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TMI Blog2007 (3) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 The duties of a market committee have been laid down in section 13 of the Markets Act, which is being reproduced hereunder: "13. Duties and power of comrnittee.—(1) It shall be the duty of a committee,— (a) to enforce the provisions of this Act and the rules and the bye- laws made thereunder in the notified market area and, when so required by the Board, to establish a market therein providing such facilities for persons visiting it in connection with the purchase, sale, storage, weighment and processing of agricultural produce concerned as the Board may from time to time direct; (b) to control and regulate the admission to the market, to determine the conditions for the use of the market and to prosecute or confiscate the agricultural produce belonging to person trading with out a valid licence (c) to bring, prosecute or defend or aid in bringing, prosecuting or defending any suit, action, proceeding, application or arbitration, on behalf of the committee or otherwise when directed by Board. (2) Every person licensed under section 10 or section 13 and every person exempted under section 6 from taking out licence, shall on demand by the committee or any person authorised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for injuries and death resulting from accidents while on duty, medical aid, pension or provident fund of the persons employed by the committee; (vi) payment of interest on loans that may be raised for purposes of the market and the provisions of a sinking fund in respect of such loans (vii) collection and dissemination of information regarding all matters relating to crop statistics and marketing in respect of the agricultural produce concerned; (viii) providing comforts and facilities, such as shelter, shade, parking accommodation and water for the persons, drought cattle, vehicles and pack animals coming or being brought to the market or on construction and repair of link roads, approach roads, culverts, bridges and other such purposes; (ix) expenses incurred in the maintenance of the offices and in auditing the accounts of the committees; (x) propaganda in favour of agricultural improvements and thrift; (xi) production and betterment of agricultural produce; (xii) meeting any legal expenses incurred by the Committee; (xiii) imparting education in marketing or agricultural; (xiv) payments of travelling and other allowances to the members and employees of the committee, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the office establishment of the Board and such other expenses incurred by it in the interest of the committees generally and also pay to the State Government the cost of any special or additional staff employed by the State Government in consultation with the committee for giving effect to the provisions of this Act. (i) if the annual income of a committee does not exceed Rs. 20,00,000 Twenty per centum (ii) if the annual income of a committee exceeds Rs. 20,00,000; (a) on the first of Rs. 20,00,000 Twenty per centum (b) on the next Rs. 20,00,000 Forty per centum and (c) on the remaining income Fifty per centum (b) The State Government shall determine the cost of such special or additional staff and shall, where the staff is employed for the purposes of more committees than one apportion such cost among the committees concerned in such manner as it thinks fit. The decision of the State Government determining the amount payable by any committee shall be final." 8 All the funds contributed by the market committees to the Market Board, constitute the market development fund. The market development fund can be utilised by the Market Board only for the purposes specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tees to the market development fund, are also used, for allied purposes, as the market committee fund. Illustratively, the market development fund is to be used for activities leading to production and betterment of agricultural produce, as well as, the marketing thereof. These activities include the encouragement of such activities on co-operative lines, with an over all emphasis on betterment in agricultural and its related activities, and facilities at the market area. The market development fund is also used for specified and unspecified welfare measures, like giving loans to financially weak communities, as well as helping agriculturists and other financially weak, communities in the repayment of such loans and interest thereon. For the aid and assistance of agriculturists, one of the foremost activities and responsibilities of the Market Board is to collect information in connection with agricultural activities and to bring it to the notice of agriculturists, besides the function of educating agriculturists so that they can obtain more yields and get higher returns from the sale thereof. One of the specified activities for the use of the market development fund is the constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication, the Commissioner of Income-tax-II, Amritsar (hereinafter referred to as the Commissioner of Income-tax (Amritsar) arrived, inter alia, at the conclusion, that the employees of the market committee are public servants within the meaning of section 21 of the Indian Penal Code. He also arrived at the conclusion that the market committee is a semi-government agency, and as such, cannot be treated as an institution or a trust. The Commissioner of Income-tax, Amritsar, was also of the view, that the market committee in question, was working for the economic benefit of a particular section of the society engaged in a particular economic activity, namely, "agriculturists" and "agriculture", respectively, and as such, its activities could not be deemed to be the