ITO, Haveri V. The Secretary, Hangal

ITA 494/BANG/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5576 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 09-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Capital expenditure
• Section: 12AA; 63; 10; 11; 139

Judgement Text

PAGE 1 OF 9 ITA NOS.491 TO 494/BANG/2010 & C.O.NOS.59 TO 61/BANG/2010 1 IN THE INOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SMT. P MADHAVI DEVI, J.M. AND SHRI A MOHAN ALANKAMONY, A.M. ITA NO. ASST. YEAR APPELLANT RESPONDENT 491/BANG/2010 2004-05 ITO, WARD-1, HAVERI. THE SECRETARY, AGRICULTURE PRODUCE MARKETING COMMITTEE, BYADGI. 492/BANG/2010 2005-06 -DO- -DO- 493/BANG/2010 2006-07 -DO- -DO- 494/BANG/2010 2004-05 -DO- THE SECRETARY, AGRICULTURE PRODUCE MARKETING COMMITTEE, HANGAL. C.O.NO.59/B/2010 (IN ITA NO.491/10) 2004-05 THE SECRETARY, AGRICULTURE PRODUCE MARKETING COMMITTEE, BYADGI ITO, WARD-1, HAVERI. C.O.NO.60/B/2010 (IN ITA NO.492/10) 2005-06 -DO- -DO- C.O.NO.61/B/2010 (IN ITA NO.493/10) 2006-07 -DO- -DO- APPELLANT BY : SMT. JACINTA ZIMIK VASHAI, ADDL . CIT RESPONDENT BY : SHRI C R NULVI, C.A. O R D E R PER BENCH : THESE APPEALS ARE FILED BY THE REVENUE AND THE CR OSS OBJECTIONS ARE FILED BY THE ASSESSEE FOR THE ASST. Y EARS 2004-05 TO 2006-07. 2. IN ALL THESE APPEALS, THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO ALLOW TH E ACCUMULATION PAGE 2 OF 9 ITA NOS.491 TO 494/BANG/2010 & C.O.NOS.59 TO 61/BANG/2010 2 OF INCOME AT 15% ON GROSS RECEIPTS AS AGAINST INCOM E AS LAID DOWN IN SECTION 11(2) OF THE I T ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A MARKETING COMMITTEE REGISTERED UNDER KARNATAKA APMC ACT. ITS BUSINESS WAS TO PROVIDE FACILITIES FOR MARKETING OF AGRICULTURAL PRODUCE AND PERFORMING OTHER FUNCTIONS AND DUTIES S UCH AS SHAPE AND DEVELOPMENT OF LINK ROADS, SHED ARRANGEMENTS IN THE INTEREST OF AGRICULTURISTS AND TRADERS DEALING IN AGRICULTURAL PRODUCTS. THE ASSESSEE IS A LOCAL AUTHORITY IN STATUS FOR THE PURP OSE OF SECTION 10(20) OF THE I T ACT UP TO THE ASST. YEAR 2002-03. HOWEVER, DUE TO THE AMENDMENT TO SUB SECTION 20 OF SECTION 10 BY THE FINANCE ACT, 2002 W.E.F. 01.04.2003 RELEVANT TO THE ASST. YE AR 2003-04, THE ASSESSEE WAS NO LONGER ENTITLED TO EXEMPTION U/S 10 (20) OF THE I T ACT. THEREFORE, THE ASSESSEE HAS OBTAINED CERTIFIC ATE OF REGISTRATION U/S 12AA OF THE I T ACT FROM THE COMMI SSIONER OF INCOME-TAX, DAVANAGERE W.E.F. 01/04/2002 AND WAS BO UND TO FOLLOW THE PROVISIONS OF SECTION 11, 12, 12AA AND 13 OF TH E I T ACT TO THE EXTENT THEY ARE APPLICABLE TO THE ASSESSEE IN REGARD TO COMPUTATION OF INCOME, ACCUMULATION/SETTING APART OF ITS INCOME AND APPLICATION THEREOF. THE MAJOR RECEIPTS OF THE COMMITTEE CONSI STS OF MARKETING CESS, INTEREST ON DEPOSITS WITH BANKS AND OTHER INSTITUTIONS, RENTAL INCOME FROM BUILDINGS AND OTHE R RECEIPTS LIKE LICENSE, FEES, FORMS FEES ETC. THE APPLICATIONS AN D EXPENSES OF THE COMMITTEE CONSIST OF SUBSCRIPTION TO STATE RECURRIN G FUNDS, STATE AGRICULTURAL MARKETING BOARDS AND ADMINISTRATIVE EX PENSES. PAGE 3 OF 9 ITA NOS.491 TO 494/BANG/2010 & C.O.NOS.59 TO 61/BANG/2010 3 ACCORDING TO THE ASSESSEE, THESE EXPENSES ARE INCID ENTAL FOR EARNING ITS INCOME. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE RELEVANT ASST. YEARS DECLARING A TOTAL INCOME OF RS. NIL. ON VERIFICATION OF THE SAID DETAILS FILED ALONG WITH T HE RETURN OF INCOME, THE AO OBSERVED THAT THE ASSESSEE HAD DECLA RED A SURPLUS OF RS.75,04,589/- AND WHILE PREPARING THE INCOME AN D EXPENDITURE ACCOUNT, THE ASSESSEE HAS CHARGED SOME PAYMENTS WHIC H ARE OF IN THE NATURE OF APPLICATION OF FUNDS TO THE NORMAL EX PENDITURE ON THE GROUND THAT THEY ARE INCIDENTAL TO EARNING ITS INCOM E. HE HELD THAT THE INCOME FOR THE PURPOSE OF CLAIMING EXEMPTION U/ S 11(1)(A) IS TO BE DETERMINED EXCLUDING THOSE PAYMENTS. HE OBSERVED THAT THE ASSESSEE HAS CLAIMED EXEMPTION U/S 11(1)(A) OF RS.2 4,74,636/- ON GROSS RECEIPTS (NET OF MUNICIPAL TAX ON HOUSE PROPE RTY OF RS.75,027) AND REPAIRS OF RS.49,054), WHICH IS NOT ACCEPTABLE. HE HOWEVER HELD THAT THE ACCUMULATION UNDER THIS SECTI ON IS TO BE COMPUTED WITH REFERENCE TO GROSS RECEIPTS. HE THER EFORE EXCLUDED THE ADMINISTRATIVE EXPENSES AND ALLOWED THE ACCUMUL ATION OF INCOME AT 15% ON RS.1,60,24,249/- ONLY WHICH WORKS OUT TO R S.24,03,637/- AS AGAINST THE ASSESSEES CLAIM OF RS.24,74,636/-. 4. AGGRIEVED BY THE SAME, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO DELETED THE ADDITION HOLDING THAT THE NATURE OF ADMINISTRATIVE EXPENSES ARE THE REGUL AR EXPENSES INCURRED IN ROUTINE COURSE OF BUSINESS BY THE APPELL ANT TRUST AND THEREFORE, THEY ARE ALSO APPLICATION OF FUNDS FOR TH E CHARITABLE PURPOSES. HE THEREFORE DIRECTED THE AO TO ALLOW DE DUCTION AT THE PAGE 4 OF 9 ITA NOS.491 TO 494/BANG/2010 & C.O.NOS.59 TO 61/BANG/2010 4 RATE OF 15% ON THE GROSS RECEIPTS WITHOUT EXCLUDING SUCH EXPENSES MENTIONED IN SCHEDULE-I OF THE ASSESSMENT ORDER. 5. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED DR PLACED RELIANCE UPON THE ORDERS OF THE AO AND SUBMITTED THAT AS PROVIDED IN SECTION 11(1)( A) OF THE I T ACT, ACCUMULATION IS TO BE ALLOWED ON THE INCOME OF ASSESSEE AND NOT ON ITS GROSS RECEIPTS. HE SUBMITTED THAT THE C IT(A) HAS ERRONEOUSLY PLACED RELIANCE UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V PROGRAMME FOR CO MMUNITY ORGANSIATION REPORTED IN 248 ITR 1 IN GIVING RELIEF TO THE ASSESSEE. 7. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, SUBMITTED THAT THE SCHEDULE I TO THE ASSESSME NT ORDER CLEARLY SHOWS THAT THESE ARE EXPENDITURE WHICH ARE T O BE INCURRED BY THE ASSESSEE FOR RUNNING OF THE TRUST AND WITHOUT WHICH THE ASSESSEES FUNCTIONING ITSELF WOULD BE VERY DIFFICUL T. THUS, ACCORDING TO HIM, THESE ARE THE EXPENDITURE ESSENTI AL FOR THE EXISTENCE OF THE TRUST AS IT IS AND ARE THEREFORE, THE EXPENSES TO BE CONSIDERED AS APPLICATION OF INCOME FOR THE CHAR ITABLE PURPOSES ONLY. IF IT IS TO BE HELD THAT THESE EXPENSES ARE A LSO APPLICATION OF FUNDS FOR CHARITABLE PURPOSES, THEN THEY CANNOT BE E XCLUDED FROM THE GROSS RECEIPTS FOR THE PURPOSE OF COMPUTING INC OME FOR ACCUMULATION U/S 11(1)(A) OF THE I T ACT. PAGE 5 OF 9 ITA NOS.491 TO 494/BANG/2010 & C.O.NOS.59 TO 61/BANG/2010 5 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT THE ONLY DISPUTE IS WITH REGARD TO THE ADMINISTRATIVE EXPENSES WHICH HAVE BEEN EXCL UDED BY THE AO FOR COMPUTATION OF THE INCOME WHICH CAN BE ACCUM ULATED U/S 11(1)(A). AS RIGHTLY SUBMITTED BY THE LEARNED COUN SEL FOR THE ASSESSEE, WITHOUT THESE ADMINISTRATIVE EXPENSES, TH E TRUST CANNOT BE RUN AND MANAGED. THEREFORE, THESE ARE THE ESSEN TIAL EXPENDITURE FOR RUNNING OF THE TRUST AND HAVE TO BE NECESSARILY HELD TO BE APPLICATION OF FUNDS FOR CHARITABLE PURP OSES ONLY. IN VIEW OF THE SAME, WE FEEL NO REASON TO INTERFERE WI TH THE ORDER OF THE CIT(A) ON THIS GROUND. 9. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. 10. COMING TO THE CROSS OBJECTIONS FILED BY THE AS SESSEE, WE FIND THAT THE AO EXAMINED THE DETAILS OF CAPITAL EXPENDITURE CLAIMED TO HAVE BEEN INCURRED BY THE ASSESSEE FOR TH E PURPOSE OF OBJECTIVES OF THE TRUST. THE ASSESSEE REQUESTED TH AT THE SAME SHOULD BE ALLOWED WHILE COMPUTING THE INCOME OF THE TRUST. FROM THE DETAILS FILED BY THE ASSESSEE, THE AO OBSERVED T HAT THE CLAIM OF THE ASSESSEE IS INCLUSIVE OF RS.35 LAKHS BEING L OANS TO OTHER APMCS. HE HELD THAT THIS EXPENDITURE CANNOT BE CON SIDERED AS CAPITAL EXPENDITURE AND ACCORDINGLY, HE ALLOWED THE DEDUCTION TO THE EXTENT OF RS.45,70,750/- ONLY FOR THE ASST. YEAR 2006-07. FOR PAGE 6 OF 9 ITA NOS.491 TO 494/BANG/2010 & C.O.NOS.59 TO 61/BANG/2010 6 THE OTHER ASST. YEARS ALSO, THE QUANTUM IS DIFFERENT BUT THE DISALLOWANCE IS ON THE SAME GROUNDS. 10.1 IF THIS AMOUNT IS REDUCED FROM THE CAPITAL EX PENDITURE AND IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE, T HE ACCUMULATION U/S 11(2) OF THE I T ACT EXCEED 15% WHICH ALONE CA N BE ALLOWED TO BE ACCUMULATED U/S 11(1)(A) OF THE I T ACT AND WHER E THE ACCUMULATION OF FUNDS EXCEEDED THE SAID LIMIT OF 15 %, THEN THE ASSESSEE WAS REQUIRED TO FILE FORM NO.10. SINCE TH E ASSESSEE HAS NOT FILED FORM 10 AS REQUIRED UNDER RULE 17 OF THE I T RULES BEFORE THE EXPIRY OF THE TIME ALLOWED IN SUB SECTION 1 OF S ECTION 139 FOR FURNISHING THE RETURN OF INCOME, HE DISALLOWED THE DEDUCTION U/S 11 OF THE I T ACT. 10.2 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL B EFORE THE CIT(A) WHO CONFIRMED THE DISALLOWANCE MADE BY TH E AO AND THE ASSESSEE IS IN CROSS OBJECTION BEFORE US. 10.3 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE ASSESSEE IS CONSTITUTED OR SET UP BY THE KARNATA KA GOVERNMENT FOR THE PURPOSE OF PROVIDING MARKETING AND ANCILLAR Y FACILITIES TO THE AGRICULTURISTS AND THEREFORE GIVING A LOAN TO O THER MARKETING COMMITTEES ARE ALSO THE OBLIGATION AND DUTY OF THE A SSESSEE. FOR THIS PURPOSE, HE HAS FILED BEFORE US THE COPIES OF THE PROVISIONS CONTAINED IN SECTION 73 AND ALSO SECTION 93 OF THE AMPC ACT. HE SUBMITTED THAT WHEN THESE LOANS ARE ADVANCED TO THE OTHER APMCS, PAGE 7 OF 9 ITA NOS.491 TO 494/BANG/2010 & C.O.NOS.59 TO 61/BANG/2010 7 THEY HAVE TO BE CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND ACCORDINGLY, CANNOT BE REDUCED FROM THE CAPITAL EXPENDITURE. HE FURTHER SUBMITTED THAT IF THIS AMO UNT IS ALSO CONSIDERED AS APPLICATION OF FUNDS FOR CHARITABLE P URPOSES, THE INCOME WHICH REMAINS FOR ACCUMULATION IS LESS THAN 10% AND THEREFORE, THERE WAS NO REQUIREMENT UNDER LAW THAT THE ASSESSEE SHOULD FILE FORM 10 U/S 11(2) OF THE I T ACT. 10.4 THE LEARNED DR, HOWEVER, REFUTED THIS ARGUMEN T STATING THAT THE ASSESSEE HAS NEVER RAISED THIS CON TENTION BEFORE THE CIT(A). SHE SUBMITTED THAT GIVING A LOAN TO OT HER CHARITABLE INSTITUTIONS CANNOT BE CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE BECAUSE THE LOAN IS ALWAYS REPAYAB LE. 10.5 IN THE REJOINDER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHENEVER THE LOAN IS REPAID, THE SAM E IS TAKEN AS INCOME AND ADDED TO THE GROSS RECEIPTS AND OFFERED AS INCOME ACCORDINGLY. HE HAS ALSO PLACED RELIANCE ON THE DE CISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V INDIA N NATIONAL THEATRE TRUST 305 ITR 149 WHEREIN IT HAS BEEN HELD THAT THE AMOUNT ADVANCED TO ANOTHER CHARITABLE TRUST IS APPL ICATION OF INCOME FOR CHARITABLE PURPOSES AND THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 11 OF THE I T ACT. 10.6 HAVING HEARD BOTH THE PARTIES AND HAVING CONS IDERED THE RIVAL CONTENTIONS AND ALSO THE MATERIAL ON RECO RD, WE FIND THAT THE ASSESSEE IS ESTABLISHED FOR THE PURPOSE OF MEET ING THE PAGE 8 OF 9 ITA NOS.491 TO 494/BANG/2010 & C.O.NOS.59 TO 61/BANG/2010 8 EXPENDITURE RELATING TO THE OBLIGATORY AND DISCRETIO NARY DUTIES AND FUNCTIONS OF THE MARKET COMMITTEE U/S 93 OF THE KAR NATAKA APMC REGULATION AND DEVELOPMENT ACT. THE POWERS AND DUT IES OF THE MARKETING COMMITTEES ARE LAID DOWN U/S 63 OF THE SA ID ACT AND IT IS STATED THEREIN THAT A MARKETING COMMITTEE MAY GRANT LOANS TO THE STATE AGRICULTURAL MARKETING BOARD OR OTHER MARKET COMMITTEES. THUS, IT CAN BE SEEN THAT GRANTING LOANS TO OTHER M ARKETING COMMITTEES IS ONE OF THE OBLIGATIONS AND DUTIES OR FUNCTIONS OF THE MARKETING COMMITTEE I.E. THE ASSESSEE HEREIN. THER EFORE, GIVING LOAN TO ANOTHER MARKETING COMMITTEE IS NOTHING BUT APPLICATION OF FUNDS BY THE ASSESSEE, AS ALSO HELD BY THE HONBLE D ELHI HIGH COURT IN THE CASE CITED SUPRA. THEREFORE, WE ARE INCLINE D TO AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSES SEE THAT THE SAME ALSO HAS TO BE CONSIDERED AS APPLICATION OF IN COME FOR CHARITABLE PURPOSES AND CANNOT BE EXCLUDED FROM THE CAPITAL EXPENDITURE. 10.7 NOW THE QUESTION IS WHETHER THE ASSESSEE IS REQUIRED TO MAKE AN APPLICATION IN FORM 10 OF THE I T ACT UN DER RULE 17 OF THE I T RULES. THE ACT PROVIDES THAT EVERY CHARITAB LE INSTITUTION IS ENTITLED TO ACCUMULATE 15% OF ITS INCOME DURING THE RELEVANT PREVIOUS ASST. YEAR FOR MEETING ITS OBJECTIVES IN TH E FOLLOWING YEARS. IF THE ASSESSEE FAILS TO APPLY 85% OF ITS INCOME FO R CHARITABLE PURPOSES AND/OR IF IT INTENDS TO ACCUMULATE ITS INC OME FOR CHARITABLE PURPOSES EXCEEDING 85%, THEN IT IS REQUI RED TO FILE FORM 10 BEFORE THE DATE OF FILING OF THE RETURN U/S 11(2 ) OF THE I T ACT. PAGE 9 OF 9 ITA NOS.491 TO 494/BANG/2010 & C.O.NOS.59 TO 61/BANG/2010 9 NOW THE ASSESSEES CONTENTION BEFORE US HAS BEEN TH AT IF THE LOAN GIVEN TO OTHER APMCS, ARE NOT REDUCED FROM THE CAPI TAL EXPENDITURE, THEN THE SURPLUS REMAINING WITH THE AS SESSEE IS LESS THAN 10%. THIS FACT NEEDS VERIFICATION BY THE AO. IN VIEW OF THE SAME, WE DIRECT THE AO TO VERIFY IF AFTER ALLOWING T HE LOANS GIVEN BY THE ASSESSEE TO OTHER APMCS AS CAPITAL EXPENDITUR E, WHAT IS THE PERCENTAGE OF THE SURPLUS REMAINING WITH THE ASSESS EE AND IF IT IS LESS THAN 15%, THEN THE ASSESSEE NEED NOT FILE FORM 10 UNDER RULE 17 OF THE I T RULES AND THE ASSESSEE SHALL BE ALLOW ED EXEMPTION ACCORDINGLY. 11. IN THE RESULT, THE CROSS OBJECTIONS FILED BY TH E ASSESSEE ARE PARTLY ALLOWED. THE ORDER PRONOUNCED ON TUESDAY, THE 31 ST DAY OF MAY, 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (P MADH AVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMB ER COPY TO : 1) THE ASSESSEE (2) THE REVENUE (3) THE CIT(A) CONCERNED. (4) THE CIT CONCERNED. (5) THE DR (6) GUARD FILE. MSP/26.5 BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.