Krishi Upaj Mandi Samiti Vs. Commissioner of Income-tax - Court Judgment

Excerpt:
1. the rejection of application under section 12a seeking registration of the assessee-applicant as a charitable trust/institute has been questioned on several grounds running in 13 numbers.2. we have heard the arguments advanced by the parties at length and considered the same in view of the impugned order, material available on record and the decisions relied upon by the parties.3. there is no dispute on facts that the krishi upaj mandi samiti, hindaun-city, i.e., the applicant, is a committee constituted under the rajasthan agricultural produce markets act, 1961 (in short as the "markets act"), dated march 12, 1965, giving a status of a society and the market area, markets proper, principal market yard and sub-market yard, etc. thereof were declared by the notification dated october 30, 1965. the applicant-samiti works through a committee constituted under section 7 of the markets act, which consists of 15 members elected directly or indirectly by the inhabitants of the area, i.e., 7 by agriculturists, 2 by traders, 2 by cooperative societies or the agencies and remaining are the representatives of the panchayat or municipal council or municipal board or the state government.alternatively, the state government can appoint the administrator under section 27a. the secretary is also a whole-time employee of the government. being a state organ, the income or surplus, if any, of the applicant was immune from union taxation in view of article 289 of the constitution of india. since the date of coming into existence of it, i.e., 1965, neither it was called for to file the return of income nor any income-tax was levied on it by the income-tax authorities till the assessment year 2002-03. in the assessment year 2003-04, the income-tax authorities called the assessee to file of the return of income on the basis that in view of insertion of an explanation to section 10(20) by the finance act, 2002, with effect from april 1, 2003 defining the expression "local authority", exemption under clause (20) of section 10 of the income-tax act is, therefore, not available to the applicant-samiti. the, applicant made an application for granting of registration under section 12a(a) of the income-tax act in prescribed form no. 10a to the learned chief commissioner of income-tax, kota on october 21, 2005, providing copies of three years account with an application for condonation of delay on december 12, 2005. the learned commissioner of income-tax, vide his order dated april 17, 2006, held that the applicant does not meet with the mandatory conditions laid down under section 12a and rejected the same. against this order, the applicant is in appeal before us.4. the applicant has questioned the order dated april 17, 2006 of the learned commissioner of income-tax mainly on the grounds that the learned commissioner of income-tax was not justified in not condoning the delay and not granting the registration with effect from april 1, 2003, i.e., from the assessment year 2003-04 with these observations that the predominant object and the activities of the assessee are not charitable in nature; the applicant-samiti has not been established to prevent the exploitation of the farmers/agriculturists by the middlemen; activities of the applicant are as the business activities; there is no restriction about the application of income and it can be applied for other purposes than the predominant object of the applicant; the applicant is a profit motive institution; the genuineness of the activities of the applicant being charitable in nature is not verifiable; surplus of income over expenditure during the different years is not as prescribed under the provisions of sections 11 and 12 of the act; and the audit report under section 12a(b), read with rule 17b was not furnished in prescribed time along with the return of income.5. in support of these grounds, the learned authorised representative submitted that while rejecting the application for condonation of delay in filing the application for registration and rejecting the registration, the learned commissioner of income-tax has thoroughly failed to appreciate that under the similar facts and circumstances in the case of market committee, sullar gharat v. cit [2005] 94 ttj 692 and agricultural produce and market committee v. cit the delhi and nagpur benches of the tribunal have allowed the applications for condonation of delay and directed the learned commissioner of income-tax to allow the applications for registration under section 12a(a) of the act. on the application for condonation of delay, the learned authorised representative submitted that earlier, the assessee-samiti was considered to be a 'local authority' within the meaning of section 10(20) of the act entitling exemption from the payment of income-tax and consequently, the revenue never called the assessee for filing of the return of income since the date of its establishment. but, after insertion of the explanation to section 10(20) by the finance act, 2002, with effect from april 1, 2003, the assessee was called for to file the same for the first time for the assessment year 2003-04. ultimately, the assessment was made, which was subjected to the appeal no. 355/2004-05 pending for disposal before the learned commissioner of income-tax (appeals). the first appeal was decided while giving part relief of rs. 19,20,000 to the assessee. a second appeal has been preferred against this order, which is pending before the tribunal. the officials of the assessee-samiti were in utter pressurizing situations in facing the recovery proceedings of the revenue and the matter was being discussed at high level, i.e., at the marketing board level. ultimately, the decision of the board to claim the charitable exemption by filing the abovereferred application under section 12a of the act was received by the officials on or about september 25, 2005, and having completed the requisite formalities, the application under section 12a of the income-tax act seeking registration and charitable exemption was filed on november 21, 2005.it was, thus, submitted by the learned authorised representative that the delay in filing of the application was not deliberate, intentional and not suffered with mala fideness or element of recklessness or ruse on the part of the assessee-samiti but the same is bona fide one that needs to be condoned for the advancement of substantial justice. he submitted again that the application for condonation of delay was supported by an affidavit, a copy whereof has been placed at page no. 3 of the paper book. in this regard, he also placed reliance on the aforesaid decisions of the tribunal in the cases of market committee, sullar gharat v. cit [2005] 94 ttj 692 (delhi) and agricultural produce and market committee v. cit [2006] 283 itr (at) 178 (nagpur) : [2005] 97 ttj 165, wherein under the similar facts and circumstances, the tribunal had condoned the delay in filing the applications under section 12a of the act. he also cited the following decisions: (2) all india primary teachers federation v. dit (exemption) [2005] 93 ttj 155 (delhi); (3) motilal padampat sugar mills co. ltd. v. state of u.p. ; (4) venkatesha education society v. dit (exemptions) 90 ttj 850 (bang); and 6. the learned authorised representative also pointed out that the assessee maintains regular and proper books of account supported by records. it opts for cash system of accounting. the accounts, vouchers and supporting records are kept and maintained as required under the income-tax act, 1961. the books of account are audited by the auditors of the local self government, i.e., by the directorate of the local fund audit department governed under the provisions of the rajasthan local fund act. the assessee with its submission dated november 28, 