DCIT, Panchkula V. Haryana State Agricultural Marketing Board, Panchkula

ITA 18/CHANDI/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9714 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-03-2016
• Assessment Year: 2000-2001
• Appeal Filed On: 12-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARISH NAYYAR
• Keywords: Business income; Business expenditure; Source of fund; Revenue expenditure; Capital expenditure
• Section: 80G; 27; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 18/CHD/2009 ASSESSMENT YEAR: 2000-01 THE DCIT, VS. M/S HARYANA STATE AGRICULTURAL PANCHKULA CIRCLE, MARKETING BOARD, PANCHKULA PANCHKULA PAN NO. AAALH0016R ITA NO. 19/CHD/2009 ASSESSMENT YEAR: 2002-03 THE DCIT, VS. M/S HARYANA STATE AGRICULTURAL PANCHKULA CIRCLE, MARKETING BOARD, PANCHKULA PANCHKULA PAN NO. AAALH0016R & ITA NO. 60/CHD/2009 ASSESSMENT YEAR: 2001-02 THE DCIT, VS. M/S HARYANA STATE AGRICULTURAL PANCHKULA CIRCLE, MARKETING BOARD, PANCHKULA PANCHKULA PAN NO. AAALH0016R (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANOJ MISHRA RESPONDENT BY : SH. HARISH NAYYAR DATE OF HEARING : 18.07.2016 DATE OF PRONOUNCEMENT : 29.07.2016 ORDER 2 PER ANNAPURNA GUPTA THESE THREE APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST SEPARATE ORDERS OF CIT(A), PANCHKULA. SINCE THE APPEALS REL ATE TO THE SAME ASSESSEE INVOLVING IDENTICAL ISSUES, THEY WERE HEARD TOGETHE R AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER. 2. FIRST, WE TAKE UP THE APPEAL FILED BY THE REVENU E IN ITA NO. 18/CHD/2009. 3. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT THE A CTIVITIES OF THE ASSESSEE FALL WITHIN THE AMBIT OF SECTION 10 (20) OF THE INCOME-TAX ACT, 1961? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT CONTR IBUTION RECEIVED FROM MARKET COMMITTEES, RENTAL INCOME FRO M GODOWNS / SHOPS AND INTEREST INCOME EARNED BY THE ASSESSEE IS INCOME FROM PROVIDING COMMODITIES AND SERVICES AS STIPULATED U/S 10(20) OF THE INCOME-TA X ACT, 1961 AND EXEMPT FROM TAX WITHIN THE MEANING OF SEC TION 10(20) OF THE INCOME-TAX ACT, 1961. 4. BRIEF FACTS RELATING TO THE CASE ARE THAT THE AS SESSEE IS A BOARD SET UP UNDER SECTION 3(9) OF THE PUNJAB AGRICULTURAL PRODU CE MARKETS ACT, 1961 (HEREINAFTER REFERRED TO AS PAPM ACT) BY THE GOVERN MENT OF HARYANA WITH A VIEW TO REGULATE THE FUNCTIONING OF MARKET COMMI TTEE IN THE STATE OF HARYANA. ORIGINAL ASSESSMENT IN THIS CASE WAS FINAL IZED ON 09.12.2002 3 DETERMINING THE TOTAL INCOME OF RS. 2,03,15,120/- I N THE STATUS OF AOP. THE MATTER WAS TAKEN UP IN APPEAL AND THE ITAT VIDE ORD ER NO. 1199/CHD/2004 DATED 13.9.2005 DIRECTED THE ASSESSING OFFICER TO F INALIZE THE ASSESSMENT IN THE STATUS OF LOCAL AUTHORITY. IN ACCORDANCE WITH THE DIRECTION OF THE ITAT, THE ASSESSMENT WAS FRAMED IN THE STATUS OF LOCAL AU THORITY DENYING EXEMPTION U/S 10(20) OF THE INCOME-TAX ACT, 1961 TO THE FOLLOWING INCOMES EARNED BY THE ASSESSEE. (I) PROFIT FROM RENT : RS. 67,58,423/- (II) INTEREST ON LOAN : RS. 87,13,433/- (III) CONTRIBUTION FROM MARKET COMMITTEES : RS. 30,99,75, 984/- (IV) CONTRIBUTION OF PENSION FUND : RS. 1,45,00,000/- (V) INTEREST ON DEPOSITS : RS. 7,43,51,181/- (VI) MISC. INCOME : RS. 49,05,712/- THE MATTER WAS CARRIED IN APPEAL BEFORE CIT(A) WHO VIDE HIS ORDER DATED 24.10.2008 DELETED THE DENIAL OF EXEMPTION ON CONTR IBUTION RECEIVED FROM MARKET COMMITTEE AND RENTAL INCOME WHILE UPHELD THE SAME ON INTEREST ON LOAN CONTRIBUTION TO PENSION FUND, INTEREST ON DEPO SITS AND MISC INCOME. 5. AGGRIEVED BY THE SAME, THE REVENUE FILED THE PRE SENT APPEAL BEFORE US. 6. GROUND NOS. 1 & 2 RAISED BY THE REVENUE ARE AGAI NST THE FINDINGS OF THE LD. CIT(A) THAT THE ACTIVITIES OF THE ASSESSEE FALL WITHIN THE AMBIT OF SECTION 10(20) OF THE INCOME-TAX ACT, 1961 AND INCO ME EARNED ON ACCOUNT OF SAME IN THE FORM OF CONTRIBUTION RECEIVED FROM M ARKET COMMITTEES AND 4 RENTAL INCOME FROM GODOWNS / SHOPS IS THEREFORE, E XEMPT. WE MAY ADD THAT THE REVENUE HAS ALSO INCLUDED INTEREST INCOME EARNED BY THE ASSESSEE IN THE GROUND RAISED BEFORE US BUT IT WAS CONCEDED BY THE LD. DR THAT ON THIS SCORE THE CIT(A) HAS UPHELD THE ORDER OF THE A SSESSING OFFICER DENYING EXEMPTION U/S 10(20) TO THE ASSESSEE AND, THEREFORE , REVENUE HAS NO GRIEVANCE ON THIS ACCOUNT. AS SUCH, THE LIMITED GRI EVANCE OF THE REVENUE IN GROUND NOS. 1 & 2 RELATES TO THE EXEMPTION GRANTED U/S 10(20) OF THE INCOME EARNED BY THE ASSESSEE BEING CONTRIBUTION RE CEIVED FROM MARKET COMMITTEES AND RENTAL INCOME. 7. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A SSESSEE BOARD WAS SET UP U/S 3(1) OF THE PAPM ACT BY THE GOVERNMENT OF HARYA NA WITH A VIEW TO REGULATE THE FUNCTIONING OF MARKET COMMITTEES IN TH E STATE OF HARYANA. THE MARKET COMMITTEES LEVY AND COLLECT AD VALOREM FEE ON THE PRODUCE BROUGHT AND SOLD IN THEIR AREA, WHICH IS CREDITED T O A MARKET COMMITTEE FUND AS PER THE PROVISIONS OF SECTION 27(1) OF THE ACT. SECTION 27(2) REQUIRES MARKET COMMITTEES TO CONTRIBUTE SPECIFIED PERCENTAGE OF THE FUND TO THE BOARD. DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE RECEIVED SUCH CONTRIBUTION FROM MARKET COMMITTEES AMOUNTING IN ALL TO RS. 30,99,75,984/-. FURTHER, THE ASSESSEE ALSO RECEIVE D RENT OF RS. 67,58,423/- FROM VARIOUS GODOWNS AND STAFF QUARTERS, SHOPS ETC. LD. ASSESSING OFFICER HELD THAT VIS-A-VIS RENTAL INCOME EARNED, EXEMPTION U/S 10(20) WAS AVAILABLE ONLY TO SUCH INCOME RETURNED UNDER THE HE AD INCOME FROM HOUSE PROPERTY AND SINCE THE ASSESSEE HAD CHOSEN FROM Y EAR TO YEAR TO RETURN THIS INCOME UNDER THE HEAD INCOME FROM BUSINESS THE ASSESSEE WAS NOT ENTITLED TO CLAIM EXEMPTION OF THE SAME U/S 10(20) OF THE ACT. FURTHER, THE 5 ASSESSING OFFICER HELD THAT INCOME OF THE ASSESSEE WAS EITHER BY WAY OF CONTRIBUTION RECEIVED FROM MARKET COMMITTEES, RENT OF SHOPS AND GODOWNS AND INTEREST INCOME AND NONE OF THESE COULD BE SAID TO BE DERIVED FROM SUPPLY OF SERVICES OR COMMODITIES WHICH INCOME WAS ASSESSED U/S 10(20)OF THE ACT. THEREFORE, THE ASSESSING OFFICER HELD THA T HE ASSESSEE WAS NOT ENTITLED FOR EXEMPTION U/S 10(20) OF THE ACT VIS-- VIS THE TWO INCOMES. 8. BEFORE THE LD. CIT(A), THE ASSESSEE MADE DETAILE D SUBMISSIONS WHICH ARE REPRODUCED IN PARAS 4.1 OT 4.6 OF THE CIT(A) OR DER. THE GIST OF SUBMISSIONS MADE BEFORE THE LD. CIT(A) WAS THAT THE BOARD WAS SET UP FOR DISPENSING AND PROVIDING SERVICES TO VARIOUS MARKET COMMITTEES IN THE STATE OF HARYANA BY WAY OF CREATING INFRASTRUCTURE IN THE AREAS OF MARKET COMMITTEES, UNDERTAKING CONSTRUCTION OF ROADS, BUIL DINGS, WATER SUPPLY, ELECTRICAL SUPPLY, SEWERAGE AND OTHER CIVIC AMENITI ES IN THE AREA OF MARKET COMMITTEES. THE MARKET COMMITTEES WERE REQUIRED TO MAKE STATUTORY CONTRIBUTION TO THE BOARD TO BE ABLE TO CONDUCT THE SE ACTIVITIES. THUS, THE CONTRIBUTION FROM THE MARKET COMMITTEES HAS BEEN EA RNED FROM THE ACTIVITIES OF RENDERING SERVICES WITHIN ITS OWN JUR ISDICTIONAL AREAS AND THE SAME WAS THUS EXEMPT U/S 10(20) OF THE INCOME-TAX A CT, 1961. THE ASSESSEE FURTHER SUBMITTED THAT RENTAL RECEIVED BY IT AS ALSO THE INTEREST INCOME WAS ALSO ELIGIBLE FOR EXEMPTION AS PER PROV ISIONS OF SECTION 10(20) AND THE SAME HAD BEEN WRONGLY DENIED MERELY FOR THE REASON THAT THE ASSESSEE HAD CLASSIFIED THE SAME AS BUSINESS INCOME . THE ASSESSEE SUBMITTED THAT IT IS SETTLED LAW THAT CLASSIFICATIO N OF INCOME CANNOT DETERMINE TRUE NATURE OF INCOME WHICH IS TO BE DERI VED FROM THE FACTS OF THE CASE. 6 9. THE LD. CIT(A) AFTER PERUSING THE ENTIRE FACTS AND THE SUBMISSIONS MADE BY THE ASSESSEE HELD THAT THE INTERPRETATION G IVEN BY THE LD. ASSESSING OFFICER TO THE PROVISIONS OF SECTION 10( 20) OF THE ACT DID NOT SUBSERVE THE OBJECTIVE FOR WHICH THE PROVISION WA S BROUGHT ON THE STATUTE AND THAT IS WHY THE ENTIRE INCOME OF THE ASSESSEE HAD BEEN SUBJECTED TO TAX DESPITE THE FACT THAT IT HAS BEEN TREATED AS A LOCAL AUTHORITY FOR THE PURPOSE OF SECTION 10(20) OF THE ACT. THE LD. CIT(A ) HELD THAT HE ASSESSEE BOARD HAD BEEN CREATED TO CARRY OUT CERTAIN PRESCRI BED FUNCTIONS AND SINCE THE BOARD DOES NOT CARRY ON TRADE OR BUSINESS FOR PROFIT AND HAS NO POWER TO RAISE FUNDS. THE STATUTE HAD PRESCRIBED THAT TH E MARKET COMMITTEES WOULD REMIT CERTAIN PERCENTAGE OF THEIR INCOME U/S 27(2)(A) OF THE PAPM ACT. THE BOARD WAS ALLOWED TO UTILIZE THESE FUNDS TO MEET ITS ADMINISTRATIVE AND OTHER EXPENSES AND ALSO DISCHARG E ITS FUNCTIONS. THUS, THE LD. CIT(A) HELD THAT THE SURPLUS GENERATED FR OM THE FUNDS RECEIVED FROM THE MARKET COMMITTEE AND EXPENDED FOR CARRYIN G ON FUNCTIONS OF THE BOARD WITH RESPECT TO THE MARKET COMMITTEES WAS TO BE TREATED AS INCOME ARISING IN THE COURSE OF SUPPLY OF ITS SERVICES AND ACCORDINGLY WOULD BE EXEMPT U/S 10(20) OF THE ACT. AS REGARDS RENTAL IN COME, LD. CIT(A) HELD THAT HAVING BEING EARNED IN LIEU OF ASSETS SUCH AS GODOWN, SHOPS ETC. RENTED OUT TO FARMERS IN THE ASSESSEES JURISDICTION AREA , THE INCOME HAD BEEN DERIVED FOR PROVIDING SERVICES AND WAS, THEREFORE, EXEMPT FROM TAX AS PER THE PROVISIONS OF SECTION 10(20) OF THE ACT. THE RE LEVANT FINDINGS OF THE LD. CIT(A) ARE THERE IN PARAS 5 TO 5.7 OF THE ORDER , WHICH ARE BEING REPRODUCED HEREUNDER:- 5. I I HAVE PERUSED THE FACTS AND CAREFULLY CONSID ERED THE SUBMISSIONS. (THE APPELLANT BOARD WAS SET UP UNDER SECTION 3(1) OF THE PAPM ACT BY 7 THE GOVERNMENT OF HARYANA WITH A VIEW TO REGULATE T HE FUNCTIONING OF MARKET COMMITTEES IN THE STATE OF HARYANA. MARKET C OMMITTEES ARE REQUIRED TO LEVY AND COLLECT ADVALORAM FEE ON THE P RODUCE BROUGHT AND SOLD IN THE AREA OF THE MC MARKET COMMITTEE FUND I S MAINTAINED BY THE MCS AND ALL MONEYS RECEIVED BY THE MCS ARE CREDITED TO THE SAID FUND AS PER PROVISIONS OF SECTION 27(1) OF THE ACT. SECTION 27(2) REQUIRES THE MARKET COMMITTEES TO CONTRIBUTE SPECIFIED PERCENTAG E OF LICENSE FEE, MARKET FEES AND OTHER RECEIPTS. THE PERCENTAGE IS S PECIFIED UNDER THE ACT AND DEPENDS ON THEIR ANNUAL INCOME. THE MARKETING C OMMITTEES WHICH ARE HAVING LARGER BASE, HIGHER BUDGET AND MORE PROJ ECTS AND FUNCTIONING CONTRIBUTE MORE TO THE APPELLANT BOARD. IT IS FURTH ER NOTED THAT THE CONTRIBUTION IS MADE TO THE BOARD TO MEET THE EXPEN SES INCURRED IN THE NORMAL COURSE OF FUNCTIONING. 5.1 SECTION 10(20) PROVIDES EXEMPTION IN RESPEC T OF FOLLOWING INCOME: N (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; IF INCOME FALLS UNDER THE ABOVE HEAD, IT IS EXEMPT. ON PERUSAL OF RETURN OF INCOME, IT IS NOTICED THAT THE REVENUE RECEIPTS OF THE APPELLANT COMPRISES OF CONTRIBUTION FROM MARKET COMMITTEES, R ENT FROM GODOWNS, SHOPS ETC. AND INTEREST ON LOAN. THE SUM TOTAL OF THESE RECEIPTS HAS BEEN, SHOWN AT RS.32,54,47,841/-. AGAINST THESE RECEIPTS VARIOUS EXPENSES TOWARDS SALARY, WORK ESTABLISHMENT, REPAIRS & MAINT ENANCE AND OTHER MISCELLANEOUS EXPENSES AMOUNTING TO RS.30,51,32,723 /- HAS BEEN CLAIMED. THIS HAS RESULTED IN SURPLUS OF RS. 2,03,1 5,118/- AND HAS BEEN SUBJECTED TO TAX. THE RETURN OF INCOME ALSO SHOWS R ECEIPTS ON CAPITAL ACCOUNT WHICH INTERALIA INCLUDES INTEREST ON DEPOSI T MONEY SHOWN AT 8 RS.7,43,56,181/- AND MISCELLANEOUS INCOME OF RS.49, 05/712/- WHICH HAS ALSO BEEN TAXED. 5.2 THE RENTAL INCOME AND INTEREST INCOME HAS B EEN BROUGHT TO TAX ON THE GROUND THAT THESE HAVE BEEN SHOWN AS BUSINESS I NCOME WHEREAS EXEMPTION IS AVAILABLE ONLY IN RESPECT OF 'INCOME F ROM HOUSE PROPERTY' AND 'INCOME FROM OTHER SOURCES'. THE BASIC ISSUE IS WHETHER EXEMPTION CAN BE DENIED ON THE GROUND THAT SUCH INCOME HAS BE EN SHOWN AS 'BUSINESS INCOME' OR COULD IT BE ALLOWED IF IT HAS BEEN DECLARED UNDER THE HEAD, 'INCOME FROM HOUSE PROPERTY' AND 'INCOME FROM OTHER SOURCES'. AS REGARDS BUSINESS, THE INCOME IS EXEMPT ONLY IF IT A CCRUES OR ARISES FROM TRADE OR BUSINESS CARRIED ON BY IT FROM THE SUPPLY OF A COMMODITY OR SERVICE (NOT BEING WATER OR ELECTRICITY) WITHIN ITS OWN JURISDICTIONAL AREA. 5.3 IT IS WELL SETTLED THAT THE HEADS OF INCOME MERELY INDICATE THE CLASS OF INCOME AND DO NOT EXHAUSTIVELY DELIMIT THE SOURCES FROM WHICH INCOME ARISES. INCOME IS BROKEN UP UNDER DIFF ERENT HEADS ONLY FOR THE PURPOSE OF COMPUTATION OF TOTAL INCOME (CIT VS. CHUGANDAS & CO. 55 ITR 17 (SC). NET INCOME CHARGEABLE TO INCOM E-TAX UNDER EACH HEAD IS ASCERTAINED WITH REFERENCE TO THE SUBSTANTI VE PROVISIONS GIVEN THEREUNDER. 'TOTAL INCOME' IS THEN DETERMINED BY A GGREGATING THE NET INCOME THUS ASCERTAINED UNDER EACH HEAD. THE BREAK UP INDICATED BY THIS SECTION SHOULD NOT BE REGARDED AS RIGIDLY DELI MITING THE SOURCES OF INCOME UNDER DIFFERENT HEADS FOR THE PURPOSE OF THE OTHER PROVISIONS OF THE ACT (CIT V. SHRILDSHAN CHANDMAL 60 ITR 303(M P). 5.4 THE APPELLANT BOARD HAS BEEN SET UP UNDER A STATUTE AND ITS FUNCTIONS HAS BEEN PRESCRIBED UNDER THE PAPM ACT. A S PER SECTION 8 OF THIS ACT, THE STATE GOVT. MAY SUSPEND THE BOARD IF IT IS NOT FUNCTIONING AS REQUIRED UNDER THE LAW. THUS, THE APPELLANT HAS TO CARRY OUT PRESCRIBED DUTIES WITHIN ITS TERRITORY. THE AO HAS DENIED THE EXEMPTION ON THE GROUND THAT IT IS NOT CARRYING OUT THE BUSIN ESS OF SUPPLY OF A COMMODITY OR SERVICE WITHIN ITS OWN JURISDICTIONAL AREA. THE 9 CONTRIBUTIONS RECEIVED BY IT ARE NOT IN LIEU OF SUP PLY OF A COMMODITY OR SERVICE WITHIN ITS OWN JURISDICTIONAL AREA. THE BOA RD RECEIVES THE CONTRIBUTIONS AS PER PROVISIONS OF SECTION 27 IRRES PECTIVE OF THE FACT WHETHER IT CARRIES OUT ITS ACTIVITIES OR NOT. SINCE THE CONTRIBUTIONS RECEIVED BY THE APPELLANT HAVE NO NEXUS WITH THE SU PPLY OF SERVICES IN ITS TERRITORIAL JURISDICTION, THE AO HELD THAT THE APPE LLANT IS NOT ENTITLED TO EXEMPTION U/S 10(20) OF THE ACT. 5.5 THE OFT REPEATED ISSUE AS TO WHETHER INTERPRETA TION SHOULD BE STRICT OR LIBERAL HAS COME UP BEFORE HON'BLE PUNJAB & HARY ANA HIGH COURT IN CIT VS. PUNJAB FINANCIAL CORPORATION (254 ITR 6) WH EREIN THE HIGH COURT REITERATED THE LAW THAT THE FISCAL STATUTES S HOULD BE CONSTRUED STRICTLY IN RESPECT OF A CHARGING PROVISIONS AND PR OVISIONS IMPOSING PENALTY, BUT NOT IN RESPECT OF OTHER PARTS OF THE S TATUTE, WHICH CONTAIN THE MACHINERY PROVISIONS OR WHAT IS ORDINARILY UNDERSTO OD AS PROCEDURAL LAW, FOLLOWING THE DECISION OF THE SUPREME COURT IN CIT VS. NATIONAL TAJ TRADERS (121 ITR 535). A MACHINERY PROVISION HAS TO BE CONSTRUED IN A MANNER THAT IT SUBSERVES THE OBJECTIVE OF THE STATU TE AS WAS POINTED OUT IN SARDAR HARVINDER SINGH SEIGAL VS. ACIT 227 ITR 512 (GAUHATI ). IN THE PRESENT CASE, THE INTERPRETATION GIVEN BY THE ID. A O DOES NOT SUBSERVE THE OBJECTIVE BUT HAS RESULTED IN TAXATION OF ENTIRE IN COME OF THE APPELLANT NOTWITHSTANDING THE FACT THAT IT HAS BEEN TREATED AS A LOCAL AUTHORITY FOR THE PURPOSES OF SECTION 10(20) OF THE ACT. RENTAL A ND INTEREST INCOME HAS BEEN DENIED EXEMPTION ON THE GROUND THAT THESE ARE SHOWN AS BUSINESS INCOME AND CONTRIBUTION RECEIVED FROM MARKET COMMIT TEES HAVE BEEN TAXED HOLDING THAT THESE ARE NOT RECEIVED FROM SUPP LY OF COMMODITY OR SERVICES. 5.6 THE APPELLANT HAS BEEN CREATED BY THE STATUTE TO CARRY OUT F PRESCRIBED THEREIN. AS THE BOARD DOES NOT CARRY ON TRADE OR BUSINESS FOR PROFIT AND HAS NO POWER TO RAISE FUNDS, THE STA TUTE PRESCRIBES THAT MARKET COMMITTEES WILL REMIT CERTAIN PERCENTAGE OF THEIR INCOME AS PROVIDED U/S 27(2)(A). THE BOARD CAN USE THE AMOUNT WHICH IS CREDITED INTO A FUND CALLED 'MARKETING DEVELOPMENT FUND*. THE 10 PURPOSES FOR WHICH THE MARKETING DEVELOPMENT FUND C AN BE EXPENDED ARE GIVEN IN SECTION 26 OF THE ACT. THE FUND HAS BE EN PROVIDED TO ENABLE THE BOARD TO MEET ITS ADMINISTRATIVE AND OTH ER EXPENSES AND ALSO TO ENABLE IT TO DISCHARGE ITS FUNCTIONS. IT IS TRUE THAT THERE IS NO DIRECT NEXUS BETWEEN THE CONTRIBUTIONS PAID BY A MA RKET COMMITTEE VIS-A-VIS THE WORK CARRIED OUT BY THE BOARD ON BEHA LF OF THAT MARKET COMMITTEE. NEVERTHELESS THE FACT IS THE APPELLANT I S CARRYING ON THE FUNCTIONS