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2008 (1) TMI 367 - HC - Income TaxKrishi Upaj Mandi Samitis exemption of market committees was withdrawn due to omission of clause (29) of section 10 - respondent-market committees filed applications for registration u/s 12A and 12AA and for grant of exemption certificate u/s 12AA(1)(b)(ii) - held that the respondent fulfil all the requirements of section 11 to get exemption and therefore are entitled to registration - hence the Tribunal has rightly allowed the appeals filed by the krishi upaj mandi samitis
Issues Involved:
1. Whether the Income-tax Appellate Tribunal was justified in directing the Commissioner of Income-tax to permit the registration of the respondent/assessee under section 12AA of the Income-tax Act without considering the omission of sub-section (29) of section 10 of the Income-tax Act with effect from April 1, 2003? 2. Whether in the light of the omission of sub-section (29) of section 10, the respondent-krishi upaj mandi samiti is entitled to an exemption certificate under section 12AA of the Income-tax Act without examining whether the respondent-krishi upaj mandi samiti falls within the definition of the 'local authority'? Issue-wise Detailed Analysis: Issue 1: Justification of ITAT's Direction for Registration Under Section 12AA The appeals filed by the Income-tax Department challenged the order of the Income-tax Appellate Tribunal (ITAT) which allowed the appeals of various krishi upaj mandi samitis against the Commissioner of Income-tax's refusal to grant exemption certificates under section 12AA(1)(b)(ii) of the Income-tax Act. The respondents, krishi upaj mandi samitis, were initially exempted under section 10(20) of the Income-tax Act as local authorities. However, an amendment effective from April 1, 2003, redefined "local authority" to include only panchayats, municipalities, municipal committees, and cantonment boards, thereby excluding market committees from this definition. Simultaneously, sub-section (29) of section 10, which provided specific exemptions to authorities constituted for the marketing of commodities, was omitted. The Commissioner of Income-tax rejected the applications for registration under sections 12A and 12AA based on these amendments. The ITAT, however, reversed this decision, leading to the present appeals. Issue 2: Entitlement to Exemption Certificate Post Amendment The primary contention was whether market committees could still claim exemption under sections 11 and 12 of the Income-tax Act despite the amendments to section 10. The court noted that the Punjab and Haryana High Court, in CIT v. Market Committee [2007] 294 ITR 563, held that market committees could seek exemption under other provisions of the Income-tax Act even if they were not eligible under section 10(20). The court also referenced the Delhi High Court's decision in Agricultural Produce Market Committee v. CIT [2007] 294 ITR 549, which confirmed that the amended definition of "local authority" in section 10(20) was exhaustive and excluded market committees. The court then examined whether the market committees met the criteria for exemption under section 11, which requires that income must be derived from property held under trust and applied wholly for charitable or religious purposes. The court found that the market committees' income, derived from market fees, was used for public amenities as mandated by section 39 of the M.P. Krishi Upaj Mandi Adhiniyam, 1972. This expenditure on public utilities aligns with the definition of "charitable purposes" under section 2(15) of the Income-tax Act. The court also cited the Supreme Court's ruling in CIT v. Gujarat Maritime Board [2007] 295 ITR 561, which held that entities not qualifying as local authorities under section 10(20) could still claim exemptions under section 11 if they met the necessary conditions. Conclusion: The court concluded that the market committees fulfilled the requirements of section 11, as their income was applied towards charitable purposes. Consequently, they were entitled to registration under sections 12A and 12AA of the Income-tax Act. The appeals by the Income-tax Department were dismissed, and the ITAT's decision to grant the exemption certificates was upheld.
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