IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : A : NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
Assessment Year : 2007-08
ACIT, Vs. Agricultural Produce Marketing Circle 9(1), Room No.301-G, Committee, Vikas Bhawan, IP Estate, MNI Complex, NFM Phase II, New Delhi. Sarai Pipal Thala, Azadpur,
PAN : AAAAA4091A
Assessee by : None
Revenue by : Mrs. Anuradha Misra, CIT, DR
PER A.D. JAIN, JUDICIAL MEMBER
This is an appeal filed by the department for Assessment Year 2007-08 against the order dated 21.02.2011 passed by the CIT (A)- XXII, New Delhi, taking the following grounds:-
"1. The CIT Appeals erred in law and on facts and circumstances of the case in allowing the assessee to be a trust or institution registered under section 12AA without appreciating the facts of the case that the assessee was not fulfilling the conditions of Registration as a Trust being a very old entity and did not came into existence during the previous year relevant to this Assessment Year to be Trust in accordance with the 1st and 2nd proviso to Section 12A(1)(a) of Income Tax Act, 1961, the objects of the assessee not confirming to the objects for which it was established.
2. The CIT Appeals erred in law and on facts and circumstances of the case that mere granting of Registration u/s 2 ITA No.2600/Del/2011
12AA of the Income Tax Act, 1961 shall not entitle the assessee to claim benefit of exemption under section 10 (23C), 11,12 and 12 (A) read with Section 2 (15) of the Income Tax Act, 1961.
3. The CIT Appeals erred in law and on facts and circumstances of the case in granting exemption of income of Rs.33,16,67,475/- from taxation being the excess of income over expenditure without appreciating all the facts of the case that the appellant's activities and object are in the nature of trade, commerce or business rather than advancement of objects of general public utility and was not entitled to exemption from taxation, since the receipts/income of the assessee were not voluntary receipts as required in the case of a charitable entity.
4. The CIT Appeals erred in law and on facts and circumstances of the case in deleting the addition of Rs.3,18,47,908/- made by the A.O. on account of maintenance of Market Yard (Engineering Works) being capital expenditure in nature holding that it shall qualify as application of income for the purposes of trust without appreciating the facts of the case and the said expenditure cannot be said to be application for charitable purpose within the provisions of Section 2 (15) of the IT Act, 1961.
5. The CIT Appeals erred in law and on facts and circumstances of the case in deleting the addition of Rs.6,22,046/- made by the A.O. on account of purchase/installation of submersible pump."
2. None has appeared on behalf of the assessee despite issuance of notice of hearing, which has not returned unserved. However, finding that the matter can be proceeded with in the absence of the assessee, we are doing so.
3. The facts are that the assessee filed its return of income for the Assessment Year 2007-08 on 31.10.2007, declaring 'nil' income. It claimed the status of Local Authority, and exemption of receipts from taxation u/s 10(20) of the IT Act. The issue of exemption u/s 10(20) was settled, against the assessee, by the judgement of the Hon'ble Supreme Court in the case of Agricultural Produce Market Committee , Narela, vs. CIT (2008) 305 ITR 1, wherein it was held that the agricultural Market Committees are not entitled to exemption u/s 3 ITA No.2600/Del/2011
10(20) after the insertion of the Explanation to Section 10(20) vide the Finance Act, 2002 w.e.f. 01.04.2003. The assessee had, in the mean time, also filed an application under section 12A for registration as a charitable institution on 31.05.2006. The application was rejected, but the ITAT allowed the appeal against the order of the DIT (Exemption). Vide order dated 17.10.2008, the assessee was granted registration under Section 12A w.e.f. 01.04.2006. The assessee then filed a revised return on 30.03.2009, claiming the status of a charitable trust (AOP) and 'nil' taxable income under section 11 of the Act.
4. The Assessing Officer, in the assessment proceedings, observed that the assessee's activities were commercial in nature, and not charitable in purpose. The Assessing Officer noted that its major sources of income were from market fees, license fees, water charges, interest, etc. It was held that the trust was being run with a profit motive, and no object of public utility was advanced. It was further held that 85% of its income was not applied for charitable purposes. The expenditure incurred was only for facilitation of its business activity. The Assessing Officer also disallowed, as capital expenditure, the amount of Rs.3,18,47,908/- out of expenditure on maintenance of market yard. The expenditure of Rs.6,22,046/- on purchase of submersible pump was disallowed under the Explanation to Section 37(1).
5. The Ld. CIT (A), by virtue of the impugned order, following the Tribunal decision dated 19.03.2008, in the assessee's own case, held that the activities of the assessee were for the advancement of objects of general public utility. The assessee was, thus, granted relief from assessment of income of ` 33,16,67,475/-, being excess of income over expenditure. The addition made by the Assessing Officer was deleted. 4 ITA No.2600/Del/2011
6. Before us, the Ld. DR has contended that the Ld. CIT (A) has erred in holding the assessee to be a trust registered u/s 12AA of the IT Act and ignoring that the assessee did not fulfill the conditions of registration as a trust and that it did not come into existence during the year, so as to be a trust in accordance with the first and second provisos to Section 12A(1) (a) of the Act; that the Ld. CIT (A) failed to appreciate that the activities of the assessee did not conform to the objects for which it was established; that the Ld. CIT (A) further ignored that mere grant of registration u/s 12AA of the Act would not entitle the assessee to claim benefit of exemption under Sections 10(23C), 11 and 12A read with Section 2 (15) of the Act; that the Ld. CIT (A) further erred in granting exemption of income of ` 33,16,67,475/- to the assessee from taxation, being the excess of income over expenditure; that in doing so, the Ld. CIT (A) failed to appreciate that the activities and objects of the assessee were in the nature of trading, commerce or business, rather than for advancement of objects of general public utility, disentitling the assessee from the exemption claimed, the receipts of the assessee not being voluntary receipts, as would have been in the case of a charitable entity; that the Ld. CIT (A) has erred in deleting the addition of ` 3,18,47,908/-, made on account of maintenance of Market Yard (Engineering Works) being capital expenditure, holding that it shall qualify as application of income for the purposes of the trust; that in so holding, the Ld. CIT (A) has failed to appreciate that the expenditure cannot be said to be application for charitable purposes within the meaning of the provisions of Section 2 (15) of the Act; and that the Ld. CIT (A) has also erred in deleting the addition of ` 6,22,046/- made on account of purchase/installation of submersible pump.
7. We have heard the ld. DR and have perused the material available on record. The Ld. CIT (A), it is seen, in holding the assessee 5 ITA No.2600/Del/2011
to be a trust and in deleting the additions made by the Assessing Officer, has followed the Delhi Tribunal decision dated 19.03.2008 in the assessee's own case, along with the cases of other market committees. The application u/s 12AA had been rejected by the DIT (Exemptions). The Tribunal held as follows:-
" We have considered the rival contentions and carefully gone through the orders of the authorities below. The Market Committee is an entity with no profit motive and it is engaged in providing services and facilities which are of public utility. However, this was not accepted by the Director of Income Tax (Exemption) on the plea that levy of fee by the Marketing Committee is a consideration for providing facilities and services, despite that being no test of arithmetical co-relation between the fees charged on the facility and services provided to its payers or to the general interest of all the concerns. As there was Membership fee, the Director of Income Tax (Exemption) held that the claim of the assessee that facilities and services provided by it constituted charitable activities loses much of its creditability. As per Director of Income Tax (Exemption) its activities at the most makes it to be a service provider, appropriately and charges for the facilities provided. He, therefore, held that the constitution of the Agricultural Market Committee under the Delhi Agricultural Produce Marketing (Regulation) Act, 1998 did not bring into existence any institution to render charity.
All these issues have been elaborately considered by the ITAT in case of 243 Committees of Punjab and Haryana vide order dated 14.03.2005, whose registration was declined under section 12A, wherein it was held that market committee/market produce are charitable institutions, as they are created under statute, therefore, the registration could not be denied to these marketing committees on account of the amendment of section 10(22) of the Income Tax Act, 1961 w.e.f. 01.04.2003. It was also observed that exemption in the case of local bodies like market committee etc. has been withdrawn but there is nothing in the amendment to show that the assessee was precluded from raising an alternative claim under section 11 and 12 of the Income Tax Act, 1961. The legislative intention was to put restriction on these bodies as are contained under section 11 to 13 of the Act relating to utilization of income and channeling for public good. It was also observed that section 11 to 13 of the Act imposes several restrictions and do not allow blanket exemption by section 10(20) of the Act where the assessee has only to establish that it is a 'local authority'. No other conditions need to be fulfilled for claiming exemption. It was categorically observed 6 ITA No.2600/Del/2011
by the Bench that mere collection of fee and fine cannot be a criteria for holding that these committees are not charitable institution, what is relevant is object/activity of the institution and not these aspects. Similar view has been taken by the Nagpur Bench of ITAT in the case of Agricultural Produce and Market Committee which was reported at 100 ITD Page 1. The order of the ITAT dated 14.03.2005 has been upheld by the Hon'ble Punjab and Haryana High Court and the same has been reported at 294 ITR 563 .