FOR WHICH IT HAS BEEN CREATED AND THE FUN DS HAVE BEEN PROVIDED TO CARRY ON SUCH FUNCTIONS. THE SURPLUS, T HEREFORE, HAS TO BE TREATED AS THE INCOME ARISING IN THE COURSE OF SUPP LY OF ITS SERVICES AND ACCORDINGLY WILL BE EXEMPT U/S 10(20) OF THE AC T. 5.7 AS REGARDS THE RENTAL INCOME, IN MY CONSIDE RED OPINION, IT IS EXEMPT FROM TAX AS IT HAS BEEN RECEIVED FROM RENTIN G OF GODOWNS, SHOPS, BOOTHS ETC. IT IS IMMATERIAL WHETHER THE INC OME HAS BEEN DISCLOSED AS 'BUSINESS INCOME' OR UNDER THE HEAD, ' INCOME FROM HOUSE PROPERTY'. THE ADDITION HAS BEEN MADE ON THE GROUND THAT THE RENTAL INCOME HAS BEEN DISCLOSED BY THE ASSESSEE AS BUSINE SS INCOME. EVEN IF, IT IS SHOWN AS BUSINESS INCOME, THE FACT REMAIN S THAT THE INCOME IS EARNED IN LIEU OF THE ASSETS SUCH AS GODOWNS, SHOPS ETC. RENTED OUT TO THE FARMERS IN THE APPELLANT'S JURISDICTION AREA. T HE RENTAL INCOME SO DERIVED FOR PROVIDING THE SERVICES, IN MY VIEW, DES ERVES TO BE EXEMPTED U/S 10(20) OF THE ACT. 10. BEFORE US LD. DR PLACED RELIANCE ON THE ORDER O F THE ASSESSING OFFICER AND STATED THAT WITH RESPECT TO THE INCOME DERIVED AS CONTRIBUTION FROM MARKET COMMITTEES, THE SAME HAD NO NEXUS WITH THE SUPPLY OF A COMMODITY OR SERVICE MADE BY THE ASSESSEE. THE LD. DR STATED THAT EXEMPTION U/S 10(20) WAS GRANTED TO INCOME RECEIVED FROM A PARTICULAR SOURCE AND IN THE PRESENT CASE, THE CONTRIBUTIONS R ECEIVED FROM THE MARKET COMMITTEES, BEING FIXED IN NATURE, HAD NO NEXUS WIT H THE RENDERING OF ANY 11 SERVICE BY THE BOARD AND, THEREFORE, COULD NOT BE SAID TO HAVE ACCRUED OR ARISEN FROM THE SUPPLY OF ANY SERVICES BY THE ASSE SSEE. THE LD. DR THEREFORE, STATED THAT THE ASSESSEE DID NOT FULFILL THE PARAMETERS STATED IN SECTION 10(20) FOR AVAILING EXEMPTION OF INCOME DER IVED FROM TRADE OR BUSINESS CARRIED ON BY A LOCAL AUTHORITY. 11. THE LD. AR ON THE OTHER HAND RELIED UPON THE OR DER OF CIT(A) AND STATED THAT THE NATURE OF THE SERVICE PROVIDED BY T HE BOARD HAVE BEEN MENTIONED IN THE STATUTE BY VIRTUE OF WHICH THE BOA RD HAS BEEN CREATED AND THE CONTRIBUTION TO BE RECEIVED FROM THE MARKET COM MITTEES TO WHOM THE SERVICES ARE RENDERED IS ALSO SPECIFIED IN THE STAT UTE. THE USER OF THE FUNDS SO RECEIVED FOR THE PURPOSES OF CARRYING OUT THE FU NCTIONING OF THE BOARD IS ALSO SPECIFIED IN THE STATUTE, THEREFORE, LD. AR P LEADED THAT EVEN THOUGH THERE IS NO DIRECT NEXUS BETWEEN RENDERING OF SERVI CES AND THE RECEIPT OF CONTRIBUTION, IT IS AMPLY CLEAR THAT THE FUNDS RECE IVED WERE FOR THE PURPOSE OF CARRYING OUT OF THE FUNCTIONS OF THE BOARD BEIN G IN THE NATURE OF RENDERING SERVICES TO THE MARKET COMMITTEES AND, TH EREFORE, ELIGIBLE FOR EXEMPTION U/S 10(20) OF THE ACT. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE DOCUMENTS PLACED BEFORE US. WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) GRANTING THE A SSESSEE EXEMPTION ON ACCOUNT OF EXEMPTION U/S 10(20) ON ACCOUNT OF INCOM E RECEIVED BY WAY OF CONTRIBUTION FROM MARKET COMMITTEES AND RENTAL INCO ME. THE UNDISPUTED FACTS IN THE PRESENT CASE ARE THAT T HE ASSESSEE BOARD HAS BEEN SET UP UNDER A STATUTE BY THE GOVERNMENT OF HA RYANA TO REGULATE THE 12 FUNCTIONING OF MARKET COMMITTEES. THE ASSESSEE IS A LOCAL AUTHORITY FOR THE PURPOSE OF SECTION 10(20) OF THE ACT. THE FUNCTIONS OF THE BOARD HAVE BEEN PRESCRIBED UNDER THE PAPM ACT AND INCLUDE ACTIVITIE S INVOLVING SETTING UP OF MARKET COMMITTEES, DEVELOPMENT OF MARKETS, CONS TRUCTION ON OF ROADS, CONSTRUCTION OF OTHER BUILDINGS, SHOPS, PLINTH IN T HE MARKET ETC. PROVIDING BACK OFFICE SUPPORT, BETTER LAW AND ORDER AND ENSUR E IMPLEMENTATION OF THE PAPM ACT.THE ASSESSEE IS CARRYING OUT THE PRESCRIBE D FUNCTIONS. THE ASSESSEE RECEIVES CONTRIBUTION FROM MARKET COMMITTE ES IN THE FORM OF CERTAIN PERCENTAGE OF THEIR INCOME AS PRESCRIBED U/ S 27(2)(A) OF THE PAPM ACT. THE UTILIZATION OF THIS CONTRIBUTION HAS BEEN PRESCRIBED U/S 26 OF THE PAPM ACT AS TOWARDS DISCHARGING ITS FUNCTIONS AND ALSO TOWARDS ADMINISTRATION AND OTHER FUNCTIONS OF THE BOARD. IT IS AMPLY CLEAR FROM THE ABOVE FACTS THAT THE A SSESSEE BOARD WHILE DISCHARGING ITS PRESCRIBED FUNCTIONS, IS RENDERING SERVICES TO THE MARKET COMMITTEES AND THE SAME IS BEING FINANCED BY CONTRIBUTIONS RECEIVED FROM MARKET COMMITTEES. THE SURPLUS GENERATED FROM THE S AME IS NOTHING BUT INCOME FROM RENDERING SERVICES BY THE BOARD, AS RIG HTLY HELD BY THE LD. CIT(A). WE SEE NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS SCORE. MOREOVER, THE FACT THAT FUNDS HAVE BEEN PROVIDED BY THE MARKET COMMITTEES TO CARRY OUT THE FUNCTIONS OF THE BOARD WHICH INVOLVE RENDERING SERVICES TO THE MARKET COMMITTEES ITSELF PROVES THAT THE INCOME HAS ARISEN ON ACCOUNT OF SUPPLY OF SERVICES BY THE ASSESSEE TO THE MARKET COMMITTEES. THE LD. CIT(A) HAS RIGHTLY HELD THAT TH E IMPUGNED INCOME IS ARISING IN THE COURSE TO SUPPLY OF ITS SERVICES. EVEN IF THE WORD SERVICES IS INTERPRETED IN THE MANNER TH E ASSESSING OFFICER HAS DONE AS BEING ONE MEANING SERVING BY HU MAN RESOURCES AND 13 THROUGH HUMAN EFFORTS, WE FIND THAT ALL ACTIVITIES UNDERTAKEN BY THE BOARD INCLUDES HUMAN EFFORTS AND THUS EVEN BY THE ASSESSI NG OFFICERS DEFINITION, THE BOARD IS RENDERING SERVICES. THE DECISION OF TH E APEX COURT RELIED UPON BY THE REVENUE IN THE CASE