Commissioner Of Income Tax-Ii, Jabalpur (M.p v. Krishi Upaj Mandi Samiti, Raheli, Distt. Sagar (M.p

THE HIGH COURT OF MADHYA PRADESH: JABALPUR(Division Bench) Misc. Appeal (Income Tax) No.114/2007 Commissioner of Income Tax-II, Jabalpur (M.P.) versus Krishi Upaj Mandi Samiti, Raheli, Distt. Sagar (M.P.) Misc. Appeal (Income Tax) No.71/2007 Commissioner of Income Tax-II, Jabalpur (M.P.) versus Krishi Upaj Mandi Samiti, Ramnagar, Distt. Satna (M.P.) CoramHon’ble Shri Justice Ajay Kumar Mittal, Chief Justice Hon’ble Shri Justice Vijay Kumar Shukla, Judge Appearance Shri Sanjay Lal, Advocate for the appellant/Revenue. O R D E R (21.11.2019) Per: Ajay Kumar Mittal, C.J. (Oral) 1. Heard learned counsel for the appellant. 2. This order shall govern the disposal of both the appeals filed by the Revenue against the Krishi Upaj Mandi, in which similar issue arises for determination. 3. MAIT No.114/2007 has been preferred by the Revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against a consolidated order dated 2.2.2007 passed by the Income Tax Appellate Tribunal, Jabalpur Bench Jabalpur (hereinafter referred to as “the Tribunal”) in I.T.A.Nos.261/Jab/2006 filed by the respondent-assessee and other connected ITA Nos.262/Jab/2006, 263/Jab/2006, 264/Jab/2006, 265/Jab/2006, 255/Jab/2006 and 256/Jab/2006 in the case of the other assessees. This appeal was admitted on 30.11.2007 for determination of the following substantial questions of law:- “(i) Whether the Tribunal was right in granting registration under Section 12-A following the decision of ITAT “A” Bench, Delhi in the case of Market Committee, Sular Gharat & others Vs. CITand also the ITAT Nagpur ‘A’ Bench in the case of Agricultural Produce Delhi without going into the merits of the order under Section 12-AA of the IT Act by CIT? (ii) Whether the Tribunal was right in granting registration under Section 12-A to the assessee inspite of the fact that the assessee had the status of local authority before the amendment made in Section 10(20) and 10(29) of the IT Act w.e.f. A.Y. 2003-04 and also later on and thereby allowing exemption under Section 11 of the IT Act? (iii) Whether the activities of the trust not having been changed, whether the assessee can be treated as a charitable institution in the light of the finding given in the order under Section 12-AA(i)(b)(ii)?” 4. MAIT No.71/2007 has been filed by the Revenue under Section 260A of the Act against the order dated 31.1.2007 passed by the Tribunal in I.T.A.No.268/Jab/2006 filed by the respondent-assessee/Krishi Upal Mandi Samiti, Ramnagar, District Satna, which was admitted on 27.8.2007 for determination of the following substantial question of law. “Whether the income tax appellate tribunal, Jabalpur is justified in law in coming to hold that the Krishi Upaj Mandi Samiti, the first respondent is engaged in charitable work and, therefore, it is entitled to get the benefit under Section 12-A and 12-AA of the Income Tax Act, 1961 ?” 5. Facts in both the cases are similar. However, for the sake of convenience, the facts are taken from MAIT No.114/2007. The facts in brief as reflected in the order the Commissioner of Income Tax (for brevity “the CIT”) and the Tribunal are that respondent Krishi Upaj Mandi Samiti, Raheli, District Sagar (hereinafter referred to as “the assessee”) filed an application “Whether the income tax appellate tribunal, Jabalpur is justified in law in coming to hold that the Krishi Upaj Mandi Samiti, the first respondent is engaged in charitable work and, therefore, it is entitled to get the benefit under Section 12-A and 12-AA of the Income Tax Act, 1961 ?” 5. Facts in both the cases are similar. However, for the sake of convenience, the facts are taken from MAIT No.114/2007. The facts in brief as reflected in the order the Commissioner of Income Tax (for brevity “the CIT”) and the Tribunal are that respondent Krishi Upaj Mandi Samiti, Raheli, District Sagar (hereinafter referred to as “the assessee”) filed an application for registration of the trust or institution under Section 12A(a) of the Act in the prescribed Form No.10-A under Rule 17A of the Income Tax Rules, 1962 on 14.2.2006 in duplicate stating that the assessee has fallen within the purview of the Act with effect from assessment year 2003-04 for the first time. The assessee has also stated that it was created as a local authority vide M.P. Government Notification No.3589/3638/XIV-1, dated 22.6.1963. The assessee submitted statement of total income for Assessment Year 2005-06 and had shown the status as a local authority. It was stated by the assessee that it and other Mandi