchasers in the market area at the rate prescribed by the State Government for the purpose of carrying out the object of the Act. As held by the Apex court in the cases of Surat Art Silk Clot Manufacture Association  121 ITR 1 and in the case of Bharat Diamond Bourse  259 ITR 280 where the dominant purpose of a trust/institution is charitable, incidentally if some profit is made and the said profit is used for charitable purposes, the said trust/institution does not cease to be established for charitable purposes. In the case of the assessees, the dominant object is to regulate procurement and supply of agricultural and some other produce and to meet the expenses required for achieving the said object, the Legislature has empowered the assesses to levy cess/fees. Moreover, surplus remaining in the market fund are ploughed back for carrying out the object for which these Mandi Samitis are established. Thus, the surplus remaining in the market fund is neither distributed nor accumulated as profits. In these circumstances, it cannot be said that the assesses are established with profit motive so as to deny registration under Section 12A/12AA of the Act.
42. It is pertinent to note that prior to April 1, 1984, the words used in Section 2(15) of the Income Tax Act were “advancement of any other object of general public utility not involving the carrying on of any activity for profit”. By the Finance Act, 1983 with effect from 1st April, 1984, Legislature has omitted the words “not involving the carrying on of any activity for profit” from Section 2(15) of the Act. Thus, after April 1, 1984, even if there is some profit in the activity carried on by the trust/institution, so long as the dominant object is of general public utility, it cannot be said that the said trust/institution is not established for charitable purposes.
43. It is contended by the Revenue that even if the assesses are covered under Section 12A of the Act, they would still not be entitled to exemption because their income is neither derived form the property held under trust not their income is from voluntary contributions made to the institution. There is no merit in this contention because the expression “property” used in Section 11 of the Act is of wide amplitude and it includes the business undertaking itself. The word “property” in section 11 includes immovable and movable property like money, shares, securities etc. Therefore, where a trust/institution fulfills all the conditions mentioned in Section 12A/12AA, registration cannot be denied on the ground that some conditions of Section 11 and 12 are not fulfilled.
44. As stated earlier, even after registration, unless the condition set out in Sections 11 and 13 of the Act are complied with, no benefit would be available to the registered trust or institutions. Therefore, in the facts of the present case, the decision of the Tribunal that the assessees who fulfill all the conditions are entitled to registration cannot be faulted. The contention of the Revenue that the assessees are not registered as an institution and hence not entitled for registration is also without any merit, because, there is no requirement under the Act that an institution constituted for advancement of any object of general public utility must be registered as a trust.