DCIT, Dehradun V. M/s. Krishi Utpadan Mandi Samiti, Dehradun

ITA 4260/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58933 (ITAT-DELHI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 23-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DK MISHR A
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Diversion of income
• Section: 12AA; 10B; 12; 11

Judgement Text

ITA NO. 4260/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4260/DEL/2011 A.Y. : 2007-08 DCIT, CIRCLE - 2, 13-A, SUBHASH ROAD, DEHRADUN UTTARANCHAL VS. M/S KRISHI UTPADAN MANDI SAMITI, NIRANJANPUR, DEHRADUN (PAN/GIR NO. : AAALK0516D) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : DR. RAKESH GUPTA, ADV. DEPARTMENT BY : SH. D.K. MISHRA, C.I.T.(D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, DEHRADUN DATED 10.6.2011 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED IN THE APPEAL READ AS UNDER:- 1. WHETHER THE LD. COMMISSIONER OF INCOME TAX HAS ERRED IN LAW AND ON FACTS BY IGNORING THE REGISTRA TION U/S. 12A/12AA OF THE IT ACT, 1961, WHICH WAS GRANTE D TO THE ASSESSEE WITH EFFECT FROM 20.6.2006 AND WAS RELEVANT FOR THE INSTANT ASSESSMENT YEAR AND INSTEA D PROCEEDED TO ADJUDICATE THE GROUND RAISED BY THE ASSESSEE WHICH IS BASED ON THE PRINCIPLE OF DIVERS ION OF INCOME BY OVER-RIDING TITLE. ITA NO. 4260/DEL/2011 2 2. WHETHER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS BY HOLDIN G THAT FORM 10B (AUDIT REPORT), IN ANY CASE, DID NOT MATTER AS ASSESSEES RETURN WAS A LOSS RETURN AND THEREFORE, THE ASSESSEE WOULD NOT HAVE EVEN REQUIR ED EXEMPTION IN TERMS OF SECTION 11 OF THE IT ACT, 1961 AND THE SAME WAS HELD BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT THE BENEFIT OF ANY FINDING OF FACT AT THE LEVEL OF ASSESSING OFFICER AS TO WHETHER THE ASSESSEE WAS ELIGIBLE FOR SUCH EXEMPTION. 3. WHETHER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN ADJUDICATION THE GROUND S PUT FORTH BY THE ASSESSEE THAT THERE WAS DIVERSION OF INCOME BY OVERRIDING TITLE WITHOUT THE BENEFIT OF ANY INFORMATION FROM THE ASSESSING OFFICER AS TO HOW MUCH AMOUNT WAS COVERED WITHIN THE SAID PRINCIPLE AND HOW MUCH WAS NOT. 4. WHETHER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DECIDING THE APPEAL BY NOT CONSIDERING THE REQUIREMENT OF APPLICATION OF INCOM E IN TERMS OF SECTION 11(2) OF THE ACT, AND INSTATED ADJUDICATED THE APPEAL ON THE BASIS OF THE PRINCIPLE OF DIVERSION OF INCOME BY OVERRIDING TITLE EVEN WHILE T HE ASSESSEE HAD REGISTRATION U/S. 12A/ 12AA OF THE ACT AND IN TERM OF THIS SITUATION, APPLICATION OF INCOM E OUGHT TO HAVE BEEN ADJUDICATED. ITA NO. 4260/DEL/2011 3 5. WHETHER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN ADJUDICATING THE APPEAL RELYING ON ASSESSEES GROUND