Samities are constituted body under the provisions of Sections 4, 7 and 11 of the M.P. Krishi Upaj Mandi Adhiniyam, 1972. As per Section 7(1) of the said Act, the Mandi Samiti has been established for each Mandi “Kshetra” and it has full rights over the area. It is a Corporate Body in view of section 7(2) of the said Adhiniyam by the name it is notified under Section 4 and that it will have perpetual succession and a common seal. As per Section 17 of the Adhiniyam, such Mandi Samitis have been established with the object of mainly providing amenities/facilities to farmers for marketing of agricultural produce. Under section 19 of the Act, the Samiti is authorized to collect fee on sale of agricultural produce from its premises to promote the objects of the Adhiniyam. The assessee stated that registration under Section 12-A of the Act arose because of statutory change in law by way of amendment in Section 10(20) and 10(29) of the Act by the Finance Act 2002 w.e.f. A.Y. 2003-04. 6. As per assessee-Krishi Upal Mandi, it is a Samiti which has claimed that the object of the institution is charitable and is for general public utility. It charges 2% of the sale value from the purchasers of agricultural produce who come to Mandi for purchase of product. The institution provides services to the farmers for getting fair rate for their products as prescribed by the State Government and assures the payment to the farmers from the purchasers of such goods. Security is also provided to their products, shelter for products which come for sale, godown facilities are also given so that the farmers sell the goods whenever they get better prices. Out of 2%, 1.2% is transferred to the State Government as Sadak Nidhi which is utilized for the development of village roads and balance amount is utilized for the purpose of general administrative expenses such as salary, electricity, telephone etc. and for capital expenses like rest house for farmers, godown, for approach road, for making sheds etc. It is further reiterated that the institution is a charitable institution as per provisions of section 2(15) of the Act as it ensures better price to the farmers for their product by providing platform to sell their goods to the trading community and the funds are utilized for betterment of the farmers and general public. The purpose of the institution is to provide facility to the farmers and not for the purpose of profit and the expenditure is incurred for attaining the object of Mandi. Since the institution is charitable institution and its objectives are charitable, it was prayed that assessee be allowed registration under Section 12A of the Act for availing exemption from levy of tax. 7. The CIT vide the impugned order refused to register the assessee dissatisfied with the objects and activities of the assessee either as a trust or as an institution under Section 12-A of the Act recording following findings:- “(1) The assessee Mandi Samiti is only local authority though it has claimed its status as AOP (Association of Persons), the fact remains that it is a local authority. It was so before the change in the Act has been brought into and it remains a local authority even thereafter. (2) Such local authority cannot be construed to be a trust or institution. (3) It also does not have any income which can be treated as exempt under any of the clauses of section 11. (4) It also does not have any charitable activity. I beg to differ with the decision of the Hon’ble ITAT, Jabalpur Bench, Jabalpur as well as Delhi Bench to treat such organization as charitable institution. (5) It earns income only by way of state levy under the State Government Act and it has no income by way of voluntary contribution or any income from any property held under trust. Therefore, the application by the assessee for registration under Section 12A being prerequisite for obtaining exemption under section 11 is merely an academic exercise. The assessee is doing business as a local authority and therefore, in view of the changes brought into the Act, it cannot suddenly change its nomenclature to seek exemption under Section 11. As its activities are also not charitable as discussed above and as its income are also not qualifying to be exempt under section 11. There does not arise any question of granting it any registration u/s 12A of the Act. I am, therefore, not satisfied about the objects of the assessee vis-à-vis its activity and I, therefore, refuse to register the assessee either as a trust or as an institution. The order u/s 12AA is passed accordingly and the legal consequences follow.” 