2005 (3) TMI 393 - AT - Income Tax

Marketing committees - exemption from taxation u/s 10(20) - Charitable or Religious Trust - application for registration u/s 12A - genuineness of activities of the trust or institution - advance objects of general public utility​​​​​​​ - whether the assessees are existing to carry on activities of public utility or for the making profit - HELD THAT - In the view of objects of institutions before us and above authoritative pronouncements treating Art Silk Cloth Manufacturers Associations, Andhra Chamber of Commerce, Agricultural Societies, Institution of Civil Engineers as charitable institutions, we do not see any good reason for holding that statutory bodies like market board and market committees under reference could not be treated as charitable within the meaning of s. 2(15) of IT Act. As noted earlier, the object to establish market committee and board is to regulate purchase, sale, storage and processing of agricultural produce through establishment of market committees, market yards and trusts. The dominant objects of board and committees are to save agriculturists from exploitation of middleman and to provide remunerative price to the agriculturists. It is further to provide better facilities for storage and transportation of foodgrain Accordingly, we hold that the object of boards and committees is to advance objects of general public utility. The learned CITs in the impugned orders have not brought any material on record to show that assessees were non-charitable institutions, established for personal or private gains. Therefore, prima facie we do not find any objectionable material to treat these institutions as non-charitable. The registration is compulsory to claim exemption under ss. 11 to 13 of IT Act but registration per se cannot be treated as conclusive. It is open to Revenue authorities, while processing returns of income of these assessees, to examine the claim of the assessees under ss. 11 to 13 of IT Act and give such status to these institutions as is warranted by the facts of the case. We hold accordingly. In the present case, the learned CITs in most of the cases have condoned the delay and, therefore, this condition is fully satisfied. In certain other cases, their applications were treated as out of time. This approach, in our view, is not justified having regard to the fact that change in the statutory provision compelled the assessees to file applications for registration. Thus, we are of the view that delay in the submission of application is liable to be condoned in all cases. In view of the principle of consistency, we do not see any justification on the part of CIT to refuse to condone the delay in some cases and hold otherwise in other cases. The delay in the submission of applications is hereby condoned in all cases. In some cases, the learned CITs have also raised objection that audited accounts as required under Explanation below sub-s. (2) of s. 288 were not submitted. The assessees have placed copies of audited accounts in all cases. Even otherwise, it is well known that these committees and boards are required to get their accounts audited under the statute. Otherwise, heavy penalty is provided for not getting accounts audited. Therefore, having regard to the fact that assessees are constituted under the statute and are compulsorily required to get their accounts audited and further the IT returns must accompany audited accounts, we do not find much force in the objection raised on behalf of the Revenue. CIT has not brought any material nor recorded any finding to hold that activities of assessees were not genuine. In our opinion, it is not easy, in case of statutory body like market board or market committee controlled by Governments to hold that activities of such bodies are not genuine. We are, therefore, unable to agree that these cases were not fit cases for recording satisfaction as required under s. 12AA of the IT Act. About object of the institutions, we have already held that those are genuine and are of charitable nature. Some other objections have been raised by the Revenue in the impugned orders and during the course of arguments before us like the committees and boards being managed by public servants, collection of fines by committees, no voluntary contribution by outsiders, etc. We do not find any substance in these objections. At the stage of registration, the learned CIT has only to record his satisfaction about the genuineness of activities of the institution and its charitable purposes. The above conditions are not shown to be not satisfied in these cases. We, therefore, do not see any hurdle in their claim relating to registration u/s 12AA of IT Act. Thus, we are of the view that the assessees are entitled to registration u/s 12AA of IT Act. We order accordingly.

Summary

Issues Involved:
1. Refusal of registration under Section 12A of the Income Tax Act.
2. Interpretation of "charitable institution" under Section 2(15) of the Income Tax Act.
3. Compliance with procedural requirements under Section 12A and 12AA of the Income Tax Act.
4. Impact of the amendment to Section 10(20) of the Income Tax Act.

Detailed Analysis:

1. Refusal of Registration under Section 12A of the Income Tax Act:

The appeals were directed against the orders of the CITs refusing to register the assessees under Section 12A of the Income Tax Act. The assessees, including various agricultural marketing boards and committees, were previously exempt from income tax under Section 10(20) of the IT Act. However, following the amendment by the Finance Act, 2002, effective from 1st April 2003, these entities were no longer considered "local authorities" for the purpose of tax exemption under Section 10(20). Consequently, they sought registration as "charitable institutions" under Section 12A.

2. Interpretation of "Charitable Institution" under Section 2(15) of the Income Tax Act:

The primary argument of the assessees was that they should be considered "charitable institutions" under Section 2(15) of the IT Act, which defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. The Tribunal noted that the term "institution" has been broadly interpreted in various dictionaries and legal contexts to include entities established for public or social purposes. The Tribunal also referenced several judicial precedents where entities created under statutes, such as sports bodies and chambers of commerce, were recognized as charitable institutions.

The Tribunal concluded that the dominant objects of the marketing boards and committees, which include regulating the purchase, sale, storage, and processing of agricultural produce to benefit farmers and the public, aligned with the advancement of an object of general public utility. Therefore, these entities could be considered charitable institutions under Section 2(15).

3. Compliance with Procedural Requirements under Section 12A and 12AA of the Income Tax Act:

The CITs had rejected the registration applications on various procedural grounds, including the failure to file the instrument of creation, non-submission of audited accounts, and the delay in filing the applications. The Tribunal observed that the delay in filing applications was primarily due to the statutory change necessitating the applications. Therefore, the delay was condoned in all cases.

Regarding the submission of audited accounts, the Tribunal noted that these statutory bodies were required to get their accounts audited under the relevant statute, and therefore, the objection raised by the Revenue was not substantial. The Tribunal emphasized that the CITs had not provided any material evidence to show that the activities of the assessees were not genuine.

4. Impact of the Amendment to Section 10(20) of the Income Tax Act:

The amendment to Section 10(20) excluded agricultural marketing boards and committees from the definition of "local authority," thereby making their income taxable. However, the Tribunal clarified that this amendment did not preclude these entities from seeking exemption under Sections 11 and 12 of the IT Act as charitable institutions. The legislative intention was to impose restrictions on these bodies, ensuring that their income was utilized for public good and not for profit.

The Tribunal concluded that the assessees were entitled to registration under Section 12AA of the IT Act, as they fulfilled the conditions of being charitable institutions with genuine activities. The CITs were directed to grant registration to the assessees under Section 12AA.

Conclusion:

The Tribunal allowed the appeals, condoning the delay in filing applications and directing the CITs to grant registration under Section 12AA of the Income Tax Act to the assessees, recognizing them as charitable institutions under Section 2(15). The Tribunal emphasized the importance of the objects and activities of the institutions in determining their charitable status, rather than procedural technicalities or their statutory creation.