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2009 (1) TMI 781 - HC - Income TaxWhether the learned Tribunal was justified in confirming the order of CIT(A) directing the AO to adopt the status of assessee as charitable trust in accordance with order of the Tribunal dt. 14th Sept., 2007 notwithstanding that the issue of registration under s. 12A is under challenge by the Revenue ? Held that - The market committee having put its income to use in conformity with the provisions of the Act of 1961 for charitable purpose, it has to be treated as the application of the income for the charitable purpose in the relevant year. We are in complete agreement with the finding arrived at by the learned Tribunal that the contributions made by the assessee towards charitable activities extending beyond its local jurisdiction but within India shall be entitled for benefit of exemption under s. 1l(1)(a) of the IT Act.
Issues Involved:
1. Status of the assessee as a charitable trust and its registration under Section 12A of the Income Tax Act. 2. Computation of income of the assessee as per the Rajasthan Agriculture Produce Marketing Act, 1961 versus the Income Tax Act, 1961. 3. Deduction of contributions to the Rajasthan Agriculture Marketing Board from the income of the assessee. 4. Treatment of expenditure incurred on construction and repair work. 5. Applicability of the Supreme Court judgment in Agricultural Produce Market Committee v. CIT. Detailed Analysis: 1. Status of the Assessee as a Charitable Trust: The Tribunal confirmed the CIT(A)'s direction to adopt the status of the assessee as a charitable trust based on the Tribunal's earlier order dated 14th September 2007. The Revenue's challenge to the registration under Section 12A was dismissed by the Tribunal, and the High Court upheld this decision. The High Court referenced its previous judgment in CIT v. K.U.M.S., Jaisalmer, which affirmed the registration of the Samiti under Section 12A, noting that the entire income received by the Samiti is required to be spent for purposes including "any other object of general public utility." 2. Computation of Income: The Tribunal upheld the CIT(A)'s direction to compute the income of the assessee after verifying the application of income as per the provisions of Section 19 of the Rajasthan Agriculture Produce Marketing Act, 1961. The CIT(A) directed that the income should be computed considering the objects for which the agricultural produce market committees were established and the provisions of the Act of 1961. The AO was instructed to consider whether the facilities provided by the market committee were within the market area as defined in Section 4 of the Act of 1961. 3. Deduction of Contributions to the Board: The Tribunal upheld the CIT(A)'s direction to allow the deduction of contributions to the Rajasthan Agriculture Marketing Board from the income of the assessee. The CIT(A) observed that the mandatory contribution to the Board is not available for application for charitable purposes by the market committee, thus it should be deducted from the income to compute the income available for charitable purposes. The Tribunal agreed that the contribution made to the Board should be considered as application of income, even if the amount was not spent within the relevant year. 4. Treatment of Expenditure on Construction and Repair: The Tribunal confirmed the CIT(A)'s direction to allow all expenditures, whether revenue or capital, if incurred to meet the objects of the charitable institutions. The CIT(A) directed the AO to recompute the income considering the expenditure on construction and repair works as application of income for charitable purposes. 5. Applicability of Supreme Court Judgment: The Tribunal dismissed the Revenue's appeal, which cited the Supreme Court judgment in Agricultural Produce Market Committee v. CIT. The High Court noted that the Tribunal had correctly applied the law, observing that the application of income for charitable purposes should be considered irrespective of whether the funds were spent within the local jurisdiction of the market committee. The High Court agreed with the Tribunal's interpretation that the application of income for charitable purposes anywhere in India qualifies for exemption under Section 11(1)(a) of the IT Act. Conclusion: The High Court dismissed the appeals, affirming the Tribunal's decisions on all counts. The directions issued by the CIT(A) and affirmed by the Tribunal were found to be in accordance with the law, and the Tribunal's interpretation of the application of income for charitable purposes was upheld. The High Court emphasized that contributions made towards charitable activities, even if extending beyond the local jurisdiction but within India, qualify for exemption under Section 11(1)(a) of the IT Act.
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