Bombay H.C : The market committees constituted under the Agricultural Produce Marketing (Regulation) Act, 1963 are established for charitable purposes and accordingly direct the CIT to grant registration under s. 12A/12AA

High Court Of Bombay : Nagpur Bench

CIT vs. Agricultural Produce And Market Committee, Hinganghat & Ors.

Section 2(15), 12A, 12AA

J.P. Devadhar & B.P. Dharmadhikari, JJ.

IT Appeal Nos. 4 to 12, 14, 15, 18, 22 to 24, 29, 34 to 38, 41, 44, 45 48, 59, 64, 67, 70, 72, 75, 76, 80, 82, 83, 88, 89, 93, 94, 114 & 117 of 2006 and 22, 27 & 45 of 2007

28th March, 2007

Counsel Appeared :

Anand Parchure, for the Appellant : C.J. Thakkar & S.C. Thakkar, for the Respondents

JUDGMENT

J.P. DEVADHAR, J. :

The common question of law raised by the Revenue in all these appeals is :

“Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the market committees constituted under the Agricultural Produce Marketing (Regulation) Act, 1963 are established for charitable purposes and accordingly direct the CIT to grant registration under s. 12A/12AA of the IT Act, 1961 ?”

Heard Mr. Anand Parchure, advocate for the appellants and Mr. Thakkar, advocate for the respondents. Rule. Rule made returnable forthwith. All these appeals are admitted on the above question of law and by consent of both the parties all these appeals are taken up for final hearing. Since the question of law raised is common, all these appeals are disposed by a common judgment. Under the IT Act, 1961 (‘Act’ for short) prior to 1st April, 2003, income of all the local authorities were exempt under s. 10(20) of the Act. The market committees (‘assessees’ for short) constituted under the Agricultural Produce Market (Regulation) Act, 1963 (‘1963 Act’ for short) being local authorities were covered under s. 10(20) of the Act and their income was exempt. However, by Finance Act, 2002 w.e.f. 1st April, 2003, an Explanation has been added to s. 10(20) of the Act whereby the words ‘local authority’ have been defined to mean the local authorities specifically set out therein. Since the assessees are not included in the said Explanation, exemption under s. 10 (20) of the Act became not available to the assessees w.e.f. 1st April, 2003.

The then Union Finance Minister, however, by his letter dt. 18th Nov., 2002 addressed to the Chief Minister of Delhi, clarified that irrespective of the withdrawal of exemption under s. 10(20) of the Act, if the assessees are working for advancement of an object for general public utility and there is no profit motive, they can still claim exemption from income-tax as charitable institution after fulfilling the conditions prescribed under s. 11 of the Act. Thereupon, the assessees who are respondents herein made applications in the prescribed form seeking registration under s. 12A/12AA of the Act. All those applications were rejected by CIT, Nagpur inter alia on the ground that the assessees are commercial establishments and the services rendered by them are not free of costs but are on payment of cess/fees which entails profit motive. The CIT further held that assessees are not registered as a trust and even if they are institutions referred to in s. 12A, it would still not be entitled to exemption because, in the present case, neither the income is derived from the property nor the income is derived from voluntary contributions and, therefore, the benefit under ss. 11 and 12 of the Act would not be available to the assessees. On appeal filed by the assessees, the Tribunal has reversed the orders passed by the CIT and directed the CIT to grant registration to the assessees under s. 12A/12AA of the Act. Hence, these appeals have been filed by the Revenue under s. 260A of the Act. Mr. Parchure, learned counsel appearing on behalf of the Revenue supported the orders passed by the CIT, whereas Mr. Thakkar, learned counsel for the respondents supported the orders passed by the Tribunal. At the outset, it may be noted that a market committee constituted under the 1963 Act at Pune has been granted registration under s. 12A/12AA of the Act by CIT, Pune on 14th Oct., 2003 and the said registration continues to be in operation till date. Thus, according to CIT, Pune the activities carried on by a market committee under the 1963 Act constitute charitable purposes and hence entitled to registration, whereas, according to CIT, Nagpur the activities carried on by the market committees do not constitute charitable purposes. This Court in the case of Tax Practitioners Benovalent Fund vs. CIT, Writ Petn. No. 922 of 2003 decided on 29th Sept., 2003 [reported at (2004) 188 CTR (Bom) 26—Ed.] dealing with grant of exemption under s. 80G of the Act held that different officers under the IT Act authorised to consider the application for grant of exemption under s. 80G of the Act have to apply the same norms, yardsticks and parameters while considering the applications under s. 80G and the similar persons cannot be treated differently merely because the officers happened to be different having different territorial jurisdictions. The Tribunal relying upon the aforesaid decision held that when the decision of CIT, Pune has been accepted by the IT Department, it was not open to the CIT, Nagpur to take a contrary view and deny registration to the assessees. No fault can be found with the decision of the Tribunal on that ground.

