Commissioner Of Income Tax-Ii, Amritsar v. M/S Market Committee, Rayya

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.31 of 2009 & other connected casesDate of decision: 29.6.2010 Commissioner of Income Tax-II, Amritsar. Vs. M/s Market Committee, Rayya. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Ms. Naveender P.K. Singh, Sr.Standing Counselfor the appellant.for the appellant. Mr. Rajesh Garg, Advocatefor respondents. --- ADARSH KUMAR GOEL, J. 1. This order will dispose of a batch of 27 appeals beingI.T.A. Nos.22, 30 to 35, 147 to 158, 164 to 166, 211 and 212,492, 508 and 509 of 2009 as in all the appeals identical questions have been proposed. 2. We have taken up I.T.A. No.31 of 2009 as a leadcase. In the said appeal, following questions of law have been proposed:- i)Whether the Market Committee are to be givenexemption ipso fact, even when their income is notadequately spent for objects of General Public Utilityexemption ipso fact, even when their income is notadequately spent for objects of General Public Utility ii) iii) iv) and therefore, it does not qualify for Exemption underSection 11 & 12 of the Income Tax Act, 1961. Whether the Market Committees are to be givenexemption ipso fact, even when Books of Accountswere not properly maintained and did not give a clearpicture of the functioning of the Market Committeesand therefore, it does not qualify for Exemption underSection 11 & 12 of the Income Tax Act, 1961. Whether the Ld. ITAT grossly erred in notappreciating that the transfer of income by the MarketCommittees to its Apex Body i.e. Punjab Mandi Boardand advances made to some employees, are notcovered by expression; spent for objects of GeneralPublic Utility/ Benefit or any Charitable Activity andtherefore, it does not qualify for Exemption underSection 11 & 12 of the Income Tax Act, 1961,especially after noticing these facts in the impugnedorder? Whether the Ld. ITAT, being the last Fact FindingAuthority, grossly erred in not appreciating the factsand evidence on record and summarily dismissing theappeal of the appellants based on its earlier order inthe case of other Market Committees and thus, theimpugned Order is liable to be set aside as perverseand based wholly on surmises and conjectures?” 3The assessee is a statutory entity under theprovisions of the Punjab Agricultural Produce Markets Act, 1961.The object of the said Act is to regulate marketing in agriculturalproduce. The assessee was earlier covered by the definition of‘local authority’ under Section 10(20) of the Income Tax Act, 1961(for short, “the Act”). After 1.4.2003, the assessee is not coveredby the amended definition of local authority but its activities arecovered by Section 2(15) of the Act. It has been registered underSection 12AA of the Act. 4. During assessment of income, the Assessing Officertook the view that major portion of income of the assessee wasspent on running of the administration i.e. by paying salaries andother allowances to the employees and office expenses and thus,major part of income of the assessee was not being spent forcharitable purposes which was statutorily required for exemption. 5. On appeal, the CIT(A) did not subscribe to the view ofthe Assessing Officer and held that the income was being utilisedfor charitable objects. The relevant observations are as under:- “5.1. It is noticed that the appellant has derivedincome from the property held under trust, which isthe basic criteria laid down in law for making theappellant eligible for exemption under Section 11 and12 of the Income Tax Act, 1961. The appellant is alsoregistered as a charitable institution by the CIT underSection 12AA of the Income Tax Act, 1961. Theaccounts of the appellant have been duly audited.The appellant has filed its return of income tax within 5. On appeal, the CIT(A) did not subscribe to the view ofthe Assessing Officer and held that the income was being utilisedfor charitable objects. The relevant observations are as under:- “5.1. It is noticed that the appellant has derivedincome from the property held under trust, which isthe basic criteria laid down in law for making theappellant eligible for exemption under Section 11 and12 of the Income Tax Act, 1961. The appellant is alsoregistered as a charitable institution by the CIT underSection 12AA of the Income Tax Act, 1961. Theaccounts of the appellant have been duly audited.The appellant has filed its return of income tax within time, which is also accompanied with auditedaccounts and audit report is prescribed Form 10-B.The sums earned by the appellant have been utilizedfor objects, for which it has been set up. It is alsoseen that the appellant has utilized more than 85% ofthe income earned by it during the year underconsideration.” 6.On further appeal by the revenue, the Tribunal upheldthe view taken by the CIT(A). 7.We have heard learned counsel for the parties. 8. The question for consideration is whether payment ofsalary as expenditure for running the establishment and otherestablishment expenses can be held to be application of incomefor the object of charitable purposes. 9. It cannot be disputed that for running a charitableactivity, the establishment has to be maintained, which requirespayment of salaries and other establishment expenses.Application of income for the said purpose cannot be alien to thecharitable objects which are to be advanced. Withoutestablishment, the charitable objects cannot be achieved at all.There is no provision that income cannot be spent for the saidpurpose. This being the position, the view taken by the CIT(A)and the Tribunal cannot be held to be debatable. It is not the caseof the appellant that expenditure in running the administration iseither excessive or unreasonable. The nature of regulatorymechanism operated by the Market Committees involves incurring of expenditure on establishment. Thus, mere fact thatsuch expenditure was incurred, cannot be a ground to hold thatthe application was not for charitable purpose. 10. Learned counsel for the assessee has relied upon judgment of the Gujarat High Court inArvindkumarr J. Sahebav. C.I.T.[1981] 131 ITR 86, taking a view that payment of salaryhas to be treated as expenditure for charitable purpose, whensuch payment is necessary and incidental to carrying out ofobjects of the charitable societies. Same view has been taken bythe Madhya Pradesh High Court in Deo Radha Madhava LaljiGenda Trustv. Property Tax Officer, Sagar and others[1980]125 ITR 531. 11. In view of above, we are unable to hold that questionsproposed are substantial questions of law. 12.The appeals are dismissed. 13. A photocopy of this order be placed on the file of each connected case. (ADARSH KUMAR GOEL) JUDGE June 29, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE