Income Tax Appellate Tribunal - Indore
Krishi Upaj Mandi Samiti, Ratlam vs Department Of Income Tax on 16 February, 2012
1
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No.227/Ind/2011
A.Y. 2008-09
Asstt. Commissioner of Income Tax
Ratlam ... Appellant
Vs
Krishi Upaj Mandi Samiti
Ratlam
PAN - AAALK-0396F ... Respondent
ITA No.228/Ind/2011
A.Y. 2008-09
Asstt. Commissioner of Income Tax
Ratlam ... Appellant
Vs
Krishi Upaj Mandi Samiti
Neemuch
PAN - AAALK-0424A ... Respondent
2
Department by : Shri Keshav Saxena
Assessee by : Shri Vishal Nahar
ITA No. 229/Ind/2011
A.Y. 2008-09
Asstt. Commissioner of Income Tax
Ratlam ... Appellant
Vs
Krishi Upaj Mandi Samiti
Shamgarh,
Distt. Mandsaur
PAN - AAALK-0523A ... Respondent
Department by : Shri Arun Dewan
Assessee by : Shri Sanjay Agrawal
And
ITA No. 230/Ind/2011
A.Y. 2006-07
Additional Commissioner of
Income Tax, Range 2
Ujjain ... Appellant
Vs
Krishi Upaj Mandi Samiti
Pachore (Rajgarh)
PAN - AAALK- 0523A ... Respondent
3
Department by : Shri Arun Dewan
Assessee by : None
Date of Hearing : 16.2.2012
Date of Pronouncement : 16.2.2012
O R D E R
PER JOGINDER SINGH, judicial member
The Revenue is aggrieved by different impugned orders all dated 30.6.2011 on the following common grounds :-
1. That, learned Commissioner of Income Tax (Appeals) erred in directing that the addition of Rs.2,08,95,084/-
(ITA No. 227/Ind/2011, Rs. 2,24,29,095/- (ITA No. 228/Ind/2011) respectively, made to the income be deleted as the assessee was covered by exemption u/s 11 of the Act
2. That, learned Commissioner of Income Tax (Appeals) erred in law in directing that the returned income be accepted and exemption u/s 11 of the Act be granted especially when the assessee has not applied the income to the extent of 85% and did not fulfil the criteria for setting apart the accumulation as laid down in section 11(2) of the Act.
3. That, learned Commissioner of Income Tax (Appeals) erred in deleting the addition made on account of disallowance of payment to Kissan Sadak Nidhi (ITA Nos. 229 and 230/Ind/2011) in spite of the fact that the amount paid in contribution cannot be treated as 4 expenditure u/s 36(1)(xii) and/or under section 37(1) of the Act
4. That, learned Commissioner of Income Tax (Appeals) erred in law in deleting the addition made on account of excess claim of depreciation in spite of the fact that depreciation to the extent of Rs.5,67,944/- is not allowable in view of Explanation 5 to section 32(1) of the Act.
2. During hearing of these appeals, we have heard the learned respective counsel in all the appeals except in ITA No. 230/Ind/2011 in which nobody appeared on behalf of KUMS, Pachore (Rajgarh). On the other hand, on behalf of the Revenue, the learned CIT DR, Shri Keshav Saxena and Shri Arun Dewan, learned Sr. DR were heard.
2.1 The learned respective counsel for the assessee defended the impugned orders whereas the learned CIT DR/Senior DR supported the assessment orders. Mr. Saxena contended that relief has been granted to the assessee ignoring the fact that the assessee did not apply 85% of the income out of the total accumulation, therefore, it is a violation of section 11(2) of the Act.
