2012 (10) TMI 1070 - AT - Income Tax

Deduction of tax at source (TDS) for payments made to RSAMB for the construction and repair work - Held that - Decision of Jodhpur Bench rendered in the similar case 2011 (12) TMI 598 - ITAT JODHPUR wherein held the funds so provided by the KUMS to Agricultural Produce Marketing Board are not refundable but are to be utilized for the specific purposes. The contribution made by KUMS to the Agricultural Produce Marketing Board is an application of income. The contracts if any are made by the Agricultural Produce Marketing Board with the parties, therefore, there is no case of any deduction of tax at source by the assessee, moreover, in the case of the trust or society registered u/s 12A of the Act, the profit is to be computed on the basis of the commercial principles. The income is not be computed under different heads. Hence the provisions of Section 40a(ia) are not applicable. - Decided in favour of assessee.

Issues Involved:
1. Deduction of tax at source (TDS) for payments made by Krishi Upaj Mandi Samiti (KUMS) to Rajasthan State Agriculture Marketing Board (RSAMB).
2. Application of income for charitable purposes by KUMS.
3. Computation of income for trusts and societies registered under Section 12A of the Income Tax Act.
4. Applicability of Section 40a(ia) of the Income Tax Act.
5. Distinction between assessable profits under the Income Tax Act and commercial profits.

Issue-wise Detailed Analysis:

1. Deduction of Tax at Source (TDS):
The primary issue in the appeals was whether Krishi Upaj Mandi Samiti (KUMS) was required to deduct tax at source on payments made to the Rajasthan State Agriculture Marketing Board (RSAMB) for construction and repair work. The Tribunal referred to a prior decision by the Jodhpur Bench in a similar case, which was not contested by the Department Representative. It was determined that contributions made by KUMS to RSAMB are an application of income and not subject to TDS. The Tribunal followed the decision of the Hon'ble Jurisdictional High Court in CIT vs Krishi Upaj Mandi Samiti, Gajsinghpur & Ors, which held that such contributions are not refundable and are used for specific purposes as mandated by the Rajasthan Agricultural Produce Market Act, 1961.

2. Application of Income for Charitable Purposes:
The Tribunal emphasized that the contributions made by KUMS to RSAMB constitute an application of income for charitable purposes. The funds provided by KUMS are utilized for activities such as the construction of market yards and roads, which align with the objectives outlined in the Rajasthan Agricultural Produce Market Act, 1961. The Hon'ble Jurisdictional High Court had previously ruled that these contributions are an application of income, thereby supporting the Tribunal's decision.

3. Computation of Income for Trusts and Societies:
The Tribunal discussed the computation of income for trusts and societies registered under Section 12A of the Income Tax Act. It was noted that the income of such entities should be computed based on commercial principles rather than under different heads of income. This approach aligns with the decisions of various High Courts, which have held that income for charitable trusts should be determined in a commercial manner, without reference to the artificial rules of the Income Tax Act.

4. Applicability of Section 40a(ia) of the Income Tax Act:
The Tribunal concluded that the provisions of Section 40a(ia) of the Income Tax Act, which disallow certain expenses if TDS is not deducted, are not applicable in this case. Since the contributions made by KUMS to RSAMB are considered an application of income for charitable purposes, they do not fall under the purview of Section 40a(ia).

5. Distinction Between Assessable Profits and Commercial Profits:
The Tribunal highlighted the distinction between assessable profits under the Income Tax Act and commercial profits. It referred to various High Court decisions, including those of the Gujarat, Andhra Pradesh, and Madras High Courts, which have emphasized that commercial profits should be considered for determining the income of charitable trusts. The Tribunal noted that depreciation and other expenses should be accounted for based on commercial principles, not the artificial rules of the Income Tax Act.

Conclusion:
In conclusion, the Tribunal allowed all six appeals in favor of the assessee Samitis (KUMS) by following the prior Tribunal order and the decision of the Hon'ble Jurisdictional High Court. The Tribunal reversed the findings of the CIT(A), holding that the contributions made by KUMS to RSAMB are an application of income for charitable purposes and not subject to TDS. The Tribunal also emphasized the importance of computing income for charitable trusts based on commercial principles.

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