The Commissioner Of Income Tax v. Market Committee, Pundri

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.333 of 2009(O&M)Date of decision: 5.7.2010 The Commissioner of Income Tax. Vs. Market Committee, Pundri. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL ---- Present:-Mr. Yogesh Putney, Sr. Standing Counselfor the revenue.for the revenue. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (for short, the Act),relating to assessment year 2003-04, proposing to raise followingsubstantial questions of law:- “i)Whether on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in dismissing theappeal of the Revenue, against the order of the CIT(A), directing the A.O. to assess the income of thecase, the Ld. ITAT was right in law in dismissing theappeal of the Revenue, against the order of the CIT(A), directing the A.O. to assess the income of the assessee, in the status of charitable trust, as perSection 11 to 13 of the Income Tax Act, ignoring thefact that Market Committee is neither a trust nor acharitable institution, as the income is neither derivedfrom the property, held under trust, wholly forcharitable or religious purposes nor from voluntarycontributions? ii)Whether on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in dismissing theappeal of the Revenue, against the order of the CIT(A), directing the A.O. to assess the income of theassessee, in the status of charitable trust, as perSection 11 to 13 of the Income Tax Act, ignoring thefact that income derived by the Market Committeefrom collection of market fee, composition fee andlicense fee as well as from purchase of land and saleof plots is purely derived from commercial activity andthe same does not come within the ambit of section11 to 13 of the Income-tax Act?” iii)Whether on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in holding that theMarket Committee is a charitable trust particularlywhen after insertion to amendment u/s 10(20) by theFinance Act, 2002, the Market Committee has been excluded from the definition of local authority andexemption u/s 10(20) has been withdrawn?”iv)Whether on the facts and in the circumstances of thecase, the Market Committee is entitled to registrationu/s 12AA of the I.T. Act, 1961 as it does not carrycharitable activities within the meaning of section 2(15) of the I.T. Act, 1961?” 2. The assessee is a Market Committee which has beenconstituted under the provisions of the Punjab AgriculturalMarketing Produce Act, 1961 to regulate the marketing ofagricultural produce. It had filed its return for assessment year2003-04 on 28.11.2003 declaring loss of Rs. 28,55,798/-. Thereturn was processed under Section 143(1) of the Act on30.12.2003. The case having been taken up for scrutiny, theassessing officer vide order dated 26.12.2005 passed underSection 143(3) of the Act disallowed the deductions claimed inview of provisions of Section 11(1) of the Act and passed anassessment order at nil income. The exemption claimed underSection 11(1) of the Act was disallowed on the ground that as perSection 12A of the Act, the provisions of Sections 11 and 12 shallnot apply in relation to the income of Trust or Institution unlessthe Trust or Institution is registered under Section 12AA of theAct. The Assessing Officer further declined to consider the claimof the assessee for exemption under Section 10(20) of the Act on the ground that for the assessment year in question, by virtue ofamendment by the Finance Act, 2002, it was no longer coveredunder Section 10(20) of the Act and no longer ‘local authority’.The assessee had applied for registration under Section 12AA ofthe Act on the ground that its functions are covered under Section2(15) of the Act. The registration was declined by the CIT, Karnal,holding that since the respondent was no longer a local authority,after the amendment vide Finance Act, 2002 applicable w.e.f. theassessment year 2003-04, it could not be registered, but theTribunal granted registration under Section 12AA of the Act bysetting aside the view taken by the CIT, Karnal, vide order dated14.3.2005. 3.On appeal by the assessee against the order ofassessment dated 26.11.2005, the CIT(A), partly accepted theappeal vide order dated 23.11.2006 and held that since theTribunal had already allowed the benefit of registration underSection 12AA and consequently, CIT, Karnal has also givenregistration under Section 12AA, therefore, the income of theassessee is to be in the status of a Charitable Trust as perSections 11 to 13 of the Act. 4.The Tribunal upheld the decision of CIT(A). This is,how, the Revenue is in appeal before this Court. 5.The primary issue that requires adjudication is,whether the functions of the assessee-respondent are in the nature of public utility and are covered being “charitable purpose”under Section 2(15) of the Act. 6.It would be advantageous to reproduce Section 2(15of the Act as it stood at the relevant time, which reads thus:- “Section 2(15) “Charitable purpose” includes relief of the poor, education, medical relief and the advancement ofany other object of general public utility.” 7.The aforesaid provision came up for consideration before the apex Court in Commissioner of Income-Tax v.Gujarat Maritime Board, [1997] 295 ITR 561 wherein it was heldas under: “We have perused a number of decisions of this courtwhich have interpreted the words, in section 2(15),namely, “any other object of general public utility”.From the said decisions it emerges that the saidexpression is of the widest connotation. The word“general” in the said expression means pertaining to awhole class. Therefore, advancement of any object ofbenefit to the public or a section of the public asdistinguished from benefit to an individual or a groupof individuals would be a charitable purpose (CIT v.Ahemdabad Rana Caste Association [1983] 140 ITR1 (SC)]. The said expression would prima facieinclude all objects which promote the welfare of thegeneral public. It cannot be said that a purpose wouldcease to be charitable even if public welfare isintended to be served. If the primary purpose and thepredominant object are to promote the welfare of thegeneral public the purpose would be charitablepurpose. When an object is to promote or protect the interest of a particular trade or industry that objectbecomes an object of public utility, but not so, if itseeks to promote the interest of those who conductthe said trade or industry (CIT v. Andhra Chamber ofCommerce [1965] 55 ITR 722 (SC). If the primary orpredominant object of an institution is charitable, anyother object which might not be charitable but which isancillary or incidental to the dominant purpose, wouldnot prevent the institution from being a valid charity(Addl. CIT v. Surat Art Silk Cloth ManufacurersAssociation [1980] 121 ITR 1 (SC)” 8. Further, the Tribunal in para 3 of its order hadrecorded as under:- interest of a particular trade or industry that objectbecomes an object of public utility, but not so, if itseeks to promote the interest of those who conductthe said trade or industry (CIT v. Andhra Chamber ofCommerce [1965] 55 ITR 722 (SC). If the primary orpredominant object of an institution is charitable, anyother object which might not be charitable but which isancillary or incidental to the dominant purpose, wouldnot prevent the institution from being a valid charity(Addl. CIT v. Surat Art Silk Cloth ManufacurersAssociation [1980] 121 ITR 1 (SC)” 8. Further, the Tribunal in para 3 of its order hadrecorded as under:- “In the present appeal the application under Section12A was rejected by the CIT, Karnal. The incomewas assessed in the status of AOP. However, theTribunal allowed registration under Section 12A videorder dated 14.3.2005 in which the name of theassessee is at Sr. No. 91 of the order. Effect to theorder of the Tribunal was given by the Ld. CIT videorder dated 27.9.2006 and the assessee was grantedregistration u/s 12A of the Act. The assessing officerwas directed to assess the income of the assessee inthe status of charitable trust as per section 11 to 13 ofthe Act.” 9. It is, thus, carrying on the functions which are of the nature of public utility and are, thus, covered under Section 2(15)of the Act under “charitable purpose”. Once this is so, benefits under Sections 11 to 13 of the Act have been rightly given to the assessee. 10. In view of above, no substantial question of law arises for consideration. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 05, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE