ORDER
1. All the appeals have been filed by the department under Section 260A of the Income-tax Act against the consolidated judgment and order dated 28-2-2007 passed by the Income-tax Appellate Tribunal, Lucknow.
2. The brief facts of the case are that Krishi Utpadan Mandi Samitis i.e., assessees were created by a Notification in exercise of power under Section 12 of the Krishi Utpadan Mandi Adhiniyam, 1964 with the object to regulate the sale and purchase of the agricultural produce and also to develop the facilities for the farmers, so that the farmers can get best price of their produce without middlemen. It was provided by the said Act that in every market area, there shall be a committee to be called 'Krishi Utpadan Mandi Samiti' of that area. Section 13 of the U.P. Krishi Utpadan Mandi Adhiniyam, 1964 provides for the constitution of the committee. The committee was authorised to charge the fee as 'Mandi Shulk' and also other charges for providing the warehousing facilities. Under Section 12(2), each committee was declared as a local authority'. By virtue of Section 10(20) of the Income-tax Act, these committees were exempted from the clutches of the Income-tax Act. However, the said provision was amended with effect from 1-4-2003 and these assessees were brought under the purview of the Income-tax Act. So these committees claim to be charitable institutions. For this purpose, necessary applications were made under Section 12A which were rejected by the Commissioner of the Income-tax Department but the said registration was granted by the Tribunal vide its impugned order.
3. Not being satisfied, the department has filed the present appeals under Section 260A of the Income-tax Act.
4. On 21-4-2008 and 15-5-2008, this Court has admitted these appeals on the following substantial questions of law:
I. Whether on the facts and in the circumstances of the case the learned Income-tax Appellate Tribunal was justified in condoning the delay in filing the application for registration without making a case of 'sufficient cause' in the instant case.
II. Whether the learned Income-tax Appellate Tribunal was justified in allowing the registration under Section 12AA even after accepting the facts as correct which were mentioned in the order under Section 12AA, and which were violative of provisions of Sections 11 and 12 of the Income-tax Act.
III. Whether the learned Income-tax Appellate Tribunal's decision to waive/relax the statutory conditions laid down under Sections 11 and 12 for grant of Registration under Section 12AA was in accordance with law and the facts.
Substantial Question of Law No. 1
5. Regarding the delay, Shree D.D. Chopra, learned Counsel for the appellant-Department submitted that the Tribunal has not properly adjudicated this issue. The Tribunal in a casual manner has condoned the delay by merely stating that delay is condoned. He submitted that in the instant cases, the application for registration under Section 12A was submitted belatedly.
6. Learned Counsel for the appellant submitted that Section 12A(1) of the Income-tax Act, provides that the provisions of Sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the conditions mentioned therein are fulfilled. The said provision reads as under:
12A. Conditions for applicability of Sections 11 and 12.- (1) The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under Section 12AA:
Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of Sections 11 and 12 shall apply in relation to the income of such trust or institution,-
(i) from the date of the creation of the trust or the establishment of the institution if the Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;
7. According to him, the first condition is that an application in the prescribed form and in the prescribed manner is to be submitted before the expiry of a period of one year from the date of creation of trust or the establishment of the institution. It is further provided that where the application is made after the period aforesaid, the provisions of Sections 11 and 12 shall be applicable from the date of the creation of the trust or the establishment of the institution if the Commissioner is satisfied that the person was prevented from making the application before the expiry of period aforesaid for sufficient reasons, Where the Commissioner is not so satisfied, it shall be applicable from the first day of the financial year in which the application is to be made, which was 1-4-2005 in the case of the assessees.
8. Regarding the delay after 1-4-2002, it was submitted that the income of the assessee was exempt under the then Section 10(29), which was omitted with effect from 1-4-2002. Since the applicant had itself submitted that it was aware of the fact that Section 10(29) was omitted and since it wanted exemption under Section 11 of the Act, it should have filed the application for registration immediately after the Finance Act, 2002 came into force i.e., 1-4-2003. No reason had been given for the delay from 1-4-2003 till 27-3-2006 when the application was filed for the first time and, therefore, there is no sufficient reason to believe that the applicant was prevented from filing the application within time. The Commissioner of Income-tax has already passed an order under Section 12AA of the Act, after elaborately discussing all the relevant facts and made out a case that the assessee failed to show sufficient reason in filing application beyond time and refused to condone the delay. On the aforesaid premise, the learned Counsel for the appellant prayed that the impugned order be set aside.
9. On the other hand, Sri Amit Shukla, learned Counsel for the assessee relied on the order of the Tribunal of Allahabad Bench where the matter pertaining to the other Mandi Samitis were discussed (ITA Nos. 520 to 531 of 2006, dated 9-1-2007). He submitted that prior to 1-4-2003, the said Samitis had never filed their income-tax return by claiming exemption under the then Section 10(20) of the Income-tax Act by having the status of 'local authorities'. Similarly, the exemption was also available to the Mandi Sumitis under Section 10(29) being the activities carried by them incidental to the warehousing facilities to the farmers. He submitted that prior to the assessment year 2003-04, question of filing the return or getting the registration under Section 12 A had not arisen. The applications for registration under Section 12A were supposed to be filed with effect from 1-4-2003 relating to the assessment year 2003-04 but the same was filed belatedly. For condoning the delay, the Tribunal has relied on various decisions given by the different Benches of the Tribunal. He also submitted that prior to 1-4-2003, assessees were not required to file income-tax return and there was no necessity for filing application for registration under Section 12A of the Act. When the approval of the competent authority was obtained only then applications for registration under Section 12A along with the prayer of condonation of the delay were filed. The delay in filing application was bona fide and Tribunal has rightly condoned it. Thus, there were sufficient reasons for condoning the delay. Lastly, he justified the impugned order passed by the Tribunal.
10. We have heard the learned Counsel for both the parties at length and gone through the material available on record.
11. Section 12(2) of the U.P. Krishi Utpadan Mandi Adhiniyam, 1964 states that the Committee shall be deemed to be a 'local authority'.
12. Therefore, it is evident that prior to 1-4-2003 (Assessment year 2003-04), assessees being the 'local authorities' income from house property and other income enumerated under Sections 10(20 and 10(29) were not to be included in computing the total income. These provisions read as follows:
10. Incomes not included in total income.- In computing the total income of a previous year of any person, any income falling within any of the following Clauses shall not be included-
(1) ** ** **(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;
** ** **(29) 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;
13. Sections 10(20) and 10(29) were deleted by the Finance Act, 2002 with effect from 1-4-2003. So, only for the assessment year 2003-04 and onwards, the assessee in order to claim exemption required to seek registration under Section 12AA read with Section 12A of the Income-tax Act, 1961.
14. Section 12A(1)(z) of the Income-tax Act, specifically states that the delay can be condoned by the Commissioner in case of Trust or institution. Thus, there is a provision for condoning the delay in making the registration under Section 12A. Under Section 12A, one of the conditions for registration is the submission of the application in the prescribed form during the time specified in Clause (a) of the section. In most of the cases, CITs have condoned the delay. The proviso (i) to Section 12A(1)(a) contained a provision for condonation of delay. All charitable and religious trusts, desiring to avail the benefits of tax exemptions under Sections 11 and 12 were, inter alia, required to file application under Section 12A in Form 1OA for registration of the institution before the Commissioner. The proviso to Clause (a) has been substituted by the Finance Act, 1991 with effect from 1-10-1991 and provides that if an application for registration of the trust is made after the specified period, the Commissioner may register the trust or institution from the date of creation of the trust or the establishment of the institution if he is satisfied, for reasons to be recorded, that the person was prevented from making the application before the expiry of the period for sufficient reasons. If he is not so satisfied, the registration would take effect from first day of the financial year in which the application is made as per (ii) proviso to Section 12A(1)(a) which reads as under:
(ii) from the 1st day of the financial year in which the application is made, if the Commissioner is not so satisfied:
Provided further that the provisions of this Clause shall not apply in relation to any application made on or after the 1st day of June, 2007.
15. In the instant cases, prior to 1-4-2003 registration under Section 12A of the Act was not needed for the reason that the respondent assessees were enjoying the exemption by virtue of Section 10(20) as well as Section 10(29) of the Act before its deletion. After the amendment in Section 10(20) brought by the Finance Act, 2002, the assessees were required to get registration under Section 12A with effect from 1-4-2003. Almost in all the cases, for this purpose, after getting necessary permission, applications were filed in the month of March, 2006. So, the assessees were eligible to get registration in normal course with effect from 1-3-2006 (Assessment Year 2006-07) by virtue of Proviso (ii) of Section 12A(1)(a) of the Act (supra). Hence, before us the issue for condoning the delay is pertaining to 1-4-2003 to 31-3-2005, i.e., assessment years 2003-04,2004-05 and 2005- 06 (total three years). For condoning the delay for these three years, it may be mentioned that in Ananda Marga Pracharaka Sangha v. CIT : [1996] 218 ITR 254 : [1994] 76 Taxman 88 (Cal.), it was observed that the condonation of delay may relate back to the very date of creation of the trust or institution. However, it has been now made clear by the proviso with effect from 1-10-1991, that it is possible to grant the registration with effect from the date of creation. Where delay is not condoned, it can be effective from the year of application.
16. In the case of Society of Divine Providence v. Union of India : [1999] 235 ITR 339 : 102 Taxman 42 (MP), it was observed that the authority has to see whether or not there were sufficient reasons which prevented the person from making the application within the prescribed period and not the total period after which the application was made. The rejection of the reasons as 'Not satisfactory' is a conclusion and cannot be a reason by itself, so that it was necessary for the Commissioner to have given reasons why the explanation was not considered satisfactory.
17. In the instant case, it has been emphasized that the Commissioner has not condoned the delay by merely mentioning that the application is time-barred. He has observed in para 7 of his order dated 29-9-2006:.No reason had been given for the delay from that day till 27-3-2006 when the application was filed and, therefore, there was no sufficient ground to believe that the applicant was prevented from filing the application. On this ground also, the delay after 1-4-2006 cannot be condoned.
18. The Commissioner has not recorded any specific reason for not condoning the delay. From the record, it appears that in the instant case up to 1-4-2003, the assessees were enjoying the exemption under Section 10(20) as well as Section 10(29) of the Income-tax Act. It is only when Section 10(20) was amended, then the assessees were supposed to make a necessary application for seeking the registration under Section 12A of the Act. But some officers were under bona fide belief that status quo was continuing and there was no need to obtain registration under Section 12A of the Act or they were not aware of the requirement of registration. So, the delay appears due to bona fide belief.
19. Undoubtedly, the assessees are statutory bodies. For this purpose, they will have to seek permission from their controlling authority and only after having the approval from the authority and legal advice, which takes considerable time in case of public bodies, the assessees have filed the application for registration under Section 12A of the Act. Hence, we are of the view that there was sufficient reason for condoning the delay and the Tribunal has rightly condoned the delay in the instant cases.
20. In the light of above discussion and by considering the totality of the facts and circumstances of the case, we find no reason to interfere with the order of the Tribunal who has rightly condoned the delay for the above mentioned three assessment years.
21. This question of law is answered in affirmative in favour of the assessees and against the department.
22. As substantial questions of law Nos. 2 and 3 are interconnected, we deem it expedient to consider them together.
Substantial Questions of Law Nos. 2 and 3
23. Learned Counsel for the appellant submits that the assessees are not fulfilling the condition of the registration mentioned in Section 12A of the Act and their activities are not charitable. He further submits that the assessees have diverted their fund to the Mandi Parishad after deducting about 10 per cent of the office expenses. For this purpose, he has relied on the ratio laid down in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association : [1980] 121 ITR 1 : [1979] 2 Taxman 501 (SC) where it was observed that the Trust or the institution would not be liable to be regarded as charitable and no part of its income would be exempted from tax if the primary or dominant purpose is not charitable and, accordingly, no part of its income would be exempted from tax. Learned Counsel also relied on the ratio laid down in the case of Yogiraj Charity Trust v. CIT [1916] 103 ITR 777 that even if one of the objects of the Trust is not charitable, the exemption to the assessee under Section 11 of the Act is not allowable. He further submits that in the instant cases, the Mandi Samitis in the name of charitable activities had diverted their fund to Mandi Parishad/Board for construction of roads etc. According to him, Mandi Parishad (Apex Body) did not qualify for registration under Section 12A of the Income-tax Act. As such, the Samitis are not doing any charitable activities themselves for general public and simply collecting Mandi fee. Moreover, the nature of the activities of the Samitis are just like any other business. Further, bye-laws of the Samitis are not being followed by the Samities and Parishad/Board in toto. Parishad keeps about 20 per cent of funds for its office expenses for construction and electrical maintenance of the office etc. Since the activities and funds utilisation is mostly on administrative expenses, the requirement of Section 12A regarding genuineness of activities are not fulfilled. Lastly, he relied on the case-laws already discussed by the CIT in his order dated 29-9-2006.
24. On the other hand, learned Counsel for the assessees relied on the impugned order passed by the Tribunal. He further submits that the Mandi Samitis are doing the work of general public utility by providing services to farmers for selling their agricultural produce at the best price without any middlemen. Hence, the registration was rightly granted by the Tribunal under Section 12A of the Act with effect from 1 -4-2003. Further, he read out the impugned order passed by the Tribunal where it was observed that-
We have carefully considered the impugned order(s) of the CIT(s) passed in the cases of the above assessee(s), the earlier order(s) of the Tribunal and have also carefully considered the submission of the Id. D.R. There is no dispute to the fact that the nature and objects of these assessee(s) are identical to the case of those assessee(s) which have been considered by ITAT, Allahabad Bench as well as ITAT, Lucknow. A Bench in the appeal(s) (supra) and also order(s) passed by CIT(s) giving same reasons as have been given by the CIT(s) in the impugned order(s) while refusing registration under Section 12AA of the Act. Not only this, the Id. D.R. has also not disputed the fact that on similar facts and circumstances, some of the CIT(s) to the similar Mandi Samitis of other areas in the State of U.P. have granted registration under Section 12AA of the Act considering that the activities of these Mandi Samitis are charitable in nature.
25. To support his submissions, the learned Counsel for the assessees also relied on the ratio laid down in the following cases-
CIT v. Krishi Upaj Mandi Samiti [2008] 218 CTR (MP) 512 (sic)
CIT v. K.U.M.S. (2008) 216 CTR (Raj.) 277
CIT v. Market Committee : [2007] 294 ITR 563 : [2008] 166 Taxman 392 (Punj. & Har.)
CIT v. Agricultural Produce & Market Committee : [2007] 291 ITR 419 : 163 Taxman 359 (Bom.)
CIT v. Red Rose School (2007) 163 Taxman 19 (All).
26. He also submitted that in all the above mentioned cases, the activities of Mandi Samiti were accepted as a charitable activity and registration was granted under Section 12A of the Income-tax Act. Lastly, he made a request that the registration granted by the Tribunal may kindly be upheld.
27. We have heard the learned Counsel for the parties and gone through the material available on record.
28. It is an admitted fact that the assessees were created under the Krishi Utpadan Mandi Adhiniyam, 1964. Section 12 of the said Act provides for establishment and incorporation of Committee (Samiti), the same reads as follows:
12. Establishment and incorporation of Committee.- (1) For every Market Area there shall be a Committee to be called the Mandi Samiti of that Market Area, which shall be a body corporate having perpetual succession, and an official seal and, subject to such restrictions for qualifications, if any, as may be imposed by this or any other enactment, may sue or be sued in its corporate name and acquire, hold and dispose of property and enter into contract:
Provided that the Committee shall not transfer any immovable property except in accordance with a resolution duly passed at any of its meetings by a majority of not less than three-fourths of the total number of its members and with the previous approval in writing of the Board.
