C.I.T-II Vs M/S KRISHI UTPADAN MANDI SAMITI
Bench: S.H. KAPADIA,MADAN B. LOKUR
Case number: C.A. No.-007040-007040 / 2012
Diary number: 18157 / 2010
Advocates: B. V. BALARAM DAS Vs
SUNIL KUMAR JAIN
Page 1
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7040 OF 2012 (Arising out of S.L.P. (C) No.20186 of 2010)
Commissioner of Income Tax-II ...Appellant(s)
Versus
M/s. Krishi Utpadan Mandi Samiti ...Respondent(s)
W I T H
Civil Appeal No.7041/2012 @ S.L.P. (C) No.20187 of 2010, Civil Appeal No.7042/2012 @ S.L.P. (C) No.24153 of 2010, Civil Appeal No. 7044/2012 @ S.L.P. (C) No.28056 of 2010, Civil Appeal No.7045/2012 @ S.L.P. (C) No.29319 of 2010, Civil Appeal No.7046/2012 @ S.L.P. (C) No.26135 of 2010, Civil Appeal No.7047/2012 @ S.L.P. (C) No.30949 of 2010, Civil Appeal No.7048/2012 @ S.L.P. (C) No.31204 of 2010, Civil Appeal No.7049/2012 @ S.L.P. (C) No.33083 of 2010, Civil Appeal No.7050/2012 @ S.L.P. (C) No.224 of 2011, Civil Appeal No.7051/2012 @ S.L.P. (C) No.225 of 2011, Civil Appeal No.7052/2012 @ S.L.P. (C) No.226 of 2011, Civil Appeal No.7053/2012 @ S.L.P. (C) No.2019 of 2011, Civil Appeal No.7054/2012 @ S.L.P. (C) No.3080 of 2011, Civil Appeal No.7055/2012 @ S.L.P. (C) No.4770 of 2011, Civil Appeal No.7056/2012 @ S.L.P. (C) No.6328 of 2011, Civil Appeal No.7057/2012 @ S.L.P. (C) No.7512 of 2011, Civil Appeal No.7058/2012 @ S.L.P. (C) No.11938 of 2011, Civil Appeal No.7059/2012 @ S.L.P. (C) No.13820 of 2011, Civil Appeal No.7060/2012 @ S.L.P. (C) No.16812 of 2011, Civil Appeal No.7061/2012 @ S.L.P. (C) No.16960 of 2011, Civil Appeal No.7062/2012 @ S.L.P. (C) No.17034 of 2011, Civil Appeal No.7063/2012 @ S.L.P. (C) No.17718 of 2011, Civil Appeal No.7064/2012 @ S.L.P. (C) No.17719 of 2011,
Page 2
2
Civil Appeal No.7065/2012 @ S.L.P. (C) No.17720 of 2011, Civil Appeal No.7066/2012 @ S.L.P. (C) No.17721 of 2011, Civil Appeal No.7067/2012 @ S.L.P. (C) No.17722 of 2011, Civil Appeal No.7068/2012 @ S.L.P. (C) No.17723 of 2011, Civil Appeal No.7069/2012 @ S.L.P. (C) No.17724 of 2011, Civil Appeal No.7070/2012 @ S.L.P. (C) No.17725 of 2011, Civil Appeal No.7071/2012 @ S.L.P. (C) No.17727 of 2011, Civil Appeal No.7072/2012 @ S.L.P. (C) No.19985 of 2011, Civil Appeal No.7073/2012 @ S.L.P. (C) No.19714 of 2011, Civil Appeal No.7074/2012 @ S.L.P. (C) No.19715 of 2011, Civil Appeal No.7075/2012 @ S.L.P. (C) No.19716 of 2011, Civil Appeal No.7076/2012 @ S.L.P. (C) No.19741 of 2011, Civil Appeal No.7077/2012 @ S.L.P. (C) No.20347 of 2011, Civil Appeal No.7078/2012 @ S.L.P. (C) No.20348 of 2011, Civil Appeal No.7079/2012 @ S.L.P. (C) No.21218 of 2011, Civil Appeal No.7080/2012 @ S.L.P. (C) No.22451 of 2011, Civil Appeal No.7081/2012 @ S.L.P. (C) No.22452 of 2011, Civil Appeal No.7082/2012 @ S.L.P. (C) No.22454 of 2011, Civil Appeal No.7083/2012 @ S.L.P. (C) No.22287 of 2011, Civil Appeal No.7084/2012 @ S.L.P. (C) No.22288 of 2011, Civil Appeal No.7085/2012 @ S.L.P. (C) No.22843 of 2011, Civil Appeal No.7086/2012 @ S.L.P. (C) No.22845 of 2011, Civil Appeal No.7087/2012 @ S.L.P. (C) No.22846 of 2011, Civil Appeal No.7088/2012 @ S.L.P. (C) No.22826 of 2011, Civil Appeal No.7089/2012 @ S.L.P. (C) No.22828 of 2011, Civil Appeal No.7090/2012 @ S.L.P. (C) No.23056 of 2011, Civil Appeal No.7091/2012 @ S.L.P. (C) No.23899 of 2011, Civil Appeal No.7092/2012 @ S.L.P. (C) No.24335 of 2011, Civil Appeal No.7093/2012 @ S.L.P. (C) No.24754 of 2011, Civil Appeal No.7094/2012 @ S.L.P. (C) No.24995 of 2011, Civil Appeal No.7095/2012 @ S.L.P. (C) No.25992 of 2011 and Civil Appeal No.7096/2012 @ S.L.P. (C) No.27734 of 2010.
J U D G M E N T
S.H. KAPADIA, CJI
Heard learned counsel on both sides.
Delay condoned.
Page 3
3
Leave granted.
This batch of civil appeals has been filed by the
Department.
The question, which arises for determination in this batch
of civil appeals, is as follows:
“Whether amounts transferred by the assessee to Mandi Parishad would constitute application of income for charitable purposes within the meaning of Section 11(1)(a) of the Income Tax Act, 1961?”
M/s. Krishi Utpadan Mandi Samiti, respondent-assessee
herein, is a Market Committee incorporated and registered
under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam,
1964 [“1964 Adhiniyam”, for short]. The assessee carries out its
activities in accordance with Section 16 of 1964 Adhiniyam
under which it is required to provide facilities for sale and
purchase of specified agricultural produce in the Market Area.
The Members of the said Market Committee consist of
producers, brokers, agriculturists, traders, commission agents
and arhatiyas. The source of income of the assessee is in the
form of receipt collected as market fee from buyers and their
agents, development cess on sale and purchase of agricultural
products and licence fees from traders. Under 1964 Adhiniyam,
broadly, there are two distinct entities or bodies. One is Mandi
Page 4
4
Samiti [Assessee] and the other is Mandi Parishad. Mandi
Samiti [Board] is established and incorporated under Section 12
of 1964 Adhiniyam for a specified Market Area. Section 16 of
1964 Adhiniyam, inter alia, concerns functions and duties of
the Market Committee. Under Section 16(1) of 1964 Adhiniyam,
the Market Committee is under statutory obligation to enforce
the provisions of 1964 Adhiniyam, the Rules and Bye-laws
made thereunder so as to provide such facilities for sale and
purchase of specified agricultural produce, as may be specified
by the Mandi Parishad from time to time. Section 17 of 1964
Adhiniyam deals with powers of the Mandi Samiti. Section
17(iii), inter alia, empowers the Mandi Samiti to levy and collect
market fee payable on transactions of sale of specified
agricultural produce in the Market Area at such rates, as may
be prescribed by the State Government. Under Section 17(iii)
(b), the Mandi Samiti is also empowered to charge and collect
development cess. Under Section 17(iv), the Mandi Samiti has
to utilise Market Committee Fund for the purposes of 1964
Adhiniyam. Under Section 17(v-a), Mandi Samiti can even
advance loans to Mandi Parishad on such terms and conditions
as may be mutually agreed upon between Mandi Parishad and
Mandi Samiti. Section 19 deals with constitution of Market
Page 5
5
Committee Fund and its utilization. Section 19(1) stipulates
that all monies received by Mandi Samiti shall be credited to a
fund called “Market Committee Fund”. Section 19(2), inter alia,
states that all expenditure incurred by the Committee in
carrying out the purposes of 1964 Adhiniyam shall be defrayed
out of Market Committee Fund and surplus, if any, shall be
invested in such manner as may be prescribed. The expenses
to be incurred and debited are indicated in Section 19(3).
Section 19-B of 1964 Adhiniyam deals with establishment of
Market Development Fund. Under Section 19-B, the Mandi
Samiti shall establish a fund to be called “Market Development
Fund” to which amounts shall be credited as may be directed
from time to time by Mandi Parishad. Under Section 19-B(2),
the Market Development Fund shall be applied for development
of the Market Area. Under Section 19-B(3), the purposes for
which Market Development Fund shall be utilised has been
indicated. Section 26-A of 1964 Adhiniyam deals with
establishment of Mandi Parishad [Board]. Under 1964
Adhiniyam, the Board shall be a body corporate. Section 26-P,
inter alia, states that the Mandi Parishad [Board] shall have its
own fund which shall be deemed to be a local fund and in which
shall be credited all monies received by or on behalf of the
Page 6
6
Board, except monies required to be credited in the State
Marketing Development Fund under Section 26-PP. Under
Section 26-PP, State Marketing Development Fund has been
established for Mandi Parishad [Board] in which amounts
received from the Market Committee under Section 19(5) shall
be credited. Section 19(5), inter alia, states that every Market
Committee shall, out of its total receipts realised as
development cess, shall pay to the Mandi Parishad [Board]
contribution at a specified rate. The said payment from the
Market Committee [Mandi Samiti] shall be credited to the State
Marketing Development Fund under Section 26-PP. The State
Marketing Development Fund shall be utilized by the Mandi
Parishad [Board] for purposes indicated under Section 26-PP(2).
Section 26-PPP deals with establishment of Central Mandi Fund
to which amounts specified in sub-section (1) shall be credited.
Section 26-PPP(2), inter alia, states that the Central Mandi
Fund shall be utilized by Mandi Parishad [Board] for rendering
assistance to financially weak and under-developed Market
Committees; that the Funds would be used for construction,
maintenance and repairs of link roads, market yards and other
development works in the Market Area and such other purposes
as may be directed by the State Government or the Board.
Page 7
7
It is not in dispute that both, the Mandi Samiti and the
Mandi Parishad, are duly registered under Section 12AA of the
Income Tax Act, 1961 [“1961 Act”, for short]. It is also not in
dispute that, after the amendment of Section 10(20) and Section
10(29) by Finance Act No.2 of 2002 with effect from 1st April,
2003, that the word “Local Authority” has lost its restricted
meaning and, therefore, the assessee [Market Committee] has to
satisfy the conditions of Section 12AA read with Section 11(1)(a)
of 1961 Act, like any other body or person. According to Shri
Rajiv Dutta, learned senior counsel for the Department, in view
of the said Amendment vide Finance Act No.2 of 2002, the
assessee has to show that, during the relevant Assessment
Year, income has been derived from property held under Trust
and that the said income stood applied to charitable purposes.
According to the learned counsel, if one analyses the scheme of
1964 Adhiniyam, it becomes clear that the amounts
transferred by the assessee to Mandi Parishad cannot
constitute application of income for charitable purposes within
the meaning of Section 11(1)(a) of 1961 Act in view of the fact
that the assessee [Mandi Samiti] is only a conduit which collects
Mandi shulk [fees] whereas utilization of the said Mandi shulk
is not by the assessee but is made by another entity, i.e., Mandi
Page 8
8
Parishad, whose Accounts are not verifiable and, therefore,
according to the Department, such income will not get the
benefit of exemption under Section 11(1)(a) of 1961 Act. We
find no merit in this contention. In this case, we have analysed
the scheme of 1964 Adhiniyam. In this case, the Department
has not withdrawn the registration under Section 12AA of 1961
Act. In this case, we are only concerned with the question as to
“whether transfer of amounts collected by Mandi Samiti to
Mandi Parishad [Board] would constitute application of income
for charitable purposes under Section 11(1)(a) of 1961 Act?”
Even after the amendment of Section 10(20) and Section 10(29)
of 1961 Act, the assessee continues to enjoy the registration
under Section 12AA of 1961 Act for the reason that the assessee
is a Market Committee statutorily established under Section 12
of 1964 Adhiniyam for the advancement of the object of general
public utility in terms of Section 2(15) of 1961 Act. [See also
Section 16 of 1964 Adhiniyam]. Moreover, it is always open to
the Department to verify and find out whether the Mandi
Parishad has utilized the amounts for the purposes of 1964 Act.
