Commissioner of Income Tax vs Krishi Upaj Mandi Samiti

Dalip Singh J.

This batch of appeals filed u/s 260A of the income tax Act, 1961 is against the, order passed by the learned income tax Appellate Tribunal, Jaipur Bench, Jaipur whereby the learned income tax Appellate Tribunal has held that the Assessee Krishi Upaj Mandi Samitis (in short "K.U.M.S.") of the concerned District in each case is entitled to be registered u/s 12A of the income tax Act, 1961 and further that such registration is liable to be granted from the inception of the Assessee-samitis and, therefore, entitled to consequential exemption u/s 11 of the income tax Act, 1961. The second set of appeals which is there in this batch is of cases where the learned income tax Appellate Tribunal condoned the delay for the purposes of moving application for registration u/s 12A of the income tax Act, 1961 and has directed the Commissioner of income tax to grant registration to the Assessee u/s 12A of the income tax Act, 1961.

The common question involved in all these cases is:

Whether the Krishi Upaj Mandi Samiti constituted under the Rajasthan Agricultural Produce Markets Act, 1961 is such an institution which is entitled for registration u/s 12A of the income tax Act and as a consequence thereof is entitled to exemption u/s 11 of the income tax Act ?

The background in which this set of litigation has arisen is that all the agricultural produce marketing committees, i.e., K.U.M.S. which were constituted under the Rajasthan Agricultural Produce Markets Act, 1961 were enjoying the benefit under the income tax Act. Under Sub-section (20) of Section 10 of Chapter III of the income tax Act, 1961, the aforesaid benefit was being enjoyed by the samitis till such time as the definition of local authority under the Explanation to Sub-section (20) of Section 10 was not amended. The Explanation to Sub-section (20) of Section 10 was amended with effect from April 1, 2003, and the same became restricted in its application only to the institutions enumerated therein. For ready reference the provisions of Sub-section (20) of Section 10 of the income tax Act as it stands after the amendment vide the Finance Act, 2002, with effect from April 1, 2003 reads as follows:

(20) the income of a local authority which is chargeable under the head ''Income from house property'', ''Capital gains'' or ''Income from other sources'' or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area.

Explanation.-For the purposes of this clause, the 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) Municipal 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).

A perusal of the above shows that for the purposes of the aforesaid provisions only Panchayats and Municipalities as referred to under the Constitution or Municipal Committees, District Board and Cantonment Boards fall within the category of local authority and the original meaning given to the local authority by virtue of the provisions of the General Clauses Act was restricted in their application by means of the aforesaid. As a consequence thereof, the Assessee-K.U.M.S. herein were taken out of the purview of local authority and as such the benefit of Chapter III by virtue of Sub-section (20) of Section 10 of the income tax Act which were being enjoyed by the K.U.M.S. ceased to be applicable in the case of the asses-see- K.U.M.S.

The Assessees, therefore, in some cases applied for registration as a charitable institution for the purposes of the income tax Act, 1961 u/s 12A read with Section 12AA. Under these cases, the learned income tax Appellate Tribunal directed the Commissioner of income tax to allow the applications and grant registration, with effect from the inception of these samitis under the Rajasthan Agricultural Produce Markets Act, 1961 and further to grant them the exemption u/s 11 on the basis of the aforesaid registration.

In another set of cases, the Assessees-K.U.M.S. continued to claim the benefit u/s 10(20) of the income tax Act, 1961 despite amendment which the learned income tax Appellate Tribunal held was not permissible but permitted the Assessees to move the applications under the provisions of Section 12A of the income tax Act, 1961 with a direction to the Commissioner of income tax to register these samitis u/s 12A of the income tax Act and grant the benefit of exemption as a consequence thereof.

Thus, in any event the main question that calls for consideration is whether the learned income tax Appellate Tribunal was right in directing the Commissioner of income tax to register the K.U.M.S. u/s 12A of the income tax Act, 1961 and grant them the benefit under the provisions of the income tax Act for exemption as contemplated by Sections 11 and 12 of the income tax Act, 1961.