2005, also submitted the copies of the audit reports of last three years of the auditors of the local self government under the provisions of the rajasthan local fund act. copies of the returns of income for the assessment years 2004-05 and 2005-06 and audit report in form no.3ca/3cd were also filed duly certified by the chartered accountant for the assessment year 2005-06. the applicant also filed the copies of the audit reports under section 12a(b) in prescribed form no. 10b for the assessment years 2003-04, 2004-05 and 2005-06 duly certified evidencing the application of income for charitable purposes.7. the learned departmental representative, on the other hand, opposed the arguments advanced by the learned authorised representative in support of the application for condonation of delay. he submitted that there was no reasonable cause for condonation of delay as the applicant had failed to explain the delay and the reason shown that they were not aware of the law is no excuse. the unawareness of law is not sufficient reason for the delay.8. after considering the above arguments advanced by the parties and the decision relied upon by the learned authorised representative, we are of the view that there was reasonable cause for delay in filing the application under section 12a of the act as earlier the applicant was entitled for exemption from the payment of income-tax being considered to be a "local authority" within the meaning of section 10(20) of the act and, thus, the revenue never called the assessee for filing of the return of income since the date of its establishment in the year 1965.the assessee was called on to file the return of income for the first time for the assessment year 2003-04, only after insertion of the explanation to section 10(20) by the finance act, 2002 with effect from april 1, 2003, which the assessee filed in response and assessment was also made, now pending adjudication before the tribunal. the matter was being discussed at high level and ultimately the decision of the board to claim charitable exemption by filing application under section 12a of the act was received in the office of the applicant on september 25, 2005, and after completing the required formalities, the applicant was able to file the same on november 21, 2005. it is a well established position of law that the application for condonation of delay is required to be considered liberally. for condonation of delay, the reasonable cause for the delay is to be seen under the background of facts and circumstances of that case. in the present case, the background of the applicant that it is a society under the government supervision wherein each and every major decision is taken by the marketing board level, which requires lot of formalities and consideration at different levels. in such type of organization or government body or even other government departments taking any major decision always is time consuming, which expects a liberal consideration. under similar circumstances, the delhi and nagpur benches of the tribunal in their respective cases of market committee, sullar gharat v. cit [2005] 94 ttj 692 (delhi) and agricultural produce and market committee v. cit have condoned the delay in filing the applications under section 12a of the act. under these facts and circumstances, we are satisfied that there was reasonable cause for the delay and thus we condone the delay in filing the application for registration under section 12a of the act with direction to treat the application under section 12a for the registration with effect from april 1, 2003, i.e., from the assessment year 2003-04. grounds nos. 1.1 and 1.2 are, thus, allowed in favour of the applicant.9. in support of the other grounds regarding rejection of application for seeking registration under section 12a of the act on different basis (ground nos. 1.4 to 1.13), the learned authorised representative submitted that the predominant object behind establishment of the assessee-samiti has been provided specifically in its constitution, i.e., in the agricultural produce markets act, 1961 in terms of preamble as follows: an act to provide for the better regulation of buying and selling of agricultural produce and the establishment of markets for agricultural produce in the state of rajasthan.10. for the attainment of the said objects, the mandi committees including assessee-samiti have been constituted in the state of rajasthan. regarding accumulation of income in the last three years, the learned authorised representative submitted that the applicant-samiti is not maintaining any reserve fund for the purposes of accumulation. the figures of the closing cash and bank balances, income and its application in last three years are as under:------------------------------------------------------------------------------------------ f.y. cash bank imp total income application of2001-02 36,733.00 4,39,423.71 200.00 4,76,356.712002-03 37,018.04 15,17,016.81 200.00 15,54,234.85 1,09,04,174.14 96,21,206.002003-04 1,403.00 30,47,109.20 200.00 30,48,712.20 1,91,02,023.35 1,73,50,770.002004-05 5,708.00 2,30,122.08 200.00 2,36,030.08 1,36,26,029.88 1,64,11,489.00------------------------------------------------------------------------------------------ 11. in view of the above, there was no accumulation in the last three years. only cash and bank balances were maintained up to a certain extent in order to meet the primary operating expenses, submitted by the learned authorised representative.12. regarding business activities and grant of charitable exemption, the learned authorised representative submitted that being the assessee-samiti created with the predominant charitable legal obligation arising out of the confidence reposed in, declared and accepted by the government of rajasthan vide the markets act for the benefit of agriculturists in order to secure better and adequate prices for their produce and to protect them from being exploited by the middlemen and profiteers and also to provide the quality of goods at fair market value to the consumers irrespective of any particular religion, community and caste, as such, the same is a trust within the meaning of sections 11 and 12a of the act. and being the activities of the assessee-samiti fall under the words "...advancement of any other object of general public utility" under section 2(15) of the income-tax act, 1961, hence the same is entitled to exemption under section 11 of the act of 1961.13. on the allegation of running of business activities, the learned authorised representative submitted that the applicant-samiti is not engaged in business activities as it is not marketing the notified goods but just regulating and controlling the market affairs so as to achieve its predominant object. the activities of the assessee-samiti do not fall under the definition "business" as it has no profit motive.it applied its receipts for charitable purposes as the same is evident from the chart furnished hereinabove and income and expenditure accounts and the note regarding activities filed earlier. even, the activities of the assessee-samiti cannot be said to be business activities merely on the basis that some profits arise out from its activities. in alternative, he submitted that the activities of the assessee-samiti in regularizing the agricultural market in its defined area and realizing of mandi fee are incidental to the attainment of its predominant objectives, hence the same is entitled to the exemption under section 11 of the act in view of section 11(4) and 11 (4a) of the income-tax act. he places reliance on the decision of the hon'ble jurisdictional high court in the case of umaid charitable trust v. cit . he also referred circular no. 642, f. no.in this regard, a copy whereof has been placed at page no. 6 of the paper book.14. the learned authorised representative submitted further that with the application under section 12a, audit report is not required to be filed, it is to be filed under section 12a(b) of the income-tax act with return of income having obtained the certificate. in this regard, he referred the central board of direct taxes instruction no. 1/1148, a copy whereof has been placed at page no. 35 of the paper book. in this board's instruction, it has been made clear that in cases where for reasons beyond the control of the assessee some delay has occurred in filing the auditor's report along with return, the exemption as available to such trust under sections 11 and 12 may not be denied merely on account of delay in furnishing the auditor's report and the income-tax officer should record reasons for accepting a belated audit report. he placed reliance on the following decisions in this regard: (3) cit v. rai bahadur bissesswarlal motilal mahvasie trust ;commissioner of agricultural income-tax v. rubber board ; andcoffee board v. deputy commissioner of agricultural income-tax .15. the learned departmental representative, on the other hand, justified the action of the learned commissioner of income-tax with this submission that section 22-j of the rajasthan agricultural produce markets act, 1961, does not reflect charitable purposes. the learned departmental representative submitted that the requirement under section 12a(b) of filing the audit report along with the return of income is mandatory so as to disentitle the trust from claiming exemption under sections 11 and 12 in case of omission to furnish such report in the prescribed form along with the return. the learned commissioner of income-tax in the present case was neither satisfied with the genuineness of the object nor the activities in absence of the documents like audited account. the accounts must be audited to secure that it is free from discrepancies. if accounts are not audited it indicates lapses on the part of the assessee. registration in the income-tax act is entirely different from the registration under the societies registration act, since in the case of income-tax the assessee is going to enjoy exemption from taxpayers pocket. the audited account is pre-requirement for application for registration. in article 245(a) to (z) of the constitution of india, there is drastic change with effect from june 1, 1993, leading certain definition about local body, which required amendment in section 10(20) of the income-tax act.the assessee was thus out from the definition of local body with effect from june 1,1993 and the only option left with the assessee was to apply for registration under section 12a for exemption under sections 11 and 12 of the income-tax act. the learned departmental representative referred to the objects of the samiti shown in sections 3, 17 and 18 of the rajasthan krishi upaj mandi adhiniyam, 1961, with the submission that the assessee is acting like a share broker to purchase produce on charging a fee, which has no nexus or connection with any charitable purpose. the words in statute are to be strictly construed as per the established position of law, submitted the learned departmental representative.16. after considering the above arguments of the parties, in view of the decisions relied upon by them and different provisions laid down under the rajasthan agricultural produce markets act, 1961, we are of the view that the krishi upaj mandi samiti constituted under the rajasthan agricultural produce markets act, 1961, as per its constitution, the applicant-samiti has been burdened with legal obligation to regulate the markets for agriculturists in order to secure better and adequate prices for their produce and to protect them from being exploited by the middlemen and profiteers and also to provide the quality of goods at fair market value to the consumers irrespective of any particular religion, community and caste. section 9 of the markets act defines the functions and duties of the assessee-samiti, whereas section 19 thereof defines the working area and scope for which the local fund is constituted under section 18 of the markets act, according to which the funds can be utilized for the purposes which are charitable in nature and are in furtherance to fulfil its legal obligation. the marketing development fund constituted under section 22-i of the markets act can be utilized by the agricultural marketing development board for the specific purposes mentioned in section 22-j of the markets act, i.e., for the achievement of the object of the markets act. the marketing development fund is administered by the board and can be utilized by it for the expenditure incurred in implementation of the object of the markets act and for the purposes mentioned in section 22-j of the markets act. for a ready reference, section 22-j of the markets act is reproduced hereunder: (ii) giving of aid to financially weak market committees in the state in the form of loans and grants to enable them to discharge their duties and functions satisfactorily; (iii) payment of the salaries, allowances, pensions, gratuities; compassionate grants to its employees and contributions towards salaries, allowances, pension and gratuity of the government employees, if any, serving to the board. all expenditures under this clause shall be the first charge on marketing development fund; (iv) payment of travelling and other allowances to the member of the board in the manner prescribed; (v) undertaking education and publicity in relation to matters connected with regulated marketing of agricultural produce in the state; (vii) provision of technical and administrative assistance to market committees including maintenance of staff for rendering assistance to market committees for such purposes as- (viii) training of officers and staff of the market committees and organization of camps, workshop, seminars and conferences; (xi) construction of market yards and sub-yards and leading or transferring these to the market committees; (xii) sanction of loans and advances to its employees in the manner prescribed; (xv) with the prior approval of the government, any other purpose connected with agricultural marketing.17. the applicant-samiti works through a committee constituted under section 7 of the markets act which consists of 15 members elected directly or indirectly by the inhabitants of the area, i.e., 7 by agriculturists, 2 by traders, 2 by cooperative societies or the agencies and remaining are the representatives of the panchayat or municipal council or municipal board or the state government.alternatively, the state government can appoint the administrator under section 27a. the hon'ble jurisdictional high court in the case of narayan harishankar v. state [1977] rlw 485 has been pleased to hold the markets act to be meant for public purposes and the hon'ble madras high court in the case [1968] ilr 2 mad 449 also held the similar statute and the committees working thereunder to be for public purposes. in the case of kewal krishan puri v. state of punjab , the hon'ble supreme court has been pleased to hold the object of the act is for supervision and control of the transactions of purchase by the traders from the agriculturists in order to prevent exploitation of the later by the former. the preamble of the markets act, which reads as "an act to provide for the better regulation of buying and selling of agricultural produce and the establishment of markets for agricultural produce in the state of rajasthan" the very aim and objects of the samiti, which as per definition under section 2(15) of the act falls under the words "...advancement of any other object of general public utility". there is no doubt that the farmers who are around 70 per cent, of the population of the country are the major section of the society, hence it cannot be alleged that the benefit granted under the provisions of the markets act to them belongs to a particular section of the society to deny the benefit of registration and exemption from income-tax thereunder. the activities of the assessee-samiti in regularizing the agricultural market in its defined area and realizing of mandi fee are incidental to the attainment of its predominant objectives only. in the case of umaid charitable trust v. cit , the hon'ble jurisdictional high court was pleased to hold that discretion given to trustees to utilize income for charitable objects or purposes as mentioned in the deed is income derived from business exempt from tax.in the case of hosiery industry federation v. cit , the receipts of association consisting of annual and special subscriptions and allocation charges from hosiery manufacturing units held charitable and entitled for exemption under the income-tax act.18. so far as the objection of the learned commissioner of income-tax (appeals) that with application under section 12a audit report was not filed, we find that in the board instruction no. 1/1148 reproduced at page no. 35 of the paper book, it has been made clear that though under section 12a(b) filing of audit report along with the return of income is mandatory but in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report, the exemption as available to such trust under sections 11 and 12 may not be denied merely on account of delay in furnishing the auditor's report and the income-tax officer should record reasons for accepting a belated audit report. the hon'ble madhya pradesh high court in the case of cit v. devradhan madhavlal genda trust was pleased to hold that the requirement is director}' and the tribunal was justified in holding that filing of the audit report in form no. 10b with the return of income was not mandatory and it was sufficient compliance with section 12a(b), if the same was filed during the course of assessment proceedings. the hon'ble punjab and haryana high court in the case of cit v. shahzedanand charity trust has been pleased to hold that by showing sufficient cause, the auditor's report could be produced at any later stage either before the income-tax officer or before the appellate authority. it was further held that it is not mandatory to furnish the auditor's report under section 12a(b) along with the return and the same could be furnished at a later date and the delay can be condoned after recording reasons.under these facts and circumstances and keeping in view the decisions of delhi and nagpur benches of the tribunal in the cases of market committee, sullar gharat v. cit [2005] 94 ttj 692 and agricultural produce and market committee v. cit , under the similar facts and circumstances of the present case, we hold that the object and purpose of the society are charitable falling under the wordings "...advancement of any other object of general public utility" under section 2(15) of the act and, thus, the learned commissioner of income-tax was not justified in rejecting the application seeking registration under section 12a of the act. we, while remanding the matter to the file of the learned commissioner of income-tax, direct him to allow the application under section 12a of the applicant filed on november 21, 2005 with effect from the assessment year 2003-04.grounds nos. 1.4 to 1.13 of the appeal are, thus, decided in favour of the applicant-samiti and are, thus, allowed.20. the order of the learned commissioner of income-tax rejecting the application under section 12a for registration has been questioned on several grounds.21. overall facts are similar to those narrated in i.t.a. no.641/jp/2006 hereinabove, the only difference in the present case is that herein the assessee had applied for registration under section 12a(a) of the act on november 7, 2005. the learned commissioner of income-tax has rejected the same on the basis that application for registration was required to be made within one year from the date of establishment of the institution and, secondly, as per provisions of section 12a(b), the accounts of the institution should be audited as defined in the explanation below sub-section (2) of section 288. no returns of income were filed for the assessment years 2003-04, 2004-05 and 2005-06, and the applicant does not appear to be meant for charitable purpose within the meaning of section 2(15) of the act.22. similar arguments have been advanced by the parties as advanced by them hereinabove on identical issues in i.t.a. no. 641/jp/2006. in addition to those arguments, the learned authorised representative submitted that under section 2(15) of the income-tax act, "charity" has not been defined but "charitable purpose" has been defined under which the assessee falls under the category of "advancement of any other object of general public utility". in support, he referred sections 11, 19 and 22j of the rajas-than agricultural produce markets act, 1961. he submitted further that the assessee cannot go beyond the act, wherein objects and purposes have been mentioned. almost 73 per cent, of the population of the country is farmers for whose benefit the applicant was set up. the assessee had complied with the requirements of section 12aa of the income-tax act and provisions under this section are independent of those of section 12a. besides other decisions furnished by him in the written submission, he also placed reliance on the decision in the case of keshavji ravji and co. v. cit .the learned departmental representative, on the other hand, argued further that as per article 243 of the constitution of india, the definition of "local body" has now been restricted to panchayat and municipality, etc.23. we have already decided the identical issue under the similar set of facts and circumstances of the case hereinabove in i.t.a. no.641/jp/2006. following the decision taken therein, we condone the delay in filing application under section 12a by the applicant for the registration with direction to the learned commissioner of income-tax to allow the registration applied for by the applicant from the assessment years 2003-04 to 2005-06, for which it has applied for. we would like to mention over here the decision of nagpur bench of the tribunal in the case of agricultural produce and market committee v.cit , wherein also similar type of agricultural markets act containing the similar provisions were there and the nagpur bench of the tribunal held as under (headnote): the requirements for the purpose of granting registration to a trust or an institution under section 12a/12aa of the income-tax act, 1961 is limited to two things, viz., (i) whether the objects of the trust or institution or any other legal obligation are charitable as defined in section 2(15) and (ii) whether the activities of the trust or institution are genuine. to treat the trust or institution to be a charitable institution, the principles required to be considered are: (i) the objects or the dominant objects of the trust or institution should be for the benefit of a section of community or a class identifiable by some common quality of public or impersonal nature. the object for being charitable need not be for the benefit of the whole of mankind, (ii) the object of promoting, protecting and providing facility to agriculturists or a particular section or a class of traders would be an object of general public utility, (iii) the object should not be propelled by profit motive. so long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found whether by carrying on activity for profit or not. (iv) the definition of the words 'charitable purpose' is very wide and inclusive, (v) if the profit or surplus feeds the charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust.the grounds as well as appeal are, thus, allowed in favour of the asses-see.in the result, both the appeals are, thus, allowed in favour of the asses-sees.