(2) The Committee shall be deemed to be a local authority for the purposes of Land Acquisition Act, 1894 and any other law for the time being in force.
29. Accordingly, the Samitis were considered as 'local authorities' and were exempted from the clutches of Income-tax Act by virtue of Section 10(20) of the Income-tax Act prior to 1-4-2003 when Section 10(20) was amended,
30. Functions and duties of the Committees are defined under Section 16 of the said Act. The same reads as follows:
16. Function and duties of the Committee.- (1) A Committee shall enforce the provisions of this Act, the rules and bye-laws made thereunder in the Market Area, provide such facilities for sale and purchase of specified agricultural produce therein, [as may be specified in any directions given by Board to the Committee from time to time] or considered necessary by the Committee and do such other acts as may be necessary for regulating sale and purchase of specified agricultural produce in that Market Area, and for that purpose may exercise such powers and perform such duties, and discharge such functions as may be provided by or under this Act.
(2) Without prejudice to the generality of the provisions contained in Sub-section (1), a Committee shall-
(i) ensure fair dealing between the producers and persons engaged in the sale or purchase of specified agricultural produce;
(ii) ensure prompt payment to the [sellers] in respect of specified agricultural produce sold by them in the Principal Market Yard or Sub-Market Yards;
(iii) grade and standardize specified agricultural produce;
(iv) check and verify weights, measures, weighing and measuring instruments used in the Market Area, and report infringement of the provisions of the U.P. Weights and Measures (Enforcement) Act, 1959,tothe authorities concerned;
(v) collect and disseminate all such informations as may be of advantage to the producers and other persons engaged in the sale or purchase of specified agricultural produce and in particular keep itself informed of the prevailing prices of such agricultural produce at places where it can be profitably exported and from where it can be economically imported in the Market Area;
(vi) standardise and regulate trade charges, market practices and customary methods of sale and purchase of specified agricultural produce;
(vii) provide suitable amenities in the Principal Market Yard and Sub-Market Yards to the producers and persons engaged in transactions of sale or purchase therein, and in particular to construct, repair and maintain roads, pathways, market lanes and bye-lanes, shops, shelters, parking places, accommodation for storage, and such other amenities and facilities as may be prescribed in this behalf;
(viia) provide suitable facilities, for the proper development of hats and painths in the market area and to the persons engaged in transactions of sale and purchase therein;
(viib) construct, repair and maintain link roads, path ways, market lanes and bye-lanes in the market area;
31. Further, Section 19 of the Act provides for establishment of market funds and its utilization, the same reads as under:
19. Market Committee Fundand its utilization.- (1) There shall be established for each Committee, a fund to be called 'Market Committee Fund' to which shall be credited all moneys received by it including all loans raised by it, and advances and grants made to it.
(2) All expenditure incurred by the Committee in carrying out the purposes of this Act, shall be defrayed out of the said fund, and the surplus, if any, shall be invested in such manner as may be prescribed.
(3) Without prejudice to the generality of the provisions contained in Section 16, the Committee may utilize its funds for payment of all or any of the following:
(i) expenses incurred in auditing the accounts of the Committee;
(ii) salaries, pensions and allowances including allowances for leave, gratuities, compassionate allowance, medical aid and contributions towards provident fund and pensions of the officers and servants employed by or for it;
(iii) expenses of and incidental to elections under this Act;
(iv) the principal amount of or interest on loans and advances referred to in Clause (x) of Sub-section (2) of Section 16;
(iv-a) the rent of and taxes on any land and building in possession of the Committee;
(v) expenses on collection, maintenance, dissemination and supply of all such information as may be of interest to the producers and other persons engaged in sale and purchase of agricultural produce including that relating to crop statistics and market intelligence;
(vi) cost of land or buildings acquired for the purposes of this Act;
(vii) cost of construction and repairs of buildings necessary for the Market Yards and for the health, convenience and safety of the persons using them;
(viii) cost of maintenance, development and improvement of the Market Yards;
(ix) expenses in providing facilities and comforts such as shelter, shed, parking accommodation and water for persons, draught-cattle, pack animals and vehicles coming to the Market Area and on agricultural improvement and development of agricultural marketing in the Market Area including the construction, maintenance and repair of link roads, culverts, bridges and other such purposes;
(x) travelling and other allowances to the members of the Market Committee;
(xi) loans and advances to the employees of the Market Committee; and
(xi-a) financial assistance to charitable institutions approved by the Board or recognized educational institutions, subject to a maximum of two per cent of total receipt [excluding money raised under Clause (v) of Section 17 and grants made by Government] in the previous financial year;
(xii) such other expenses as may be prescribed:
Provided that the annual expenditure in respect of matters specified in Clause (ii) shall not exceed ten per cent of the total annual receipts of the Committee, excluding loans raised by it and advances or grants made to it except with the prior approval of the Board:
Provided further that all moneys realized as additional market lee under the Uttar Pradesh Krishi Utpadan Mandi (Amendment) Ordinance, 1983 (U.P. Ordinance No. 40 of 1983), shall be utilized in the Market Area only for the purposes specified in Clause (a).
