2012 (10) TMI 26 - SC - Income Tax

Trust - application of income for charitable purposes - assessee, a Market Committee incorporated and registered under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 - assessee collects fees etc and transfer to Mandi Parishad for utilisation of same for charitable purposes and purposes as guided by State Government or the Board - Revenue contended that amounts transferred by the assessee to Mandi Parishad cannot constitute application of income for charitable purposes within the meaning of Section 11(1)(a) in view of the fact that the assessee Mandi Samiti is only a conduit which collects Mandi shulk fees whereas utilization of the said Mandi shulk is not by the assessee but is made by another entity, whose accounts are not verifiable Held that - Even after the amendment of Section 10(20) and Section 10(29), the assessee continues to enjoy the registration u/s 12AA of 1961 Act for the reason that the assessee is a Market Committee statutorily established under Section 12 of 1964 Adhiniyam for the advancement of the object of general public utility in terms of Section 2(15). Moreover, it is always open to the Department to verify and find out whether the Mandi Parishad has utilized the amounts for the purposes of 1964 Act. Under Section 19(2) of 1964 Adhiniyam, all expenditure incurred by the assessee in carrying out the purposes of 1964 Adhiniyam has to be defrayed out of the Market Committee Fund and the surplus, if any, has to be invested in such manner as may be prescribed. This is one circumstance in the 1964 Act to indicate application of income. Similarly under other provisions of 1964 Adhiniyam, assessee is statutorily obliged to utilize the amounts lying to the credit in the Market Development Fund for extending facilities to the agriculturists, producers and payers of market fees. Keeping in mind the statutory scheme of 1964 Adhiniyam, whose object falls u/s 2(15) of 1961 Act, there is no doubt that the assessee satisfies the conditions of Section 11(1)(a) of 1961 Act. Therefore, income has been applied for charitable purposes. Also, Assessing Officer had erred in invoking Section 12(1) since question of control may be relevant in the context of Section 11(1)(d) or u/s 12(1). However, in the present case, the question framed deals with application of income u/s 11(1)(a) - Decided against Revenue.

Summary

Issues:
Whether amounts transferred by the assessee to Mandi Parishad would constitute application of income for charitable purposes within the meaning of Section 11(1)(a) of the Income Tax Act, 1961?

Analysis:

The judgment deals with the question of whether amounts transferred by the assessee to Mandi Parishad constitute application of income for charitable purposes under Section 11(1)(a) of the Income Tax Act, 1961. The Market Committee, registered under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, collects income in the form of market fees, development cess, and license fees. The Mandi Samiti and Mandi Parishad are two distinct bodies under the Adhiniyam. The Mandi Samiti is required to enforce provisions, collect fees, and utilize the Market Committee Fund for the purposes of the Adhiniyam. The Mandi Samiti is also obligated to pay contributions to the State Marketing Development Fund under specific sections. Both entities are registered under the Income Tax Act, and the assessee must satisfy conditions under Section 12AA read with Section 11(1)(a) of the Act.

The Department argued that the amounts transferred to Mandi Parishad do not qualify as application of income for charitable purposes under Section 11(1)(a) of the Income Tax Act, as the Mandi Samiti is merely a conduit for collecting fees. However, the Court disagreed, emphasizing that the statutory scheme of the Adhiniyam requires the assessee to utilize funds for specified purposes, including development works and facilities for agriculturists. The Court found that the assessee satisfies the conditions of Section 11(1)(a) of the Income Tax Act as income derived is applied for charitable purposes, advancing general public utility.

The judgment clarifies that the Assessing Officer's interpretation regarding the assessee's entitlement to exemption under Section 12(1) of the Income Tax Act was incorrect. The Assessing Officer misunderstood the scheme of the Adhiniyam, particularly the nature of contributions and transfers between the Mandi Samiti and Mandi Parishad. The Court highlighted that the question at hand pertains to the application of income under Section 11(1)(a), not voluntary contributions under other sections. The Court rejected the Assessing Officer's findings and affirmed that the transfers to Mandi Parishad constitute application of income under Section 11(1)(a) of the Act.

In conclusion, the civil appeals filed by the Department were dismissed, with no order as to costs. The judgment affirms that the transfers made by the Mandi Samiti to Mandi Parishad constitute application of income for charitable purposes under Section 11(1)(a) of the Income Tax Act, based on the statutory obligations and purposes outlined in the Adhiniyam.