Apart from the above, even on merits the Tribunal held that the assessees are established for advancement of the object of general public utility which is a ‘charitable purpose’ under s. 2(15) of the Act and, therefore, the assessees are entitled to registration under s. 12A/12AA of the Act. Validity of that finding is challenged in these appeals. It is pertinent to note that to avail the benefits of ss. 11 and 12 of the Act, not only the trusts/institutions must be registered under s. 12A/12AA of the Act but they must also comply with the conditions set out in ss. 11 and 12 of the Act. In other words, a registered trust/institution will not get the benefits of ss. 11 and 12 of the Act if the conditions set out therein are not fulfilled. Benefits under ss. 11 and 12 of the Act are available to trusts/institutions created/established wholly for charitable or religious purposes. Sec. 2(15) of the Act defines ‘charitable purpose’ to include inter alia an institution established for advancement of an object of general public utility. To get registration under s. 12A/12AA of the Act, the conditions required to be fulfilled are, firstly, the trust/institution must be created/established for charitable purposes and secondly, the activities of the trust/institution must be genuine. The question is, whether the assessees fulfil these two conditions. In all these cases, the genuineness of the assessees is not in dispute. The only dispute is, whether the assessees are established for charitable purposes, that is, established for advancement of any of objects of general public utility as contemplated under s. 2(15) of the Act. According to the assessees they are established for charitable purposes, whereas, according to the Revenue the assessees are not established for charitable purposes.

To appreciate the rival contentions, it is necessary to set out few facts relating to the constitution of the assessees. The 1963 Act provides for establishment of market committees (assessees) for every market area specified in the notification issued by the State Government for regulating marketing of the agricultural produce in a specified area. The Preamble of the 1963 Act reads thus : “An Act to regulate marketing of agricultural and certain other produce in market areas and markets to be established therefor in the State; to confer powers upon market committees to be constituted in connection with or acting for purposes connected with such markets; to establish market fund for purposes of the market committees and to provide for purposes connected with the matters aforesaid.” ‘Agricultural produce’ is defined under the 1963 Act to mean all produce (whether processed or not) of agriculture, horticulture, animal husbandry, apiculture, pisciculture, fisheries and forest specified in the Schedule annexed to the 1963 Act.