OF DIVERSION OF INCOME BY OVERRIDING TITLE EVEN WHILE THE PROVISIONS OF SECTI ON 12A/12AA OF THE IT ACT, 1961 ARE OPERATIVE IN THE CIRCUMSTANCES OF THE CASE AND THERE IS NO ESCAPE FRO M COMPLIANCE OF THE PROVISIONS OF SECTION 11 OF THE IT ACT OR THE PRINCIPLE OF DIVERSION OF INCOME BY OVERRIDIN G TITLE CAN BE ROPED IN TO HINDER OR OBSTRUCT THE OPERATION OF THE PROVISIONS OF SECTION 12A/12AA AN D SECTION 11. 3. IN THIS CASE THE ASSESSEE, OUT OF ITS RECEIPTS IN THE NORMAL COURSE OF ITS OPERATIONS, MADE PAYMENT OF ` 1,64,67,156/ - AS CONTRIBUTION (ANSHDAN) TO THE STATE AGRICULTURAL PRODUCE MARKETS BOARD (HEREINAFTER REFERRED TO AS THE BOARD). WHETHER THIS AMOUNT WAS CLAIMED AS DEDUCTION AGAINST THE RECEIPT OR WAS REDUCED FROM THE RECEIPT ITSELF IS NOT CLEAR FROM THE INFORMATION AVAILABLE ON RECORD. THIS AMOUNT WAS NOT SHOWN AS ITS INCOME BY THE ASSESSEE. A CERTIF ICATE FROM THE BOARD CONFIRMING THE RECEIPT OF THE CONTRIBUTION AND CONT AINING THE DETAILS OF ITS COMPUTATION AS WELL AS MONTHWISE BREAK UP WAS FU RNISHED BEFORE THE ASSESSING OFFICER WHO OBSERVED THAT THE ASSES SEE WAS UNDER NO CONTRACTUAL OBLIGATION FOR MAKING THE PAYMENT AND AL SO THAT THERE WAS NO DIVERSION OF MONEY BY OVERRIDING TITLE AT SOURC E. CONSEQUENTLY, HE HELD THE AMOUNT TO BE ASSESSEES INCOME AND TAXED IT . ITA NO. 4260/DEL/2011 4 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) IT WAS SUBMITTED THAT THE ASSESSEE IS A CREATURE OF UP KRI SHI UTPADAN MANDI ADHINIYAM AND WAS UNDER STATUTORY OBLIGATION TO TRA NSFER PART OF ITS RECEIPT TO THE BOARD BY WAY OF CONTRIBUTION. HENC E, ACCORDING TO IT, THE AMOUNT STOOD DIVERTED AT SOURCE BY OVERRIDING TI TLE AND DID NOT CONSTITUTE ITS INCOME. LD. COMMISSIONER OF INCOME TAX (APPEALS) PERUSED THE COPY OF ADHINIYAM AND NOTED THE FOLLOW ING SALIENT FEATURES. SECTION 5 OF THE ADHINIYAM PROVIDES FOR DECLARATIO N OF AN AREA AS A MARKET AREA IN ORDER TO REGULATE THE S ALE AND PURCHASE OF ANY AGRICULTURAL PRODUCE THEREIN. ACCORDING TO SECTION 12, FOR EVERY MARKET AREA THERE WOULD BE A COMMITTEE, CALLED THE MANDI SAMITI. FUNCTIONS OF THE COMMITTEE INCLUDE ENFORCEMENT OF THE PROVISIONS OF THE ADHINIYAM, PROVISION OF FACILI TIES FOR SALE AND PURCHASE OF SPECIFIC AGRICULTURAL PROD UCE WITHIN THE MARKET AREA AND MATTERS INCIDENTAL THERET O (SECTION 16). IN ORDER TO ENABLE IT TO CARRY OUT ITS FUNCTIONS, IT HAS BEEN GIVEN POWERS TO RAISE FUNDS BY WAY OF FEES FOR LICENSES, MARKET FEE ON TRANSACTION S OF SALE OF SPECIFIC AGRICULTURAL PRODUCE AND DEVELOPME NT ITA NO. 4260/DEL/2011 5 CESS (SECTION 17). SECTION 26-A R.W.S. 26-L OF THE ADHINIYAM PROVIDES FOR CONSTITUTION OF THE STATE AGRICULTURAL PRODUCE MARKETS BOARD (THE BOARD) FOR SUPERINTENDENCE AND CONTROL OVER WORKING OF MARKET COMMITTEES AND SEVERAL ALLIED PURPOSES. ACCORDING TO SECTION 19(5) OF THE ADHINIYAM, EACH COMMITTEE IS REQUIRED TO PAY TO THE BOARD AS CONTRIBUTION SUCH AMOUNT NOT EXCEEDING FIFTY PERCENT OF THE FIRST FIFT Y LAKH RUPEES OF THE RECEIPTS AS THE STATE GOVERNMENT MAY, BY NOTIFICATION, DECLARE FROM TIME TO TIME, AND A LL RECEIPTS EXCEEDING FIFTY LAKHS RUPEES. THIS CONTRIBUTION IS CREDITED TO THE UP STATE MARKETING DEVELOPMENT FUND (SECTION 26PP) WHICH IS TO BE UTILIZED BY THE BOARD FOR PROVISION OF FACILITIES I N THE MARKET AREA, DEVELOPMENT OF PRINCIPAL MARKET YARDS, ETC. 4.1 CONSIDERING THE AFORESAID OUTLINE OF THE STATUT ORY FRAMEWORK UNDER WHICH THE ASSESSEE FUNCTIONS. LD. COMMISSIONE R OF INCOME TAX (APPEALS) FOUND THAT IT SHOWS CLEARLY THAT ITS RE CEIPTS ARE NOT OUT OF ANY CONTRACTUAL OBLIGATION VIS-A-VIS THE PEOPLE BU YING AND SELLING PRODUCE IN THE MARKET AREA. HE OBSERVED THAT IT DERIVES ITS RECEIPT ITA NO. 4260/DEL/2011 6 UNDER THE UP KRISHI UTPADAN MANDI ADHINIYAM. UNDER THE PROVISIONS OF THE SAME ADHINIYAM, IT IS OBLIGED TO CONTRIBUTE THE PRESCRIBED PERCENTAGE OF ITS RECEIPT TO THE BOARD (WHICH HAS A DIFFERENT SPHERE OF ACTIVITIES THOUGH FALLING UNDER THE SAME BOARD AREA OF MARKET DEVELOPMENT). LD. COMMISSIONER OF INCOME TAX (APP EALS) FOUND THAT THE BOARD IS THE SUPERVISORY ENTITY OVER THE ASSESS EE AND OTHER SUCH COMMITTEES. THE GOVERNMENT INSTEAD OF GIVING THE B OARD AN INDEPENDENT SOURCE OF REVENUE, THOUGHT IT FIT TO LE T THE COMMITTEES RAISE THE REVENUE AND SHARE THE SAME WITH THE BOARD. LD. COMMISSIONER OF INCOME TAX (APPEALS) OPINED THAT IT SHOWS CLEARLY THAT THE CONTRIBUTION MADE BY THE ASSESSEE TO THE BO ARD ACTUALLY DOES NOT BELONG TO IT AND IS STATUTORILY DIVERTED AT SOU RCE BY OVERRIDING TITLE. HE HELD THAT IT DOES NOT CONSTITUTE ITS INCOME IN THE FIRST PLACE. THE BOARD IS A SEPARATE ENTITY AND THE AMOUNT CONSTITUTE S THE INCOME OF THE BOARD. IN THESE CIRCUMSTANCES, LD. COMMISSION ER OF INCOME TAX (APPEALS) HELD THAT CONSIDERING THE FACTUAL AND LEG AL POSITION, THE ADDITION IS DELETED. 4.2 ASSESSING OFFICER HAS ALSO ADDED THE VIKAS S HULK AMOUNTING TO ` 47,38,136.21 AS THE ASSESSEES INCOME. ON THIS ASPECT, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT DEVEL OPMENT CESS IS ALSO ONE OF THE SOURCE OF THE REVENUE FOR THE ASSES SEE. THE ONLY ITA NO. 4260/DEL/2011 7 DIFFERENCE IS THAT THE ENTIRE AMOUNT OF THE CESS HA S TO BE CREDITED TO THE CENTRAL MANDI FUND ESTABLISHED U/S. 26PPP OF THE A DHINIYAM, TO BE UTILIZED BY THE BOARD FOR PURPOSES LAID DOWN IN THAT SECTION. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT SINCE THE STATUTORY FRAMEWORK FOR TRANSFER OF THE DEVELOPMENT CESS FROM THE ASSESSEE COMMITTEE TO THE BOARD IS SIMILAR TO THAT OF CONTRIB UTION (ANSHDAN), HE HELD THAT IT DOES NOT CONSTITUTE THE ASSESSEES INCOME. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE BOARD IS A SEPARATE ENTITY AND THE AMOUNT CONSTITUTES THE INCO ME OF THE BOARD. IN VIEW OF THIS FACTUAL AND LEGAL POSITION, THE ADDITI ON WAS DELETED. 5. THE ASSESSEE IS REGISTERED U/S. 12AA OF THE IT ACT. THE ASSESSING OFFICER DID NOT CONSIDER IT FIT FOR EXE MPTION FOR THE PREVIOUS YEAR, UNDER CONSIDERATION BECAUSE IT DID NOT FURNI SH THE AUDIT REPORT IN FORM 10B AND DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ITS INCOME IN THE RETURN. IN THIS REGARD, IT WAS SUBMITTED BY TH E ASSESSEE THAT THE REQUIREMENT TO GET ITS ACCOUNTS AUDITED WOULD ARISE ONLY WHEN ITS INCOME, BEFORE GIVING EFFECT TO THE PROVISION OF SE CTION 11 AND 12 OF THE IT ACT, EXCEEDED THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO TAX DURING THE PREVIOUS YEAR. ACCORDING TO THE AS SESSEE, SINCE IT HAD A NET LOSS, IT WAS NOT REQUIRED TO GET THE ACCOUNTS AUDITED AND FURNISH THE REPORT IN FORM 10B. ITA NO. 4260/DEL/2011 8 5.1 CONSIDERING THE ABOVE SUBMISSIONS, LD. COMMISSION ER OF INCOME TAX (APPEALS) HELD THAT THE STATE GOVERNMENT HAS AU THORIZED THE ASSESSEE TO COLLECT FEES AND THERE IS CORRESPONDING OBLIGATION TO PERFORM CERTAIN FUNCTIONS. HENCE, THE FEES COLLECT ED BY IT CANNOT BE CALLED VOLUNTARY CONTRIBUTION RECEIVED BY IT EITH ER FROM THE PAYERS DIRECTLY OR THE GOVERNMENT INDIRECTLY. SUCH RECEI PT CANNOT BE TREATED AS ITS INCOME. LD. COMMISSIONER OF INCOME TAX (APP EALS) HELD THAT THE INCOME, IF ANY, WOULD ARISE ONLY AFTER CONSIDER ING THE EXPENDITURE INCURRED BY IT FOR THE PURPOSES OUTLINED IN THE ADH INIYAM. HE HELD THAT SINCE THE RESULTANT FIGURE WAS A LOSS DURING T HE PREVIOUS YEAR, THE ASSESSEES CONTENTION THAT IT WAS NOT OBLIGED TO C LAIM EXEMPTION FOR ITS INCOME OR TO FURNISH THE AUDIT REPORT IN FORM 10B IS CORRECT. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER HELD TH AT SINCE THE RESULT OF THE BUSINESS WAS LOSS, THERE IS NOTHING WRONG IF IT DID NOT CLAIM EXEMPTION IN RESPECT OF ITS INCOME. HE HELD T HAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DRAWING ADVERSE INFER ENCE ON THESE GROUNDS. HE HELD THAT THIS MATTER, HOWEVER, IS O NLY ACADEMIC SIGNIFICANCE SINCE THERE WOULD BE NO INCOME IN THE FIRST PLACE TO BE CONSIDERED FOR EXEMPTION OR TAXATION. 6. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. ITA NO. 4260/DEL/2011 9 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. DEPARTME NTAL REPRESENTATIVE SUBMITTED THAT THE CASE IS NOT OF DIV ERSION BY OVERRIDING TITLE, BUT IT IS A CASE OF APPLICATION O F INCOME. FOR THIS PROPOSITION, HE PLACED RELIANCE UPON THE CASE LAWS VIZ. (I) SUNIL J. KINARIWALA 259 ITR 10 (SC) AND (II) C.I.T. VS. SITA LDAS TIRATHDAS [1961] 41 ITR 367 (SC). 7.1 LD. COUNSEL OF THE ASSESSEE ON THE OTHER HAND , PLACED RELIANCE UPON THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 7.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT FROM THE OUTLINE OF THE STAT UTORY FRAMEWORK AS BROUGHT OUT IN THE LD. COMMISSIONER OF INCOME TAX (A PPEALS)S ORDER, IT IS CLEAR THAT ASSESSEE RECEIPTS ARE NOT OUT OF A NY CONTRACTUAL OBLIGATION VIS-A-VIS THE PEOPLE BUYING AND SELLING PRODUCE IN THE MARKET AREA. IT DERIVES ITS INCOME RECEIPTS UNDER THE UP KRISHI UTPADAN MANDI ADHINIYAM. UNDER THE PROVISIONS OF T HE SAME ADHINIYAM, IT IS OBLIGED TO CONTRIBUTE THE PRESCRI BED PERCENTAGE OF ITS RECEIPT TO THE BOARD. THE BOARD IS THE SUPERVISORY ENTITY OVER THE ASSESSEE AND OTHER SUCH COMMITTEES. LD. COMMISSIONE R OF INCOME TAX (APPEALS) HAS RIGHTLY HELD THAT THE GOVERNMENT INSTEAD OF GIVING THE BOARD AN INDEPENDENT SOURCE OF REVENUE, THOUGHT IT FIT TO LET THE ITA NO. 4260/DEL/2011 10 COMMITTEES RAISE THE REVENUE AND SHARE THE SAME WITH THE BOARD. THIS CLEARLY SHOWS THAT THE CONTRIBUTION MADE BY TH E ASSESSEE TO THE BOARD ACTUALLY DOES NOT BELONG TO IT AND IS STATUT ORILY DIVERTED AT SOURCE BY OVERRIDING TITLE. HENCE, LD. COMMISSION ER OF INCOME TAX (APPEALS) IS CORRECT IN HOLDING THAT IT DOES NOT C ONSTITUTE INCOME IN THE FIRST PLACE. THE CASE LAWS RELIED UPON BY THE LD. DEPARTMENTAL REPRESENTATIVE ARE NOT APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE BOARD IS A SEPARATE ENTITY AND THE AMOUNT CONSTITUTES THE INCOME OF THE BOARD. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION IN T HIS REGARD. ON SIMILAR ANALOGY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE DEVELOPMENT CESS. 7.3 AS REGARDS THE EXEMPTION U/S. 11 OF THE IT ACT, WE FIND OURSELVES IN AGREEMENT WITH THE LD. COMMISSIONER OF INCOME TAX (APPEALS)S FINDING THAT SINCE THE RESULTANT FIGURE WAS A LOSS DURING THE PREVIOUS YEAR, IT WAS NOT NECESSARY FOR THE ASSESSEE TO CLAI M EXEMPTION FOR ITS INCOME OR TO FURNISH THE AUDIT REPORT IN FORM 10B IS CORRECT. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY HE LD THAT SINCE THE RESULT OF THE BUSINESS WAS LOSS, THERE IS NOTHING WRONG IF THE ASSESSEE ITA NO. 4260/DEL/2011 11 DID NOT CLAIM EXEMPTION IN RESPECT OF ITS INCOME. HENCE, THERE IS NO INFIRMITY IN THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) IN HOLDING THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN DRAWIN G ADVERSE INFERENCE ON THIS GROUND. 7.4 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD. ACCORDINGLY, WE UPHOLD THE SAME. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/3/2012. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 23/3/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES