Andhra Pradesh H.C : Whether an agricultural market committee constituted by the Government of Andhra Pradesh under section 4(1) of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 (“the AMC Act”, for brevity), is an institution for charitable purpose

High Court Of Andhra Pradesh

CIT vs. Agricultural Market Committee

Section : 2(15)

V.V.S. Rao And Ramesh Ranganathan, JJ.

Income-Tax Tribunal Appeal Nos. 251, 315, 318, 319, 328, 333 And 335 Of 2008, 16 Of

2009, 54, 111, 112 And 113 Of 2010

March 1, 2011

JUDGMENT

V. V. S. Rao, J. – Introduction

1. Whether an agricultural market committee constituted by the Government of Andhra Pradesh under section 4(1) of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 (“the AMC Act”, for brevity), is an institution for charitable purpose ? This is a core question of law that is raised in this batch of appeals filed under section 260A of the Income-tax Act, 1961 (the “IT Act”, for brevity), by the Commissioner of Income-tax. These twelve appeals are against the common order passed by Income-tax Appellate Tribunal, Visakhapatnam Bench. Therefore, it is convenient to dispose them by a common judgment.

Factual background

2. The following brief facts of the matter are culled out from I. T. T. A. No. 251 of 2008. The Agricultural Market Committee, Giddalur (“the AMC”, for brevity) was constituted under section 4 of the AMC Act vide G. O. Ms. No. 842, Food and Agriculture, dated June 29, 1971, as amended by G. O. Ms. No. 512, dated August 16, 1978. It was availing of exemption as a “local authority” as defined under section 10(20) read with section 10(29) of the Income-tax Act. By the Finance Act, 2002, with effect from April 1, 2003, section 10(29) was deleted and an Explanation was added to section 10(20) mentioning Panchayats, Municipalities, Municipal Committees and Cantonment Boards alone to be a “local authority”, for the purpose of section 10(20). As a result, from the assessment year 2003-04 onwards, AMCs could not claim exemption as a “local authority”. They, therefore, made an application on August 22, 2006 in Form 10A to the Commissioner of Income-tax, Guntur seeking registration under section 12A of the Income-tax Act. Their authorized representative appeared, furnished information, produced evidence and filed written submissions. The Commissioner of Income-tax passed orders being F. No. 1(50)/R-2/CIT-GNT/2006-07, dated December 12, 2006 rejecting the application for registration under section 12A of the Income-tax Act. It may be mentioned that the applications made by eleven other AMCs in Prakasam District were also rejected by separate orders passed on the same date.

3. The AMC then filed I. T. A. No. 268/Vizag/07, before the Visakhapatnam Bench of the Tribunal. This appeal and appeals filed by other AMCs against similar orders of the Commissioner of Income-tax were heard by the Bench of the Tribunal. Following the Tribunal’s earlier decision, in the case of AMC, Karimnagar in I. T. A. No. 556/Hyd/2005, dated February 28, 2007, the appeals were allowed directing the Commissioner of Income-tax to grant registration to AMCs under section 12A of the Income-tax Act.

Contentions

4. The senior counsel for the Income-tax Department submits that the amendment of section 10(20) by the Finance Act, 2002, indicates that the object is to widen the tax base by restricting the benefit only to local self-governments which come within the purview of article 243 of the Constitution of India. Therefore, AMCs cannot be given the benefit of exemption, which have been permitted under section 10(20) prior to amendment with effect from April 1, 2003. The Tribunal lost sight of the Finance Act, 2002 and the benefit which has been taken away by Parliament cannot be conferred by treating AMCs as institutions established for charitable purpose under section 2(15) of the Income-tax Act. He would urge that the AMC can neither be termed a “trust” nor an “institution” within the purview of sections 12A and 12AA of the Income-tax Act and, therefore, grant of registration for the purpose of exemption does not arise.

5. It is nextly contended that an AMC, constituted under section 4(1) of the AMC Act does not come within the expression “person” as defined in section 2(31) of the Income-tax Act. It is constituted by the Government and, therefore, cannot be treated as a trust or an institution. An AMC does not receive any voluntary contribution from the Government or any person. None of the activities or income of the AMC can be correlated to section 11(1)(a) to (d) or section 12 of the Income-tax Act. In that view of the matter, the question of granting registration under section 12A does not arise. A beneficiary of registration under section 12A has to necessarily comply with section 11(5) while investing and depositing the money, and an AMC would not be able to comply with such mode of depositing the money which would entail in forfeiture of exemption. Lastly, the senior counsel would contend that, by the Finance Act, 2008 with effect from April 1, 2009, AMCs have been included in section 10(26AAB) enabling them to be exempted from paying tax. This would show that Parliament never intended to treat the activities carried on by the AMC as charitable.

6. The standing counsel for the AMCs submits that all AMCs are seeking registration as institutions for advancement of general public utility. All of them were availing of exemption under section 10(20). But, with effect from April 1, 2003, AMCs were denied exemption. Therefore, there is no prohibition for them from claiming registration under section 12A of the Income-tax Act. According to the counsel, at the time of consideration of application for registration under section 12A, the Commissioner of Income-tax has to look to the objects for establishment of the AMC, and the possible likelihood of non-compliance with section 11(5) is not relevant. She would urge that all questions of law raised in the memorandum of grounds are squarely covered by the decision of the Supreme Court in CIT v. Gujarat Maritime Board [2007] 295 ITR 561 (SC) ; [2007] 14 SCC 704. The counsel also relied on Trustees of the ‘Tribune’, In re [1939] 7 ITR 415 (PC), CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC), CIT (Addl.) v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) ; [1980] 2 SCC 31, CIT  v. Andhra Pradesh State Road Transport Corporation [1986] 159 ITR 1  (SC), CIT v. Agricultural Produce and Market Committee [2007] 291 ITR 419 (Bom), CIT v. Market Committee [2007] 294 ITR 563 (P&H), CIT v. Gujarat Maritime Board, CIT v. Krishi Upaj Mandi Samiti (No. 1) [2009] 308 ITR 380  (MP) and CIT v. Krishi Upaj Mandi Samiti (No. 2) [2009] 308 ITR 401  (MP).

Point for consideration

7. The main point for consideration is whether the AMCs constituted by the Government of Andhra Pradesh under section 4 of the AMC Act are institutions established for advancement of the object of general public utility and, therefore, exist for charitable purpose. All other questions are incidental to the main question and are adverted to at the appropriate place.

Analysis of the provisions of the Income-tax Act

8. Section 2(15) prior to amendment with effect from April 1, 2009, by the Finance Act, 2008, reads as under.

“2.(15) ‘charitable purpose’ includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.”

9. Section 2(15) was substituted by the Finance Act, 2008. After that, it reads as under :

“2.(15) ‘charitable purpose’ includes relief of the poor, education, medical relief, 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 :

Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year ;” Section 2(31) defines “person”.

“2.(31) ‘person’ includes-

(i) an individual,

(ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated or not,

(vi) a local authority, and

(vii) every artificial juridical person, not falling within any of the preceding sub-clauses ;

Explanation.-For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains ;”

10. Chapter III contains provisions which deal with incomes which do not form part of total income for the purpose of levy of income-tax. As of now, there are fourteen (14) sections. These can be conveniently grouped into four categories. Section 10 enumerates incomes from various sources of various institutions and persons which shall not be included in computing the total income of a previous year of any such person/institution. In the first group, section 10 is the exclusive one. In so far as the incomes stipulated in section 10 are concerned, subject to satisfying conditionalities, if any, exemption is a matter of statutory lenience. Ordinarily, an assessment authority cannot ignore the benefit conferred under section 10, if the assessee discharges the burden that the income falls within any of the clauses of section 10.