(5) Every Committee shall, out of its total receipts [excluding moneys raised under Clause (v) of [Section 17, money realized as development cess and grants made] by the State or Central Government in the financial year, pay to the Board as contribution such amount not exceeding fifty per cent of the first fifty lakh rupees of the receipts as the State Government may, by notification, declare from time to time, and all receipts exceeding fifty lakh rupees.
(6) Every Committee shall pay to the Board every month all moneys realized as development cess which shall be credited to the Central Mandi Fund established under Section 26PPP.
32. Section 26PP and 26PPP of U.P. Krishi Utpadan Mandi Adhiniyam, 1964 provides the utilization and control of the funds and said Section reads as follows;-
26PP. Uttar Pradesh State Marketing Development Fund.- (1) There shall be established for the Board, a Fund, to be called the 'Uttar Pradesh State Marketing Development Fund' to which the following amounts shall be credited, namely:
(a) all contributions received from the Committees under Sub-section (5) of Section 19 except such percentage thereof as the State Government may direct to be credited to the Board's Fund;
(b) such other amounts as the State Government or the Board may direct.
(2) The fund established under Sub-section (1), shall subject to the provisions of this Act, be utilized by the Board for the following purposes, namely:
(i) facilities to the agriculturists, other producers and payers of market fee in the market area;
(ii) development of principal market yards, sub-market yards, hats and painths and construction of new Market Yards in the market area;
(iii) construction, maintenance and repairs of link roads, market lanes and other development works in the market area;
(iv) market survey and research, grading and standardization of specified agricultural produce;
(v) propaganda, publicity and extension services and the matters relating to the general improvement of the conditions of buying and selling of specified agricultural produce;
(vi) aid to financially weak and under-developed committees in the form of loans and grants;
(vii) acquisition or construction, or hiring on lease or otherwise of buildings or land for performing the duties of the Boards;
(viii) better development of market areas and control of market committees;
(ix) Meetings and legal expenses;
(x) training of officers and staff of the market committees in the State;
(xi) technical assistance to the market committees in the preparation of site plans and estimates of construction and in the preparation of project reports of master plans for development of principal market yards and sub-market yards and market areas;
(xii) internal audit of the Board and the market committees;
(xiii) matters specified in Sections 16, 19 and 19B not covered by the preceding clauses;
(xiv) any other purpose, to give effect to the provisions of this Act or generally to regulate marketing of specified agricultural produce.
26PPP. Central Mandi Fund.- (1) There shall be established a Fund to be called the 'Central Mandi Fund' to which the following amount shall be credited, namely:
(a) all moneys paid to the Board under Sub-section (6) of Section 19;
(b) such other amount as the State Government or the Board may direct.
(2) The Central Mandi Fund shall be utilized by the Board for the following purposes namely:
(a) assistance to financially weak and underdeveloped Committees in the form of loans or grants.
(b) construction, maintenance and repairs of market yards, links roads, culverts and other development works in the market area;
(c) grants or loans to the Committees for development works;
(d) such other purposes as may be directed by the State Government or the Board in such manner as may be prescribed.
33. As stated above, vide Section 12(2) of the U.P. Krishi Utpadan Mandi Adhiniyam, 1964, Mandi Samitis were declared as local authorities. Hence prior to 1-4-2003, they were enjoying the exemption under Section 10(20) and 10(29) of the Income-tax Act. When these provisions, were amended with effect from 1-4-2003, then the necessity arose to register these institutions under Section 12A of the Income-tax Act. It may also be mentioned that in view of the objects, we do not see any good reason for holding that statutory bodies like market board and market committees under reference could not be treated as 'charitable' within the meaning of Section 2(15) of the Income-tax Act.
34. The word 'charitable' has been defined in Section 2(15) of the Income-tax Act which may be read as under:
(15) 'charitable purpose' includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;
35. As mentioned earlier, the object to establish market committee and board is to regulate purchase, sale, storage and processing of agricultural produce through establishment of market committees, market yards and trusts. The dominant objects of board and committees are to save agriculturists from exploitation of middleman and to provide remunera tive price to the agriculturists. It is further to provide better facilities for storage and transportation of food grain. Accordingly, we hold that the object of the boards and committees is to advance objects of general public utility. The learned CITs in the impugned orders have not brought any material on record to show that the assessees were non-charitable institutions, established for personal or private gains. Therefore, we do not find any objectionable material to treat these institutions as non-chari table. The registration under Section 12 A is mandatory to claim exemption under Sections 11 and 13 of Income-tax Act but registration alone cannot be treated as conclusive. It is always open to Revenue authorities, while processing return of income of these assessees, to examine the claim of the assessees under Sections 11 and 13 of the Income-tax Act and given such treatment to these institutions as is warranted by the facts of the case. Revenue authorities are always at liberty to cancel the registration under Section 12AA(3) of the Act which reads as under:
(3) Where a trust or an institution has been granted registration under Clause (b) of Sub-section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution.
36. Moreover, it may be mentioned that the benefit of Section 11 is not absolute or conclusive. It is subject to control of Sections 60 to 63 of the Act. Section 11 reads as follows:
Income from property held for charitable or religious purposes.- (1) Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated to set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;
Thus, Sections 60 to 63 would require the income of settled property to be taxed in the hands of the settler as is the case where there is transfer of income without transfer of assets (Section 60), or the transfer is revocable (Sections 61 to 63) or not revocable for specified period (Sections 62 and 63). When income is so assessed in the hands of the settler by virtue of the operation of the said sections, it will bear full tax without any exemption in the hands of the settler. So, dealing with the exclusion of any income from out of total income on the ground that it belongs to a charitable or religious trust, an inquiry should in the first instance be made whether any portion of the income arising from the settled properties or from properties otherwise transferred is includible in the total income of the charitable or religious trust. If it is found by keeping in view the provisions of Sections 60 to 63 that it is not so includible then such income does not qualify for any relief, in limine, under this section. It shall have to be discarded altogether in the calculation of the fifteen per cent of the income, eligible of being accumulated.
37. It may also be mentioned that similar market committees were set up in Punjab and Haryana, Maharashtra, Madhya Pradesh, Rajasthan and other States. In every State, the arrangement for funds and its bifurcation/allotment collected by and utilization of the same are almost identical. Their Boards or persons, who exercised the control and superintendence of Mandi Samiti are the same in all States.