OF R.C. JAIN VS CIT AIR 1981/SC/953, DEFINING THE SCOPE OF ACTIVITIES INCLUDED IN SERVI CES ALSO DOES NOT HELP THE REVENUE SINCE AS PER THAT DEFINITION ALSO THE W ORK UNDERTAKEN BY THE BOARD OF DEVELOPING ROADS, MARKETS ETC. FALL IN THE SCOPE OF SERVICES. FURTHER, THE FACT THAT THERE IS NO NEXUS BETWEEN TH E CONTRIBUTION RECEIVED OR SERVICES RENDERED ALSO DOES NOT DISENTITLE THE ASSE SSEE FROM EXEMPTION U/S 10(20) SINCE THE FACT STILL REMAINS THAT THE SURPLU S HAS BEEN GENERATED ON ACCOUNT OF SERVICES RENDERED IN ITS JURISDICTIONAL AREA, WHICH IS THE ONLY REQUIREMENT FOR CLAIMING EXEMPTION U/S 10(20) OF TH E ACT. 13. AS FAR AS THE ELIGIBILITY OF THE RENTAL INCOME RECEIVED BY THE ASSESSEE TO EXEMPTION U/S 10(20) OF THE ACT, WE FIND THAT TH E LD. CIT(A) HAS RIGHTLY HELD THAT THE RENTAL INCOME OF THE ASSESSEE HAS ALS O BEEN DERIVED FROM PROVIDING SERVICES OF MAKING AVAILABLE SHOPS ETC. TO FARMERS IN THE ASSESSEES JURISDICTIONAL AREA, AND THUS WAS IN THE NATURE OF INCOME EARNED FORM PROVIDING SERVICES WITHIN ITS JURISDICTIONAL A REA AND WAS THUS ELIGIBLE FOR EXEMPTION U/S 10(20) OF THE ACT. IT MAY BE POINTED OUT THAT THE LOCAL AUTHORITIES T HOUGH ARE TAXABLE UNIT AS PER SECTION 2(31) OF THE ACT BUT BY VIRTUE OF SECTI ON 10(20), THEIR ENTIRE INCOME IS EXEMPT FROM TAX. THE ONLY EXCEPTION IS WH ERE THE INCOME IS DERIVED FROM A TRADE OR BUSINESS CARRIED ON BY IT W HICH ACCRUES OR ARISES FROM THE SUPPLY OF COMMODITY OR SERVICE OUTSIDE ITS JURISDICTIONAL AREA. THE REASON BEING THAT ALL SURPLUSES GENERATED BY TH E LOCAL AUTHORITY IN THE 14 COURSE OF CARRYING OUT THEIR PRESCRIBED FUNCTION IN THEIR JURISDICTIONAL AREA IS EMPLOYED FOR THE BENEFIT OF ITS BENEFICIARIES FO R WHOM IT HAS BEEN FORMED. IN THE PRESENT CASE WE FIND THAT THOUGH TH E ASSEESSEE HAS BEEN TREATED AS A LOCAL AUTHORITY FOR THE PURPOSE OF SEC TION 10(20) OF THE ACT , YET THE SURPLUS GENERATED ON CARRYING OUT ITS STIPU LATED FUNCTIONS,CONSIDERING WHICH IT WAS GRANTED THE STAT US OF LOCAL AUTHORITY,HAS BEEN SUBJECTED TO TAX. IN FACT THE ENTIRE INCOME OF THE ASSESSEE HAS BEEN BROUGHT TO TAX. THIS INTERPRETATION ,AS HAS BEEN RI GHTLY HELD BY THE CIT(A) DOES NOT SUBSERVE THE OBJECTIVE OF THE STATUTE. 14. IN VIEW OF THE ABOVE, WE HOLD THAT THE INCOME EARNED BY THE ASSESSEE IN THE FORM OF CONTRIBUTIONS RECEIVED FROM MARKET C OMMITTEES AND RENTAL INCOME,IS EXEMPT U/S 10(20) OF THE ACT.THE GROUND O F APPEAL RAISED BY THE REVENUE IS DISMISSED. THE APPEAL FILED BY THE REVENUE IS THEREFORE DISMI SSED. ITA NO. 60/CHD/2009 15. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLL OWING GROUNDS:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT THE A CTIVITIES OF THE ASSESSEE FAIL WITHIN THE AMBIT OF SECTION 10 (20) OF THE INCOME-TAX ACT, 1961. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT RENTAL INCOME F ROM GODOWN, LICENSE FEE AND INTEREST INCOME EARNED BY T HE ASSESSEE FOR PROVIDING SERVICE IS EXEMPT WITHIN THE MEANING OF SECTION 10(20) OF INCOME-TAX ACT WHEREAS THE 15 ASSESSING OFFICER HAS RIGHTLY HELD THAT RENTAL INCO ME DECLARED IS NOT DERIVED FROM SUPPLY OF ANY COMMODIT Y AND SERVICE AS REQUIRED U/S 10(20) OF THE INCOME-TAX AC T, 1961.? 16. THE ISSUE RAISED IN BOTH THE GROUNDS IS IDENTIC AL TO THAT WHICH HAS BEEN ADJUDICATED BY US IN ITA NO.18/CHD/2009 IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2000-01 IN PARAS 12 TO 14. FOLLOWI NG THE SAME, THE ISSUE IS DECIDED AGAINST THE REVENUE. WE MAY ADD THAT THE GRIEVANCE OF THE REVENUE REGARDING TREATING INTEREST INCOME AS EXEMP T U/S 10(20) OF THE ACT,IS MISPLACED SINCE THE LD.CIT(A) IN HIS ORDER H AS DENIED THE SAME TO THE ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE TH EREFORE DISMISSED 17. THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 19/CHD/2009 18. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT THE ASSESSE ES INCOME IS DERIVED FOR THE SUPPLY OF COMMODITY OR SERVICES WITHIN THE MEANING OF SECTION 10(20) OF TH E INCOME-TAX ACT, 1961 AND IS THEREFORE, EXEMPT, WHEN THE ASSESSING OFFICER HAD RIGHTLY ASSESSED THE SURP LUS TO TAX AS IT DID NOT ARISE OUT OF SUPPLY OF SERVICE S OR COMMODITY, BUT FROM LICENSE FEE, RENT AND INTEREST . 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN UPHOLDING THAT PRIZE MON EY 16 GIVEN TO FARMERS IS RELATED TO THE SUPPLY OF SERVIC ES OR COMMODITY AS REQUIRED U/S 10(20) OF THE INCOME-TAX ACT, 1961. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT DONATION TO C.M. RELIEF FUND IS RELATED TO THE SUPPLY OF SERVIC E OR COMMODITY AS REQUIRED U/S 10(20) OF THE INCOME-TAX ACT, 1961. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT EXPENDITURE ON INFORMATION AND TECHNOLOGY IS IN THE NATURE OF REVE NUE AS AGAINST CAPITAL EXPENDITURE HELD BY THE ASSESSIN G OFFICER. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT EXPENSES ON ADVERTISEMENT ARE AN ALLOWABLE BUSINESS EXPENDITURE . 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN HOLDING THAT EXPENDITUR E ON ROCK DRILLING MACHINE IS AN ALLOWABLE EXPENDITURE U S 36(10(XII) OF THE INCOME-TAX ACT, 1961, WHEREAS THE ASSESSING OFFICER HAS HELD THAT THIS EXPENDITURE IS A CAPITAL EXPENDITURE AND NOT INCURRED AS PER PROVISI ON OF SECTION26 OF THE PUNJAB AGRICULTURE PRODUCE MARK ET ACT? 19. THE ISSUE RAISED IN GROUND NO.1 IS IDENTICAL TO THAT WHICH HAS BEEN ADJUDICATED BY US IN ITA NO.18/CHD/2009 IN THE ASSE SSEES CASE FOR ASSESSMENT YEAR 2000-01 IN PARAS 12 TO 14. FOLLOWING THE SAME, THE ISSUE IS DECIDED AGAINST THE REVENUE. THE GROUND OF APPEA L RAISED BY THE REVENUE IS, THEREFORE, DISMISSED. 