2007 (3) TMI 213 - HC - Income Tax

Grant for registration u/s 12A/12AA - Constitution of Agricultural Market Committees - Charitable purposes or Not - Tribunal directed the CIT to grant registration u/s 12A/12AA - HELD THAT - Applying the tests laid down by the apex court in the case of Director of Income-tax v. Bharat Diamond Bourse 2002 (12) TMI 8 - SUPREME COURT to the facts of the present case, there can be no doubt that the object of the market committees (assessees) established under the 1963 Act is to regulate the entire marketing of agricultural and some other produce from the stage of procuring till it reaches the ultimate consumer, which is squarely covered within the meaning of the expression advancement of any object of general public utility contained in section 2(15) of the Act. It is contended by the Revenue that the assessees are established with profit motive because they are not rendering free services but they are charging cess/fees for their services and, therefore, the assessees are not established for charitable purposes. There is no merit in this contention. The cess/fees are charged by the assessees from the purchasers in the market area at the rate prescribed by the State Government for the purpose of carrying out the object of the Act. As held by the apex court in the cases of Surat Art Silk Cloth Manufacturers Association 1980 121 ITR 1 and in the case of Bharat Diamond Bourse where the dominant purpose of a trust/institution is charitable, incidentally if some profit is made and the said profit is used for charitable purposes, the said trust/institution does not cease to be established for charitable purposes. In the case of the assessees, the dominant object is to regulate procurement and supply of agricultural and some other produce and to meet the expenses required to be met with in achieving the said object, the Legislature has empowered the assessees to levy cess/fees. Moreover, surplus remaining in the market fund are ploughed back for carrying out the object of the 1963 Act. Thus, the surplus remaining in the market fund is neither distributed nor accumulated as profits. Thus, it cannot be said that the assessees are established with profit motive so as to deny registration u/s 12A/12AA of the Act. It is pertinent to note that prior to April 1, 1984, the words used in section 2(15) of the Act were advancement of any other object of general public utility not involving the carrying on of any activity for profit . By the Finance Act, 1983 with effect from April 1, 1984, Legislature has omitted the words not involving the carrying on of any activity for profit from section 2(15) of the Act. Thus, after April 1, 1984, even if there is some profit in the activity carried on by the trust/institution, so long as the dominant object is of general public utility, it cannot be said that the said trust/institution is not established for charitable purposes. There is no merit in this contention because the expression property used in section 11 of the Act is of wide amplitude and it includes the business undertaking itself. The word property in section 11 includes immovable and movable property like money, shares, securities etc. Therefore, where a trust/institution fulfils all the conditions set out in section 12A/12AA, registration cannot be denied on the ground that some conditions of sections 11 and 12 are not fulfilled. As stated, even after registration unless the conditions set out in sections 11 and 12 of the Act are complied with, no benefit would be available to the registered trust or institution. Therefore, in the facts of the present case the decision of the Tribunal that the assessees who fulfil all the conditions are entitled to registration cannot be faulted. The contention of the Revenue that the assessees are not registered as a trust and hence not entitled for registration is also without any merit, because, there is no requirement under the Act that an institution constituted for advancement of any object of general public utility must be registered as a trust. In the result, the question of law raised herein is answered in the affirmative that is in favour of the assessees and against the Revenue. All these appeals are disposed of accordingly with no order as to costs.

Issues Involved:
1. Whether the Income-tax Appellate Tribunal was justified in holding that market committees constituted under the Agricultural Produce Marketing (Regulation) Act, 1963, are established for charitable purposes.
2. Whether the Commissioner of Income-tax should grant registration under section 12A/12AA of the Income-tax Act, 1961, to the market committees.
3. Whether the market committees have a profit motive and hence do not qualify as charitable institutions.
4. Whether the income of the market committees is derived from property held under trust or from voluntary contributions.
5. Whether the market committees need to be registered as a trust to qualify for registration under section 12A/12AA.

Issue-wise Detailed Analysis:

1. Justification of Market Committees as Charitable Institutions:
The court examined whether the market committees constituted under the Agricultural Produce Marketing (Regulation) Act, 1963 ("the 1963 Act") are established for charitable purposes. The Tribunal held that these committees are established for the advancement of an object of general public utility, which qualifies as a charitable purpose under section 2(15) of the Income-tax Act, 1961. The court supported this view, noting that the committees regulate the marketing of agricultural produce to protect the interests of producers and consumers, ensuring fair prices and orderly market operations. This objective aligns with the definition of charitable purposes.

2. Granting Registration under Section 12A/12AA:
The Tribunal directed the Commissioner of Income-tax to grant registration under section 12A/12AA of the Act. The court upheld this decision, stating that the market committees meet the criteria for registration: they are established for charitable purposes and their activities are genuine. The court emphasized that different officers under the Income-tax Act must apply uniform norms and parameters when considering applications for registration, referencing a precedent where similar entities were granted registration.

3. Profit Motive of Market Committees:
The Revenue argued that the market committees operate with a profit motive because they charge fees for their services. The court rejected this argument, clarifying that charging fees does not negate the charitable nature of an institution if the dominant purpose is charitable. The fees collected are used to further the committees' objectives, and any surplus is reinvested into the market fund, not distributed as profits. The court referenced judgments from the apex court, which held that incidental profits do not alter the charitable character of an institution if the primary purpose is charitable.

4. Income Derived from Property or Voluntary Contributions:
The Revenue contended that the market committees' income is neither derived from property held under trust nor from voluntary contributions, thus disqualifying them from exemption. The court dismissed this argument, explaining that the term "property" in section 11 of the Act has a broad meaning, encompassing business undertakings. Therefore, the committees' income qualifies under this definition, and registration cannot be denied based on this ground.

5. Requirement of Trust Registration:
The Revenue also argued that the market committees are not registered as a trust and thus should not qualify for registration under section 12A/12AA. The court found no merit in this argument, stating that there is no requirement under the Act for an institution established for the advancement of an object of general public utility to be registered as a trust.

Conclusion:
The court concluded that the market committees are established for charitable purposes and are entitled to registration under section 12A/12AA of the Income-tax Act, 1961. The appeals were disposed of in favor of the assessees, with no order as to costs.

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