11. Sections 10A, 10AA, 10B, 10BA, 10BB and 10C are the other group of provisions which are special provisions in respect of newly established undertakings either in free trade zones, special economic zones, 100 per cent. export oriented undertakings and industrial undertakings in the North Eastern Region. These permit deduction of the whole or a part of the profits for certain period while computing the total income for the purpose of levy of tax. By the very nature of the benefit conferred, it is for the assessee to discharge the onus by showing that a particular item of income falls within a specified provision.

12. The third group of provisions is sections 13A and 13B. These relate to the incomes of political parties or income relating to voluntary contributions received by an electoral trust. The fourth group of provisions is sections 11 to 13. These deal with income from property held for charitable or religious purposes. Section 11(1) and (5) as well section 12A, to the extent relevant, read as under :

11. 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 or 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 ;

(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India ; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent. of the income from such property ;

(c)income derived from property held under trust-

(i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and

(ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India :

Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income ;

(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.

11.(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely :-

(i) investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government ;

(ii)deposit in any account with the Post Office Savings Bank ;

(iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank).

((iv) to (xi) are omitted as not relevant)

(xii) any other form or mode of investment or deposit as may be prescribed.

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 ;

(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 ;

((aa) (b) and (c) are omitted as not relevant)

(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.”

13. A brief analysis of all the provisions would show that (i) providing relief of the poor ; (ii) establishing institution for education ; (iii) providing medical relief ; and (iv) to advance any other object of general public utility are included within the definition of “charitable purposes”. With effect from April 1, 2009, a new definition has been substituted, in that, if the advancement of object of general public utility involves carrying on 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 cess or fee or any other consideration, such activity shall not be a charitable purpose. AMCs which availed of exemption under section 10(20) as a matter of course sought exemption as charitable institutions after the amendment of section 10(20) by the Finance Act, 2002, with effect from April 1, 2003. They were excluded from the purview of being “local authorities” and, therefore, sought exemption from the assessment year 2003-04 onwards. Except the addition of the proviso, restricting the purport of “advancement of any other object of general public utility”, there is not much difference in section 2(15) as it existed prior to April 1, 2009, and thereafter. After amendment preservation of environment including watersheds, forest and wild life, and preservation of monuments or places/ objects of artistic or historic interest are also included in the definition “charitable purpose”. Be that as it may, what is important is any institution or organization or entity for the advancement of object of general public utility is also considered as an institution or trust for charitable purpose. Section 11 exempts various categories of incomes as enumerated under section 11(1)(a) to (d) from the total income of the previous year. Section 12 exempts voluntary contributions received by a trust created for charitable purposes from the total income. The benefit of section 11 and/or 12 can be claimed only when the conditions as stipulated under section 12A are satisfied. One such condition is that a person in receipt of the income has to apply for registration of the trust or institution in the prescribed form on or before the expiry of a period of one year from the date of creation of the trust or establishment of institution. The proviso to section 12A(1) confers power on the Commissioner to entertain an application under section 12A(1) even after the expiry of period of one year if he is satisfied that the person was prevented from making an application before the expiry of period of one year for sufficient reasons.

14. Section 11(5) requires every trust or institution for a charitable purpose to invest or deposit the money only in the manner provided therein, inter alia, investment in savings certificates as defined in the Government Savings Certificates Act, 1959, deposit with the Post Office Savings Bank, deposit in any account with the scheduled bank, i.e., Reserve Bank of India or its subsidiary bank or any scheduled bank under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934, and the like. The breach of section 11(5) would attract section 13(1)(d) of the Income-tax Act and the benefit under sections 11 and 12 would not be available if funds are deposited or invested contrary to section 11(5) or in breach of section 13(1) generally and section 13(1)(d) specifically.

Analysis of the provisions of the AMC Act

15. The AMC Act provides for establishment of notified market areas/yards for purchase and sale of agricultural produce and livestock and for better regulation of such markets. Various Provincial States even in pre-Independence period had such marketing legislation with the sole purpose of protecting the interests of agriculturists, farmers and growers and to wean them away from exploitation by middlemen. The purpose of marketing legislation is to enable purchasers to get a fair price for the commodities by eliminating middlemen and provide a regulating market with facilities for correct weighments, storage, accommodation and equal powers of bargain for reasonable price to the growers and the consumers (M. C. V. S. Arunachala Nadar v. State of Madras, AIR 1959 SC 300, Mohammad Hussain Gulam Mohammad v. State of Bombay, AIR 1962 SC 97, Muhammadbhai Khudabux Chhipa v. State of Gujarat, AIR 1962 SC 1517, and Lakhan Lal v. State of Bihar, AIR 1968 SC 1408.

16. Almost all the States in India have agricultural marketing legislation and the pattern of working for the market committees in each State is almost the same. These Acts and Rules made thereunder provide for complete scheme of markets for the purchase and sale of notified agricultural produce livestock and products. All of them as held by the Supreme Court in three decisions cited hereinabove are intended to serve the welfare of the agriculturists, farmers in getting a fair price for their agricultural produce. The Andhra Pradesh AMC Act is also intended to safeguard the larger interests of agriculturists and farmers who play an important role in the rural economy and contribute to the welfare of the nation.

17. The decision of the Supreme Court in Sreenivasa General Traders v. State of A. P., AIR 1983 SC 1246 ; [1983] 4 SCC 353, contains an overview of the AMC Act in paragraphs 11 to 15. Instead of this court again giving an overview of the Andhra Pradesh AMC Act, it is useful to extract these paragraphs hereunder :

“11. The object and purpose of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966, as reflected in the long title is to consolidate and amend the law relating to the regulation of purchase and sale of agricultural produce, livestock and products of livestock and the establishment of markets in connection therewith. The legislation is designed to eliminate middlemen in notified agricultural produce, livestock and products of livestock, to protect the producers of such agricultural produce, livestock and products of livestock from exploitation and to ensure to them a fair price for their produce. The material provisions of the Act may be referred to section 2 is the definition clause and defines the expression ‘agricultural produce’ in clause (i) to mean anything produced from land in the course of agriculture or horticulture and includes forest produce or any produce of like nature either processed or unprocessed and declared by the Government by notification to be agricultural produce for the purposes of this Act. The term ‘market’ as defined in section 2(vi) means a market established under sub-section (3) of section 4 and includes market yard and any building therein. The expression ‘notified area’ as defined in section 2(xi) means any area notified under section 3, and ‘notified market area’ in clause (xii) means any area declared to be a market area by notification under section 4. Under section 3 of the Act, the State Government is empowered to declare their intention of regulating the purchase and sale of such agricultural produce, livestock or products of livestock in such area as may be specified in such notifications. After considering the objections and suggestions, if any, the State Government is authorised to publish a final notification under sub-section (3) thereof declaring such area to be a notified area. By sub-section (1) of section 4, the State Government is empowered to constitute a market committee for every notified area which shall be a body corporate having perpetual succession and a common seal. The duty of enforcing the provisions of the Act and the rules and bye-laws is entrusted to a market committee under sub-section (2) thereof. Sub-section (3) of section 4 empowers the market committee to establish such number of markets as the State Government may, from time to time, direct for the purchase and sale of any notified agricultural produce, livestock or products of livestock. Sub-section (3) of section 4 provides such facilities in the market as may be specified by the Government from time to time by a general or special order. Sub-section (4) provides that the State Government shall, after the establishment of a market under sub-section (3), declare by notification the market area and such other area adjoining thereto as may be specified in the notification, to be a notified market area for the purposes of the Act. . .