8. The assessee challenged the action of the CIT in denying the registration under Section 12AA of the Act by filing an appeal, which has been accepted by the Tribunal holding that the assessee is entitled to registration under Section 12AA of the Act. Against the order of the Tribunal, the revenue has filed present appeals before this Court. 9. We have heard learned counsel for the appellant-revenue and perused the record. 10. In order to substantiate the points in issue, relevant provisions of the Act may be referred to. Section 12AA of the Act provides for registration. The extract of the said provision at the relevant time reads thus:- “12AA Procedure for registration:- (1) The Commissioner, on receipt of an application for registration of a trust or institution made under Clause registration of a trust or institution made under Clause (a) of sub-section (1) of Section 12A, shall— (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 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- trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant; applicant; Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (b) After satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant; applicant; Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1[st] day of June, 1999 shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day. on which no order has been passed under clause (b) of sub-section (1) before the 1[st] day of June, 1999 shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day. (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 sub-section (1) of section 12A. xxx xxx xxx” 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 sub-section (1) of section 12A. xxx xxx xxx” 11. A bare reading of Section 12AA of the Act as it existed at the relevant time shows that it provides for procedure of registration for availing the benefits under Section 12A of the Act. Under Section 12AA(1)(a) of the Act, the Commissioner in order to satisfy himself about the genuineness of the activities of the trust or institution can call for such documents or information as he deems necessary. If satisfied about genuineness of object, he shall pass the order in writing registering the trust or institution. 12. The matter has been examined by the Tribunal after perusing the relevant statutory provisions. The CIT (E) has to satisfy twin conditions while granting registration under Section 12AA of the Act. Firstly, whether the objects of the assessee are charitable in nature and secondly, the activities are genuine. Section 13 of the Act comes into play at the time of granting exemption under Section 11 of the Act and not at the time of granting registration under Section 12AA of the Act. No adverse remarks have been recorded by the CIT with regard to the objects in order to come to the conclusion that its activities are not genuine. Thus, it has been rightly directed by the Tribunal to the CIT to grant registration under Section 12AA of the Act. The Tribunal relying on the decisions of ITAT, Jabalpur in the case of Krishi Upaj Mandi, Bichhiya and others Vs. ITO in ITA No.240/Jab/05 dated 13.6.2006, ITAT Delhi ‘A’ Bench in the case of Market Committee, Sullar Gharat and others Vs. CIT 2005 94 TTJ (Delhi) 692and ITAT Nagpur in the case of Agricultural Produce and Market Committee, Telhara & others Vs. CIT (Nag) has passed an order in para 6 which is produced as under:- order in para 6 which is produced as under:- “(6) Since the facts and issue in the cases in hand and those of the cases decided earlier, as noted above, by this Bench of the Tribunal, are identical and no distinguishing feature is pointed out or noticed and moreover, department has not been able to place anything on record to show that any stay against earlier orders passed by the Tribunal has been granted in any higher forum, therefore, following the said precedents, it is held that all the assessees are entitled to registration under section 12AA of the Income Tax Act and I order accordingly.:” those of the cases decided earlier, as noted above, by this Bench of the Tribunal, are identical and no distinguishing feature is pointed out or noticed and moreover, department has not been able to place anything on record to show that any stay against earlier orders passed by the Tribunal has been granted in any higher forum, therefore, following the said precedents, it is held that all the assessees are entitled to registration under section 12AA of the Income Tax Act and I order accordingly.:” 13. Examining the issue from another prospective as canvassed before the authorities below, we refer to relevant statutory provisions. Section 10 of