activities of art institution/trust set up for charitable purposes. In this behalf, the Commissioner of Income-tax, Amritsar, concluded that the benefits and facilities arising out of the market committee, are purely incidental to promote agriculture and its allied activities, and that they do not arise out of a conscious or deliberate decision on the part of the market committee to provide benefits and facilities to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritsar, also held that the withdrawal of the exemption under section 10(20) of the Income-tax Act was by itself sufficient to conclude that the income of the market committees is no longer exemptible from the liability of tax. 15 On the basis of the aforesaid conclusions, the Commissioner of Income tax, Amritsar, vide an order passed under section 12AA(b)(ii) of the Income-tax Act, dated November 25/27, 2003, rejected the claim of the petitioner for registration under section 12AA of the Income-tax Act. 16 Dissatisfied with the order passed by the Commissioner of Income-tax, Amritsar, dated November 25/27, 2003, the petitioner preferred an appeal before the Income-tax Appellate Tribunal, Delhi Bench (hereinafter referred to as the Income-tax Appellate Tribunal, Delhi Bench). The appeal preferred by the petitioner was accepted on March 14, 2005, wherein, the appellate authority arrived at the conclusion that the market committee under reference, was entitled to registration under section 12AA of the Income-tax Act. 17 Through the instant writ petition, the Commissioner of Income-tax, Amritsar, has impugned the order dated March 14, 2005, passed by the Income-tax Appellate Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CIT v. Agricultural Marketing Produce Committee [2001] 250 ITR 369, wherein a Division Bench of the Delhi High Court, relying on the decision rendered by the Supreme Court in Union of India v. R. C. Jain, AIR 1981 SC 951, as well as, some other subsequent decisions, culled out the following tests to determine whether a market committee is a "local authority" (page 374) "(i) The authorities must have separate legal existence as corporate bodies and autonomous status. (ii) Must function in a defined area and must ordinarily, wholly or partly, directly or indirectly elected by the inhabitants of the area. (iii) It performs governmental functions such as running a market, providing civic amenities, etc. (iv) They must have power to raise funds for the furtherance of their activities and the fulfilment of their projects by levying taxes/fees, this may be in addition to money provided by Government. Control and management of the fund must vest with the authority." 20 Thereafter, after examining statutory provisions akin to those referred to in the narration above, arrived at the conclusion, that the respondent- Market produce committee, in the concerned matter, was a "local auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by any other enactment for that matter. That being so, the court cannot by a process of interpretation include an entity like the appellant into the provisions of the Explanation by drawing a comparison between the nature and functions, which a municipal committee is expected to discharge with those discharged by the appellant. Any such process would imply that the court interprets the provision by reference to what in its opinion was intended by Parliament and not by what is specifically stated in the provision. It would also amount to reading something into the provision which is not obvious but which the court may on an interpretation attribute or discover. That approach in matters of interpretation has been eschewed by courts in fiscal statutes unlike beneficial legislations where the court has adopted the principle of liberal interpretation." 22 It is the vehement contention of learned counsel for the petitioner, on the strength of the amended provision of section 10(20) of the Income-tax Act, as well as, the judgments referred to hereinabove, that the exemption from payment of income-tax, earlier available with market committees was withdrawn with effect from April 1, 2003, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax the under that head of exemption. . . 24 Having examined the first contention of the learned counsel for the petitioner, we are of the view, that there is merit in the submission advanced Tax by learned counsel for the respondents. The exemptions from liability of tax under sections 10, 11 and 12 of the Income-tax Act are independent of one another, as well as, other provisions of the Income-tax Act, under which an assessee can claim tax exemption. It is submitted that merely because an assessee is not entitled to claim exemption under one (or even two) of the aforesaid provisions, cannot ipso facto lead to the conclusion that the claim of the assessee cannot be considered for grant of tax exemption under on some other provisions of the Income-tax Act. In view of the decision rendered by the apex court in Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231. ITR 814, it is not possible for us to accept that section 10(20) of the Income-tax Act; after the same came to be amended, so as to exclude "local authority" (s) from the benefit of tax exemption, would render the market committees ineligible for tax exemption under other provisions of the Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act. It would extend the parameters of statutory interpretation, to unreasonable limits, if such like opinions, are taken into consideration, as suggested by learned counsel for the petitioner. In our considered view, the response of the Union Finance Minister is inconsequential, unless the same is supported by a positive statutory interpretation of the provisions of the Income-tax Act. We, therefore hereby conclude by holding, that the response of the Union Finance Minister cannot be taken into consideration for granting any tax benefit, to the respondent-market committee, unless the market committee can substantiate its claim, independently of the aforesaid response, on the basis of an express provision under the Income-tax Act, entitling it to tax exemption. Stated in other words, the market committee under reference, cannot succeed in claiming exemption from the liability of tax, on the basis of the statement of the Union Finance Minister, unless it can bring itself within the four corners of an exemption clause under the Income-tax Act. 27 The third contention of learned counsel for the petitioner is that, a market committee is a financial institution and not a chari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sub-clause (ii), sub-clause (iii), sub-clause (iv) or sub-clause (v) (vii) any lineal descendant of a brother or sister of either the individual or of the spouse of the individual." 29 On the basis of the aforesaid Explanation, it is the vehement contention of learned counsel for the respondents, that a market committee incorporated under the provisions of the Markets Act, is obliged to discharge legal obligations. Conjunctively, learned counsel for the respondent, has invited our attention to section 13 of the Markets Act (already extracted herein above), and on the basis thereof, it is submitted, that by a fiction of law, under the mandate of Explanation 1 to section 13(7) of the Income-tax Act, a market committee, must be deemed to be a trust. 30 It is also sought to be submitted, that the market committee under reference must, in addition to being treated as a trust, be further accepted as having charitable objectives. In other words, a market committee must be treated to be a "charitable trust". In order to substantiate his latter submission, learned counsel for the respondents, has placed reliance on section 2(15) of the Income-tax Act, which defines the term "charitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultural produce for the sole benefit of agriculturists. In order to substantiate his aforesaid contention, learned counsel for the petitioner has also placed reliance on section 2(15) of the Income-tax Act, which defines charitable purpose (already extracted hereinabove). Learned counsel for the petitioner, relying on the definition of the term "charitable purpose" expressed in the Income-tax Act, in the course of his third submission, also contended, that the activities of the market committee are not relatable to any of the categories expressed thereunder, namely, relief for the poor, education or medical relief. On the instant proposition, learned counsel also placed reliance on the decision rendered by a Division Bench of the Karnataka High Court in CIT v. BEL Employees Death Relief Fund and Service Benefit Fund Association [1997] 225 ITR 270. In the case cited, the respondent-association was formed with the object of rendering prompt financial help in case of death. Financial assistance was also provided for, after the employment of a member who was a regular subscriber to the fund (for not less than seven, years) had come to an end, whether on account of termination of servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view of Beaumont C.J. in CIT v. Grain Merchants Association of Bombay [1938] 6 ITR 427 (Bom) on the point. It was, however, observed that the section of the community sought to be benefited must be sufficiently defined and identifiable by some common quality of a public or impersonal nature. Where there was no common quality uniting the potential beneficiaries into a class the trust might not be regarded as valid." 34 Having given our thoughtful consideration to the assertions at the hands of the rival parties, to the third contention, we are of the view, that the Explanation under section 13(7) of the Income-tax Act leaves no ambiguity in the matter, that an assessee discharging legal obligations, has to be treated as a "trust" for the purposes of sections 11, 12 and 12A of the Income-tax Act. The only issue, before such a finding can be recorded for the purpose of the present controversy is, whether a market committee, is involved in discharging legal obligations ? 35 Section 6 of the Markets Act deals with the issue of declaring a notified market area. Section 6 of the Markets Act is being reproduced hereunder: "Section 6(1) After the expiry of the period specified in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section or under section 5, as the case may be." 36 A perusal of section 6 of the Markets Act reveals that a market committee is the creation of law. The law which creates a market committee, consequent upon the issuance of a notification in terms of section 6(l) of the Markets Act, enjoins upon it (the market committee) the statutory obligation of regulating the purchase, sale, storage and processing of agricultural produce. Section 6(3) of the Markets Act, in fact, prohibits anyone from carrying on the aforesaid activities (of purchase, sale, storage and processing of agricultural produce) within the market area, unless, he/she is exempted by rules or is licenced to do so by the market committee. In other words, all these activities are regulated by authority vested in the market committee under the Markets Act. 37 In addition to the statutory obligations vested in a market committee under section 6 of the Markets Act, it needs also to be highlighted, that further statutory obligations have been placed on a market committee under section 13 of the Markets Act which delineates the duties and powers of a market committee (section 13 of the Markets Act has already been reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket committee is also obliged to construct and repair link roads, approach roads, culverts, and bridges, etc. One of the many specified activities of a market committee is to extend loans to financially weak communities as well as in the repayment of such loans and the interest thereon. The market committee under reference, in the discharge of its obligations, besides carrying out all the aforesaid activities, is stated to have spent a huge sum of money for the construction, development and repair of link roads, culverts, bridges, etc. this fact has been noticed in the order passed by the petitioner, i.e., the Commissioner of Income-tax, Amritsar, dated November 27, 2003), and has not been disputed in the pleadings of this case, or during the course of arguments. Added to the aforesaid is, a very important and uncontroverted factual position, namely, that the activities of a market committee are non profit-oriented. 