52.2 We have considered the rival submissions and perused the material available on file. In the case of Krishi Upaj Mandi Samiti, Jaora, the facts in brief are that the assessee is a local authority engaged in promotion of agricultural activities of nearby farmers by providing facilities to such farmers. The main source of receipt of the assessee is Mandi Shulk, which is recovered from Mandi Vyaparies while purchasing the agricultural produce from the farmers. The assessee was granted registration u/s 12A of the Act by the Department. The claim of the assessee is that the accumulation of income is less than 15% as the remaining 85% of accumulation was applied for the purposes as contained in the objects. The learned Assessing Officer made disallowance of the amount of Rs.2,08,95,084/- and further made addition of Rs.21,16,243/- in the fixed assets against nil income declared by the assessee in its return on 30.9.2008. The assessee furnished its audited report in Form No. 10B (form No. 3CB and 3CD) along with income and expenditure account, balance- sheet and annexure annexed with the return. The assessee 6 raised objections of rejection of claim made u/s 11. The assessee set apart Rs. 2,08,95,084/- for application for charitable purposes whereas the Assessing Officer assessed the same as business income by treating the assessee to be carrying the business activities. In the impugned order, learned Commissioner of Income Tax (Appeals) has also reproduced (in para 4.1) the objects of the assessee Samiti. 2.3 In the impugned order we find that the learned Commissioner of Income Tax (Appeals) has duly considered the submissions of the assessee by keeping them in juxtaposition with the facts and the contentions/reasons contained in the assessment order along with various decisions from the Tribunals and Hon'ble High Courts. The learned Commissioner of Income Tax (Appeals) has duly considered the decision of the Hon'ble jurisdictional High Court and dismissal of SLP of the department by Hon'ble Apex Court (SLP No. 27701/2008 dated 10.11.2008) by further observing that the observation made by the Hon'ble Madhya Pradesh High Court has attained finality. The observation as contained 7 in para 5.1 of the impugned order is reproduced hereunder for ready reference :-
"5.1 The appellant Mandi Samiti is a statutory body established under Madhya Pradesh Krishi Upaj Mandi Samiti Adhiniyam, 1972. 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 object 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 food grains. Thus, the object of the Boares and committees is to advance objects of general public utility. It may also be mentioned that the similar market committees have been set up in Punjab, Haryana, Maharashtra, Rajasthan, other parts of Madhya Pradesh and other States. In every State, the arrangement for funds and its bifurcation/allotment collected by and utilisation of the same are almost identical. Their Boards of persons, who exercise the control and superintendents of Mandi Samiti are the same in all states. In case of CIT v. Krishi Upaj Mandi Samiti (2009) 308 ITR 401, jurisdictional Hon'ble HighCourt of M.P., while granting the registration u/s 12A and 12AA of the IT Act has observed that "Krishi Paj Mandis do not have any commercial activity but are constituted under the provisions of the Madhya Pradesh Krishi Upaj Mandi Adhiniyam, 1972, to protect the interest of the farmers and ensure that they are not exploited. The preamble to the Adhiniyam, 1972 under which the Krishi Upaj Mandi is established refers to providing for better regulation of buying and selling of agricultural produce and the establishment and proper administration of markets of agricultural produce in the State of M.P. Under the 1972 Adhiniyam, the market committee charges fees for various purposes which have the necessary nexus with the service rendered and thus, quid pro quo. Merely because they charge a fee 8 that does not militate against the altruistic purpose for which these mandis are established."
The conclusion drawn in the impugned order is reproduced hereunder :-
"5.5 In view of facts above and keeping in view of the decision of my predecessor in the assessee's case for A.Y. 07-08 dated 26.11.2010 and in absence of any adverse material or finding on record to show that the appellant has established or carried out activities for personal or private gains, the A.O. was not right in treating the appellant as non-charitable institution. Further, once an institution has been granted registration u/s 12A of the ILT Act, the A.O. is prima facie bound by such registration unless specifically cancelled or withdrawn by the prescribed authority. The same view has been held by the Hon'ble Supreme Court in the case of Addl. CIT v. Surat City Jhimkhana (2008) 300 ITR 214 and M.P. Madhyam vs. CIT (2000 256 ITR 277 (MP). Since the A.O. has not brought any material on record to show that the appellant has violated any of the prescribed conditions, it is entitled for exemption u/s 11. Thus, the amount set apart for application for charitable purposes of the trust cannot be assessed as appellant's income. Accordingly, the addition of Rs. 2,08,95,084/- is hereby deleted."
2.4 If the conclusion drawn in the impugned order/assessment order and the facts narrated before us, is analysed, we find that so far as the meaning of expression "general public utility" is concerned, it has been elaborately discussed by the Hon'ble Apex Court in the case of Andhra Chamber of Commerce; 55 ITR 722 (SC) by holding that the 9 expression is not restricted to objects beneficial to whole mankind. An object beneficial to a section of the public is also an object of general public utility meaning thereby to cover under charitable purposes it is not necessary that the object should be beneficial to whole mankind or the persons living in a particular country. It is sufficient if the intention is to benefit a section of the public as distinguished from specific individual. The incurring of expenses or expending the expenses of the market committee has been given along with its purposes in section 39 of Krishi Upaj Mandi Samiti Adhiniyam, 1972. There is an uncontroverted finding in the impugned order that the gross receipts are to the tune of Rs.14,95,27,302/- out of which the assessee incurred expenditure to the tune of Rs.12,70,98,208/- including capital expenditure of Rs.1,30,55,046/- and depreciation of Rs.67,79,564/- meaning thereby the assessee applied more than 85% of its total receipts for charitable objects (pages 56 to 70 of the paper book). A conjoint reading of sections 11, 12 and 12A of the Act makes it clear that registration u/s 12A is a condition precedent 10 for availing benefit u/s 11 and 12. Unless and until an institution is registered u/s 12A, it cannot claim the benefit of section 11(1)(a) of the Act. If section 11(1)(a) of the Act has fully exploited and there is still accumulated income left to be dealt with, sub-section (2) of section 11 can be pressed in service and if it is complied with, such additional accumulated income beyond the prescribed percentage can also earned exemption u/s 11(2) of the Act. Our view is fortified by the decision from Hon'ble Apex Court in Additional CIT v. ALN Rao Charitable Trust; 216 ITR 679 (SC). The accumulated income which is exempt u/s 11(1)(a) need not be invested in the Government securities. It is only in respect of any additional accumulated income beyond the prescribed percentage that, if the assessee wants exemption of this additional accumulation income also, the assessee is required to invest the additional accumulated income in the manner laid down in section 11(2) after following the procedure laid down therein. It is not correct to equate the word "applied" with the word "spent". If the legislature intended that the amount should actually be spent, 11 there was not nothing preventing it from using that word. Our view is fortified by the decision in CIT vs. Trustees of H.E.H. The Nizams Charitable Trust; 131 ITR 497 (AP) and CIT vs. Radha Swami Satsang Sabha; 25 ITR 472 (All). Since the assessee has applied more than 85% of the total accumulation, therefore, we do not find any infirmity in the conclusion drawn in the impugned order on the issue, therefore, it is affirmed. Our conclusion will cover both the grounds of ITA No. 227 and 228/Ind/2011, therefore, both these appeals of the Revenue are dismissed.
3. In ITA No. 229/Ind/2011 the only ground pertains to deleting the addition of Kissan Sadak Nidhi. After hearing the rival submissions, we find that this issue is covered in favour of the assessee by the decision of the Tribunal in the case of Krishi Upaj Mandi Samiti, Burhanpur vs. ITO (2009) 12 ITJ (Indore Tribunal). The relevant portion from the order is reproduced hereunder :-
15. On consideration of rival submissions, we are of the view that the issue is squarely covered in favour of the assessee by the order of ITAT, Jabalpur Bench in the case of Krishi Upaj Mandi Samiti & Others (Supra) in 12 which, in para 12 the Tribunal held "We have carefully considered the issue. The view of the AO that the payment made to the board for road development and agricultural research was for capital expenditure and hence not allowable u/s 37 of the12Act, cannot be considered correct because the payment was made as statutory liability as per sec. 43 of the relevant Act.
Similarly, board fees were also made as per provisions of the relevant statute and was allowable expenditure. The AO is therefore, not correct to disallow the same on the ground that the payment in question was in the nature of application of income. In our considered opinion, the order of the ld. CIT(A) deserves no interference. The appeal of the department is therefore, dismissed.
We find that the case of the assessee is on identical facts because the board fees is paid as per sec. 43 of MP Krishi Upaj Mandi Adhiniyam which is statutory liability of the assessee to pay in order to achieve its objectives. It is therefore, allowable deduction as was spent wholly and exclusively for the purpose of business of the assessee. As per sec. 36(1)(xii), any expenditure incurred by the corporation or body corporate by whatever name called constituted or established by Central, State or Provincial Act for the objects and purposes authorized by the Act for which, it was established shall be allowed as deduction. The ld. CIT(A) misunderstood this issue by treating the board fees to be the transfer of funds. In the aforesaid sec. 36(1)(xii), it is specifically mentioned that the expenditure incurred could have any name whatsoever therefore, the ld. CIT(A) should have considered the issue in the broad perspective considering the nature and functioning of the assessee institution under the special Act. In view of the above, the orders of the authorities below are set aside and entire addition is deleted. This ground of appeal of the assessee is allowed."
Both the learned representatives, during hearing, canvassed that this issue is covered in favour of the assessee, consequently, by following the decision of the Tribunal (supra) and the assertion made by the learned respective counsel, we affirm the stand of the learned Commissioner of Income Tax 13 (Appeals). Our stand will also cover first ground of ITA No. 230/Ind/2011 also.
4. The last ground raised in ITA No. 230/Ind/2011 pertains to excess claim of depreciation. The learned counsel for the assessee claimed that this issue is covered in favour of the assessee by the decision from Hon'ble jurisdictional High Court in the case of CIT v. Shri Gujarati Samaj (2011) 18 ITJ 255(MP). The assertion of the assessee was not controverted by the learned CIT DR. We find that the Hon'ble Court while coming to a particular conclusion, while deciding the issue in favour of the assessee, also considered the decision of the Division Bench in the case of CIT v. Raipur Pallottine Society (1989) 180 ITR 579 (MP) and Hon'ble Karnataka High Court in CIT v. Society of the sisters of St. Anne; 146 ITR 28 (Karn.). Admittedly, the depreciation is nothing but decrease in value of property through wear and tear, deterioration or obsolescence. The object of providing the depreciation is to spread the expenditure, incurred in acquiring the asset, over its effective life time. Even if the language used in section 32 of the Act is 14 analysed, it can be said that depreciation allowance is a concession granted by the State in the computation of income based on very many factors relevant to a wholesome fiscal administration. Depreciation is thus related to an asset and is a notional loss as against actual loss in the sense of outgoings of the business or it can be said that it is a statutory allowance. This Bench of the Tribunal in the case of Jawaharlal Nehru Education Charitable Trust Kasrawad, Distt. Khargone, (ITA No.303/Ind/2011), on the issue of depreciation, held as under -
"3. We have considered the rival submissions and perused the material available on file. Brief facts of the case are that the assessee is a charitable education trust engaged in the activities of providing educational facilities to the public at large. The objectives of the trust are covered under section 2(15) of the Act. The assessee claimed exemption of Rs.
1,27,89,078/- u/s 11(2) of the Act in its return showing nil income on 29.10.2004. The learned Assessing Officer disallowed depreciation by claiming that it amounts to double deduction. On appeal, the learned Commissioner of Income Tax (Appeals) by following the decision of the Hon'ble jurisdictional High Court decided the issue in favour of the assessee which is under challenge before this Tribunal. Before coming to any conclusion, we are reproducing hereunder the relevant portion from the impugned order :-15
"4.0 Facts on record as evidenced by assessment order, submissions of appellant and A.O.'s remand report have been gone through carefully and following findings are recorded.
4.1 The only effective ground is against disallowance of depreciation of Rs. 5,04,847/-. The contentions of the appellant that the appellant is entitled to depreciation are supported by the decision of jurisdictional High Court in the case of CIT vs. Shri Gujrati Samaj (2011) 18 ITJ 255(MP). Respectfully following the said decision, disallowance of depreciation is held to have not been properly made."
We find that the Hon'ble Court while coming to a particular conclusion, while deciding the issue in favour of the assessee, also considered the decision of the Division Bench in the case of CIT v. Raipur Pallottine Society (1989) 180 ITR 579 (MP) and Hon'ble Karnataka High Court in CIT v. Society of the sisters of St. Anne; 146 ITR 28 (Karn.). Admittedly, the depreciation is nothing but decrease in value of property through wear and tear, deterioration or obsolescence. The object of providing the depreciation is to spread the expenditure, incurred in acquiring the asset, over its effective life time. Even if the language used in section 32 of the Act is analysed, it can be said that depreciation allowance is a concession granted by the State in the computation of income based on very many factors relevant to a wholesome fiscal administration. Depreciation is thus related to an asset and is a notional loss as against actual loss in the sense of outgoings of the business or it can be said that it is a statutory allowance. Respectfully following the decision of the Hon'ble jurisdictional High Court, we find no infirmity in the stand of the learned Commissioner of Income Tax (Appeals). It is affirmed."
16Following the aforesaid decision of the Tribunal and especially the decision of the Hon'ble jurisdictional High Court (supra), we find no infirmity in the stand of the learned Commissioner of Income Tax (Appeals). It is affirmed.
In the result, the appeals of the Revenue are dismissed. This order was pronounced in the open in the presence of learned representatives from both the sides at the conclusion of the hearing on 16.2.2012.
Sd sd (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 17.2.2012
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File Dn/-