Yanam Market Committee, Yanam V. ITO, Kakinada

ITA 56/VIZ/2009

• Counselvise Citation: 5625314 RSA 2009
• Duration Of Justice: 5 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 04-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 05-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D KOMALI KRISHNA
• Keywords: Benefit of exemption; Capital expenditure
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BEFORE S/SHRI D.MANMOHAN (VP) & J.SUDHAKAR REDDY, ( AM) ITA. NO. 56/VIZ/2009 ASSESSMENT YEAR : 2006-07 YANAM MARKET COMMITTEE, YANAM VS INCOME TAX OFFICER, WARD-2, KAKINADA [PAN: AAAY 0666 M] (APPELLANT) (RESPONDENT) ITA. NO. 23/VIZ/2014 ASSESSMENT YEAR : 2007-08 YANAM MARKET COMMITTEE, YANAM VS INCOME TAX OFFICER, WARD-2, KAKINADA [PAN: AAAY 0666 M] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.L.NARASIMHA RAO, AR RESPONDENT BY : SMT. D.KOMALI KRISHNA, DR DATE OF HEARING : 04-12-2014 DATE OF PRONOUNCEMENT : 19-12-2014 O R D E R PER J. SUDHAKAR REDDY, AM : THESE APPEALS ARE FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-R AJAHMUNDRY, DATED 01-12-2008 AND THE ORDER OF COMMISSIONER OF I NCOME TAX :- 2 -: I.T.A.NOS. 56/VIZ/09 & 23/VIZ/14 (APPEALS)-VISAKHAPATNAM, DATED 14-11-2013 FOR THE A SSESSMENT YEARS (AYS) 2006-07 & 2007-08 RESPECTIVELY. 2. THE FACTS ARE BROUGHT OUT BY THE LD.CIT(APPEALS) . THESE ARE EXTRACTED FOR READY REFERENCE: 2.1 THE ASSESSEE IS AN AGRICULTURAL MARKET COMMITTE E [HEREINAFTER REFERRED TO AS 'AMC'] CONSTITUTED UNDER THE PONDICH ERRY PRODUCE MARKETS ACT, 1973 [HEREINAFTER REFERRED TO AS 'PPMA '] VESTED WITH THE POWER AND AUTHORITY TO REGULATE PURCHASE AND SALE O F AGRICULTURAL PRODUCE ETC., WITHIN ITS TERRITORIAL JURISDICTION A ND TO COLLECT MARKET FEES / CESS, FEE ETC. UPTO THE AY.2002-03, THE ASS ESSEE ENJOYED THE BENEFIT OF EXEMPTION OF ITS INCOME U/S.10(29) OF TH E ACT. HOWEVER, WITH THE REPEAL OF SECTION 10(29) OF THE ACT BY THE FINANCE ACT, 2002 WITH EFFECT FROM 01-04-2003, THE INCOMES OF AMCS BE CAME LIABLE TO TAX FROM THE ASSESSMENT YEAR 2003-04 ONWARDS. IN O RDER TO ASSESS THE INCOME OF THE ASSESSEE FOR THE RELEVANT AYS.200 3-04, 2004-05 AND 2005-06, THE ASSESSING OFFICER ISSUED NOTICES U /S.148 OF THE ACT, AND, FOR THE AY.2006-07 NOTICE U/S.142(1) OF THE AC T CALLING FOR FILING OF RESPECTIVE RETURNS. IN RESPONSE, THE ASSESSEE F ILED NIL RETURNS FOR THE RELEVANT AYS, IN THE STATUS OF 'LOCAL AUTHORITY ' BY CLAIMING EXEMPTION U/S.10(20) OF THE ACT. IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE, INTER ALIA, THAT, EVEN AFTER THE AMENDMENTS CARRIED OUT BY :- 3 -: I.T.A.NOS. 56/VIZ/09 & 23/VIZ/14 THE FINANCE ACT, 2002, INSERTING EXPLANATION WHICH DEFINED 'LOCAL AUTHORITY' FOR THE PURPOSE OF SECTION 10(20) OF THE ACT, THE ASSESSEE AMC SHOULD BE TREATED AS BEING EQUIPPED, WITH ALL T HE FEATURES AND CHARACTERISTICS OF A 'LOCAL AUTHORITY' AND, AS SUCH , ITS INCOME IS EXEMPT. 3. AFTER CAREFULLY CONSIDERING THE SUBMISSIONS AND ARGUMENTS ON BEHALF OF THE ASSESSEE, THE ASSESSING OFFICER, HOWE VER, DECLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT ITS STAT US SHOULD BE TREATED AS THAT OF A 'LOCAL AUTHORITY' U/S.10(20) O F THE ACT BY ELABORATING THAT ALTHOUGH THE ASSESSEE AMC COULD BE TREATED AS A 'LOCAL AUTHORITY' UNDER THE PPMA, YET IT COULD NOT BE TREATED AS SUCH, AS PER THE DEFINITION CONTAINED IN THE EXPLANATION TO SECTION 10(20) OF THE ACT, WHICH DEFINITION IS EXHAUSTIVE AND DOES NO T INCLUDE AN AMC, INASMUCH AS, THE STATUS OF THE ASSESSEE CANNOT BE T ERMED AS EITHER A MUNICIPAL COMMITTEE OR A DISTRICT BOARD AND CERTAIN LY NOT A PANCHAYAT OR MUNICIPALITY AS DEFINED IN THE SAID EX PLANATION. THE ASSESSING OFFICER PLACED RELIANCE ON THE DECISIONS OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF KRISHI UTPADAN MANDI VS. UNION OF INDIA AND OTHER (267 ITR 46) AND THE ORDER OF T HE HON'BLE DELHI HIGH COURT IN THE CASE OF AGRICULTURAL MARKET PRODU CE COMMITTEE, AZADPUR VS.CIT (202 CTR 1), WHEREIN IT HAS BEEN HEL D THAT THE EXPLANATION TO SECTION 10(20) OF THE ACT RESTRICTS THE STATUS OF 'LOCAL :- 4 -: I.T.A.NOS. 56/VIZ/09 & 23/VIZ/14 AUTHORITY' TO ONLY FOUR ENTITIES NAMELY; PANCHAYAT, MUNICIPALITY, MUNICIPAL COMMITTEE AND DISTRICT BOARD AND CANTONME NT BOARD AND ACCORDINGLY, IT CANNOT BE EXTENDED TO INCLUDE AN AG RICULTURAL MARKET COMMITTEE AND THAT A MARKET COMMITTEE IS DISTINCT F ROM A MUNICIPAL COMMITTEE, AND EVEN IF THERE IS SOME SIMILARITY IN REGARD TO SOME FUNCTION BETWEEN THE TWO ENTITIES, YET THE SAME WOU LD NOT MAKE THE TWO EXPRESSIONS INTER CHARGEABLE. THE ASSESSING OF FICER ALSO DISTINGUISHED THE FACTS IN THE CASE OF SRI BUDDHA V EERI NAIDU VS. STATE OF AP (143 ITR 1021) FROM THOSE APPEARING IN THE ASSESSEE'S CASE BY STATING THAT THE HON'BLE ANDHRA PRADESH HIG H COURT IN A DIFFERENT CONTEXT OF LAND ACQUISITION HAD HELD AN A MC TO BE A 'LOCAL AUTHORITY' BY RELYING ON THE DEFINITION OF SUCH EXP RESSION CONTAINED IN SECTION 3(31) OF THE GENERAL CLAUSES ACT, 1987, AND , THUS, HELD THAT SUCH CASE-LAW WAS CONTEXTUALLY IRRELEVANT IN THE AS SESSEE'S CASE. WITH SUCH OBSERVATIONS, THE ASSESSING OFFICER SUBJE CTED TO TAX THE EXCESS OF INCOME OVER EXPENDITURE AS PER THE INCOME AND EXPENDITURE ACCOUNT OF RS.8,04,170/-, RS.8,61,930/-, RS.8,05,56 0/- AND RS.28,28,900/- FOR THE AYS.2003-04, 2004-05, 2005-0 6 AND 2006-07 RESPECTIVELY. 4. ON APPEAL, THE LD.CIT(APPEALS) CONFIRMED THESE F INDINGS. PART RELIEF WAS GIVEN ON MINOR ISSUES. FURTHER AGGRIEVE D, THE ASSESSEE IS BEFORE US. :- 5 -: I.T.A.NOS. 56/VIZ/09 & 23/VIZ/14 5. WE HAVE HEARD SHRI D.L.NARASIMHA RAO, LD.AR AND SMT. D. KOMALI KRISHNA, LD.DEPARTMENTAL REPRESENTATIVE ON B EHALF OF THE REVENUE. 5.1 ON CAREFUL CONSIDERATION, WE FIND THAT THE LD.C IT(APPEALS) DISCUSSED AT PARA NO.6 OF HIS ORDER, THE ISSUE BEFO RE US WHICH IS EXTRACTED HERE UNDER: 'AS REGARDS THE CLAIM OF EXEMPTION OF GRANTS FROM THE GOVERNMENT OF PUDUCHERRY TOWARDS CONSTRUCTION OF BUILDING OF R S.L0.00,000/- AND UNSPENT INCENTIVE TO FARMERS OF RS. 6,77,478/-, FOR THE ASSESSMENT YEAR 2006-07, THE BRIEF FACTS ARE THAT NO SUCH CLAIM OF EXEMPTION HAD BEEN MADE IN THE RETURN FOR THE ASSESSMENT YEAR 2006-07. IT WAS FOR THE FIRST TIME THAT ANY CLAIM OF EXEMPTION HAS BEEN MADE IN T HE FIRST APPELLATE PROCEEDINGS ON THE PLEA THAT THE GOVERNMENT OF PUDU CHERRY SANCTIONED A SUM OF RS.10,00,000/- AS GRANT-IN-AID IN FAVOUR O F THE APPELLANT- COMMITTEE, AND ANOTHER AMOUNT OF RS.25,98,890/- TOW ARDS PAYMENT OF INCENTIVE TO THE FARMERS WHO SOLD THEIR AGRICULTURA L PRODUCE THROUGH THE APPELLANT MARKET COMMITTEE, AND THAT SINCE SUCH GRA NTS ARE IN THE NATURE OF TIED-UP GRANTS FOR SPECIFIC PURPOSES, THE Y DO NOT PARTAKE OF THE CHARACTER OF REVENUE RECEIPTS IN THE HANDS OF THE A PPELLANT-COMMITTEE, AND, THEREFORE, SUCH AMOUNTS STANDING TO THE CREDIT IN THE INCOME & EXPENDITURE ACCOUNT NEED TO BE REDUCED AS EXEMPTED RECEIPT, AND THE BALANCE INCOME BE TAKEN FOR TAXATION PURPOSES. THE LEARNED AUTHORISED REPRESENTATIVE ALSO CITED A DECISION OF HON'BLE ITAT 'B' BENCH, HYDERABAD IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS. INCOME-TAX OFFICER (71 I TD 152) WHEREIN IT HAS BEEN HELD THAT GRANTS RECEIVED FOR SPECIFIC PURPOSES DO NOT FORM C ORPUS OF THE ASSESSEE OR ITS INCOME, AND, THEREFORE, SUCH AMOUNTS REMAINE D OUT OF THE PURVIEW OF REVENUE RECEIPTS. AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIVE AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, I T MAY BE STATED THAT THE CLAIM OF EXEMPTION OF ANY TIED UP GRANTS-IN-AID REC EIVED FROM GOVERNMENT OF PUDUCHERRY FOR SPECIFIC PURPOSES HAD NEVER BEEN MADE BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS, AND IT IS FOR THE FIRST TIME THAT SUCH CLAIM HAS BEEN MADE DURING THE FIRST APPELLATE PROCEEDINGS. SINCE THE APPELLANT HAD ITSE LF REFLECTED SUCH RECEIPTS AS REVENUE RECEIPTS IN ITS INCOME & EXPENDITURE ACCOUNT AND NO EXEMPTION THEREOF HAD BEEN CLAIMED DURING THE ASSES SMENT PROCEEDINGS, SUCH PLEA IN THE FIRST APPELLATE PROCE EDINGS IS CLEARLY :- 6 -: I.T.A.NOS. 56/VIZ/09 & 23/VIZ/14 INADMISSIBLE ON THE DOCTRINE OF CONSTRUCTIVE RESJUD ICATA. EVEN OTHERWISE, A PERUSAL OF INCOME & EXPENDITURE ACCOUNTS FOR THE EARLIER ASSESSMENT YEARS INDICATES THAT GRANTS-IN-AID HAVE BEEN RECEIV ED FROM GOVERNMENT IN THE PAST, WHICH HAVE BEEN REFLECTED AS INCOME AQ AINST WHICH THE EXPENDITURE THEREOF HAVE BEEN CLAIMED WHILE COMPUTI NG THE EXCESS OF INCOME OVER EXPENDITURE. IT, THEREFORE, TRANSPIRES THAT DEPENDING UPON THE EXTENT OF EXPENDITURE INCURRED DURING A PARTICU LAR ACCOUNTING YEAR, THE NET INCOME HAS BEEN DETERMINED. IN THE LIGHT OF THE SIMILAR METHOD FOLLOWED FOR THE ASSESSMENT YEAR 2006-07 IT COULD BE OBSERVED THAT GRANTS-IN-AID BY THE GOVERNM ENT IN RESPECT OF INCENTIVE HAS BEEN CREDITED TO THE EXTENT OF RS.25,98,877 AGAINST WHICH EXPENDITURE HA S BEEN CLAIMED TO THE EXTENT OF RS. 19,21,399 AND GRANTS-IN-AID BY WA Y OF BUILDING FUND CREDITED TO THE EXTENT OF RS. 10,00.000 AGAINST WHI CH NO EXPENDITURE HAS BEEN REFLECTED AND, ACCORDINGLY, THE NET RESULT OF EXCESS INCOME OVER EXPENDITURE HAS BEEN REFLECTED AT RS.28,28,903 SINCE THE APPELLANT IS FOUND TO HAVE BEEN CONSISTENTLY FOLLOW ING THE METHOD OF ACCOUNTING FOR THE GRANTS-IN-AID FROM THE GOVERNMEN T OF PUDUCHERRY (WHETHER INCENTIVE GRANT, BUILDING CONSTRUCTION GRA NT OR ANY OTHER GRANT) AS REVENUE RECEIPTS, FOR THE PURPOSE OF APPL ICATION OF ITS INCOME FOR ITS OBJECTS, THERE IS NO CAUSE FOR ANY DISTURBA NCE TO SUCH METHOD. AS SUCH, THE PRAYER OF THE APPELLANT TO CONSIDER TH E GRANT OF EXEMPTION IN RESPECT OF THE FUNDS RECEIVED FROM THE GOVERNMEN T OF PUDUCHERRY FOR THE ASSESSMENT YEAR 2006-07 IS, HEREBY, DECLINED TO BE GRANTED. HENCE, THE GROUND COVERING THIS ISSUE IS DISMISSED' . 5.2 THIS DECISION IN OUR VIEW IS AGAINST THE PROPOS ITION LAID DOWN BY THE ITAT, HYDERABAD BENCH IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS. INCOME-TAX OFFICER (71 ITD 152). THE LD.CIT(APPEALS) IS BOUND TO FOLLOW THE PROPOSITION LAID DOWN BY THE ITAT. HE SHOULD HAVE GRANTED DEDUCTION OF TIED-UP GRANTS. 5.3 THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS. INCOME-TAX OFFICER (71 ITD 152) HELD AS FOLLOWS: :- 7 -: I.T.A.NOS. 56/VIZ/09 & 23/VIZ/14 'THE ASSESSEE HAS NOT BEEN GRANTED REGISTRATION UN DER S. 12A, AS THE CIT, THOUGHT IT FIT TO REFUSE TO CONDONE THE LONG D ELAY CAUSED BY THE ASSESSEE IN APPLYING FOR THE REGISTRATION. THEREFORE, THE AO HAD NO OTHER GO BUT TO COMPLETE THE ASSESSMENTS IN THE STATUS OF AOP AND A LSO CLOSING HIS EYES TOWARDS S. 11 AND S. 13. TO THAT EXTENT, HE HAS ACT ED ONLY ACCORDING TO WILL OF LAW. EVEN WHEN THE ASSESSEE HAS BEEN ASSESSED AS AO P DEPRIVED OF S. 11 BENEFITS, THE AO COULD ASSESS ONLY NET INCOME OF TH E ASSESSEE AND NOT GROSS RECEIPTS. AS FAR AS THE ASSESSEE IS CONCERNED, CONS TRUCTION OF HOUSES, RECLAMATION OF LAND, ETC., ARE PART OF ITS REGULAR ACTIVITIES. HOUSES ARE BUILT ON THE LAND OF POOR AGRICULTURISTS. THE ASSESSEE-SOCIE TY HAS NO LEGAL TITLE OR RIGHT OVER THE LAND OR HOUSES OF THOSE VILLAGERS/AGRICULT URISTS WHO ARE THE BENEFICIARIES. THE PURPOSE AND ACTIVITY OF THE ASSE SSEE-SOCIETY IS TO ENGAGE IN SUCH CHARITABLE ACTIVITIES. WHATEVER AMOUNT HAS BEE N SPENT ON THOSE PROGRAMMES/PROJECTS, THEY WERE SPENT IN THE USUAL C OURSE OF CARRYING ON ITS ACCLAIMED OBJECTS. THEREFORE, THERE IS NO BASIS WHA TSOEVER, FACTUAL OR LEGAL, TO HOLD THAT THE AMOUNTS SPENT BY THE ASSESSEE IN CONS TRUCTING HOUSES OR RECLAIMING LAND ARE CAPITAL EXPENDITURE. AS FAR AS THE ASSESSEE IS CONCERNED, THOSE EXPENSES ARE REVENUE EXPENSES. THE ASSESSEE H AS NO RIGHT OR TITLE OVER THOSE PROPERTIES. THOSE EXPENSES WERE INCURRED AS P ART OF ITS NORMAL ACTIVITIES FOR WHICH THE SOCIETY WAS FORMED. THEREF ORE, THE MONEY SPENT BY THE ASSESSEE-SOCIETY IN CONSTRUCTING HOUSES, RECLAI MING THE LAND, FOR NON- FORMAL EDUCATION, ETC., HAS TO BE ALLOWED AS DEDUCT ION IN THE COMPUTATION OF INCOME'. THE ASSESSING OFFICER AS WELL AS THE LD.CIT(APPEALS ) HAVE NOT APPLIED THE PRINCIPLES LAID DOWN BY THE TRIBUNAL IN THE ABO VE REFERRED CASE. HENCE, WE SET ASIDE THE MATTER TO THE FILE OF THE A SSESSING OFFICER FOR DE-NOVO ASSESSMENT WITH A SPECIFIC DIRECTION TO THE ASSESSING OFFICER, THAT HE SHALL APPLY THE PRINCIPLES LAID DOWN BY THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS. INCOME-TAX OFFICER (SUPRA). 6. AS FAR AS EXEMPTION AS A LOCAL BODY IS CONCERNED , THE LD.COUNSEL STATED THAT THE ISSUE HAS BEEN DECIDED A GAINST THE :- 8 -: I.T.A.NOS. 56/VIZ/09 & 23/VIZ/14 ASSESSEE BY THE HONBLE HIGH COURT. THUS, THIS ISS UE IS DECIDED AGAINST THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DECEMBER, 2014 SD/- SD/- ( D. MANMOHAN ) VICE PRESIDENT ( J. SUDHAKAR RE DDY ) ACCOUNTANT MEMBER DATED: 19 TH DECEMBER, 2014 TNMM COPY TO: 1. YANAM MARKET COMMITTEE, SHRI D.L. NARASIMHA RAO, M.COM., M.L., ADVOCATE, C/O. SRI CH.K.K.PAVAN KUMAR, CHARTE RED ACCOUNTANT, D.NO.10-4-18, SESHAGIRIRAO STREET, RAMA RAO PET, KAKINADA-533 004 2. INCOME TAX OFFICER, WARD 2, DEEPTHI TOWERS, MAIN ROAD, KAKINADA-533 001 3. THE CIT(A), RAJAHMUNDRY 4. THE CIT, RAJAHMUNDRY 5. DR, ITAT VISAKHAPATNAM