39 In view of the legal position declared by the apex court in Ahmedabad Rana Caste Association's case [1971] 82 ITR 704, and the conclusions drawn in paragraph 26 above, we have no hesitation in concluding, that the activities of the market committee, under reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was advanced by Shri Sanjiv Bansal, i.e., that the respondents could not be given the benefit of registration, even if, for the sake of arguments, it is conceded in favour of the market committee, under reference, that it is a charitable trust/institution. In this behalf, it is the vehement contention of learned counsel for the petitioner, relying on section 12 of the Income-tax Act, that for the benefit of registration under section 12AA of the Income-tax Act, it is imperative, that the trust/institution receives voluntary contributions. According to learned counsel for the petitioner, no part of the income of the market committee, is in the nature of a voluntary contribution, and as such, there is no question of the applicability of section 12A or 12AA of the Income-tax Act. Section 12 of the Income-tax Act is being extracted hereunder "Section 12.(1) Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such fees not exceeding three hundred rupees as may be prescribed Provided that if any person carrying on any business of the nature specified in sub-section (3) of section 6 in a notified market area on the date of issue of notification under sub-section (1) of that section, fails to apply for a licence on or before the date specified therein for obtaining licence, the prescribed authority may, before a licence is issued, impose on him such penalty not exceeding two hundred rupees as may be prescribed. (2) The secretary of the Board may, on being satisfied that there has been a breach of any of the conditions specified in a licence, by an order in writing, cancel or suspend such licence and may also direct that such licence shall not be renewed for such period not exceeding five months for the first breach and not exceeding nine months for the second breach and not exceeding one year for every subsequent breach, as may be specified in that order Provided that the chairman of a committee of the area concerned may under intimation to the secretary of the Board suspend a licence for a period not exceeding fifteen days: Provided further that no such order shall be made withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 thereof. It is, therefore, the contention of learned counsel for the respondents, that it is not necessary for them to respond to the submission advanced by learned counsel for the petitioner, as the submission noticed in the foregoing paragraph, is wholly misconceived, as the me is not relevant to tax exemption sought by the market committee in question, under section 11 of the Income-tax Act. 45 In view of the clear stance adopted at the hands of the respondents, that the registration sought by the market committee is for tax exemption under section 11 of the Income-tax Act and not under section 12 of the Income-tax Act, we are of the view, that there is no merit in the fourth contention advanced on behalf of the petitioner. 46 It also needs to be noticed that learned counsel for the petitioner, in the nature of his fifth submission, half-heartedly raised the issue of delay and laches by asserting, that although, tax exemption available to the respondents-market committees, under section 10(20) of the Income-tax Act, eased to be operational after April 1, 2003, yet the application moved by the Market Committee, Dhariwal, for registration under section 12A of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the view, that if the respondent-market committee, Dhariwal, shall be granted registration, in terms of section 12AA of the Income-tax Act, without any further delay. The market committee, if it is so advised, shall thereafter, submit audit reports to claim exemption from the liability of tax. 48 No other contention, besides those dealt with hereinabove, was advanced by learned counsel representing the petitioner. 49 For the reasons recorded hereinabove, we are of the view, that there is no merit in the claim of the petitioner. In view of the finding recorded by us on the third contention of learned counsel for the petitioner, namely, that the respondent-market committee is a charitable trust within the meaning of section 11 of the Income-tax Act, we are satisfied, that the determination by the Income-tax Appellate Tribunal, Delhi Bench, that the application submitted by the Market Committee, Dhariwal, under section 12A of the Income-tax Act, deserved to be accepted, and that, the Market Committee, Dhariwal, deserved to be registered under section 12AA of the income-tax Act, is fully justified and is in consonance with the provisions o( the Income-tax Act. 50 Despite our afore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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