Commissioner of Income Tax vs Market Committee

Adarsh Kumar Goel, J.—This order will dispose of a batch of 27 appeals being ITA 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.

We have taken up ITA No. 31 of 2009 as a lead case. In the said appeal, following questions of law have been proposed:

(i) Whether the Market Committee are to be given exemption ipso facto, even when their income is not adequately spent for objects of General Public Utility and therefore, it does not qualify for Exemption under Sections 11 and 12 of the Income Tax Act, 1961.

(ii) Whether the Market Committees are to be given exemption ipso facto, even when Books of Account were not properly maintained and did not give a clear picture of the functioning of the Market Committees and therefore, it does not qualify for Exemption under Sections 11 and 12 of the Income Tax Act, 1961.

(iii) Whether the Ld. ITAT grossly erred in not appreciating that the transfer of income by the Market Committees to its Apex Body i.e., Punjab Mandi Board and advances made to some employees, are not covered by expression; spent for objects of General Public Utility/ Benefit or any Charitable Activity and therefore, it does not qualify for Exemption under Sections 11 and 12 of the Income Tax Act, 1961, especially after noticing these facts in the impugned order?

(iv) Whether the Ld. ITAT, being the last Fact Finding Authority, grossly erred in not appreciating the (acts and evidence on record and summarily dismissing the appeal of the Appellants based on its earlier order in the case of other Market Committees and thus, the impugned Order is liable to be set aside as perverse and based wholly on surmises and conjectures?

The Assessee is a statutory entity under the provisions of the Punjab Agricultural Produce Markets Act, 1961. The object of the said Act is to regulate marketing in agricultural produce. The Assessee was earlier covered by the definition of ''local authority'' u/s 10(2)(7) of the Income Tax Act, 1961 (for short, "the Act"). After 1-4-2003, the Assessee is not covered by the amended definition of local authority but its activities are covered by Section 2(15) of the Act. It has been registered u/s 12AA of the Act.

During assessment of income, the Assessing Officer took the view that major portion of income of the Assessee was spent on running of the administration i.e., by paying salaries and other allowances to the employees and office expenses and thus, major part of income of the Assessee was not being spent for charitable purposes which was statutorily required for exemption.

On appeal, the CIT(A) did not subscribe to the view of the Assessing Officer and held that the income was being utilised for charitable objects. The relevant observations are as under:

5.1 It is noticed that the Appellant has derived income from the property held under trust, which is the basic criteria laid down in law for making the Appellant eligible for exemption under Sections 11 and 12 of the Income Tax Act, 1961. The Appellant is also registered as a charitable institution by the CIT u/s 12AA of the Income Tax Act, 1961. The accounts of the Appellant have been duly audited. The Appellant has filed its return of Income Tax within time, which is also accompanied with audited accounts and audit report is prescribed Form 10-B. The sums earned by the Appellant have been utilized for objects, for which it has been set up. It is also seen that the Appellant has utilized more than 85 per cent of the income earned by it during the year under consideration.

On further appeal by the revenue, the Tribunal upheld the view taken by the CIT(A).

We have heard learned Counsel for the parties.

The question for consideration is whether payment of salary as expenditure for running the establishment and other establishment expenses can be held to be application of income for the object of charitable purposes.

It cannot be disputed that for running a charitable activity, the establishment has to be maintained, which requires payment of salaries and other establishment expenses. Application of income for the said purpose cannot be alien to the charitable objects which are to be advanced. Without establishment, the charitable objects cannot be achieved at all. There is no provision that income cannot be spent for the said purpose. This being the position, the view taken by the CIT(A) and the Tribunal cannot be held to be debatable. It is not the case of the Appellant that expenditure in running the administration is either excessive or unreasonable. The nature of regulatory mechanism operated by the Market Committees involves incurring of expenditure on establishment. Thus, mere fact that such expenditure was incurred, cannot be a ground to hold that the application was not for charitable purpose.

learned Counsel for the Assessee has relied upon judgment of the Gujarat High Court in Arvindkumar J. Saheba, Trustee of Karnamukteshwar Mahadev Trust Vs. Commissioner of Income Tax, Gujarat-I, , taking a view that payment of salary has to be treated as expenditure for charitable purpose, when such payment is necessary and incidental to carrying out of objects of the charitable societies. Same view has been taken by the Madhya Pradesh High Court in Deo Radha Madhava Lalji Genda Trust Vs. Property Tax Officer and Others, .

In view of above, we are unable to hold that questions proposed are substantial questions of law.

The appeals are dismissed.