the Act provides for certain incomes which are not included in total income. In sub-section (20) of Section 10 of the Act, Explanation was inserted by Finance Act, 2002 [20 of 2002, Sec. 4(1)] w.e.f. 1.4.2003. The assessee applied for registration under Section 12A of the Act after Section 10(29) of the Act was omitted by the Finance Act, 2002 (20 of 2002, sec. 4(y)] w.e.f. 1.4.2003, which previously provided that “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 is stated to be local authority”. But in Section 10(20) of the Act, an Explanation was inserted, by which expression “local authority” means:- (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipality Committee and District Board, Legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924). 14. It is pertinent to note that only the authorities mentioned in Explanation appended to Section 10(20) of the Act are prescribed to be local authorities. In view of the aforesaid amendments in sections 10(20) and 10(29) of the Act no doubt Krishi Upaj Mandi Samities no longer fall within the purview of “local authority”. However, now the assessees are claiming themselves to be charitable trust or institution in view of section 11 of the Act for seeking exemption from income tax. Section 12AA of the Act at the relevant time specifically provided that the Commissioner after satisfying himself about the objects of the trust or institution and the genuineness of its activities shall pass an order in writing registering the trust or institution. In the case in hand, the Tribunal after considering the factual as well as the legal issue rightly set aside the order of the CIT and held that the objects of the assessee were charitable in nature and the activities were also genuine and, is entitled to registration under section 12AA of the Act. 15. We now proceed to analyse the relevant case law on the subject. In the case of Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti (2009) 308 ITR 380 (M.P.), a Division Bench of Gwalior Bench of this Court considered the similar issue and held that the Market Committee was formed under the Act of legislature for protection of interests of farmers. The requirements of Section 11 of the Act were fulfilled and the Market Committee is entitled to registration under section 12A of the Act. In the case in hand, the Tribunal after considering the factual as well as the legal issue rightly set aside the order of the CIT and held that the objects of the assessee were charitable in nature and the activities were also genuine and, is entitled to registration under section 12AA of the Act. 15. We now proceed to analyse the relevant case law on the subject. In the case of Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti (2009) 308 ITR 380 (M.P.), a Division Bench of Gwalior Bench of this Court considered the similar issue and held that the Market Committee was formed under the Act of legislature for protection of interests of farmers. The requirements of Section 11 of the Act were fulfilled and the Market Committee is entitled to registration under section 12A of the Act. 16. Relying upon the above judgment, the Division Bench of Indore Bench of this Court in the case of Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti reported as 2008(3) MPLJ 315, has held that Krishi Upaj Mandi does not have any commercial activity but has been constituted under the provisions of the M.P. Krishi Upaj Mandi Adhiniyam to protect the interest of the farmers and ensure that they are not exploited. It is not shown that the fee charged by the Krishi Upaj Mandi is applied for any purpose to the advantage of the Krishi Upaj Mandi. Under these circumstances, when the object of the Krishi Upaj Mandi is benevolent, it cannot be said that it is not entitled to registration under section 12A and 12AA of the Income tax Act. Against this judgment, the Revenue filed SLP(C) No.14592/2008 (Commissioner of Income Tax, Ujjain Vs. Krishi Upaj Mandi Samiti) before the Supreme Court which was dismissed on 10.11.2008 in view of its own judgment in the case of C. Commissioner of Income Tax Vs. Gujarat Maritime Board (2007) 295 ITR 561. 17 Learned counsel for the revenue was unable to demonstrate that the findings recorded by the Tribunal were erroneous or perverse and the approach of the Tribunal is legally unsustainable. In view of above discussion, we answer the substantial questions of law accordingly. Consequently, the appeals filed by the appellant-revenue stand dismissed. (Ajay Kumar Mittal) Chief Justice (Vijay Kumar Shukla) Judge Digitally signed by CHRISTOPHER PHILIP Date: 2020.01.28 11:27:44 +05'30'