Judgment:
1. The rejection of application under Section 12A seeking registration of the assessee-applicant as a charitable trust/institute has been questioned on several grounds running in 13 numbers.

2. We have heard the arguments advanced by the parties at length and considered the same in view of the impugned order, material available on record and the decisions relied upon by the parties.

3. There is no dispute on facts that the Krishi Upaj Mandi Samiti, Hindaun-City, i.e., the applicant, is a committee constituted under the Rajasthan Agricultural Produce Markets Act, 1961 (in short as the "Markets Act"), dated March 12, 1965, giving a status of a society and the market area, markets proper, principal market yard and sub-market yard, etc. thereof were declared by the Notification dated October 30, 1965. The applicant-samiti works through a committee constituted under Section 7 of the Markets Act, which consists of 15 members elected directly or indirectly by the inhabitants of the area, i.e., 7 by agriculturists, 2 by traders, 2 by cooperative societies or the agencies and remaining are the representatives of the Panchayat or Municipal Council or Municipal Board or the State Government.

Alternatively, the State Government can appoint the administrator under Section 27A. The secretary is also a whole-time employee of the Government. Being a State organ, the income or surplus, if any, of the applicant was immune from union taxation in view of Article 289 of the Constitution of India. Since the date of coming into existence of it, i.e., 1965, neither it was called for to file the return of income nor any income-tax was levied on it by the Income-tax authorities till the assessment year 2002-03. In the assessment year 2003-04, the Income-tax authorities called the assessee to file of the return of income on the basis that in view of insertion of an Explanation to Section 10(20) by the Finance Act, 2002, with effect from April 1, 2003 defining the expression "local authority", exemption under Clause (20) of Section 10 of the Income-tax Act is, therefore, not available to the applicant-samiti. The, applicant made an application for granting of registration under Section 12A(a) of the Income-tax Act in prescribed Form No. 10A to the learned Chief Commissioner of Income-tax, Kota on October 21, 2005, providing copies of three years account with an application for condonation of delay on December 12, 2005. The learned Commissioner of Income-tax, vide his order dated April 17, 2006, held that the applicant does not meet with the mandatory conditions laid down under Section 12A and rejected the same. Against this order, the applicant is in appeal before us.

4. The applicant has questioned the order dated April 17, 2006 of the learned Commissioner of Income-tax mainly on the grounds that the learned Commissioner of Income-tax was not justified in not condoning the delay and not granting the registration with effect from April 1, 2003, i.e., from the assessment year 2003-04 with these observations that the predominant object and the activities of the assessee are not charitable in nature; the applicant-samiti has not been established to prevent the exploitation of the farmers/agriculturists by the middlemen; activities of the applicant are as the business activities; there is no restriction about the application of income and it can be applied for other purposes than the predominant object of the applicant; the applicant is a profit motive institution; the genuineness of the activities of the applicant being charitable in nature is not verifiable; surplus of income over expenditure during the different years is not as prescribed under the provisions of Sections 11 and 12 of the Act; and the audit report under Section 12A(b), read with rule 17B was not furnished in prescribed time along with the return of income.

5. In support of these grounds, the learned authorised representative submitted that while rejecting the application for condonation of delay in filing the application for registration and rejecting the registration, the learned Commissioner of Income-tax has thoroughly failed to appreciate that under the similar facts and circumstances in the case of Market Committee, Sullar Gharat v. CIT [2005] 94 TTJ 692 and Agricultural Produce and Market Committee v. CIT the Delhi and Nagpur Benches of the Tribunal have allowed the applications for condonation of delay and directed the learned Commissioner of Income-tax to allow the applications for registration under Section 12A(a) of the Act. On the application for condonation of delay, the learned authorised representative submitted that earlier, the assessee-samiti was considered to be a 'local authority' within the meaning of Section 10(20) of the Act entitling exemption from the payment of income-tax and consequently, the Revenue never called the assessee for filing of the return of income since the date of its establishment. But, after insertion of the Explanation to Section 10(20) by the Finance Act, 2002, with effect from April 1, 2003, the assessee was called for to file the same for the first time for the assessment year 2003-04. Ultimately, the assessment was made, which was subjected to the appeal No. 355/2004-05 pending for disposal before the learned Commissioner of Income-tax (Appeals). The first appeal was decided while giving part relief of Rs. 19,20,000 to the assessee. A second appeal has been preferred against this order, which is pending before the Tribunal. The officials of the assessee-samiti were in utter pressurizing situations in facing the recovery proceedings of the Revenue and the matter was being discussed at high level, i.e., at the marketing board level. Ultimately, the decision of the board to claim the charitable exemption by filing the abovereferred application under Section 12A of the Act was received by the officials on or about September 25, 2005, and having completed the requisite formalities, the application under Section 12A of the Income-tax Act seeking registration and charitable exemption was filed on November 21, 2005.

It was, thus, submitted by the learned authorised representative that the delay in filing of the application was not deliberate, intentional and not suffered with mala fideness or element of recklessness or ruse on the part of the assessee-samiti but the same is bona fide one that needs to be condoned for the advancement of substantial justice. He submitted again that the application for condonation of delay was supported by an affidavit, a copy whereof has been placed at page No. 3 of the paper book. In this regard, he also placed reliance on the aforesaid decisions of the Tribunal in the cases of Market Committee, Sullar Gharat v. CIT [2005] 94 TTJ 692 (Delhi) and Agricultural Produce and Market Committee v. CIT [2006] 283 ITR (AT) 178 (Nagpur) : [2005] 97 TTJ 165, wherein under the similar facts and circumstances, the Tribunal had condoned the delay in filing the applications under Section 12A of the Act. He also cited the following decisions: (2) All India Primary Teachers Federation v. DIT (Exemption) [2005] 93 TTJ 155 (Delhi); (3) Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. ; (4) Venkatesha Education Society v. DIT (Exemptions) 90 TTJ 850 (Bang); and 6. The learned authorised representative also pointed out that the assessee maintains regular and proper books of account supported by records. It opts for cash system of accounting. The accounts, vouchers and supporting records are kept and maintained as required under the Income-tax Act, 1961. The books of account are audited by the auditors of the Local Self Government, i.e., by the Directorate of the Local Fund Audit Department governed under the provisions of the Rajasthan Local Fund Act. The assessee with its submission dated November 28, 2005, also submitted the copies of the audit reports of last three years of the auditors of the Local Self Government under the provisions of the Rajasthan Local Fund Act. Copies of the returns of income for the assessment years 2004-05 and 2005-06 and audit report in Form No.3CA/3CD were also filed duly certified by the chartered accountant for the assessment year 2005-06. The applicant also filed the copies of the audit reports under Section 12A(b) in prescribed Form No. 10B for the assessment years 2003-04, 2004-05 and 2005-06 duly certified evidencing the application of income for charitable purposes.

7. The learned Departmental representative, on the other hand, opposed the arguments advanced by the learned authorised representative in support of the application for condonation of delay. He submitted that there was no reasonable cause for condonation of delay as the applicant had failed to explain the delay and the reason shown that they were not aware of the law is no excuse. The unawareness of law is not sufficient reason for the delay.

8. After considering the above arguments advanced by the parties and the decision relied upon by the learned authorised representative, we are of the view that there was reasonable cause for delay in filing the application under Section 12A of the Act as earlier the applicant was entitled for exemption from the payment of income-tax being considered to be a "local authority" within the meaning of Section 10(20) of the Act and, thus, the Revenue never called the assessee for filing of the return of income since the date of its establishment in the year 1965.

The assessee was called on to file the return of income for the first time for the assessment year 2003-04, only after insertion of the Explanation to Section 10(20) by the Finance Act, 2002 with effect from April 1, 2003, which the assessee filed in response and assessment was also made, now pending adjudication before the Tribunal. The matter was being discussed at high level and ultimately the decision of the board to claim charitable exemption by filing application under Section 12A of the Act was received in the office of the applicant on September 25, 2005, and after completing the required formalities, the applicant was able to file the same on November 21, 2005. It is a well established position of law that the application for condonation of delay is required to be considered liberally. For condonation of delay, the reasonable cause for the delay is to be seen under the background of facts and circumstances of that case. In the present case, the background of the applicant that it is a society under the Government supervision wherein each and every major decision is taken by the marketing board level, which requires lot of formalities and consideration at different levels. In such type of organization or Government body or even other Government Departments taking any major decision always is time consuming, which expects a liberal consideration. Under similar circumstances, the Delhi and Nagpur Benches of the Tribunal in their respective cases of Market Committee, Sullar Gharat v. CIT [2005] 94 TTJ 692 (Delhi) and Agricultural Produce and Market Committee v. CIT have condoned the delay in filing the applications under Section 12A of the Act. Under these facts and circumstances, we are satisfied that there was reasonable cause for the delay and thus we condone the delay in filing the application for registration under Section 12A of the Act with direction to treat the application under Section 12A for the registration with effect from April 1, 2003, i.e., from the assessment year 2003-04. Grounds Nos. 1.1 and 1.2 are, thus, allowed in favour of the applicant.

9. In support of the other grounds regarding rejection of application for seeking registration under Section 12A of the Act on different basis (ground Nos. 1.4 to 1.13), the learned authorised representative submitted that the predominant object behind establishment of the assessee-samiti has been provided specifically in its constitution, i.e., in the Agricultural Produce Markets Act, 1961 in terms of preamble as follows: An Act to provide for the better regulation of buying and selling of agricultural produce and the establishment of markets for agricultural produce in the State of Rajasthan.

10. For the attainment of the said objects, the Mandi committees including assessee-samiti have been constituted in the State of Rajasthan. Regarding accumulation of income in the last three years, the learned authorised representative submitted that the applicant-samiti is not maintaining any reserve fund for the purposes of accumulation. The figures of the closing cash and bank balances, income and its application in last three years are as under:------------------------------------------------------------------------------------------ F.Y. Cash Bank IMP Total Income Application of2001-02 36,733.00 4,39,423.71 200.00 4,76,356.712002-03 37,018.04 15,17,016.81 200.00 15,54,234.85 1,09,04,174.14 96,21,206.002003-04 1,403.00 30,47,109.20 200.00 30,48,712.20 1,91,02,023.35 1,73,50,770.002004-05 5,708.00 2,30,122.08 200.00 2,36,030.08 1,36,26,029.88 1,64,11,489.00------------------------------------------------------------------------------------------ 11. In view of the above, there was no accumulation in the last three years. Only cash and bank balances were maintained up to a certain extent in order to meet the primary operating expenses, submitted by the learned authorised representative.

12. Regarding business activities and grant of charitable exemption, the learned authorised representative submitted that being the assessee-samiti created with the predominant charitable legal obligation arising out of the confidence reposed in, declared and accepted by the Government of Rajasthan vide the Markets Act for the benefit of agriculturists in order to secure better and adequate prices for their produce and to protect them from being exploited by the middlemen and profiteers and also to provide the quality of goods at fair market value to the consumers irrespective of any particular religion, community and caste, as such, the same is a trust within the meaning of Sections 11 and 12A of the Act. And being the activities of the assessee-samiti fall under the words "...advancement of any other object of general public utility" under Section 2(15) of the Income-tax Act, 1961, hence the same is entitled to exemption under Section 11 of the Act of 1961.

13. On the allegation of running of business activities, the learned authorised representative submitted that the applicant-samiti is not engaged in business activities as it is not marketing the notified goods but just regulating and controlling the market affairs so as to achieve its predominant object. The activities of the assessee-samiti do not fall under the definition "business" as it has no profit motive.

It applied its receipts for charitable purposes as the same is evident from the chart furnished hereinabove and income and expenditure accounts and the note regarding activities filed earlier. Even, the activities of the assessee-samiti cannot be said to be business activities merely on the basis that some profits arise out from its activities. In alternative, he submitted that the activities of the assessee-samiti in regularizing the agricultural market in its defined area and realizing of Mandi fee are incidental to the attainment of its predominant objectives, hence the same is entitled to the exemption under Section 11 of the Act in view of Section 11(4) and 11 (4A) of the Income-tax Act. He places reliance on the decision of the hon'ble jurisdictional High Court in the case of Umaid Charitable Trust v. CIT . He also referred Circular No. 642, F. No.in this regard, a copy whereof has been placed at page No. 6 of the paper book.

14. The learned authorised representative submitted further that with the application under Section 12A, audit report is not required to be filed, it is to be filed under Section 12A(b) of the Income-tax Act with return of income having obtained the certificate. In this regard, he referred the Central Board of Direct Taxes Instruction No. 1/1148, a copy whereof has been placed at page No. 35 of the paper book. In this Board's instruction, it has been made clear that in cases where for reasons beyond the control of the assessee some delay has occurred in filing the auditor's report along with return, the exemption as available to such trust under Sections 11 and 12 may not be denied merely on account of delay in furnishing the auditor's report and the Income-tax Officer should record reasons for accepting a belated audit report. He placed reliance on the following decisions in this regard: (3) CIT v. Rai Bahadur Bissesswarlal Motilal Mahvasie Trust ;Commissioner of Agricultural Income-tax v. Rubber Board ; andCoffee Board v. Deputy Commissioner of Agricultural Income-tax .

15. The learned Departmental representative, on the other hand, justified the action of the learned Commissioner of Income-tax with this submission that Section 22-J of the Rajasthan Agricultural Produce Markets Act, 1961, does not reflect charitable purposes. The learned Departmental representative submitted that the requirement under Section 12A(b) of filing the audit report along with the return of income is mandatory so as to disentitle the trust from claiming exemption under Sections 11 and 12 in case of omission to furnish such report in the prescribed form along with the return. The learned Commissioner of Income-tax in the present case was neither satisfied with the genuineness of the object nor the activities in absence of the documents like audited account. The accounts must be audited to secure that it is free from discrepancies. If accounts are not audited it indicates lapses on the part of the assessee. Registration in the Income-tax Act is entirely different from the registration under the Societies Registration Act, since in the case of income-tax the assessee is going to enjoy exemption from taxpayers pocket. The audited account is pre-requirement for application for registration. In Article 245(a) to (z) of the Constitution of India, there is drastic change with effect from June 1, 1993, leading certain definition about local body, which required amendment in Section 10(20) of the Income-tax Act.

The assessee was thus out from the definition of local body with effect from June 1,1993 and the only option left with the assessee was to apply for registration under Section 12A for exemption under Sections 11 and 12 of the Income-tax Act. The learned Departmental representative referred to the objects of the samiti shown in Sections 3, 17 and 18 of the Rajasthan Krishi Upaj Mandi Adhiniyam, 1961, with the submission that the assessee is acting like a share broker to purchase produce on charging a fee, which has no nexus or connection with any charitable purpose. The words in statute are to be strictly construed as per the established position of law, submitted the learned Departmental representative.

16. After considering the above arguments of the parties, in view of the decisions relied upon by them and different provisions laid down under the Rajasthan Agricultural Produce Markets Act, 1961, we are of the view that the Krishi Upaj Mandi Samiti constituted under the Rajasthan Agricultural Produce Markets Act, 1961, as per its constitution, the applicant-samiti has been burdened with legal obligation to regulate the markets for agriculturists in order to secure better and adequate prices for their produce and to protect them from being exploited by the middlemen and profiteers and also to provide the quality of goods at fair market value to the consumers irrespective of any particular religion, community and caste. Section 9 of the Markets Act defines the functions and duties of the assessee-samiti, whereas Section 19 thereof defines the working area and scope for which the local fund is constituted under Section 18 of the Markets Act, according to which the funds can be utilized for the purposes which are charitable in nature and are in furtherance to fulfil its legal obligation. The marketing development fund constituted under Section 22-I of the Markets Act can be utilized by the Agricultural Marketing Development Board for the specific purposes mentioned in Section 22-J of the Markets Act, i.e., for the achievement of the object of the Markets Act. The Marketing Development Fund is administered by the Board and can be utilized by it for the expenditure incurred in implementation of the object of the Markets Act and for the purposes mentioned in Section 22-J of the Markets Act. For a ready reference, Section 22-J of the Markets Act is reproduced hereunder: (ii) Giving of aid to financially weak market committees in the State in the form of loans and grants to enable them to discharge their duties and functions satisfactorily; (iii) Payment of the salaries, allowances, pensions, gratuities; compassionate grants to its employees and contributions towards salaries, allowances, pension and gratuity of the Government employees, if any, serving to the Board. All expenditures under this Clause shall be the first charge on marketing development fund; (iv) Payment of travelling and other allowances to the member of the Board in the manner prescribed; (v) Undertaking education and publicity in relation to matters connected with regulated marketing of agricultural produce in the State; (vii) Provision of technical and administrative assistance to market committees including maintenance of staff for rendering assistance to market committees for such purposes as- (viii) Training of officers and staff of the market committees and organization of camps, workshop, seminars and conferences; (xi) Construction of market yards and sub-yards and leading or transferring these to the market committees; (xii) Sanction of loans and advances to its employees in the manner prescribed; (xv) With the prior approval of the Government, any other purpose connected with agricultural marketing.

17. The applicant-samiti works through a committee constituted under Section 7 of the Markets Act which consists of 15 members elected directly or indirectly by the inhabitants of the area, i.e., 7 by agriculturists, 2 by traders, 2 by cooperative societies or the agencies and remaining are the representatives of the Panchayat or Municipal Council or Municipal Board or the State Government.

Alternatively, the State Government can appoint the administrator under Section 27A. The hon'ble jurisdictional High Court in the case of Narayan Harishankar v. State [1977] RLW 485 has been pleased to hold the Markets Act to be meant for public purposes and the hon'ble Madras High Court in the case [1968] ILR 2 Mad 449 also held the similar statute and the committees working thereunder to be for public purposes. In the case of Kewal Krishan Puri v. State of Punjab , the hon'ble Supreme Court has been pleased to hold the object of the Act is for supervision and control of the transactions of purchase by the traders from the agriculturists in order to prevent exploitation of the later by the former. The preamble of the Markets Act, which reads as "An Act to provide for the better regulation of buying and selling of agricultural produce and the establishment of markets for agricultural produce in the State of Rajasthan" the very aim and objects of the samiti, which as per definition under Section 2(15) of the Act falls under the words "...advancement of any other object of general public utility". There is no doubt that the farmers who are around 70 per cent, of the population of the country are the major section of the society, hence it cannot be alleged that the benefit granted under the provisions of the Markets Act to them belongs to a particular section of the society to deny the benefit of registration and exemption from income-tax thereunder. The activities of the assessee-samiti in regularizing the agricultural market in its defined area and realizing of Mandi fee are incidental to the attainment of its predominant objectives only. In the case of Umaid Charitable Trust v. CIT , the hon'ble jurisdictional High Court was pleased to hold that discretion given to trustees to utilize income for charitable objects or purposes as mentioned in the deed is income derived from business exempt from tax.

In the case of Hosiery Industry Federation v. CIT , the receipts of association consisting of annual and special subscriptions and allocation charges from hosiery manufacturing units held charitable and entitled for exemption under the Income-tax Act.

18. So far as the objection of the learned Commissioner of Income-tax (Appeals) that with application under Section 12A audit report was not filed, we find that in the Board Instruction No. 1/1148 reproduced at page No. 35 of the paper book, it has been made clear that though under Section 12A(b) filing of audit report along with the return of income is mandatory but in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report, the exemption as available to such trust under Sections 11 and 12 may not be denied merely on account of delay in furnishing the auditor's report and the Income-tax Officer should record reasons for accepting a belated audit report. The hon'ble Madhya Pradesh High Court in the case of CIT v. Devradhan Madhavlal Genda Trust was pleased to hold that the requirement is director}' and the Tribunal was justified in holding that filing of the audit report in Form No. 10B with the return of income was not mandatory and it was sufficient compliance with Section 12A(b), if the same was filed during the course of assessment proceedings. The hon'ble Punjab and Haryana High Court in the case of CIT v. Shahzedanand Charity Trust has been pleased to hold that by showing sufficient cause, the auditor's report could be produced at any later stage either before the Income-tax Officer or before the appellate authority. It was further held that it is not mandatory to furnish the auditor's report under Section 12A(b) along with the return and the same could be furnished at a later date and the delay can be condoned after recording reasons.

Under these facts and circumstances and keeping in view the decisions of Delhi and Nagpur Benches of the Tribunal in the cases of Market Committee, Sullar Gharat v. CIT [2005] 94 TTJ 692 and Agricultural Produce and Market Committee v. CIT , under the similar facts and circumstances of the present case, we hold that the object and purpose of the society are charitable falling under the wordings "...advancement of any other object of general public utility" under Section 2(15) of the Act and, thus, the learned Commissioner of Income-tax was not justified in rejecting the application seeking registration under Section 12A of the Act. We, while remanding the matter to the file of the learned Commissioner of Income-tax, direct him to allow the application under Section 12A of the applicant filed on November 21, 2005 with effect from the assessment year 2003-04.

Grounds Nos. 1.4 to 1.13 of the appeal are, thus, decided in favour of the applicant-samiti and are, thus, allowed.

20. The order of the learned Commissioner of Income-tax rejecting the application under Section 12A for registration has been questioned on several grounds.

21. Overall facts are similar to those narrated in I.T.A. No.641/JP/2006 hereinabove, the only difference in the present case is that herein the assessee had applied for registration under Section 12A(a) of the Act on November 7, 2005. The learned Commissioner of Income-tax has rejected the same on the basis that application for registration was required to be made within one year from the date of establishment of the institution and, secondly, as per provisions of Section 12A(b), the accounts of the institution should be audited as defined in the Explanation below Sub-section (2) of Section 288. No returns of income were filed for the assessment years 2003-04, 2004-05 and 2005-06, and the applicant does not appear to be meant for charitable purpose within the meaning of Section 2(15) of the Act.

22. Similar arguments have been advanced by the parties as advanced by them hereinabove on identical issues in I.T.A. No. 641/JP/2006. In addition to those arguments, the learned authorised representative submitted that under Section 2(15) of the Income-tax Act, "charity" has not been defined but "charitable purpose" has been defined under which the assessee falls under the category of "advancement of any other object of general public utility". In support, he referred Sections 11, 19 and 22J of the Rajas-than Agricultural Produce Markets Act, 1961. He submitted further that the assessee cannot go beyond the Act, wherein objects and purposes have been mentioned. Almost 73 per cent, of the population of the country is farmers for whose benefit the applicant was set up. The assessee had complied with the requirements of Section 12AA of the Income-tax Act and provisions under this section are independent of those of Section 12A. Besides other decisions furnished by him in the written submission, he also placed reliance on the decision in the case of Keshavji Ravji and Co. v. CIT .

The learned Departmental representative, on the other hand, argued further that as per Article 243 of the Constitution of India, the definition of "local body" has now been restricted to panchayat and municipality, etc.

23. We have already decided the identical issue under the similar set of facts and circumstances of the case hereinabove in I.T.A. No.641/JP/2006. Following the decision taken therein, we condone the delay in filing application under Section 12A by the applicant for the registration with direction to the learned Commissioner of Income-tax to allow the registration applied for by the applicant from the assessment years 2003-04 to 2005-06, for which it has applied for. We would like to mention over here the decision of Nagpur Bench of the Tribunal in the case of Agricultural Produce and Market Committee v.CIT , wherein also similar type of Agricultural Markets Act containing the similar provisions were there and the Nagpur Bench of the Tribunal held as under (headnote): The requirements for the purpose of granting registration to a trust or an institution under Section 12A/12AA of the Income-tax Act, 1961 is limited to two things, viz., (i) whether the objects of the trust or institution or any other legal obligation are charitable as defined in Section 2(15) and (ii) whether the activities of the trust or institution are genuine. To treat the trust or institution to be a charitable institution, the principles required to be considered are: (i) the objects or the dominant objects of the trust or institution should be for the benefit of a section of community or a class identifiable by some common quality of public or impersonal nature. The object for being charitable need not be for the benefit of the whole of mankind, (ii) The object of promoting, protecting and providing facility to agriculturists or a particular section or a class of traders would be an object of general public utility, (iii) The object should not be propelled by profit motive.

So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found whether by carrying on activity for profit or not. (iv) The definition of the words 'charitable purpose' is very wide and inclusive, (v) If the profit or surplus feeds the charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust.

The grounds as well as appeal are, thus, allowed in favour of the asses-see.

In the result, both the appeals are, thus, allowed in favour of the asses-sees.