Learned Counsel for the Revenue heavily relied upon the decision of the hon''ble Supreme Court in the case of (2008) 113 ITD 719 and contended that the asses-sees-K.U.M.S. herein were not entitled to be exempted from income tax after the amendment to Section 10(20) of the income tax Act, 1961 by the Finance Act, 2002, with effect from April 1, 2003, and could claim this benefit only after the amendment by the Finance Act, 2008 after the Legislature has again provided under the aforesaid Act by amendment incorporating Sub-section (26AAB) to Section 10 of the income tax Act, 1961 providing that the income of an agricultural produce market committee or board constituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce would be exempted from income tax under Chapter III of the income tax Act, 1961. It is submitted by learned Counsel for the Appellants that the hon''ble Supreme Court has categorically held that such K.U.M.S. or agricultural produce market boards or committees are not entitled to the exemption after the Finance Act, 2002 after the amendment to Section 10(20) of the income tax Act, 1961, with effect from April 1, 2003 by adding the Explanation thereto.

Learned Counsel for the Respondents-Assessees, on the other hand, submitted that the aforesaid judgment of the hon''ble Supreme Court is based upon the provisions of Sub-section (20) of Section 10 and the Explanation to the same and does not deal with the question of registration u/s 12A. It was submitted that the grounds on which the present appeals have been allowed by the learned income tax Appellate Tribunal with the directions issued therein for the grant of registration u/s 12A and consequent exemption under Sections 11 and 12 of the income tax Act, 1961, was not the subject-matter for consideration before the hon''ble Supreme Court, it is, therefore, submitted that the aforesaid judgment of the hon''ble Supreme Court in (2008) 113 ITD 719 does not help in deciding the present controversy. Learned Counsel has drawn the attention of the court to the concluding portion of the judgment of the hon''ble Supreme Court where it has been held as follows (page 23):

Since we are of the view that Agricultural Market Committee(s) is neither a Municipal Committee nor a District Board under the said Explanation to Section 10(20) of the 1961 Act, we refrain from going into the question: whether the Agricultural Market Committee(s) is legally entitled to the control of the local fund, namely, market fund, under the said 1998 Act. There is one more reason why we do not wish to express any opinion on the said question. Vide the Finance Act, 2008, income of Agricultural Market Committee(s) is exempt.

Sub-section (26AAB) of Section 10 comes into force with effect from April 1, 2009. Therefore, we do not wish to express any opinion on the question as to whether Agricultural Market Committee(s) is legally entitled to the control of the local fund.

We hold that Agricultural Market Committee(s) is, therefore, not entitled to exemption u/s 10(20) of the 1961 Act after the insertion of the said Explanation, vide the Finance Act, 2002, with effect from April 1, 2003.

We have considered the rival submissions and we are in agreement with learned Counsel for the Respondents that so far as the case before the hon''ble Supreme Court of (2008) 113 ITD 719 is concerned, the present controversy with regard to the registration u/s 12A of the agricultural produce marketing committees and the consequent exemption as a result thereof under Sections 11 and 12 of the income tax Act, 1961 was not involved in the said case. Independent of the registration u/s 12A, the said judgment would have been applicable to the facts and circumstances in case the Respondents-Assessees were claiming the exemption u/s 10(20) of the income tax Act, 1961 as they had been doing, prior to the amendment by virtue of the Finance Act, 2002, when the Explanation was added below Clause (20) of Section 10 of the income tax Act, 1961 which came into force on April 1, 2003 i.e. the assessment year 2002-03.

In the present case, however, the K.U.M.S. have applied for being registered u/s 12A and for the grant of consequent exemption u/s 11 as a result of having been registered as a charitable institution. In case such registration is valid and the K.U.M.S. are entitled to such registration, the consequence thereof provided under Chapter III of the income tax Act by virtue of Sections 11 and 12 are bound to follow on the satisfaction of the required grounds. In support of the judgment of the learned Tribunal, learned Counsel for the Respondents-Assessees submitted that this Court in several cases has upheld the orders of the learned income tax Appellate Tribunal upholding the registration of the K.U.M.S. u/s 12A of the income tax Act and holding them entitled for the grant of consequent exemption under the provisions of Section 11 of the income tax Act. Learned senior counsel Mr. N. M. Ranka further submitted that several other High Courts have also taken the same view. Learned Counsel for the Assessees-Respondents submitted that the Division Bench of this Court in the case of Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti, has upheld the contention of the Assessees that the agricultural produce market boards constituted under the Rajasthan Agricultural Produce Markets Act, 1961 are entitled to be registered u/s 12A of the income tax Act, 1961 looking to the nature of the work which these boards are performing under the provisions of the Rajasthan Agricultural Produce Markets Act, 1961 and on being so registered u/s 12A they would be entitled to claim the benefit of the exemption under the provisions of Sections 11 and 12 of the income tax Act, 1961.

The aforesaid judgment in K. U. M. S., Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti, was relied upon by another Division Bench of this Court in the case of CIT v. Krishi Upaj Mandi Samiti reported in [2009] 227 CTR(Raj) 79 where after quoting from para 5 of the judgment in Krishi Upaj Mandi Samiti, Jaisalmer''s case (supra), the Division Bench held in para 17 of the report as follows:

In our considered opinion, the market committee having put its income to use in conformity with the provisions of the Act of 1961 for charitable purpose, it has to be treated as the application of the income for the charitable purpose in the relevant year.

As has been stated above, the learned Division Bench of this Court took into consideration the judgment in K. U. M. S., Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti, and more particularly para 7 thereof in its judgment wherein it has been clearly held as follows:

In that view of the matter, samiti is entitled to be registered u/s 12A.

Thus, this Court has held on both the counts that the K.U.M.S. constituted under the Rajasthan Agricultural Produce Markets Act, 1961 are entitled for registration u/s 12A which is the question involved in the present set of appeals and has further held that looking to the activities enshrined under the Rajasthan Agricultural Produce Markets Act and the Rules framed thereunder which are carried out by these samitis, the same are charitable in nature for the purposes of the income tax. So far as the aforesaid two judgments are concerned, learned Counsel for the Revenue was not in a position to state whether any SLP against the aforesaid judgments have been filed and, if so, the result of the same.

In that view of the matter, we would agree with the said view of this Court and go with the decision of the co-ordinate Bench of this Court and hold that K.U.M.S. constituted under the Rajasthan Agricultural Produce Markets Act, 1961 are eligible for registration u/s 12A of the income tax Act, 1961, as held by this Court and looking to the nature of their duties under the Act and the Rules their activities are charitable in nature and hence, would be entitled for exemption under Sections 11 and 12 of the income tax Act, 1961.

We may also add, as was submitted by learned Counsel for the Respondent-Assessees that a Division Bench of the Bombay High Court in the case of Commissioner of Income Tax Vs. Agricultural Produce and Market Committee, has held after taking note of the provisions of the Agricultural Produce Marketing (Regulation) Act, 1963 that the role, functions and duties assigned to the agricultural produce marketing committee or board under the said Act were not such as to deny the registration of these marketing committees/boards constituted under Sections 12A and 12AA of the income tax Act, 1961.

Similarly, the Madhya Pradesh High Court in the case of Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti, dealing with the agricultural produce marketing committee constituted under the M. P. Krishi Upaj Mandi Adhiniyam, 1972 held after taking into consideration the provisions of the Act of 1972 dealing with the role of these agricultural produce marketing committees that these "committees fulfil all the requirements u/s 11 to get exemption and, therefore, are entitled to registration under Sections 12, 12A and 12AA of the income tax Act". A similar view was taken by the Indore Bench of the Madhya Pradesh High Court in the case of The Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti, the question before the Division Bench of the Madhya Pradesh High Court was as follows (page 403):

(1) Whether, income tax Appellate Tribunal was justified in setting aside the order passed by the Commissioner which has refused to grant registration to the Assessee (krishi upaj mandi samiti) who had applied by them u/s 12A of the income tax Act, 1961, for registration as provided in Section 12A ibid ?

(2) Whether the Respondent-Assessee-mandi is entitled to claim registration u/s 12A of the Act, and if so, whether it satisfies the requirement both on facts and at law for obtaining registration as provided under Sections 12A and 12AA of the said Act ?