38. In the similar facts and circumstances of the case, the Income-tax Department has filed an appeal in the case of CIT v. Krishi Upaj Mandi Samiti [2009] 308 ITR 401 : : [2008] 170 Taxman 515 (MP) and the said appeal was dismissed by Madhya Pradesh High Court by observing that the assessee is entitled for registration under Sections 12A and 12AA of the Act. Madhya Pradesh High Court has observed that-
Krishi Upaj Mandis do not have any commercial activity but are constituted under the provisions of the Madhya Pradesh Krishi Upaj Mandi Adhiniyam, 1972, to protect the interest of the farmers and ensure that they are not exploited. The preamble to the Adhiniyam, 1972, under which the Krishi Upaj Mandi is established refers to providing for better regulation of buying and selling of agricultural produce and the establishment and proper administra tion of markets of agricultural produce in the State of M.P. Under the 1972 Adhiniyam, the market committee charges fees for various purposes which have the necessary nexus with the services rendered and thus, quid pro quo. Merely because the charge fees that does not militate against the altruistic purpose for these mandis are established. (p. 402)
39. Against the said order, the department has filed SLP before the Hon'ble Apex Court which was dismissed on 10-11-2008 (SLP No. 27701/2008). Thus the observations made by the Madhya Pradesh High Court attains the finality.
40. In the instant cases, there is no doubt that the object of the market committees established under the Krishi Mandi Utpadan Adhiniyam, 1964 is to regulate the entire marketing of agricultural and some other produce from the stage of procuring till it reaches the ultimate consumer, which is squarely covered within the meaning of the expression 'advancement of any object of general public utility' contained in Section 2(15) of the Income-tax Act.
41. It is contended by the revenue that the assessees are established with profit motive because they are not rendering free services but they are charging cess/fees for their services and, therefore, the assessees are not established for charitable purposes. There is no merit in this contention. The cess/fees are charged by the assessees from the purchasers in the market area at the rate prescribed by the State Government for the purpose of carrying out the object of the Act. As held by the Apex Court in the cases of Surat Art Silk Cloth Mfrs. Association (supra) and in the case of DIT v. Bharat Diamond Bourse : [2003] 259 ITR 280 : 126 Taxman 365 where the dominant purpose of a trust/institution is charitable, incidentally if some profit is made and the said profit is used far charitable purposes, the said trust/institution does not cease to be established for charitable purposes. In the case of the assessees, the dominant object is to regulate procurement and supply of agricultural and some other produce and to meet the expenses required for achieving the said object, the Legislature has empowered the assessees to levy cess/fees. Moreover, surplus remaining in the market fund are ploughed back for carrying out the object for which these Mandi Samitis are established. Thus, the surplus remaining in the market fund is neither distributed nor accumulated as profits. In these circumstances, it cannot be said that the assessees are established with profit motive so as to deny registration under Section 12A/12AA of the Act.
42. It is pertinent to note that prior to April 1, 1984, the words used in Section 2(15) of the Income-tax Act were 'advancement of any other object of general public utility not involving the carrying on of any activity for profit'. By the Finance Act, 1983 with effect from 1st April, 1984, Legislature has omitted the words 'not involving the carrying on of any activity for profit' from Section 2(15) of the Act. Thus, after April 1, 1984, even if there is some profit in the activity carried on by the trust/institution, so long as the dominant object is of general public utility, it cannot be said that the said trust/institution is not established for chari table purposes.
43. It is contended by the revenue that even if the assessees are covered under Section 12A of the Act, they would still not be entitled to exemption because their income is neither derived from the property held under trust not their income is from voluntary contributions made to the institution. There is no merit in this contention because the expression 'property' used in Section 11 of the Act is of wide amplitude and it includes the business undertaking itself. The word 'property' in Section 11 includes immovable and movable property like money, shares, securities etc. Therefore, where a trust/institution fulfils all the conditions mentioned in Section 12A/12AA, registration cannot be denied on the ground that some conditions of Sections 11 and 12 are not fulfilled.
44. As stated earlier, even after registration, unless the condition set out in Sections 11 and 13 of the Act are complied with, no benefit would be available to the registered trust or institutions. Therefore, in the facts of the present case, the decision of the Tribunal that the assessees who fulfil all the conditions are entitled to registration cannot be faulted. The contention of the revenue that the assessees are not registered as an institution and hence not entitled for registration is also without any merit, because, there is no requirement under the Act that an institution constituted for advancement of any object of general public utility must be registered as a trust.
45. In the result, the questions of law raised herein are answered in the affirmative that is in favour of the assessees and against the revenue.
46. All these appeals are dismissed accordingly. No order as to costs.