12. Under the scheme of the Act, the market committee is enjoined by sub-section (1) of section 14 to pay into a fund called the ‘Market Committee Fund’ all moneys received from the traders as market fee on transactions of sale or purchase of agricultural produce taking place within the notified market area and they are to be credited in the nearest Government treasury or in a bank, with the previous sanction of the State Government. All expenditure incurred by the market committee under and for purposes of the Act have to be defrayed out of the said Fund and any surplus remaining after such expenditure, has to be invested in such manner as may be prescribed. Under sub-section (2), every market committee has to pay to the State Government out of its Fund the cost of any special or additional staff employed by the Government with their consultation. Where such additional staff is employed for the purposes of one or more market committee, the State Government has to apportion the cost of such special or additional staff among the market committees concerned in such manner as they think fit. Under sub-section (3), the market committee may grant loans to another market committee out of its surplus funds, with the previous sanction of the State Government, at such rates of interest as may be prescribed. The purposes for which the Market Committee Fund may be expended are set out in section

15 which reads :

‘(i) the acquisition of site for the market ;

(ii) the establishment, maintenance and improvement of the market ;

(iii) the construction and maintenance of buildings, necessary for the market and for the health convenience and safety of the persons using the market and maintenance of buildings under the control of the market committee ;

(iv) the provision and maintenance of standard weights and measures ;

(v) the pay, pensions, leave allowance, gratuities, compassionate allowances and contribution towards leave allowances, pensions or provident fund of officers and servants employed by the market committee ;

(vi) the payment of interest on loans that may be raised for purpose of the market and the provisions of a sinking fund in respect of such loans ;

(vii) the collection and dissemination of information regarding all matters relating to crop statistics and marketing in respect of notified agricultural produce, livestock and products of livestock ;

(viii) schemes for the extension or cultural improvement of notified agricultural produce, livestock and products of livestock within the notified area, including the grant, subject to the approval of the Government, of financial aid to the schemes for such extension or improvement within such area, undertaken by other bodies or individuals ;

(ix) propaganda for the improvement of agriculture, livestock and products of livestock and thrift ;

(x) the expenses of, and incidental to, the conduct of elections ;

(xi) the promotion of grading services ;

(xii) measures for the preservation of foodgrains ;

(xiii) such other purposes as may be specified by the Government by general or special order.’

13. Sub-section (1) of section 16 of the Act provides that there shall be formed for the whole of the State a fund to be called the ‘Central Market Fund’. Every market committee is required to contribute 10 per cent. of its annual income to the Central Market Fund and the contribution so paid shall be placed to the credit of the said Fund. Sub-section (2) of section 16 provides that the Central Market Fund shall be vested in the State Government and deposited in the Government treasury at Hyderabad. It is administered and applied by the Director of Marketing for all or any of the purposes set out therein, viz.:-

‘(i) grant-in-aid of the market committees for the first year after their constitution under this Act ;

(ii) grant-in-aid of a deficit market committee for a period not exceeding three years ;

(iii) grant of loans to the market committees at such rates of interest as are charged on loans granted by the Government for development purposes ; and

(iv) such other similar or allied purposes as may be specified by the Government by general or special order.’

14. In exercise of the powers conferred by section 33 of the Act, the State Government of Andhra Pradesh have framed the Andhra Pradesh (Agricultural Produce and Livestock) Markets Rules, 1969. Chapter IV of the Rules deals with the powers and functions of the market committees and Chapter V deals with the regulation of trading. Chapter VI relates to the levy and collection of market fee, Chapter VII regulates the manner in which the Market Committee Fund shall be maintained and Chapter VIII the manner in which the market committees shall function. The Act and the Rules provide for a complete scheme for the establishment and regulation of markets for the purchase and sale of notified agricultural produce, livestock and products of livestock in the State of Andhra Pradesh. We are here concerned with Chapter V.

15. Marketing legislation which seeks to enable producers to get a fair price for the commodities by eliminating middlemen and providing a regulated market, cannot be said to impose ‘unreasonable restriction’ on the citizens right to do business unless it is clearly established that the provisions are too drastic to achieve the object for which it was enacted. In order to make effective such legislation for the control of a market, it would be reasonable for the Legislature to control transactions between traders and also the sale or produce grown outside the market area, if sold in the market area. . . .” (emphasis supplied)

18. Section 7 of the AMC Act requires every person to obtain a licence from the market committee to set up, establish and use any place in the notified area for the purchase, sale, storage or weighment processing or pressing of any notified agricultural produce. Section 12 empowers the market committee to levy fees on agricultural produce, purchase or sale in the notified market area. These monies form the market committee fund and shall have to be spent in accordance with the provisions of section 14 and the Andhra Pradesh (Agricultural Produce and Livestock) Markets Rules, 1969 (the Rules, for brevity).

19. It may, therefore, be taken as well accepted that AMCs discharge an important duty and function of protecting the interest of a large body of persons, namely, agriculturists, farmers and growers of agricultural produce and livestock. A market committee is a platform to facilitate equal bargaining power for the sale or purchase of agricultural produce with the main object of ensuring fair and reasonable price for the agricultural produce and livestock brought by the agriculturists and farmers to the market area/yard.

20. The market committee constituted under section 4 of the AMC Act shall be a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of the property and may by its corporate name sue and be sued. It is required to establish as many number of markets as the Government may direct for the purchase and sale of notified agricultural produce and shall provide such facilities as may be prescribed by the Government (section 4(3)(a) of the AMC Act). There is no dispute that all AMCs provide platforms, godowns, necessary infrastructural facilities like roads, rest houses, water facilities in the market areas and cater to the needs of the sellers and buyers of the agricultural produce in the notified market area. Can it then be said that the AMC is constituted for a charitable purpose, i.e., for the advancement of an object of general public utility ?

Analysis of the order of the CIT and the ITAT

21. The Commissioner of Income-tax considered the applications of the respondent-AMCs elaborately referring to various provisions of the AMC Act, and came to the conclusion that the AMC has the essential attributes of “local authority” and is a “person” as defined in section 2(31) of the Income-tax Act. He then accepts the position that prior to April 1, 2003, assuming the status of local authority under section 10(20) and as an authority constituted under section 10(29), they availed of exemption. But, after deletion of section 10(29) and amendment of section 10(20) giving a restricted meaning of “local authority”, AMC went out of the category of local authorities, and, therefore, they cannot seek registration under section 12AA of the Income-tax Act. It is also the view of the Commissioner of Income-tax that the Legislature’s intention is not to extend the benefit of exemption to local authority under sections 11 to 13 and, therefore, when once the AMC ceases to be a local authority, it cannot again seek exemption under these provisions. The Commissioner of Income-tax also observed that the AMC filed the application, with a delay of more than three decades after its establishment, only when they were denied the status of being a local authority. Therefore, registration cannot be granted. After further analysis of the provisions of the AMC Act, he also came to the conclusion that the exemption, as envisaged in the provisions of sections 11 to 13, is applicable to cases of trust or institutions built up or created by the individuals/associations/groups having privately owned funds/properties/capital/resources for being used towards advancement of the objects of general public utility in return for tax exemption. The AMC, having been constituted under the AMC Act, cannot be treated as a “person” or a “trust” for charitable purpose. Ultimately, the Commissioner of Income-tax concluded as follows :

“(i) The application filed in Form No. 10A, seeking registration under section 12A(a) is late by nearly 39 years and the unusual delay is stated to be attributable to the absence of any requirement to apply for such registration earlier since as absolute exemption was available under the pre-amended provisions. While this contention of the applicant does not explain the delay in filing the application for registration it only reveals the anxiety of the applicant to avoid the charge of income-tax in the wake of and in spite of changes in the statutory position.

(ii) The applicant-agricultural market committee was created as a local authority and it continues to be so even now. Any cessation of the benefit of exemption on account of statutory changes in the Income-tax Act, neither has any effect on the status of the applicant nor does it afford any alternative to the applicant to seek exemption under other provisions of the Act which were not applicable to the applicant’s case in the past and are not applicable to its case at present. The provisions of sections 11, 12, 12A, 12AA and 13 are not alternatives to the specific provisions of sections 10(20)/10(29) which might have supported the applicant’s claim for exemption before their amendment or repeal. The desire to continue to enjoy the benefit of exemption, simply because it was available in the past cannot secure the right to perpetually retain such exemption if the legislative intent, as expressed through the statutory changes, is not to extend that benefit any more.

(iii) The receipts of the applicant do not constitute voluntary contributions. Receipts like market fee and licence fee are collectible on the strength of statutory sanction and there does exist an element of quid pro quo in these levies. Facilities provided are thus duly and appropriately changed and therefore the element of charity cannot be attributed to the endeavour of the applicant.

(iv) The scheme of sections 11 to 13 in general and the restrictive provisions of section 13 in particular cannot be made applicable to the case of a local authority like the applicant. The basic incentive of tax exemption under the scheme of the provisions of the Income-tax Act, 1961, cannot be intended for utilization of public property and the applicant of income of pubic property administered through Government or its agencies reaching the people as a whole.

(v) The absence of profit motive in the functioning of the market committee (which is put forth by the applicant as an argument in support of its claim for exemption) by itself does not create an entitlement for absolute exemption from the charge of income-tax in respect of the income which the applicant earns or is likely to earn from its activities. Even an incidental income or surplus is chargeable to tax after allowing the expenditure/deductions which could be legitimately claimed in accordance with the provisions.

(vi)The constitution of the agricultural market committee under the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 did not bring into existence any institution to render charity. The constitution of the market committee was aimed at regulating the purchase and sale of agricultural produce, livestock and products of livestock and to provide certain facilities, as may be specified by the Government, in lieu of fees statutorily levied. Any consideration charged in lieu of any facilities or services provided is a negation of the concept of charity. In the said Act neither any charitable objects to be pursued by the market committee are specified nor the section of pubic to receive benefit is identifiably defined.

(vii)The benefit of exemption is sanctioned by the statute and any claim for exemption is to be within the scope of the provisions of law and not in supersession of the provisions of law. Any persistence with the claim for exemption despite the legislative intent to the contrary, not only seeks to nullify the effect of statutory changes but it may also be interpreted as defiance to the legislative intent. Exemption from tax is only a concession under the statute, it is not a privilege to be enjoyed forever if the legislative authority who granted it once, decides to withdraw it.”

22. The learned Tribunal considered a group of twelve appeals together and, following its earlier orders in the cases of AMC, Karimnagar and Siddipet, allowed the appeals directing the Commissioner of Income-tax to grant registration to the respondent-AMCs.

Precedent law

23. At the outset, we must refer the judgment of the Privy Council in Trustees of the ‘Tribune’, In re [1939] 7 ITR 415  (PC). Section 4(3)(i) of the Indian Income-tax Act, 1922 exempted any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes. “Charitable purposes” includes relief to the poor, education, medical relief and the advancement of any other object of general public utility. In the case before the judicial committee, Sardar Dayal Singh had executed a will and had created three separate trusts to be administered by a committee of trustees. One for running an arts college, the second for running a public library and the third for running the Tribune Press and newspapers in Lahore. After the death of the testator, the claim of the Tribune Press for exemption of its profits from tax was referred to the High Court as to whether the income of the press could be assessed under the Indian Income-tax Act and, if so, is it not exempt under section 4(3)(i) of the Indian Income-tax Act. On a difference of opinion between the judges of the Division Bench, the matter was referred to the Full Bench which held that the income was not exempt. The question before the Privy Council was whether the Tribune Press was for advancement of an object of general public utility. While observing that the courts have to pronounce whether any particular object of a bounty falls within the definition ; but they must in general apply the standard of customary law and common opinion amongst the community to which the parties interested belong, the court held as follows (page 423) :

“It cannot in their Lordships’ opinion be regarded as an element necessarily present in any purpose of general public utility, that it should provide something for nothing or for less than it costs or for less than the ordinary price. As elemosynary element is not essential even in the strict English view of charitable uses (Commissioners v. University College of Northwales [1909] 5 TC 408, 414). There seems to be no solid distinction to be taken under the phrase ‘general public utility’ between a school founded by a testator but charging fees to its pupils and a paper founded by a testator and sold to its readers. The purpose of providing the poor or the community in general with some useful thing without price or at a low price may doubtless be in itself a purpose of general public utility. But if another object be independently in itself of general public utility the circumstance that the testator’s (sic) bounty was only in respect of the initial capital assets, or had only to meet a working loss temporarily and not permanently will not, necessarily at least, alter the character of the object.”

24. In CIT  v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC), the Supreme Court considered the question as to whether the income of the Andhra Chamber of Commerce is exempt under section 4(3)(i) of the Indian Income-tax Act, 1922. While observing that the Legislature had used language of great amplitude in defining “charitable purpose” and referring to the Trustees of the ‘Tribune’ [1939] 7 ITR 415 (PC) the court held that the Chamber of Commerce is a charitable institution although it was promoting the interest of trade and commerce, which were only ancillary and subsidiary objects. While observing that the primary object being, “to promote and protect trade, commerce and industries, to aid, stimulate and promote the development of trade, commerce and industries, and to watch over and protect the general commercial interests of India”, the court held as under (page 732) :

“The expression ‘object of general public utility’ in section 4(3) would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served thereby if it includes the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture. If the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, is contemplated.”

25. In Surat Art Silk [1980] 121 ITR 1 (SC), a Constitution Bench of the Supreme Court interpreting the words “not involving the carrying on of any activity for profit” occurring in section 2(15) (as it existed), held that the test of predominant object has to be applied while deciding whether an entity is a charitable trust/institution and that profit making by such institution is not excluded. The relevant observations are as follows (page 33) :

“Therefore, for a purpose to fall under the fourth head of ‘charitable purpose’, it must constitute the advancement of an object of general public utility in which the activity of advancement must not involve a profit making activity. The word ‘involving’ in the restrictive clause is not without significance. An activity is involved in the advancement of an object when it is enwrapped or enveloped in the activity of advancement. In another case, it may be interwoven into the activity of advancement, so that the resulting activity has a dual nature or is twin faceted. Since we are concerned with the definition of ‘charitable purpose’, and the definition defines in its entirety a ‘purpose’ only, it will be more appropriate to speak of the purpose of profit making being enwrapped or enveloped in the purpose of the advancement of an object of general public utility or, in the other kind of case, the purpose of profit making being interwoven into the purpose of the advancement of that object giving rise to a purpose possessing a dual nature or twin facets. Now, section 2(15) clearly says that to constitute a ‘charitable purpose’ the purpose of profit making must be excluded. In my opinion, the requirement is satisfied where there is either a total absence of the purpose of profit making or it is so insignificant compared to the purpose of advancement of the object of general public utility that the dominating role of the latter renders the former unworthy of account. If the profit making purpose holds a dominating role or even constitutes an equal component with the purpose of advancement of the object of general public utility, then clearly the definition in section 2(15) is not satisfied. When applying section 11, it is open to the tax authority in an appropriate case to pierce the veil of what is proclaimed on the surface by the document constituting the trust or establishing the institution, and enter into an ascertainment of the true purpose of the trust or institution. The true purpose must be genuinely and essentially charitable.”

26. In APSRTC [1986] 159 ITR 1  (SC), the question was whether the income of the APSRTC was exempt from income-tax under section 4(3)(i). On a reference by the Income-tax Appellate Tribunal, the High Court answered the question in the affirmative in favour of the assessee. Following Trustees of the ‘Tribune’ [1939] 7 ITR 415  (PC), the Supreme Court affirmed the High Court’s view observing as under (page 11 of 159 ITR) :

“It is an admitted position, as pointed out by the High Court in its judgment under appeal, that no share capital has been raised under section 23(2) and the entire capital has been provided by the Government under section 23(1) and the Government is only paid interest thereon under section 28(1) just as interest would be paid on any money due as a debt. That the activity of the respondent-corporation is not carried on with the object of making profit is made abundantly clear by the provisions of section 30 under which, prior to the amendment of that section by the Amendment Act of 1959, the balance of income left, after utilization of the net profits for the purpose set out in section 30, was to be made over to the State Government for the purpose of road development and after the Amendment Act of 1959 is to be utilized for financing the expansion programmes of the respondent-corporation and the remainder, if any, is to be made over to the State Government for the purpose of road development. As pointed out by this court in Andhra Pradesh State Road Transport Corporation v. ITO [1964] 52 ITR 524 (SC), the amount handed over to the State Government does not become a part of the general revenues of the State but is impressed with an obligation that it should be utilized only for the purpose for which it is entrusted, namely, road development. It is not, and cannot be, disputed that road development is an object of general public utility.”

27. Agricultural Produce and Market Committee [2007] 291 ITR 419  (Bom) is a case wherein the Bombay High Court considered the question whether market committees constituted under the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963 (Maharashtra Act, for brevity) are established for charitable purposes and whether they can be registered under section 12A/12AA of the Income-tax Act. After referring to various provisions of the Maharashtra Act-the preamble, the powers and duties of the market committees, the power to levy and collect fees and regulate the markets, the court relied on Surat Art Silk [1980] 121 ITR 1 (SC) and held as under (pages 428 and 429)

“Applying the tests laid down by the apex court in the aforesaid cases to the facts of the present case, there can be no doubt that the object of the market committees (assessees) established under the 1963 Act 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 Act . . .

It is pertinent to note that prior to April 1, 1984, the words used in section 2(15) of the 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 April 1, 1984, the 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 charitable purposes.”

28. In Market Committee [2007] 294 ITR 563  (P&H), the Punjab and Haryana High Court, after considering the provisions of the Punjab Agricultural Produce Markets Act, 1961 (“the Punjab Act”, for brevity), held that the market committee incorporated in terms of section 18 of the Punjab Act is a body corporate and that its activities can be included within the definition of the term “charitable purposes”. It was also held that the exemptions under sections 10, 11 and 12 of the Income-tax Act are independent of one another and merely because an assessee is not entitled to claim exemption under one of the aforesaid provisions that cannot ipso facto lead to the conclusion that the claim of the assessee cannot be considered for grant of tax exemption in some other provisions of the Income-tax Act. The relevant observations are as follows (page 584) :

“It is apparent from the duties and responsibilities of the market committees, delineated in the foregoing two paragraphs, that a market committee, in the background of the provisions of the Markets Act, should be treated as a body, discharging ‘legal obligation’(s) within the meaning of section 13(7) of the Income-tax Act. The duties and responsibilities discharged by a market committee, envisaged under the provisions of the Markets Act, referred to above, also lead us to conclude, that the activities of a market committee can be included within the definition of the term ‘charitable purpose’, defined by section 2(15) of the Income-tax Act. The instant conclusion is inevitable from a cumulative reading and interpretation of sections 13, 26 and 28 of the Markets Act (analysed in paragraphs 3, 4 and 5 hereinabove). Briefly stated, it may be noticed, that the obligations discharged by a market committee include the regulation of purchase, sale, storage and processing of agricultural produce with the intention of benefiting the producers, as well as, the consumers of agricultural products. A market committee is also obliged to provide for conveniences for the activities of a market area like construction of buildings, sheds, plinths, etc. A market committee is also obliged to provide conveniences for persons visiting a market area, like providing for shelter, shade and parking facilities. A market committee is also obliged to look after the safety, health and convenience of persons visiting the market area. A market committee is also obliged to construct and repair link roads, approach roads, culverts, and bridges, etc. One of the many specified activities of a market committee is to extend loans to financially weak communities as well as in the repayment of such loans and the interest thereon. The market committee under reference, in the discharge of its obligations, besides carrying out all the aforesaid activities, is stated to have spent a huge sum of money for the construction, development and repair of link roads, culverts, bridges, etc.”

29. In Gujarat Maritime Board [2007] 295 ITR 561 (SC), the question before the Supreme Court was whether the Maritime Board is entitled to the status of charitable institution under section 11 of the Act. Maritime Board was constituted under the Gujarat Maritime Board Act for the purpose of development of minor ports in Gujarat. Under the statute, the Board also renders stevedoring, transport and shipping services besides maintaining jetties, wharfs, roads, lights, etc. The management and control of the Board was with the State Government. There was no profit motive and the income earned by the Board has to be deployed for the development of minor ports in Gujarat. It was registered as “local authority” under section 3(31) of the General Clauses Act, 1897. Prior to 2002, it was availing of exemption as local authority under section 10(20) of the Income-tax Act and, therefore, was not exigible to income-tax. After insertion of the Explanation in section 10(20), the expression “local authority” was confined to Panchayats Municipality, Municipal Committee, District Board and Cantonment Board. The Maritime Board did not come within the definition of local authority. They, therefore, made an application to the Commissioner for being registered as a charitable institution as defined under section 2(15). The Commissioner rejected the application. The Tribunal as well as the High Court of Gujarat held that the Maritime Board is a charitable institution. The Supreme Court, while construing section 2(15) and section 11(1), relied on Andhra Chamber of Commerce [1965] 55 ITR 722 (SC), Surat Art Silk [1980] 121 ITR 1 (SC) and APSRTC [1986] 159 ITR 1 (SC) and held that Maritime Board is entitled to be registered as a “charitable trust” under section 12A of the Act. The relevant observations are as follows (pages 566 and 567) :

“For the purposes of this section ‘property held under trust’ includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the assessing officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment ; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes.

According to section 2(15), the expression ‘charitable purpose’ has been defined by way of an inclusive definition so as to include relief to the poor, education, medical relief and advancement of any other object of general public utility. In this case we are concerned with the interpretation of the expression ‘advancement of any other object of general public utility’.

Under section 11(1), income from property held for charitable purposes is not includible and does not form part of the total income. Section 11(1) has three clauses (a), (b) and (c). In all the three clauses the words used are ‘income derived from property held under trust wholly for charitable purposes’. Under section 11(4), the expression ‘property held under trust’ includes a business undertaking so held. In other words, income from business undertaking held for charitable purposes can fall under section 11 subject to such income fulfilling the requisite conditions of that section . . .

At the outset, we may point out that section 10(20) and section 11 of the 1961 Act operate in totally different spheres. Even if the Board has ceased to be a ‘local authority’, it is not precluded from claiming exemption under section 11(1) of the 1961 Act. Therefore, we have to read section 11(1) in the light of the definition of the words ‘charitable purposes’ as defined under section 2(15) of the 1961 Act.

We have perused a number of decisions of this court which have interpreted the words in section 2(15), namely, ‘any other object of general public utility’. From the said decisions it emerges that the said expression is of the widest connotation. The word ‘general’ in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose (CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1  (SC)). The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so if it seeks to promote the interest of those who conduct the said trade or industry (CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722  (SC)). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity (Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC).”

30. The Bombay, Madhya Pradesh and Punjab and Haryana High Courts, while interpreting the respective enactments, held that the activity carried on by AMCs come within the ambit and scope of activity for “advancement of any other object of general public utility”. All the decisions rely on Andhra Chamber of Commerce [1965] 55 ITR 722 (SC), APSRTC [1986] 159 ITR 1  (SC) and Gujarat Maritime Board [2007] 295 ITR 561  (SC).

31. The Madhya Pradesh Krishi Upaj Mandi Adhiniyam, 1972 (M. P. Act, for brevity) refers to the establishment of market committees, confers powers and functions on such committees and prescribes the method and manner of administering the finances of the market committees. After the amendment of section 10(20) of the Income-tax Act giving a restrictive meaning to the words “local authority”, the Commissioner of Income-tax withdrew the exemption and rejected the applications for registration under sections 12 and 12A/12AA of the Income-tax Act. Various market committees established under the M. P. Act successfully assailed the Commissioner’s orders before the Tribunal against which the Revenue went in appeal before the High Court raising the plea that the market committees established under the M. P. Act were not institutions established for a charitable purpose. Whether the income of market committees is derived from the property and is held under trust wholly for charitable purpose ? To answer this question, the Division Bench of M. P. High Court in CIT v. Krishi Upaj Mandi Samiti (No. 1) [2009] 308 ITR 380  (MP) referred to the various provisions of the M. P. Act, and the earlier case law including the Gujarat Maritime Board [2007] 295 ITR 561  (SC) and held that the market committees fulfil all the requirements of section 11 of the Income-tax Act to get exemption and are, therefore, entitled to registration under sections 12 and 12A/12AA of the Income-tax Act. The plea that deletion of section 10(29) and amendment of section 10(20) with effect from April 1, 2003 disentitles the market committees from being treated as “charitable institutions” under section 2(15) of the Income-tax Act, was rejected. The relevant observations are as under (page 391) :

“The first contention raised by the counsel for the appellant is that the intention of the Legislature in deleting clause (29) of section 10 and introduction of section 10 clause (20) itself shows that the Legislature did not want to extend the benefit of exemption to Krishi Upaj Mandi Samiti. This argument is without any force because section 10(20) and 10(29) of the Income-tax Act provide for exemption to all the local authorities and exemption under this section was a blanket exemption without fulfilling any condition. Section 11 provides for exemption on fulfilment of certain conditions. Thus, the intention behind the amendment was to remove the blanket exemption to the local authorities and provide exemption only if they fulfil the conditions under section 11. As per section 11, the exemption can be granted to the marketing committees provided that they spend amount for charitable purposes as required by sub-section (2) of section 11. The marketing committees are bound to spend their income as per section 39 of the 1972 Adhiniyam and as per the said section, the amount could be spent only for public amenities like construction of roads, market, etc. Section 2(15) of the Income-tax Act provides that if the amount is spent towards public amenities, it will be deemed that the amount is spent for charitable purposes. Hence, by virtue of section 2(15) of the Income-tax Act, it will have to be deemed that the amount spent by the marketing committees is spent towards public purposes. “

32. Yet again in Krishi Upaj Mandi Samiti (No. 2) [2009] 308 ITR 401 (MP), another Division Bench of the M. P. High Court reiterated the earlier view and held that, “the market committees fulfil the requirements of sections 12A and 12AA and are, therefore, entitled to registration under the said provisions”.

Findings and reasons

(i) Whether AMC is a “person” ?

33. Section 2(31) of the Income-tax Act defines “person” in an inclusive manner. It has to be given a broader meaning. Seven categories of persons are mentioned in section 2(31). These are natural persons as well as juristic persons. Indeed, section 2(31)(vii) makes it clear that every artificial juridical person, not falling within clauses (i) to (vi) of section 2(31), is also a “person” for the purpose of the Act. Even if an AMC does not fall in any of the categories under section 2(31)(i) to (vi), namely, an individual, a HUF, a company, a firm, an association of persons or body of individuals and local authority, it certainly falls within the scope of artificial juridical person. By the Finance Act, 2002, with effect from April 1, 2003, an Explanation was inserted to section 2(31) which makes it clear that, inter alia, an artificial juridical person shall be deemed to be a person whether or not it is established or incorporated with the object of deriving income, profits or gains. As we have already noticed, as per section 4 of the AMC Act, AMC constituted by the Government for every notified area shall be a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of the property and may by its corporate name sue and be sued. It is settled law that a body corporate is a person. We may refer to the decision of the Supreme Court in Assistant Commissioner, Assessment II, Bangalore v. Velliappa Textiles Ltd. [2003] 263 ITR 550 (SC); [2004] AIR 2004 SC 86.

34. In Velliappa Textiles Ltd. [2003] 263 ITR 550 (SC), the managing director of the said company was sought to be prosecuted under sections 276C, 277 and 278 read with section 278B of the Income-tax Act. The accused moved the Karnataka High Court under section 482 of the Code of Criminal Procedure, 1973, challenging the prosecution, they were successful. The High Court quashed the prosecution in so far as the company is concerned, but held that prosecution can be launched against the managing director. In the Revenue’s appeal before the Supreme Court, inter alia, it was urged that a company being a juristic person is incapable of being punished with sentence of imprisonment, which is mandatory under sections 276C and 277 of the Income-tax Act. By a majority of 2 : 1, the Supreme Court dismissed the appeal. His Lordship Justice G. P. Mathur, allowed the appeal holding that a company can be prosecuted although it cannot be made to suffer part of the mandatory punishment. Referring to Director of Public Prosecutions v. Kent and Sussex Contractors Ltd. [1944] 1 All ER 119 (KB), it was held that a body corporate is a person with attribute of mind incapable of knowing and forming an intention. The relevant observations are as under (page 572 of 263 ITR) :

“The law on the subject in England also has come round to the position that a company can be prosecuted for the acts done by its responsible officers. This question was considered in considerable detail in Director of Public Prosecutions v. Kent and Sussex Contractors Ltd. [1944] 1 All ER 119 (KB). The respondents here were a limited company and an officer thereof. Both were charged with offences under the Defence (General) Regulations in that with intent to deceive, they produced documents and furnished information for the purposes of the Motor Fuel Rationing Order which were false in material particulars. The returns were signed by the transport manager of the company. The respondents contended that the offences charged required for their commission an act of will or state of mind which a body corporate could not have. It was held by Macnaghten J :

‘A body corporate is a “person” to whom, amongst the various attributes it may have, there should be imputed the attribute of a mind capable of knowing and forming an intention-indeed it is much too late in the day to suggest the contrary. It can only know or form an intention through its human agents, but circumstances may be such that the knowledge of the agent must be imputed to the body corporate. Counsel for the respondents says that, although a body corporate may be capable of having an intention, it is not capable of having a criminal intention. In this particular case the intention was the intention to deceive. If, as in this case, the responsible agent of a body corporate puts forward a document knowing it to be false and intending that it should deceive, I apprehend, according to the authorities that Viscount Caldecote L. C. J. has cited, his knowledge and intention must be imputed to the body corporate.’”

(ii) The effect of the Finance Act, 2002 and interface between section 10(20) and 11(1) of the Income-tax Act

35. Before the amendments, introduced by the Finance Act, 2002, with effect from April 1, 2003, sections 10(20) and (29) read as under :

“10.(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.

10.(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 ;”

36. It is not disputed that by reason of the above extracted provisions, all the market committees, constituted under the AMC Act in Andhra Pradesh, were treated as “local authorities” and granted exemption from paying income-tax. section 10(29) was omitted with effect from April 1, 2003 by reason of the amendment. By the same amendment, an Explanation was inserted below section 10(20) and, thereafter, section 10(20) reads as under :

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

Explanation.-For the purposes of this clause, the expression ‘local authority’ means-

(i) Panchayat as referred to in clause (d) of article 243 of the Constitution ; or

(ii) Municipality as referred to in clause (e) of article 243P of the Constitution ; or

(iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund, or

(iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924.”

37. The Revenue contends that the expression “local authority” as defined to mean units of self-government referred to in articles 243 and 243P of the Constitution, as well as Cantonment Boards, are alone “local authorities” and, therefore, AMCs ceased to be local authorities. The senior counsel would like this court to infer the intention of Parliament by so doing to increase the tax base. According to him, except the local authorities defined in the Explanation to section 10(20), all other local authorities were excluded from claiming exemption from payment of tax. He would, therefore, urge that when the intention was to increase the tax base for roping in all local authorities except those mentioned hereinabove, AMCs cannot again come under the purview of sections 11 to 13 claiming themselves to be institutions for charitable purpose. The submission, in our considered view, cannot be countenanced.

38. It is not the case of AMCs that they were not institutions of charity prior to the amendment of section 10(20) by the Finance Act, 2002. As we have analysed earlier, all those statutory, non-statutory entities, concerns and institutions, specified in section 10-subject to the prescribed conditionalities and legal requirements-are automatically exempted from payment of tax and those who were not included therein were only required to obtain registration under section 12A so as to claim the benefit under section 11(1) of the Income-tax Act. The fact of being covered under any of the clauses of section 10 does not mean that a person is disqualified to seek registration under section 12A. It is nobody’s case before us. When the statute confers the benefit, there was no necessity for AMCs to seek registration under section 12A. By reason of the amendments by the Finance Act, 2002, when they were denied the exemption by reason of losing the status of “local authority” for the purpose of the Income-tax Act, so as to claim exemption it was necessary for AMCs to apply for registration under section 12A/12AA. Even though the object of adding the Explanation to section 10(20) was to restrict the benefit under section 10(20), it was never the intention of Parliament to deny the benefit to a juridical person which was otherwise entitled to seek exemption from payment of tax de hors section 10(20). The Punjab and Haryana High Court, in Market Committee [2007] 294 ITR 563 (P&H), considered the question as to whether an AMC can claim exemption under sections 11 and 12 even after the benefit under section 10(20) was withdrawn by the Finance Act, 2002. While rejecting the contention of the Revenue that, by being removed from the ambit of being local authority, the AMC became ineligible for claiming exemption under sections 11 and 12, the court observed as under (page 577) :

“The exemptions from liability of tax under sections 10, 11 and 12 of the Income-tax Act are independent of one another, as well as, other provisions of the Income-tax Act, under which an assessee can claim tax exemption. It is submitted that merely because an assessee is not entitled to claim exemption under one (or even two) of the aforesaid provisions, cannot ipso facto lead to the conclusion that the claim of the assessee cannot be considered for grant of tax exemption under some other provisions of the Income-tax Act. In view of the decision rendered by the apex court in Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814 (SC), it is not possible for us to accept that section 10(20) of the Income-tax Act ; after the same came to be amended, so as to exclude ‘local authority’ (s) from the benefit of tax exemption, would render the market committees ineligible for tax exemption under other provisions of the Income-tax Act. It must necessarily further be concluded that although market committees are not entitled to (or eligible for) tax exemption under section 10(20) of the Income-tax Act, yet a claim of exemption is still open to consideration under an alternate provision, if made out.”

39. The absence of any corresponding amendments to sections 11 to 13-although section 10(29) was deleted and section 10(20) was amended, itself is sufficient indication to belie the submission made by the senior counsel.

40. In Gujarat Maritime Board [2007] 295 ITR 561 (SC), the Supreme Court held that “section 10(20) and section 11 of the Income-tax Act operate in totally different spheres, that even if the Board has ceased to be “local authority’, it is not precluded from claiming exemption under section 11(1)”. We accordingly hold that an AMC is entitled to seek exemption under section 10(20) read with section 10(29) till March 31, 2003. By reason of the amendment to section 10(20) and deletion of section 10(29) with effect from April 1, 2003, they, for the purpose of the Income-tax Act, ceased to be “local authorities”. This itself would not disqualify them from claiming exemption under sections 11(1) and 12 of the Income-tax Act provided they are considered as institutions established for advancement of objects of general public utility, because the Parliamentary benefit under section 10(20) is altogether different from the benefit granted by the tax machinery subject to statutory conditionalities contained in sections 11 to 13 of the Income-tax Act.

(iii) Whether AMC is entitled to status of charitable institution

41. The income derived from property held under trust wholly or partly for charitable or religious purposes shall not be included in the total income of the previous year of the person in receipt of the income. A market committee, constituted under section 4 of the AMC Act, as mandated by section 15 of the AMC Act read with rule 27 of the Rules, is required to establish general or special market places or market yards in the notified area and provide facilities like rest house for ryots, electrification of market yard, auction-cum-weighing shed, auction platforms, internal roads, telephone booth, canteen, office building, godown for use of producer-seller, approach roads, library-cum-club building and resting house for traders (para. 35 of Sreenivasa Traders). Section 12 of the AMC Act read with rule 74 of the Rules empower the market committee to levy and collect fees on any notified agricultural produce, livestock or products of livestock purchased or sold in the market at the rate as specified in the bye-laws of the AMC made by the market committee under section 34 of the AMC Act read with rule 45 of the Rules. Section 7 prohibits any person to set up a place for the purchase, sale, storage, weighment, curing or processing of any agricultural produce or livestock unless he obtains a licence. Rule 48 requires a person to pay the licence fee as prescribed by the Rules. In addition, the brokers, carting or clearing agents and other persons working in the market have to pay licence fee. The market fees and fees collected for granting various licences shall form the market committee fund and out of this, ten per cent. of annual accumulations shall be contributed to the Central Market Fund (sections 14 and 16 of the AMC Act). Under section 18 of the AMC Act, the market committee with the previous sanction of the Government may borrow money for carrying out purposes for which it is constituted on the security of any property belonging to it or any fees leviable by it under the AMC Act. Further, for the purpose of meeting the initial expenditure on lands, buildings and equipment, an AMC may obtain loan from the Government. The income thus derived by the market committee mainly includes the fees collected for the services provided although quid pro quo is not strictly applied (Sreenivasa Traders, AIR 1983 SC 1246; [1983] 4 SCC 353). The market funds are spent in accordance with the budget prepared by the market committee and are spent according to the financial rules (Chapter X of the Rules). Rule 27 of the Rules provides powers and duties of market committee. These mainly relate to the establishment, maintenance and managing market yards, providing facilities for marketing of notified agricultural produce, supervise, the conduct of market functionaries, regulate the opening, closing and suspending transactions, provide for settlement of disputes between the seller and buyer. The duties also include the collection, maintenance and dissemination of information in respect of sale price and movement of notified agricultural produce, production, processing and storage of notified commodities, prevention of adulteration. For doing all these, the market committee also has ancillary duties like employing officers and staff for the efficient implementation of the provisions of the AMC Act and the Rules. All these are intended to provide user friendly facilities for farmers and agriculturists as well as traders at one place. The question is whether these functions discharged by an AMC are for the advancement of the object of general public utility.

42. The Latin word utilis means “useful, beneficial, equitable, available”. Chambers Dictionary of English defines “utility” as useful : power to satisfy the wants of people in general : a useful thing, public utility : public service or a company providing such public service. According to New Oxford Dictionary of English (1998), as a noun, utility is the status of being useful, profitable or beneficial.

43. The Corpus Juris Secundum, volume 73, page 990 elucidates the following legal position.

“A ‘public utility’ has been described as a business organization which regularly supplies the public with some commodity or service, such as electricity, gas, water, transportation or telephone or telegraph service. While the term has not been exactly defined, and, as has been said, it would be difficult to construct a definition that would fit every conceivable case, the distinguishing characteristic of a public utility is the devotion of private property by the owner or person in control thereof to such a use that the public generally, or that part of the public which has been served and has accepted the service, has the right to demand that the use or service, as long as it is continued shall be conducted with reasonable efficiency and under proper charges. The term is sometimes used in an extended sense to include a great many matters of general welfare to the State and its communities.”

44. The words “public utility” or “general public utility” are not capable of a precise meaning. The question whether a service is of public utility or not has to be discharged in the context of different situations but it is, as considered infra, well settled that public utility means public purpose depending upon the context in which it is used in the statute or the Rules. Indeed, in some decisions, public utility is considered very similar to one for public purpose (Hunter v. A. G. [1909] AC 323, Babu Barkya Thakur v. State of Bombay, AIR 1960 SC 1203 and Pandit Jhandu Lal v. State of Punjab, AIR 1961 SC 343.

45. In cases arising under the Indian Income-tax Act, 1922 as well as the 1961 Act, it is held that the expression “object of general public utility” must be construed by applying the standard of customary law and common knowledge amongst the community to which the parties interested belong. This test, applied in Trustees of the ‘Tribune’ [1939] 7 ITR 415 (PC), seems to have influenced judicial thinking in subsequent decisions as well. The object of general public utility would include all objects which promote the welfare of the general public even if it includes taking up steps affecting trade, commerce or manufacture if the primary purpose is for advancement of objects of general public utility (Andhra Chamber of Commerce [1965] 55 ITR 722 (SC)), even if in an insignificant manner the person makes some profit in carrying out the objects (Surat Art Silk [1980] 121 ITR 1 (SC)). In other words, any activity for the benefit of the public or a section of the public, as distinguished from the benefit to an individual or a group of individuals, would be charitable purpose as the object is for advancement of general public utility. The expression includes all objects to promote the welfare of the public, and when an object is to promote or protect the interest of particular trade or industry that object becomes an object of public utility and would be charitable purpose (Gujarat Maritime Board [2007] 295 ITR 561 (SC)).

46. Applying the law, as laid down by the Privy Council and the Supreme Court in the above cited precedents, we are convinced that an AMC, constituted under the enactment of the State Legislature, is deriving income from property held under legal obligation for a charitable purpose to wit the advancement of general object of utility. It is, therefore, entitled to be registered under section 12A/12AA to enable an AMC to claim exemption as per law. We have reasons for this conclusion which are as follows. The AMC is constituted under the State Act for the sole purpose of protecting the interest of agriculturists, farmers and growers. The purpose of marketing legislation is to enable purchasers to get a fair price for the commodities by eliminating middlemen and provide regular market with all necessary facilities (M. C. V. S. Arunachala Nadar, AIR 1959 SC 300, Mohd. Hussain, AIR 1962 SC 97 and M. K. Chhipa, AIR 1962 SC 1517). Secondly, the AMC is under legal obligation to provide all necessary infrastructure and market facilities within the market place/yard in notified market area, including water, electricity, auction/trading platforms, facilities for receiving, paying and depositing money, and resolving disputes. Thirdly, the income of the AMC from different sources licence fees, market fees, loans, etc., which is derived without any profit motive is to be used to meet the expenditure for providing market facilities named supra. Fourthly, all the income has to be deposited in the market committee fund, out of which ten per cent. shall be contributed to the Central Market Fund which shall vest in the Government, which exercises power of supervision and superintendence over the market committees. The Government administers and applies the Central Market Fund inter alia for providing grants to needy AMCs. Fifthly, AMCs serve an important aspect of rural economy, i.e., providing facilities for marketing agricultural produce and products of livestock.

(iv) Likelihood of non-compliance

47. The exemption under section 11(1) inter alia is subject to complying with section 11(5). This prescribes the forms and modes of investing or depositing the money by a trust or charitable institution registered under section 12A. The senior counsel submits that as an AMC is bound to adhere to the financial practices as mandated by the AMC Act, it would not be in a position to comply with section 11(5). This submission is wholly misconceived. It is well settled that at the time of considering the application made for registration as a trust or a charitable institution under section 12A read with section 12AA, the Commissioner of Income-tax is required to look to the objects of the trust and nothing more. We may refer to the decision of the Karnataka High Court.

48. In Sanjeevamma Hanumanthe Gowda Charitable Trust v. Director of Income-tax (Exemptions) [2006] 285 ITR 327 (Karn), an application for registration under section 12A was rejected by the Director on the ground that it is carrying on its activity by letting out marriage hall on hire. The appeal against the said order was also rejected. Before the Karnataka Bench, the contention was that the mode of generating income from the trust property was immaterial for according exemption or registration of the trust. Dealing with this aspect, the High Court held (page 329) :

“On receipt of such application for registration the Commissioner is under an obligation to follow the procedure prescribed under section 12AA before he grants or refuses registration. What he is expected to do on receipt of such an application is, he shall call for such documents or information from the trust in order to satisfy himself about the genuineness of the activities of the trust or institution. In addition to securing information in the aforesaid manner, it is open to the Commissioner to make such enquiries as he deems necessary in this behalf. Having regard to the scheme of sections 11, 12 and 13 ultimately what the Commissioner has to look into is not the source of income to the trust but whether such income is applied for charitable or religious purposes. The satisfaction of the Commissioner should be regarding the application of the income of the trust for the aforesaid purposes which only entitles the assessee to claim exemption. For arriving at such satisfaction primarily he has to look at the object of the trust, when the same is reduced into writing in the form of trust deed. If on the date of the application the trust has received income from its property, then find out how the said income has been expended, and whether it can be said that the income is utilized towards charitable and religious purposes i.e., towards the object of the trust. Therefore, for the purpose of registration under section 12AA of the Act, what the authorities have to satisfy is the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purpose and not the nature of the activity by which the income was derived by the trust.” (emphasis supplied)

49. Even otherwise the contention is without substance. Section 14(1) of the AMC Act read with rule 8 of the Rules mandate that “all moneys received by an AMC shall be deposited in a single banking account with the nearest Government treasury, or with the sanction of the Government in a bank” out of which all the expenditure of the AMC shall be defrayed. Under section 11(5)(iii), deposit of the moneys in a scheduled bank is substantial compliance with the law. It is nobody’s case before us that any AMC contravened section 14(1) of the AMC Act at any time in the past. Therefore, we reject the contention of the senior counsel for the Revenue.

Conclusion

50. On the analysis as above of the various issues that have arisen for consideration, we hold that denial of registration to the agricultural market committees constituted under section 4(1) of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 is erroneous and the learned Income-tax Appellate Tribunal has correctly applied the law in reversing the decision of the Commissioner of Income-tax. We, accordingly, dismiss these appeals without any order as to costs.

[ Citation : 336 ITR 641]

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