14. Powers and duties of the market committees (assessees) are set out in s. 29 of the 1963 Act. Sec. 29 of the 1963 Act, to the extent relevant herein, reads thus : “29. Powers and duties of market committee. It shall be the duty of a market committee to implement the provisions of this Act, the rules and bye-laws made thereunder in the market area; to provide such facilities for marketing of agriculture produce therein as the director (the State Marketing Board or the State Government, as the case may be) may, from time to time, direct; do such other acts as may be required in relating to the superintendence, direction and control of market or for regulating marketing of agriculture produce in any place in the market area, and for purposes connected with the matters aforesaid, and for that purpose may exercise such powers and perform such duties and discharges such functions as may be provided by or under this Act. Without prejudice to the generality of the foregoing provisions, a market committee may— (i)—————- (ii) —————– (iii) grant, renew, refuse, suspend or cancel licence; (iv) maintain and manage the market including admissions to, and conditions for use of, markets within the market area; (v) provide for necessary facilities for the marketing of agricultural produce within the market in the market area; (vi) regulate and supervise the auctions of notified agricultural produce in accordance with the provisions and procedure laid down under the rules of this Act or the bye-laws of the Market Committee; (vii) regulate the making, carrying out and enforcement or cancellation of sales, weighment, delivery, payment to be made in respect thereof and all other matters relating to the marketing of notified agriculture produce in the prescribed manner; (viii) take all possible steps to prevent adulteration and to promote and organise grading and standardisation of the agricultural produce; (ix) take measures for the prevention of purchases and sales below the minimum support prices as fixed by the Government from time to time; (x) collect, maintain, disseminate and supply information in respect of production, sale, storage, processing, prices and movement of notified agricultural produce including information relating to crops, statistics and marketing intelligence as may be required by the director; (xi) arrange to obtain fitness (health) certificate from veterinary doctor in respect of animals, cattles, birds, etc., which are brought or sold in the market area; (xii) carry out publicity about the benefits or regulation, system of transactions, facilities provided in the market area, through such media, as, in the opinion of the market committee, may be effective or necessary; (xiii) provide for settling disputes arising out of any kind of transactions connected with the marketing of agricultural produce and all matters ancillary thereto; (xiv) subject to the provisions of s. 12, acquire, hold or dispose of any movable or immovable property for the purpose of efficiently carrying out its duties; (xv) ————————— (xvi) —————————(xvii) levy, take, recover and receive charges, fees, rates and other sums or moneytowhich the market committee is entitled; (xviii) subject to approval of the director, obtain loans, subsidies, subventions from the State and Central Government or any financing agency, for providing warehousing and marketing facilities in the market; (xix) subject to the approval of the State Marketing Board, prepare budgets, supplementary budgets, make reappropriations in the budget and incur expenditure accordingly; (xx) keep a set of standard weights and measures in the market against which weighment and measurement may be checked; (xxi) inspect and verify scales, weights and measures in use in market areas and also the books of accounts and other documents maintained by the licensees in such manner as may be prescribed; (xxii) employ the necessary number of officers and servants for the efficient implementation of the provisions of this Act, rules and bye-laws of the market committee; (xxiii) pay salaries and other emoluments, pension, leave allowance, gratuities, compassionate allowance, contributions towards leave allowance, pension or provident fund of the officers and servants employed by the market committee in the manner prescribed; (xxiv) administer market fund referred to in s. 36 of this Act and maintain the account thereof and get the same audited in the prescribed manner; (xxv) prosecute persons for violating the provisions of this Act, the rules and the bye-laws and compound offences as provided under s. 52A; (xxvi) provide storage and warehousing facilities in the market area; (xxvii) with the prior sanction of the State Government or the State Marketing Board or the director undertake any other activity conducive to the promotion of regulation of agricultural marketing; (xxviii) arrange for the collection of— (a) such agricultural produce in the market area in which all trade therein is to be carried on exclusively by the State Government by or under any law in force for that purpose, or (b) such other agricultural produce in the market area, as the State Government may, from time to time, notify in the Official Gazette (hereinafter referred to as the ‘notified produce’.).” Sec. 31 of the 1963 Act empowers the assessees to levy and collect fees in the prescribed manner at such rates as decided by it but subject to minimum and maximum rates which may be fixed by the State Government by notification in Official Gazette in that behalf. Sec. 36 of the 1963 Act provides that all monies received by a market committee shall form part of a fund to be called market fund and are to be used for the purposes set out in s. 37 of the 1963 Act.

From the scheme of the 1963 Act, it is evident that the assessees are established to regulate the marketing of agricultural and certain other produce with the object of protecting the interests of the agricultural and some other producers and also the general public who are the ultimate consumers. The object of establishing the market committees is to secure fair price to the agricultural and some other producers and also to make the same available to the ultimate consumer freely, regularly and at fair prices. In other words, the object of Act is to ensure welfare of the agriculturists as a whole and welfare of the general public at large who are the ultimate consumers of the agricultural produce, which is absolutely essential for the orderly growth of the society. In these circumstances, we have no hesitation in holding that the assessees are constituted for charitable purposes , namely, advancement of an object of general public utility and, therefore, entitled to registration under s. 12A/12AA of the Act. Relying upon a decision of this Court in the case of President, APMC vs. Murari K. Yadav 1986 Mah.L.J. 258, it is contended by the Revenue that the assessees are commercial establishments with a profit motive and, therefore, the assessees cannot be said to have been established for charitable purposes. The said decision has no bearing on the facts of the present case, because firstly, in that case, the issue was whether a market committee established under the 1963 Act is a commercial establishment under s. 2(4) of the Bombay Shops and Establishment Act, 1948. Secondly, the definition of ‘commercial establishment’ under s. 2(4) of the Bombay Shops and Establishment Act includes charitable trust. Therefore, the fact that the assessees are commercial establishments under the Bombay Shops and Establishment Act cannot be a ground to hold that the assessees are not established for charitable purposes especially when the words ‘commercial establishment’ include charitable trusts. Moreover, the said decision does not lay down any proposition of law that every commercial establishment has profit motive. Therefore, the argument that the assessees are not established for advancement of the object of public utility but are commercial establishments with profit motive cannot be accepted.

18. The expression ‘object of general public utility’ contained in s. 4(3) of the Indian IT Act, 1922 [similar to s. 2(15) of the IT Act, 1961] has been exhaustively dealt with by the apex Court in the case of Addl. CIT vs. Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC). The apex Court has inter alia held thus : “The expression ‘object of general public utility’ in s. 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.” The apex Court further held thus : “……..It is in our opinion not at all necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on no profit no loss basis or that profit shall be prescribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit making or carrying out a charitable purpose. If it is the former, the purpose would not be a charitable purpose but, if it is the latter, the charitable character of the purpose would not be lost.