The question is what do we mean by “application of
income”? This judgment is confined to the statutory scheme of
1964 Adhiniyam. Under Section 19(2) of 1964 Adhiniyam, all
Page 9
9
expenditure incurred by the assessee in carrying out the
purposes of 1964 Adhiniyam [which includes advancing credit
facilities to farmers and agriculturists as also construction of
development works in the Market Area] has to be defrayed out
of the Market Committee Fund and the surplus, if any, has to
be invested in such manner as may be prescribed. This is one
circumstance in the 1964 Act to indicate application of income.
Similarly, under Section 19-B(2) of 1964 Adhiniyam, the
assessee is statutorily obliged to apply Market Development
Fund for the purposes of development of Market Area. Under
Section 19-B(3), assessee is statutorily obliged to utilize the
amounts lying to the credit in the Market Development Fund for
extending facilities to the agriculturists, producers and payers
of market fees. The Market Development Fund is also to be
statutorily utilized for development of market yards. Similarly,
all contributions received by the Market Committee [Mandi
Samiti] from its members under Section 19(5) shall be
statutorily paid by the Market Committee [assessee] to Uttar
Pradesh State Marketing Development Fund. These provisions
clearly indicate application of income of the assessee to the
statutory Funds set up under 1964 Adhiniyam. Keeping in
mind the statutory scheme of 1964 Adhiniyam, whose object
Page 10
10
falls under Section 2(15) of 1961 Act, there is no doubt that the
assessee satisfies the conditions of Section 11(1)(a) of 1961 Act.
The income derived by the assessee [which is an institution
registered under Section 12AA of 1961 Act] from its property
has been applied for charitable purposes which includes
advancement of an object of general public utility.
Consequently, we see no reason to interfere with the impugned
judgement of the High Court.
Before concluding, one point needs to be highlighted. In
one of the matters, the Assessing Officer has held that, on the
facts and circumstances of the case, the assessee was not
entitled to avail the benefits of exemption under Section 12(1) of
1961 Act, despite the fact that it was registered under Section
12AA of 1961 Act, because the assessee was statutorily obliged
to contribute to the Fund of the Mandi Parishad under 1964
Adhiniyam. Therefore, according to the Assessing Officer, there
was no voluntary contribution. Absent such voluntary
contribution, according to the Assessing Officer, the assessee
herein was not entitled to claim the benefit of exemption under
Section 12(1) of 1961 Act. We find no merit in this finding of
the Assessing Officer. At the outset, it needs to be mentioned
that the Assessing Officer has not understood the scheme of the
Page 11
11
1964 Act. On reading the 1964 Adhiniyam (Act) it is clear that
the word “contribution” in the Adhiniyam is in the context of
what the members contribute to the Fund(s) held statutorily by
the Mandi Samiti which merely transfers the amount(s) to the
Fund(s) of Mandi Parishad. Even the question framed by
Court/Authorities below is “Whether amounts transferred by
the Mandi Samiti would constitute application of income under
Section 11(1)(a) of 1961 Act”. Therefore, the question of
voluntary contribution under Section 11(1)(d) or under Section
12(1) does not arise. The question of “control” may be relevant
in the context of Section 11(1)(d) or under Section 12(1).
However, in the present case, the question framed deals with
application of income under Section 11(1)(a). Hence, the
Assessing Officer had erred in invoking Section 12(1). Section
11(1) deals with four items of “income” from property held for
charitable purposes. These four items of income are distinct
and separate items of income. Section 11(1)(d) deals with the
fourth item of income. Section 11(1)(d), inter alia, refers to
income in the form of voluntary contributions made with a
specific direction that it shall form part of the corpus of the
Trust or Institution whereas Section 12(1) refers to non-corpus
voluntary contribution. In the present case, neither Section
Page 12
12
11(1)(d) nor Section 12(1) of 1961 Act is attracted. In the
present case, the narrow controversy is, whether, in the facts
and circumstances of the case, the amounts statutorily
transferred to Rajya Krishi Utpadan Mandi Parishad would
constitute application of income for charitable purposes under
Section 11(1)(a) of 1961 Act? Looking to the provisions of 1964
Adhiniyam we hold that the transfer of the amounts by Mandi
Samiti constituted application of income under Section 11(1)(a)
of 1961 Act.
For the above reasons, these civil appeals filed by the
Department are dismissed with no order as to costs.
……....................... ....CJI.
[S.H. KAPADIA]
.…….............................J. [MADAN B. LOKUR]
New Delhi, September 27, 2012.