17 20. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE DELETION OF DISALLOWANCE MADE OF EXPENDITURE INCURRED ON ACCOUN T OF PRIZE MONEY GIVEN TO FARMERS. BRIEFLY STATED DURING THE IMPUGNED ASSESSMENT YEAR , THE ASSESSEE HAD INCURRED EXPENDITURE OF RS. 90,292/- ON KRISHAK UPH AR YOJNA. DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD EXPLAINED THE NATURE OF THE EXPENDITURE BEING ON ACCOUNT OF A SCHEME LAUNCHED B Y THE BOARD AWARDING PRIZE MONEY TO FARMERS WHO SOLD THROUGH THE MARKET COMMITTEES BY DRAW OF LOTS, THEREBY ENCOURAGING FARMERS TO BRING MAXIM UM PRODUCE TO THE MANDIS AND INCREASING THE INCOME OF THE BOARD / MA RKET COMMITTEE IN TURN. THE ASSESSING OFFICER DISALLOWED THE EXPENDIT URE BY HOLDING THAT IT HAD NOTHING TO DO WITH THE OBJECTS OF THE BOARD, WA S IN FACT IN VIOLATION OF THE SAME AND WAS THUS NOT INCIDENTAL TO THE RUNNING OF THE BUSINESS. THE LD. CIT(A) DELETED THE DISALLOWANCE BY HOLDING THAT THE EXPENDITURE HAD DIRECT NEXUS WITH THE OBJECT OF THE BOARD WHICH WAS TO FUNCTION FOR THE WELFARE OF THE FARMERS. LD. CIT(A) FURTHER HELD THA T ACCOUNTS OF THE BOARD WERE AUDITED AND NO VIOLATION OF ANY PROVISION HAD BEEN NOTICED, THUS, THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ASSE SSEE WAS DEBARRED FORM INCURRING THE EXPENDITURE WAS BASELESS. 21. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER, WHILE THE LD. AR RELIED UPON THE ORDER OF THE CIT(A ). 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND NO INFIRMITY IN THE ORDE R OF THE CIT(A). 18 UNDISPUTEDLY, THE FUNCTION OF THE BOARD IS PROVIDIN G THE WELFARE OF THE FARMERS. THE EXPENDITURE INCURRED IS FOR ENCOURAGIN G MORE AND MORE FARMERS TO SELL THEIR GOODS THROUGH THE MARKET COMM ITTEES AND THUS AVAIL ALL BENEFITS GRANTED TO THEM THROUGH THE COMMITTEE. CLEARLY, THE EXPENDITURE HAS BEEN INCURRED IN THE COURSE OF CARR YING OUT ITS BUSINESS. MOREOVER THE ASSESSEE INCURRED EXPENDITURE PRESCRIB ED U/S 26 OF THE PAPM ACT AND THE AUDITORS HAVE NOT POINTED OUT ANY VIOLA TION OF THE PROVISIONS OF THE ACT. THEREFORE, IT CANNOT BE SAID THAT THE ASS ESSEE WAS DEBARRED FROM INCURRING THE EXPENDITURE. WE MAY ADD THAT, IN ANY CASE, THE IMPUGNED DISALLOW ANCE ONLY RESULTS IN INCREASING THE INCOME OF THE ASSESSEE FROM THE SUPP LY OF SERVICES WITHIN ITS JURISDICTIONAL AREA WHICH IN ANY CASE IS EXEMPT U/S 10(20), AS HELD BY US IN GROUND NO.1 ABOVE. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE L D. CIT(A) ON THIS GROUND, DELETING THE DISALLOWANCE OF EXPENDITURE IN CURRED ON KRISHAK UPHAR YOJNA AMOUNTING TO RS. 90,292/-. 23. THIS GROUND OF THE REVENUE IS, THEREFORE, DISMI SSED. 24. GROUND NO. 3 RELATES TO ALLOWANCE OF DONATION O F RS. 37,404/- MADE TO THE CHIEF MINISTERS RELIEF FUND. THE ASSESSING OFFICER DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF DO NATION MADE TO THE CHIEF MINISTER RELIEF FUND BY HOLDING THAT IT WAS T HE CONTRIBUTION OF THE EMPLOYEES OF THE BOARD AND NOT PAYMENT MADE BY THE BOARD. HENCE, ONLY THE EMPLOYEES COULD CLAIM DEDUCTION OF THE SAME. 19 25. THE CIT(A) ALLOWED THE SAME STATING THAT THE DE DUCTION IS ADMISSIBLE U/S 80G OF THE INCOME-TAX ACT, 1961. 26. BEFORE US, LD. DR RELIED ON THE ORDER OF THE A SSESSING OFFICER, WHILE LD. AR RELIED ON THE ORDER OF THE CIT(A). HAVING HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW, WE FIND NO INFIRMITY IN THE ORDE R OF THE LD. CIT(A). IT IS NOT DENIED THAT THE IMPUGNED PAYMENT WAS MADE BY THE ASSESSEE. THEREFORE, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUC TION ON ACCOUNT OF THE SAME U/S 80G OF THE ACT. IT MAKES NO DIFFERENCE TO THE SITUATION WHATEVER BE THE SOURCE OF MAKING THE PAYMENT WHETHER OUT OF EMPLOYEES CONTRIBUTION OR ANY OTHER SOURCE. WE, THEREFORE, U PHOLD THE ORDER OF THE CIT(A) ON THIS GROUND AND DELETE THE ADDITION OF RS . 37,404/- MADE TO THE INCOME OF THE ASSESSEE. 27. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISS ED. 28. IN GROUND NO. 4, THE REVENUE HAS CONTESTED THE ORDER OF THE LD. CIT(A) IN HOLDING THE EXPENDITURE INCURRED ON INFOR MATION AND TECHNOLOGY AS BEING REVENUE IN NATURE AS AGAINST CAPITAL HELD BY THE ASSESSING OFFICER. THE FACTS RELATING TO THE ISSUE ARE THAT DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 1.50 CORES ON ACCOUNT OF CONTRIBUTION MADE TO THE SOCIETY FOR INFORMATION TE CHNOLOGY INITIATIVE FUND. WHEN CONFRONTED WITH THE SAME, DURING ASSESSMENT PR OCEEDINGS, THE 20 ASSESSEE SUBMITTED THAT THE SAME WAS PAID FOR E-GOV ERNANCE OF THE BOARD BY DEVELOPING THE FOLLOWING FACILITIES:- 1. DEVELOPING REPLICABLE AND REUSABLE MODELS OF E-GOVE RNANCE FOR THE BOARD. 2. I.T. INNOVATIONS IN ADMINISTRATIVE PROCESS REENGINE ERING. 3. DEVELOPING DECISIONS SUPPORT SYSTEM, MARKET INFORMA TICS SCHEME, INTEREST AND OTHER APPLICATIONS ENABLING TECHNOLOGIES IN OUR BOARD. 4. IMPARTING FOCUSED TRAINING AWARENESS AND CAPACITY B UILDING IN I.T. . 