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2011 (9) TMI 535 - HC - Income TaxAssessment passed after the Board had become extinct - Act Repealed - Held That - local Act remained on the statute book from 1960 to 31.8.2006. Quondam Board has always been effectively represented and, therefore, the proceedings cannot abate on account of formal non-substitution of the nominee of the State Government. Receipt of Board are non taxable as its a charitable Society - Held That - Board s fund was meant for specific purposes to meet the expenses for establishment of Board, and those incurred in the interest of the Market committee. In such a situation, it is a statutory, compulsory contribution by the market committee to the Board s fund, meant for specified statutory purposes, which cannot be used for any purpose that the Board desires, and surely cannot be used for commercial activities, or trade and business. Hence it is not a revenue receipt and, therefore, cannot be taxed.
Issues Involved:
1. Validity of assessment order post-repeal of the local Act. 2. Taxability of the Board's receipts. 3. Entitlement to exemption under section 11(2)(a) of the Income Tax Act. 4. Procedural aspects regarding the filing of information under section 139. Issue-Wise Detailed Analysis: 1. Validity of Assessment Order Post-Repeal of the Local Act: The appellant argued that the assessment order passed on 19.12.2006 was invalid as the local Act was repealed effective from 1.9.2006, rendering the Board extinct. The court examined the Repeal Act provisions, particularly Section 3(i) and Section 4(ii), which state that pending proceedings shall continue and be managed by the Administrator and Special Officer until finality. The court noted that the Board was effectively represented by the State Government's senior functionary, thus rejecting the appellant's claim that the proceedings should abate due to non-substitution. The court concluded that the Board was always effectively represented, and the proceedings could not abate on account of formal non-substitution. 2. Taxability of the Board's Receipts: The appellant claimed that the Board's receipts were not taxable, arguing that the Board's funds collected under Section 33-C of the local Act were statutory contributions for specific purposes and could not be used freely. The court examined the aims and objects of the local Act, which include regulating agricultural produce markets, ensuring fair trade, and improving agricultural marketing conditions. The court determined that the Board is a statutory body performing sovereign functions without any profit motive. The funds collected under Section 33-C were statutory contributions meant for specific purposes and could not be used for commercial activities. The court referenced the judgment in Bihar State Text Book Publishing Corpn. v. CIT, which distinguished between subsidies for specific public purposes and those for trade or business. The court concluded that the Board's fund was not income within the meaning of Section 2(24) of the Income Tax Act and was beyond the Act's purview. 3. Entitlement to Exemption under Section 11(2)(a) of the Income Tax Act: The appellant argued that the Board, being an institution for charitable purposes, was entitled to exemption under Section 11(2)(a) of the Income Tax Act. The court noted that the Board's activities were entirely statutory and aimed at public utility without any profit motive. Given the statutory and specific nature of the Board's functions, the court agreed that the Board was entitled to exemption under Section 11(2)(a) of the Act. 4. Procedural Aspects Regarding the Filing of Information under Section 139: The appellant contended that the information required under Section 139, read with Form 10, should have been allowed to be filed. The court referenced the judgment in CIT v. Mayur Foundation, which emphasized that the expression "in the manner" in Section 11(2)(a) excludes the compulsion element of time. The court acknowledged that procedural lapses should not disadvantage the assessee, especially when the Revenue should not take advantage of the assessee's ignorance. The court concluded that the procedural requirements should be interpreted to allow flexibility, ensuring that the charitable purpose of the Board is not undermined. Conclusion: The court allowed the appeal, setting aside the order dated 13.6.2008, passed by the Income Tax Appellate Tribunal, Patna Bench, in ITA No.575/Pat/2007. The court held that the Board's funds were not taxable as income and were entitled to exemption under Section 11(2)(a) of the Income Tax Act. The court emphasized the statutory and specific nature of the Board's functions, which aligned with public utility and charitable purposes, thereby exempting it from taxation.
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