If we apply this test in the present case, it is clear that the activity of obtaining licences for import of foreign yarn and quotas for purchase of indigenous yarn, which was carried on by the assessee, was not an activity for profit. The predominant object of this activity was promotion of commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth, which was clearly an object of general public utility and profit was merely a by-product which resulted incidentally in the process of carrying out the charitable purpose. It is significant to note that the assessee was a company recognised by the Central Government under s. 25 of the Companies Act, 1956, and under its memorandum of association, the profit arising from any activity carried on by the assessee was liable to be applied solely and exclusively for the promotion of trade and commerce in various commodities which we have mentioned above and no part of such profit could be distributed amongst the members in any form or under any guise. The profit of the assessee could be utilised only for the purpose of feeding this charitable purpose and the dominant and real object of the activity of the assessee being the advancement of the charitable purpose, the mere fact that the activity yielded profit did not alter the charitable character of the assessee.”

19. Recently the apex Court in the case of Director of IT vs. Bharat Diamond Bourse (2003) 179 CTR (SC) 225 : (2003) 259 ITR 280 (SC) held thus : “…….. Where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust be held as a valid charity. But, if the primary or dominant purpose of the institution is charitable and another which, by itself, may not be charitable, but is merely ancillary or incidental to the primary or dominant object, it would not prevent the institution from validly being recognized as a charity. The test to be applied is, whether the object which is said to be non-charitable is the main or primary object of the trust or institution or it is ancillary or incidental to the dominant object which is charitable.” 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 s. 2(15) of the Act. It is contended by the Revenue that the assessees are established with profit motive because they are not rendering free services but they are charging cess/fees for their services and, therefore, the assessees are not established for charitable purposes. There is no merit in this contention. The cess/fees are charged by the assessees from the purchasers in the market area at the rate prescribed by the State Government for the purpose of carrying out the object of the Act. As held by the apex Court in the case of Art Silk Cloth Manufacturers Association (supra) and in the case of Bharat Diamond Bourse (supra) where the dominant purpose of a trust/institution is charitable, incidentally if some profit is made and the said profit is used for charitable purposes, the said trust/institution does not cease to be established for charitable purposes. In the case of the assessees, the dominant object is to regulate procurement and supply of agricultural and some other produce and to meet the expenses required to be met with in achieving the said object, the legislature has empowered the assessees to levy cess/fees. Moreover, surplus remaining in the market fund is ploughed back for carrying out the object of 1963 Act. Thus, the surplus remaining in the market fund is neither distributed nor accumulated as profits. In these circumstances, it cannot be said that the assessees are established with profit motive so as to deny registration under s. 12A/12AA of the Act.

It is pertinent to note that prior to 1st April, 1984, the words used in s. 2(15) of the Act were ‘advancement of any other object of general public utility not involving carrying on of any activity for profit’. By Finance Act, 1983 w.e.f. 1st April, 1984 the legislature has omitted the words ‘not involving the carrying on of any activity for profit’ from s. 2(15) of the Act. Thus, after 1st April, 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. It is contended by the Revenue that even if the assessees are covered under s. 12A of the Act, they would still not be entitled to exemption because their income is neither derived from the property held under trust nor their income is from voluntary contributions made to the institution. There is no merit in this contention because the expression ‘property’ used in s. 11 of the Act is of wide amplitude and it includes the business undertaking itself. The word ‘property’ in s. 11 includes immovable and movable property like money, shares, securities etc. Therefore, where a trust/institution fulfills all the conditions set out in s. 12A/12AA, registration cannot be denied on the ground that some conditions of ss. 11 and 12 are not fulfilled. As stated earlier, even after registration unless the conditions set out in ss. 11 and 12 of the Act are complied, no benefit would be available to the registered trust/institution. Therefore, in the facts of the present case the decision of the Tribunal that the assessees who fulfill all the conditions are entitled to registration cannot be faulted. The contention of the Revenue that the assessees are not registered as trust and hence not entitled for registration is also without any merit, because, there is no requirement under the Act that an institution constituted for advancement of any object of general public utility must be registered as a trust. In the result, the question of law raised herein is answered in the affirmative that is in favour of the assessees and against the Revenue. All these appeals are disposed of accordingly with no order as to costs.

[Citation : 291 ITR 419]

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