29. THE ASSESSEE OUTLINED THE VARIOUS FACILITIES WH ICH WOULD BE GRANTED TO THE BOARD AND SUBMITTED THAT THE SOCIETY WOULD U PGRADE AND MODERNIZE THE ADMINISTRATIVE AND TECHNICAL PROCESS RELATING T O DEVELOPMENT WORK UNDERTAKEN BY THE BOARD, THE MONETARY SYSTEM OF COL LECTION OF MARKET FEE AND ENFORCEMENT MEASURE TO INCREASE COLLECTION OF M ARKET FEE AND DEVELOP LATEST ACCOUNTING TECHNIQUES. LD. ASSESSING OFFICER HELD THE IMPUGNED EXPENDITURE AS BEING CAPITAL IN NATURE SINCE IT WOU LD GIVEN ENDURING ADVANTAGE TO THE ASSESSEE. 30. LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE BY HOLDING THE EXPENDITURE DID NOT BRING INTO EXISTENCE ANY ASSET AND HENCE IT COULD NOT BE CATEGORIZED AS CAPITAL EXPENDITURE. LD. CIT(A) FURT HER HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE SINCE IT WAS INCU RRED TO ENABLE THE ASSESSEE TO COPE WITH CHANGING ECONOMIC REALITIES O F THE BUSINESS. THE 21 RELEVANT FINDINGS OF THE LD. CIT(A) AT PARA 10.2 T O 10.3 OF THIS ORDER ARE AS FOLLOWS:- 10.2 IT IS SUBMITTED THAT THE PAYMENT HAS BEEN MADE TO A SOCIETY SET UP BY THE HARYANA GOVT. FOR CONNECTING THE STATE AND ACTIVITIES OF VARIOUS DEPARTMENTS WORKING UNDER THE STATE GOVT. ELECTRONICALLY. THE MAIN OBJECT OF THE ASSESSEE IS TO RENDER SERVICES TO MCS FUNCTIONING IN THE STATE OF HARYANA. WITH A VIEW TO CREATE AN ELECTRONIC NETWOR K AND ENSURING BETTER CONTROL OVER THE MCS, THE ASSES SEE CONTRIBUTED THE AMOUNT. AS A RESULT OF CREATING A L OCAL AREA NETWORK AND PROVIDING CONNECTIVITY, ACTIVITY O F THE ASSESSEE FOR TRADING I.E. PURCHASE AND SALE OF PROD UCE IN MCS, ACCOUNTING, AN RETRIEVAL OF RECORD AND ACCO UNTS WAS TO BE MADE EASY FOR THE BENEFIT OF FARMERS/PUBL IC DEALING WITH THE ASSESSEE AND ALSO KEEPING A CONTRO L OVER FUNCTIONING OF THE MCS TO WHOM THE ASSESSEE RENDER SERVICES AND COLLECTS FEES IN LIEU THEREOF. THIS WAS A ONE TIME CONTRIBUTION AND WAS IN NO MANNER AN D WITH A VIEW TO BRING INTO EXISTENCE ANY ASSET OF ENDURING NATURE. AS A MATTER OF FACT NO ASSET CAME INTO EXISTENCE AND IT WAS ONLY A ONE TIME CONTRIBUTION M ADE WITH A VIEW TO CREATE FACILITIES FOR PROVIDING BETT ER SERVICES. 10.3 ON EXAMINATION OF THE ACTIVITIES OF THE APP ELLANT IN THE LIGHT OF JUDGMENT OF THE HON'BLE TRIBUNAL (S UPRA), IT IS SEEN THAT THE EXPENDITURE HAS BEEN INCURRED W ITH A VIEW TO ENABLE THE ASSESSEE TO COPE WITH CHANGING ECONOMIC REALITIES OF THE BUSINESS. THUS, IN MY CONSIDERED OPINION, IT IS IN THE NATURE OF REVENUE EXPENDITURE, EVEN IF THE BENEFIT ACCURSE TO THE APP ELLANT 22 FOR A NUMBER OF A YEARS. ACCORDINGLY, THE GROUND RA ISED BY THE APPELLANT IS ALLOWED AND THE AO IS DIRECTED TO DELETE THE ADDITION. 31. BEFORE US, LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER WHILE LD. AR RELIED UPON THE ORDER OF THE LD. CIT(A ). 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PE RUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) HOLDING THE IMPUGNED EXPENDITURE AS REVENUE IN NATURE.UNDISPUTEDLY,THE B ENEFIT WHICH ACCRUES TO THE ASSESSEE ON ACCOUNT OF INCURRING THE IMPUGNE D EXPENDITURE IS CREATION OF AN ELECTRONIC NETWORK FOR ENSURING BETT ER CONTACT OVER MARKET COMMITTEES AND CARRYING OUT ITS OTHER STIPULATED FU NCTIONS IN AN EFFECTIVE MANNER. THERE IS NO DISPUTE ABOUT THIS FACT SINCE I T HAS NOT BEEN CONTROVERTED BEFORE US. CLEARLY, NO ASSET HAS COME INTO EXISTENCE BY VIRTUE OF INCURRING THIS EXPENDITURE. LD. CIT(A) HAS THER EFORE RIGHTLY HELD THAT THE IMPUGNED EXPENDITURE CANNOT BE CATEGORIZED AS C APITAL IN NATURE. THERE IS NO MERIT IN THE ARGUMENTS OF LD. DR, SINCE IT IS SETTLED LAW THAT ENDURING BENEFIT ALONE IS NOT A CERTAIN OR CONCLUSIVE TEST FOR DETERMINING THE TRUE NATURE OF AN EXPENDITURE WHETHER CAPITAL OR REVENUE . WE MAY ADD THAT, IN ANY CASE, THE IMPUGNED DISALLOW ANCE ONLY RESULTS IN INCREASING THE INCOME OF THE ASSESSEE FROM THE SUPP LY OF SERVICES WITHIN ITS JURISDICTIONAL AREA WHICH IN ANY CASE IS EXEMPT U/S 10(20), AS HELD BY US IN GROUND NO.1 ABOVE. 23 IN VIEW OF THE SAME, WE UPHOLD THE ORDER OF THE LD. CIT(A) IN ALLOWING THE CLAIM OF RS. 1.5 CRORES ON ACCOUNT OF CONTRIBUTION TO INFORMATION AND TECHNOLOGY DEPARTMENT. 33. THIS GROUND OF APPEAL OF THE REVENUE IS THEREFO RE, DISMISSED. 34. GROUND NO.5 RAISED BY THE REVENUE RELATES TO DE LETION OF ADDITION OF RS. 17,50,151/-MADE ON ACCOUNT OF PROPAGANDA, PUBLI CITY AND DEMONSTRATION. 35. BRIEFLY SATED THE ASSESSEE HAD CLAIMED EXPENSES UNDER THE HEAD PROPAGANDA, PUBLICITY AND DEMONSTRATION AMOUNTING T O RS. 28,79,679/-. THE LD. ASSESSING OFFICER DISALLOWED EXPENSES AMOUN TING TO RS. 17,50,151/- OUT OF THE SAME BY HOLDING THAT THEY WE RE NOT INCIDENTAL TO THE RUNNING OF THE BOARD. THE DETAILS OF THE EXPENSES A RE AS FOLLOWS:- 30 APRIL 2001 TO AMOUNT PAID TO DIG VIJAY BHAWAN 10625 28 JUN 2001 TO AMOUNT PAID TO LIONS CLUB 8500 8 AUG 2001 TO AMOUNT PAID TO HARYANA OLYMPIC ASSOCIATION 12750 20 AUG 2001 TO AMOUNT PAID TO SIR CHOTU RAM BHAWAN 1700 3 SEPT 2001 TO AMOUNT PAID TO SAHARA INDIA AND MAX COMMUNICATIONS 21235 26 SEPT 2001 TO AMOUNT PAID TO WOMEN CRICKET ASSO. AND HIND SAMACHAR 118859 27 SEPT 2001 TO AMOUNT PAID TO M/S A ADVERTISERS AND TRADE FAIR 508382 5 OCT 2001 TO AMOUNT PAID TO BASEBALL ASSO. 8500 18 OCT 2001 TO AMOUNT PAID TO HARYANA OLYMPIC ASSO. 85000 24 19 OCT 