The Division Bench after considering the submissions made before it, as also taking into consideration the decision of the Gwalior Bench in the case of Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti,

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 Sections 12A and 12AA of the Act.

In view of the above referred law that has developed, we are inclined to hold that the K.U.M.S. constituted under the Rajasthan Act of 1961 are entitled for registration u/s 12A of the income tax Act, 1961 as it is the considered opinion of this Court earlier and of the other High Courts, referred to above, that the samitis/boards constituted under the statute of various States for the purpose of regulating the marketing of agriculture produce are entitled for registration u/s 12A of the income tax Act, 1961 as charitable institutions for the purposes of the income tax Act, 1961 Chapter III.

Learned senior counsel Shri Ranka also cited before us a judgment of the hon''ble Supreme Court in the case of Commr. of Income Tax Vs. Gujarat Maritime Board, wherein their Lordships of the hon''ble Supreme Court dealing with the case of Gujarat Maritime Board which had prior to the Finance Act, 2002 been enjoying the exemption u/s 10(20) of the income tax Act, 1961, as in the case of the present samitis. The Gujarat Maritime Board as a consequence of the amendment introduced by the Finance Act, 2002, with effect from April 1, 2003, submitted an application for claiming exemption as a charitable institution u/s 11 of the income tax Act, 1961. An objection came to be raised inter alia that the Gujarat Maritime Board was claiming exemption as a "local authority" u/s 10(20) of the income tax Act, 1961 and, therefore, it could not claim any exemption by having the board registered u/s 12A of the income tax Act, 1961 as a trust for seeking exemption u/s 11 of the income tax Act, 1961 on the basis of the activities of the said board. In the present case also learned Counsel for the Appellant had sought to contend that since the agricultural produce marketing committees, the Assessees herein, have been claiming the benefit of Section 10(20) of the income tax Act, 1961 as a local authority they could not seek registration as charitable institution u/s 12A. The aforesaid objection was negated by the hon''ble Supreme Court in Commr. of Income Tax Vs. Gujarat Maritime Board, and it was held that despite the fact that an Assessee may have been claiming exemption as a local authority u/s 10(20) of the income tax Act, 1961 prior to April 1, 2003 it was not precluded from claiming exemption u/s 11 of the income tax Act, 1961. It was held by the hon''ble Supreme Court as follows (page 567):

... we may point out that Section 10(20) and Section 11 of the 1961 Act operate in totally different spheres. Even if the board has ceased to be a ''local authority'', it is not precluded from claiming exemption u/s 11(1) of the 1961 Act. Therefore, we have to read Section 11(1) in the light of the definition of the words ''charitable purposes'' as defined u/s 2(15) of the 1961 Act.

There is, therefore, no substance in the aforesaid objection of the learned Counsel for the Revenue that the Assessees having already claimed exemptions prior to April 1, 2003 u/s 10(20) of the income tax Act, 1961 as a local authority it could not apply for registration as a charitable institution u/s 12A of the income tax Act, 1961 and claim consequent exemption on that basis. Similar views with regard to the registration u/s 12A have been taken by the Allahabad High Court in the case of Commissioner of Income Tax Vs. Krishi Utpadan Mandi Samiti, decided on December 2, 2009).

In the light of the aforesaid discussion, we are of the view that these appeals preferred by the Revenue against the decision of the learned income tax Appellate Tribunal, in the facts and circumstances, deserve to be dismissed. Our answer to the question, therefore, is that the learned income tax Appellate Tribunal has rightly held that looking to the activities of the Assessees-K.U.M.S. and the Rajasthan State Agriculture Marketing Board enshrined under the Rajasthan Agricultural Produce Markets Act, 1961 and the Rules framed thereunder are such which would bring these institutions, namely the samitis within the purview of "charitable institutions" so as to entitle them for being registered as charitable institutions u/s 12A of the income tax Act, 1961 and entitle them for exemption under the provisions of Sections 11 and 12 of the income tax Act, 1961.

As a consequence of the aforesaid answer, the second set of appeals against the order of the learned income tax Appellate Tribunal as was conceded by the learned Counsel for the Revenue would also stand dismissed.

Accordingly, all the appeals are dismissed. There shall be no order as to costs.