The AR also placed on record the order of the ITAT coordinate bench in case at Delhi Food Market Committee, order dated 18.02.2008, wherein on similar facts and circumstances, appeal of the assessee was allowed by following the decision of the ITAT which was upheld by the Hon'ble Punjab and Haryana High Court. It was observed by the Hon'ble High Court that activities of the market committee are not profit oriented and in view of the provisions of the market Act, the activities of the Market Committee are statutorily delineating the activities, duties and responsibilities of the market committee, are certainly activities which fell within the frame work of the words 'any other objects of general public utility', contained in the definition of the term 'public purpose' in section 2(15). Thus the market committee was held to be a charitable trust under section 11 of the Act. The appeal of the assessee was allowed and it was held that assessee is entitled to registration as charitable institution under section 12AA of the Income Tax Act, 1961. Respectfully following the verdict of coordinate bench and decision of the Hon'ble Punjab and Haryana High Court referred above, all the appeals of the assessees are allowed and Director of Income Tax (Exemption) are directed to grant registration under section 12AA of the Income Tax Act, 1961. "
8. The Tribunal, it is seen, referred to the decision of the Tribunal in the cases of 243 committees of Punjab and Haryana, decided vide order dated 14.03.2005, wherein also, registration had been declined u/s 12A of the Act, holding that Marketing Committees/Marketing Boards are charitable institutions, having been created under statute, due to which, registration could not be denied to them by virtue of the amendment to Section 10(22) of the Act, w.e.f. 01.04.2003; that though exemption in the case of local bodies like market committees, etc., had been withdrawn, the market committees were not precluded from raising an alternative claim under Sections 11 and 12 of the Act; and that mere collection of fee and fine could not be a criterion for 7 ITA No.2600/Del/2011
holding that the market committees were not charitable institutions, when the relevant criterion was the object/activity of the institution. Reference was, further, made to the decision dated 14.03.2005 of the Nagpur Bench of the Tribunal in the case of "Agricultural Produce and Market Committee", 100 ITD 1 (Nag) and the decision of the Hon'ble Punjab & Haryana High Court in the case "CIT vs. Market Committee", reported at 294 ITR 563 (P & H). The order dated 18.02.2008 rendered by the Delhi Tribunal in the case of Delhi Food Market Committee was also referred to. Therein also, in similar facts and circumstances, following "Agricultural Produce & Market Committee" (supra), it was held that the activities of the market committees were not profit oriented, but were activities falling within the expression "any other objects of general public utility", as appearing in Section 2 (15). The Market Committee was, thus, held to be a charitable trust u/s 11 of the IT Act. The trust was entitled to registration as a charitable institution u/s 12AA of the Act. The Tribunal, vide its order dated 19.03.2008, thus, directed the DIT (E) to grant registration to the assessee u/s 12AA of the Act.
9. The Ld. CIT (A) also took into consideration the fact that the appeal of the department against the aforesaid order dated 19.03.2008 passed by the Tribunal, has since been dismissed by the Hon'ble Delhi High Court vide order dated 19.01.2009. It was also taken into account that the Hon'ble Supreme Court, vide order dated 10.09.2008, in the case of "Bhatinda Market Committee, Bhatinda, Punjab" in Civil Appeal No.5608/2008, has decided a similar issue against the revenue.
10. Before us, the department has not been able to seriously assail the aforesaid observations of the Ld. CIT (A). Since the matter has been decided squarely in favour of the assessee by the Tribunal, the 8 ITA No.2600/Del/2011
Hon'ble High Courts and the Hon'ble Supreme Court, in the case of numerous market committees like the assessee, we have nothing before us to take a different view. Therefore, the order of the Ld. CIT (A) is confirmed in toto.
11. In the result, the appeal filed by the department is dismissed.
The order pronounced in the open court on 23.11.2012.
[T.S. KAPOOR] [A.D. JAIN] ACCOUNTANT MEMBER JUDICIAL MEMBER
Copy forwarded to: -
5. DR, ITAT
ITAT, Delhi Benches