2001 TO AMOUNT PAID TO RAMA KRISHNA MISSION 24745 24 OCT 2001 TO AMOUNT PAID TO J.P. ATRI MEMORIAL 8500 2 NOV 2001 TO AMOUNT PAID TO M/S ADAN PRAKASHAN PVT. LTD. 4250 13 NOV 2001 TO AMOUNT PAID TO HOCKEY CLUB FOR ADVERTISEMENT 4250 5 NOV 2001 TO AMOUNT PAID TO M/S G. A. ADVERTIZERS 21500 29 JAN 2002 TO AMOUNT PAID TO NATIONAL ADVENTURE CLUB CHD. 42066 30 JAN 2002 TO AMOUNT PAID TO BLOOD BANK SAHARA INDIA 374015 4 FEB. 2002 TO AMOUNT PAID TO TRADE AUTHORITY 100000 9 FEB. 2002 TO AMOUNT PAID TO DIRECTOR HORTICULTURE 20000 21MARCH 02 TO AMOUNT PAID TO SANT RAVIDAS SABHA 3400 28MARCH 02 TO AMOUNT PAID TO TRIBUNE TRUST 371874 TOTAL 17,50,151/- 36. BEFORE THE LD. CIT(A,) THE ASSESSEE SUBMITTED T HAT ALL THE PAYMENTS WERE MADE FOR INSERTING ADVERTISEMENTS IN SOUVENIRS AND BUSINESS JOURNALS, AS IS COMMON PRACTICE IN THE TRADE, TO PROPAGATE TH E WORK AND ACHIEVEMENT OF THE ASSESSEE. LD. CIT(A) HELD THAT EXPENDITURE O N ADVERTISEMENT IS ALLOWABLE AND DIRECTED THE ASSESSING OFFICER TO AL LOW THE SAME AFTER VERIFICATION. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER, WHILE THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 37. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 25 38. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A). AD VERTISEMENT IS AN ALLOWABLE BUSINESS EXPENDITURE AND THE LD. CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER THE EXPENSES AR E IN THE NATURE OF ADVERTISEMENT AND ACCORDINGLY ALLOW THE SAME. THE L D. CIT(A) HAS NOT ALLOWED THE CLAIM OF THE ASSESSEE AS SUCH. THEREFOR E, TO THIS EXTENT THE GROUND RAISED BY THE REVENUE IS INCORRECT. IN VIEW OF THE SAME, WE UPHOLD THE ORDER OF THE LD. CIT(A) IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE EXPENSES AND ALLOW THE SAME IF FOUND TO BE IN THE NATURE OF ADVERTISEMENT. 40. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISS ED. 41. GROUND NO.6 OF THE REVENUE RELATES TO ALLOWANCE OF EXPENDITURE OF RS. 67,29,089/- INCURRED ON ACCOUNT OF CONTRIBUTION TO AGRICULTURAL DEPARTMENT FOR ROCK DRILLING MACHINE. THE PURPOSE O F THE EXPENDITURE, AS EXPLAINED BEFORE THE ASSESSING OFFICER IS AS UNDER: - 'THE BOARD MADE CONTRIBUTION FOR PROVIDING A ROCK D RILLING MACHINE ON THE DIRECTIONS OF THE STATE GOVERNMENT I N AGRICULTURAL DEPARTMENT WHICH HAS ALSO BEEN DECLARE D A FIT CHARGE ON THE FUNDS OF THE BOARD. THIS MACHINE IS BEING UTILIZED FOR DEEP BORING IN DISTRICT MOHINDERGARH W HERE THE WATER LEVEL IS VERY LOW AND IT IS BEYOND THE REACH OF FARMERS TO INSTALL TUBEWELLS ON THEIR OWN. THE HSAMB HAS BEEN ESTABLISHED FOR PROVIDING VARIOUS INFRASTRUCTURAL F ACILITIES AND WELFARE OF FARMERS, WHICH ARE MET OUT OF THE MARKET FEES COLLECTED ON SALE AND PURCHASE OF AGRICULTURAL PROD UCE. 26 PROVIDING OF SAID MACHINE HAS CONTRIBUTED TO AVAILA BILITY OF MORE WATER FOR IRRIGATION PURPOSES RESULTING INTO I NCREASE IN AGRICULTURAL PRODUCTION VIS-AVIS MARKET FEES.' . 42. THE LD. ASSESSING OFFICER DISALLOWED THE SAME F OR THE REASON THAT IT HAD NOTHING TO DO WITH THE OBJECTIVE OF THE BOARD A ND WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 26 OF PAP M ACT. THE LD. CIT(A) HELD THE EXPENDITURE ALLOWABLE SINCE THERE WAS NOTHING TO SUPPORT THE ASSESSING OFFICERS VIEW THAT HE EXPENDITURE WA S INCURRED AGAINST THE PROVISIONS OF SECTION 26 OF THE PAPM ACT. LD. CIT(A ) HELD AT PARA 12.1 OF THIS ORDER AS UNDER:- 12.1 IT IS SUBMITTED THAT THE PAYMENTS WERE MADE TO THE GOVT. DEPARTMENT TO AID AND ASSISTS THE FARM ERS FOR INCREASING THEIR PRODUCTIVITY WHICH WOULD EVENTUALLY LEAD TO INCREASE IN BUSINESS OF THE ASSE SSEE, AS THE INCREASE PRODUCE WOULD COME TO THE MARKETS A ND LEAD TO INCREASED REVENUE FOR THE ASSESSEE. IN MY CONSIDERED OPINION, THE EXPENDITURE IS ALLOWABLE AS A REVENUE EXPENDITURE. THERE IS NOTHING TO SUPPORT TH E AO'S VIEW THAT EXPENDITURE HAS BEEN INCURRED AGAINS T THE PROVISIONS OF SECTION 26 OF PAPM ACT. THE ACCOU NTS OF THE APPELLANT ARE AUDITED BY THE GOVT. AND NO SU CH VIOLATION HAS BEEN NOTICED. FURTHER, SUCH AN EXPENDITURE IS AN ALLOWABLE BUSINESS EXPENSE U/S 36(L)(XII) OF THE ACT. GROUND NO. 11 IS ACCORDINGLY ALLOWED. 43. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER, WHILE THE LD. AR RELIED UPON THE ORDER OF THE CIT(A ). 27 44. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 45. WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) . THE FINDINGS OF THE LD. CIT(A) THAT THE CONTENTION OF THE ASSESSING OFF ICER REGARDING VIOLATION BY THE ASSESSEE OF THE PROVISIONS OF SECTION 26 OF THE PAPM ACT, ARE UNSUBSTANTIATED REMAINS UNCONTROVERTED BEFORE US. L D. DR HAS NOT BROUGHT ANYTHING BEFORE US TO CONTROVERT THIS FINDING OF TH E LD. CIT(A). IN VIEW OF THE SAME, WE AGREE WITH THE LD. CIT(A) THAT THERE I S NO BASIS WITH THE ASSESSING OFFICER TO DISALLOW THE IMPUGNED EXPENDIT URE. WE, THEREFORE, UPHOLD THE ORDER OF LD. CIT(A) ALLOWING THE ASSESSE E CLAIM OF EXPENDITURE OF RS. 67,29,089/- INCURRED ON ACCOUNT OF CONTRIBUT ION TO AGRICULTURAL DEPARTMENT FOR ROCK DRILLING MACHINE. 46. THE APPEAL OF THE REVENUE IS, THEREFORE, DISMIS SED. 47. IN THE RESULT ALL THE APPEALS OF THE REVENUE AR E DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH JULY, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR