COMMISSIONER OF INCOME TAX V. MARKET COMMITTEE PUNDRI

ITA/333/2009

AI Insights

The case revolves around the classification of the Market Committee, Pundri, as a charitable trust for tax purposes under the Income Tax Act, 1961. The revenue appealed against the decision of the Income Tax Appellate Tribunal (ITAT) which had upheld the Commissioner of Income Tax (Appeals)'s order allowing the Market Committee to be assessed as a charitable trust. The primary legal questions pertained to whether the Market Committee's activities qualify as charitable under the Act, particularly after the amendment to Section 10(20) by the Finance Act, 2002, which excluded it from being considered a local authority. The High Court dismissed the appeal, agreeing with the lower authorities that the Market Committee's activities serve a public utility and thus meet the criteria for a charitable trust.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 733048 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 05-07-2010
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-Tax v. Gujarat Maritime Board, CIT v. Ahemdabad Rana Caste Association, CIT v. Andhra Chamber of Commerce, Addl. CIT v. Surat Art Silk Cloth Manufacurers Association
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: YOGESH PUTNEY
• Keywords: Charitable Trust; Income Assessment; Market Committee; Public Utility; Tax Exemption
• Section: 11; 12AA; 12; 260A; 2(15); 10(20)

Judgement Text

"IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No.333 of 2009(O&M) Date of decision: 5.7.2010 The Commissioner of Income Tax. -----Appellant. Vs. Market Committee, Pundri. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL ---- Present:- Mr. Yogesh Putney, Sr. Standing Counsel for the revenue. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (for short, the Act), relating to assessment year 2003-04, proposing to raise following substantial questions of law:- “i) Whether on the facts and in the circumstances of the case, the Ld. ITAT was right in law in dismissing the appeal of the Revenue, against the order of the CIT (A), directing the A.O. to assess the income of the I.T.A. No.333 of 2009 assessee, in the status of charitable trust, as per Section 11 to 13 of the Income Tax Act, ignoring the fact that Market Committee is neither a trust nor a charitable institution, as the income is neither derived from the property, held under trust, wholly for charitable or religious purposes nor from voluntary contributions? ii) Whether on the facts and in the circumstances of the case, the Ld. ITAT was right in law in dismissing the appeal of the Revenue, against the order of the CIT (A), directing the A.O. to assess the income of the assessee, in the status of charitable trust, as per Section 11 to 13 of the Income Tax Act, ignoring the fact that income derived by the Market Committee from collection of market fee, composition fee and license fee as well as from purchase of land and sale of plots is purely derived from commercial activity and the same does not come within the ambit of section 11 to 13 of the Income-tax Act?” iii) Whether on the facts and in the circumstances of the case, the Ld. ITAT was right in law in holding that the Market Committee is a charitable trust particularly when after insertion to amendment u/s 10(20) by the Finance Act, 2002, the Market Committee has been 2 I.T.A. No.333 of 2009 excluded from the definition of local authority and exemption u/s 10(20) has been withdrawn?” iv) Whether on the facts and in the circumstances of the case, the Market Committee is entitled to registration u/s 12AA of the I.T. Act, 1961 as it does not carry charitable activities within the meaning of section 2 (15) of the I.T. Act, 1961?” 2. The assessee is a Market Committee which has been constituted under the provisions of the Punjab Agricultural Marketing Produce Act, 1961 to regulate the marketing of agricultural produce. It had filed its return for assessment year 2003-04 on 28.11.2003 declaring loss of Rs. 28,55,798/-. The return was processed under Section 143(1) of the Act on 30.12.2003. The case having been taken up for scrutiny, the assessing officer vide order dated 26.12.2005 passed under Section 143(3) of the Act disallowed the deductions claimed in view of provisions of Section 11(1) of the Act and passed an assessment order at nil income. The exemption claimed under Section 11(1) of the Act was disallowed on the ground that as per Section 12A of the Act, the provisions of Sections 11 and 12 shall not apply in relation to the income of Trust or Institution unless the Trust or Institution is registered under Section 12AA of the Act. The Assessing Officer further declined to consider the claim of the assessee for exemption under Section 10(20) of the Act on 3 I.T.A. No.333 of 2009 the ground that for the assessment year in question, by virtue of amendment by the Finance Act, 2002, it was no longer covered under Section 10(20) of the Act and no longer ‘local authority’. The assessee had applied for registration under Section 12AA of the Act on the ground that its functions are covered under Section 2(15) of the Act. The registration was declined by the CIT, Karnal, holding that since the respondent was no longer a local authority, after the amendment vide Finance Act, 2002 applicable w.e.f. the assessment year 2003-04, it could not be registered, but the Tribunal granted registration under Section 12AA of the Act by setting aside the view taken by the CIT, Karnal, vide order dated 14.3.2005. 3. On appeal by the assessee against the order of assessment dated 26.11.2005, the CIT(A), partly accepted the appeal vide order dated 23.11.2006 and held that since the Tribunal had already allowed the benefit of registration under Section 12AA and consequently, CIT, Karnal has also given registration under Section 12AA, therefore, the income of the assessee is to be in the status of a Charitable Trust as per Sections 11 to 13 of the Act. 4. The Tribunal upheld the decision of CIT(A). This is, how, the Revenue is in appeal before this Court. 5. The primary issue that requires adjudication is, whether the functions of the assessee-respondent are in the 4 I.T.A. No.333 of 2009 nature of public utility and are covered being “charitable purpose” under Section 2(15) of the Act. 6. It would be advantageous to reproduce Section 2(15 of the Act as it stood at the relevant time, which reads thus:- “Section 2(15) “Charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.” 7. The aforesaid provision came up for consideration before the apex Court in Commissioner of Income-Tax v. Gujarat Maritime Board, [1997] 295 ITR 561 wherein it was held as under: “We have perused a number of decisions of this court which have interpreted the words, in section 2(15), namely, “any other object of general public utility”. From the said decisions it emerges that the said expression is of the widest connotation. The word “general” in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose (CIT v. Ahemdabad Rana Caste Association [1983] 140 ITR 1 (SC)]. The said expression 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. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the 5 I.T.A. No.333 of 2009 interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry (CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity (Addl. CIT v. Surat Art Silk Cloth Manufacurers Association [1980] 121 ITR 1 (SC)” 8. Further, the Tribunal in para 3 of its order had recorded as under:- “In the present appeal the application under Section 12A was rejected by the CIT, Karnal. The income was assessed in the status of AOP. However, the Tribunal allowed registration under Section 12A vide order dated 14.3.2005 in which the name of the assessee is at Sr. No. 91 of the order. Effect to the order of the Tribunal was given by the Ld. CIT vide order dated 27.9.2006 and the assessee was granted registration u/s 12A of the Act. The assessing officer was directed to assess the income of the assessee in the status of charitable trust as per section 11 to 13 of the Act.” 9. It is, thus, carrying on the functions which are of the nature of public utility and are, thus, covered under Section 2(15) of the Act under “charitable purpose”. Once this is so, benefits 6 I.T.A. No.333 of 2009 under Sections 11 to 13 of the Act have been rightly given to the assessee. 10. In view of above, no substantial question of law arises for consideration. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 05, 2010 ( AJAY KUMAR MITTAL ) ashwani JUDGE 7 "