Income Tax Appellate Tribunal - Agra
Krishi Upaj Mandi Samiti, Guna vs Department Of Income Tax on 3 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA BENCH, AGRA
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
ITA No.165/Agr/2011
Assessment Year: 2008-09
Income Tax Officer, vs. Krishi Upaj Mandi Samiti,
Guna. Guna (M.P.)
(PAN: AAALK 0212 E).
ITA No.166/Agr/2011
Assessment Year: 2008-09
Income Tax Officer, vs. Krishi Upaj Mandi Samiti,
Guna. Ashoknagar. (M.P.)
(PAN: AAALK 0322 P).
ITA No.243/Agr/2011
Assessment Year: 2004-05
Asstt. Commissioner of Income Tax vs. Krishi Upaj Mandi Samiti,
Circle - 3(1), Gwalior. Guna (M.P.)
(PAN: AAALK 0212 E).
(Appellants) (Respondents)
Appellants by : Shri Waseem Arshad, Sr. D.R.
Respondents by : Shri Gaurav Goyal, C.A.
Date of Hearing : 03.10.2012
Date of Pronouncement of order : 12.10.2012
ORDER
PER A.L. GEHLOT, ACCOUNTANT MEMBER:
2 ITA Nos.165, 166 & 243/Agr/2011
A.Ys.2008-09 & 2004-05.
All these three appeals have been filed by the Revenue. ITA Nos.165 & 166/Agr/2011 have been filed against consolidated order dated 22.02.2011 and ITA No.243/Agr/2011 has been filed against the order dated 04.03.2011 passed by the CIT(A), Gwalior for the Assessment Years 2008-09, 2008-09 and 2004-05 respectively.
2. Since the appeals are based on identical set of facts, therefore, these appeals are being decided considering the facts of the case in ITA No.165/Agr/2011 in the case of Krishi Upaj Mandi Samity, Guna.
3. The ground raised in ITA No.165/Agr/2011 for A.Y. 2008-09 are as under :-
"On the facts and in the circumstances of the case, the CIT(Appeal) has erred in :-
1. Deleting the addition of Rs.9,10,464/- on account of deduction for Aarakshit Nidhi.
2. Deleting the addition of Rs.6,85,69,812/- on account of capital expenditure.
3. Holding the registration granted u/s 12AA automatically makes eligible for exemption u/s 11 of I.T. Act."
4. The brief facts of the case are that the assessee Samiti was established under Notification issued by M.P. Government. The Samiti was established for regulating the agriculture marketing. The mandi fees was collected at the rate 3 ITA Nos.165, 166 & 243/Agr/2011 A.Ys.2008-09 & 2004-05.
prescribed by the M.P. Krishi Upaj Mandi Adhiniyam, 1972. The Samiti was established for regulation of buying and selling of agriculture produce and administration of markets of agriculture produce. The Samiti has been granted registration under section 12A w.e.f. A.Y. 2003-04 vide CIT Gwalior order dated 07.08.2007. During the assessment proceedings, the A.O. noticed that the assessee Samiti engaged in business/commercial activities. The Samiti is also earning income from godown rents besides interest n deposit, campus entry fees, vehicle rent etc. The A.O. noted that while computing the total income, the assessee claimed deduction of Rs.9,10,464/- under the head Aarakshit Nidhi. The Samiti has debited 8% of mandi fees collected to the Aarakshit Nidhi account and made provision of amount payable to Mandi Board, Bhopal. The payment of Rs.9,10,464/- is one third amount of 8% debited to Aarakshit Nidhi account, which is sent to Mandi Board for payment of pension to the retired employees. The A.O. noted that the assessee did not produce proof of expenditure by Mandi Board. It has also been noted that the Aarakshit Nidhi fund is not an approved pension fund, therefore, the claim of assessee is not allowable. The A.O. made addition of Rs.9,10,464/-. The A.O. also made addition of Rs.6,85,69,812/- being the capital expenditure incurred for acquiring capital assets of business. The A.O. noted that the assessee has also claimed depreciation on the fixed assets including additions made during the year out of gross income shown. The A.O. made addition of the said amount.
4 ITA Nos.165, 166 & 243/Agr/2011
A.Ys.2008-09 & 2004-05.
5. The CIT(A) deleted the said addition of Rs.6,85,69,812/- along with the issue related to disallowance of depreciation. The relevant finding of CIT(A) is reproduced as under :- (paragraph no.5.2) "5.2 Appellant's submissions along with the assessment order have been considered carefully. The A.O. has added the capital expenditure mainly on the ground that the appellant is carrying on business activity and the said expenditure has been incurred on the constructions of godowns/shop for earning more income by giving these godowns on rent to traders and not the farmers. Further, the appellant has claimed depreciation on the same assets and thus, this tantamount to double deduction. The A.O. has relied on the decision of Hon'ble Supreme Court in the case of Escorts Limited & Others vs. CIT, 199 ITR 43 in this regard.
It is well settled position in law that in the case of charitable institutions, any expenditure whether revenue or capital in nature, incurred for the furtherance of its objects is an application of income to the objects of the institution and, therefore, allowable as per provisions of section 11(1) of the I.T. Act. As per section 11(1)(a) of the I.T. Act, any income derived from property held under Trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India, shall not be included in the total income of the institution. Thus, any income applied to the objects of the institution, which includes capital expenditure on buildings, equipment etc. will not be included in the total income of the institution.
The decision of Hon'ble Apex Curt in the case of Escorts Ltd. (supra) is distinguishable on facts from the appellant's case. In that case the assessee, carrying on business activities, was claiming deduction u/s 35 on the assets used for its business purposes and at the same time depreciation on those assets was also being claimed u/s 32 of the I.T. Act thus amounting to double deduction and, therefore, not allowable as observed by the Hon'ble Court. However, in case of the appellant, it has been held to be a charitable institution as above where the expenditure on assets is to be treated as application of income as per section 11(1)(a). Further it has been held by the Hon'ble Bombay High Court in the case of Director of Income Tax 5 ITA Nos.165, 166 & 243/Agr/2011 A.Ys.2008-09 & 2004-05.
(Exemption) vs. Framjee Cawasjee Institute (1993) 109 CTR 463 that depreciation is to be allowed in computing the income of an assessee claiming exemption u/s 11, although the amount spent on acquiring assets has already been treated as application of income of the institution in the year in which the assets have been acquired. The same view has been taken by Hon'ble M.P. High Court in the case of CIT vs. Raipur Pallottine Society (180 ITR 579) whereby depreciation has been allowed to a charitable institution in respect of the assets owned by it where capital expenditure too allowed in respect of the same as application of income. The income of a charitable trust as contemplated by section 11(1)(a) is required to be computed, not in accordance with those provisions, but in accordance with the normal rules of accountancy where depreciation is always taken into account for finding out the real income.
The amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes.
Thus, the A.O. was not justified in making the addition on account of capital expenditure treating it as disallowable expenditure in the case of the appellants. Addition of Rs.6,85,69,812/- & Rs.81,88,361/- respectively is, hereby, deleted."
6. The CIT(A) has also deleted the addition of Rs.9,10,464/- as under:-
(Paragraph no.5.3) "5.3 The A.O. has made addition of Rs.9,10,464/- & Rs.8,38,363/-
respectively on account of Aarakshit Naidhi on the ground that no expenditure proof has been given by the appellant and also that the fund is not an approved pension fund. The A.O. has further relied on enhancement notice given to Krishi Upaj Mandi Samiti, Pipraigaon, Guna whereby Sthai Nidhi/Aarakshit Nidhi is proposed to be disallowed.
From the perusal of audit report and accounts of the appellant, it is seen that the appellant has credited amount of Rs.9,10,464/- & Rs.8,38,363/- respectively to Aarakshit Nidhi account as per mandatory statutory provisions of the Mandi Adhiniyum and orders of 6 ITA Nos.165, 166 & 243/Agr/2011 A.Ys.2008-09 & 2004-05.
the Mandi Board, Bhopal. Out of this Aarakshit Nidhi account, 1/3rd amount is remitted to the Mandi Board whereas 2/3rd portion is used for actual payment of pension and gratuity to the retired employees of the Samiti. No provision has been made by the appellant as required in the case of an approved pension fund. Further, the reliance of the A.O. on the notice of enhancement in case of Krishi Upaj Mandi Samiti, Pipraigaon is misplaced, as the then CIT(Appeals) has only proposed to disallow the amount of Aarakshi Nidhi and the matter is still subjudiced. It is also seen that the then CIT(A) has relied on decision of Hon'ble ITAT, Jabalpur Bench, Jabalpur in case of Krishi Upaj Manadi Samity, Katni vs. ACIT, Katni in ITA No.244 and 245 (Jab) of 2006 while issuing the said notice. However, on perusal of the said order of Hon'ble ITAT, Jabalpur, it is seen that the facts of the appellants case under these appeals are distinguishable. In the case of Karishi Upaj Mandi Samiti, Katni, the amount credited to Sthai Nidhi was not considered as an accumulation of surplus u/s 11 of the I.T. Act because no claim of exemption u/s 11 was made by the assessee before the A.O. The ITAT, therefore held hat if any deduction which has no been claimed before the A.O. and if considered and allowed now would result in determining the assessed income lower than the income declared in the voluntary return filed by the assessee on which self-assessment tax has also been paid. In the case of the appellants, claim for exemption u/s 11 has duly been made before the A.O. while filing of return and during the course of assessment proceedings. The only relevant fact now to be seen in the case of the appellants is to examine whether prescribed percentage of the income has been applied towards the objects of the Samiti and whether any violation of provisions of section 11-13 of the I.T. Act have been made by the appellant. The fact that the said fund is not an approved pension fund shall not debar the appellants from claiming exemption, if the prescribed conditions, as mentioned above have been fulfilled. The A.O. has not brought any material on record nor any adverse finding been given that the appellant has violated the prescribed conditions disentitling them from claiming exemption u/s 11 of the I.T. Act. Therefore, the A.O. was not justified in making the addition on account of Aarakshit Nidhi. Accordingly, addition of Rs.9,10,464/- & Rs.8,38,363/- respectively is, hereby, deleted." 7 ITA Nos.165, 166 & 243/Agr/2011
A.Ys.2008-09 & 2004-05.
7. The ld. Departmental Representative while referring the judgment of Hon'ble Supreme Court in the case of Krishi Upaj Mandi Samiti vs. Orient Paper & Industries Limited, 1995 SSC (1) 655 submitted that the fund contributed by the assessee of the Mandi Board is not eligible for exemption under section 11. The ld. Departmental Representative submitted that there is distinction between tax and fees. Fees confer a special capacity although the special advantage is secondary to the primary motive of regulation in the public interest. The ld. Departmental Representative submitted that the claim of the assessee cannot be said to be an application of income in public interest.
8. At the outset, the ld. Authorised Representative submitted that the issue pertaining to Aarakshit Nidhi is covered by various judgements of Hon'ble High Courts and orders of I.T.A.T. He further submitted that the issue is covered in favour of the assessee by assessee's own case for A.Y. 2007-08 in ITA No.271/Agr/2010 order dated 30.06.2011. The relevant finding of I.T.A.T. is reproduced from paragraph no.5 of order of I.T.A.T. in ITA No.271/Agr/2010 as under :-
"5. Similar finding has been given while deleting the same addition in the cases of other Samitis before us. In our opinion no interference is called for in the order of CIT(A). The CIT(A) has rightly deleted the addition. The Assessing Officer made the disallowance in respect of expenditure incurred on account of Aarakshit Nidhi while holding that the assessee has carried out the business during the year. The finding of the CIT(A) has become final that the assessee was not carrying on 8 ITA Nos.165, 166 & 243/Agr/2011 A.Ys.2008-09 & 2004-05.
business activities but the assessee is entitled for exemption u/s. 11. Under section 11A, the assessee is entitled for deduction if the income has been applied by the assessee for the charitable purpose. The assessee has incurred the expenditure on Aarakshit Nidhi as per the statutory provisions of the Mandi Adhiniyam and orders of the Mandi Board, Bhopal. This is not denied by the ld. DR and no contrary evidence in this regard was filed before us. In our opinion, the CIT(A) has rightly deleted the disallowance, as the sum of Rs.1,04,988/- will be treated as application of the income u/s. 11 of the Income-tax Act. Thus, ground No. 1 stands dismissed."
9. In respect of addition on account of capital expenditure, the I.T.A.T. decided the issue as under which is reproduced from paragraph no.7 of the order of I.T.A.T. in ITA No.271/Agr/2010 "7. After hearing the rival submissions, we noted that the finding of the CIT(A) that the income of the assessee has to be computed in accordance with the provisions of section 11 has become final, as the Revenue has not come in appeal against this finding and in view of the decision of the jurisdictional High Court, the income of a charitable institution is entitled for deduction as contemplated u/s. 11(1)(a). Under section 11, any expenditure whether Revenue or Capital, incurred for the objects of the charitable Institution and the same is allowable u/s. 11(1) of the Act. It is not denied that the capital expenditure incurred by the assessee does not relate to the objects of the Institution. This issue is no more res integra in view of the decision of SRMMCTM Triputi Trust vs. CIT, 230 ITR 636 in which it was held that the capital expenditure should be considered as application provided they are towards the objects of the organization. No material was brought to our knowledge to prove capital expenditure incurred by the Samiti not relating to the fulfillment of the objects of the Samiti. Under these facts and circumstances, in our opinion, no interference is called for in the order of the CIT(A). We, accordingly confirm the order of the CIT(A) in all these appeals." 9 ITA Nos.165, 166 & 243/Agr/2011
A.Ys.2008-09 & 2004-05.
10. We have heard the ld. Representatives of the parties and records perused. The ld. Departmental Representative did not dispute the facts of the case under consideration and the facts of the case decided by I.T.A.T. (supra). However, the ld. Departmental Representative relied upon the judgement of Hon'ble Supreme Court in the case of 1995 SCC 655 and submitted that the assessee failed to furnish confirmation in respect of utilization of fees/cess for the development of market. We noticed that the A.O. treated the activities of the Samity as business activities which has been reversed by the CIT(A) but the Revenue did not raise any ground in this regard as evident from the grounds raised in the appeals.
11. As regards the merit of the case, regarding addition of Rs.9,10,464/- on account of deduction of Aarakshit Nidhi and addition of Rs.6,85,69,812/- on account of capital expenditure, we find that the issue is squarely covered by the order of I.T.A.T. (supra). We, therefore, follow the same and in the light of the fact, order of the CIT(A) is confirmed.
12. Ground no.3 is general in nature. It is true that by merely having registration under section 12A of the Act the assessee is not automatically eligible for exemption under section 11 of the Act but in the case under consideration, the issue has been decided in favour of the assessee by the CIT(A) after examining the 10 ITA Nos.165, 166 & 243/Agr/2011 A.Ys.2008-09 & 2004-05.
relevant provisions and facts of the case. Therefore, we do not find any substance in this ground of appeal of the Revenue.
13. The ground raised in ITA No.166/Agr/2011 for A.Y. 2008-09 are as under :-
"On the facts and in the circumstances of the case, the CIT(Appeal) has erred in :-
1. Deleting the addition of Rs.8,38,363/- on account of deduction for Aarakshit Nidhi.
2. Deleting the addition of Rs.81,83,361/- on account of capital expenditure.
3. Deleting the addition of Rs.50,31,282/- on account of deduction u/s 11(1)(a) of I.T,. Act.
4. Holding the registration granted u/s 12AA automatically makes eligible for exemption u/s 11 of I.T. Act."
14. The facts of ground nos.1, 2 & 4 are identical to the facts of the case of Krishi Upaj Mandi Samiti, Guna in ITA No.165/Agr/2011 which has been decided above. The CIT(A) though decided the issues by separate orders in case of Krishi Upaj Mandi Samiti, Guna, ITA No.165/Agr/2011 and Krishi Upaj Mandi Samiti Ashok Nagar, ITA No.166/Agr/2011 but by a common discussion. Thus, facts of both the cases are identical. Since the facts are identical, we follow the said discussion and finding and in the light of that, ground nos.1, 2 & 4 of this appeal are dismissed.
11 ITA Nos.165, 166 & 243/Agr/2011
A.Ys.2008-09 & 2004-05.
15. As regards ground no.3, the A.O. made addition of Rs.50,31,282/-. The A.O. disallowed the benefit of section 11 considering activities of the assessee as business activities. The A.O. held that the assessee was not eligible for deduction under section 11 of the Act on gross receipts, therefore, he made the addition of Rs.50,31,282/-.
16. The CIT(A) held that the Samiti is a charitable Institution and its income is required to be computed in accordance with the provisions of the Act. The CIT(A) made a detailed discussion in paragraph no.5.2 which has been reproduced above. In the light of the discussion, we do not find any substance in making addition of Rs.50,31,282/- by the A.O. treating the business activities of the assessee and denying benefit of provisions of section 11 of the Act. Thus, this ground of the Revenue is also dismissed.
17. The ground raised in ITA No.243/Agr/2011 for A.Y. 2004-05 are as under :-
"1. Whether on the facts and in the circumstances of the case, the CIT(Appeal) has erred in deleting the addition of Rs.22,64,692/-on account of Excess claim of 85% of Road Development.
2. Whether on the facts and in the circumstances of the case the CIT(Appeals) has erred in deleting the addition of Rs.30,05,327/- on account of Board Fee. (correct amount is Rs.36,05,327/-).12 ITA Nos.165, 166 & 243/Agr/2011
A.Ys.2008-09 & 2004-05.
3. Whether on the facts and in the circumstances of the case the CIT(Appeals) has erred in deleting the addition of Rs.7,63,742/- on account of 8% Pension Fund.
4. Whether on the facts and in the circumstances of the case the CIT(Appeals) has erred in deleting the addition of Rs.94,489/- on account of excess claim of depreciation.
5. Whether on the facts and in the circumstances of the case the CIT(Appeals) has erred in deleting the addition of Rs.3,30,000/- on account of expenses not pertaining to object of the samiti.
6. Whether on the facts and in the circumstances of the case the CIT(Appeals) has erred in considering the fact that a compulsory payment made by the samiti to MP Mandi Board falls in the category of charity."
18. The first and second grounds of appeal are in respect of addition of Rs.22,64,692/- and Rs.36,05,327/-. During the assessment proceedings, the A.O. noticed that the assessee has debited excess amount than the limits prescribed in Mandi Act on account of road development fund and board fees. The relevant details noted by the A.O. at page 10 are as under:-
Sl. Head of expenditure Actual Amount Excess amt
No. amount as debited in Inc debited in
per norms & Exp a/c Inc & Exp
(Rs) (Rs) A/c (Rs)
1 85% Road Devp 1,28,81,251/- 1,51,45,943/- 22,64,692/-
Fund
2 Board Fee 25,46,323/- 61,51,650/- 36,05,327/-
19. The A.O. made the addition of both the items on the ground that the assessee has debited excess expenditure than the limits prescribed in the Mandi Act under 13 ITA Nos.165, 166 & 243/Agr/2011 A.Ys.2008-09 & 2004-05.
the head Road Development fund and Board Fee in the income and expenditure account. The CIT(A) has deleted both the additions.
20. That the assessee has been granted registration under section 12A of the Act, therefore, the assessee's case is eligible for exemption under section 11 of the Act. The CIT(A) admitted the additional ground of appeal raised before him claiming exemption under section 11 in view of registration under section 12A of the Act vide registration certificate dated 31.05.2007. The CIT(A) called for the remand report from the A.O. which was furnished by the A.O. on 01.03.2011. The objection of the A.O. before the CIT(A) was that appeal is pending before the Hon'ble Supreme Court against the judgement of Hon'ble High Court of Madhya Pradesh upholding registration under section 12A of the Act. Therefore, the assessee is not eligible for exemption under section 11 of the Act. The CIT(A) after considering the assessee's submission and the remand report of the A.O. found that the assessee is eligible for exemption under section 11 of the Act. The CIT(A) further noticed that the excess claim of expenditure is application of income which is not in contravention to the provisions of section 11 of the Act.
21. In ground no.3 of appeal, apart from the above two additions, the A.O. made addition of Rs.7,63,742/- on account of 8% Pension Fund and Rs.94,489/- on account of excess claim of deprecation. The A.O. made the identical addition in 14 ITA Nos.165, 166 & 243/Agr/2011 A.Ys.2008-09 & 2004-05.
earlier year also. The addition on account of additional depreciation was also made considering earlier years and written down value taken in A.Y. 2003-04.
22. The facts of the ground nos.4 & 5 are that during the assessment proceedings, the A.O. noticed that the assessee incurred expenditure of Rs.3,30,000/- for installing statue in the premises of Mandi Samiti. The A.O. observed that there is no logic for expenditure made on statue as there is no direct relation with the purpose and object of the Samti as the expenditure was of personal nature. The A.O. also made addition on account of expenditure. The CIT(A) deleted the above additions also on the ground that the assessee is eligible for exemption under section 11 of the Act and the expenditure incurred amounts to application of income. Since the expenses incurred by the assessee are allowable in accordance with section 11 and not under section 37 of the Act, the CIT(A) deleted the addition which was made by the A.O. treating the assessee as business entity. The ground relating to excess depreciation has been decided in favour of the assessee after a detailed discussion made in paragraph nos.10 to 12 of this order.
23. Ground no.5 is in support of ground no.2 of the appeal requires no separate finding.
15 ITA Nos.165, 166 & 243/Agr/2011
A.Ys.2008-09 & 2004-05.
24. We have heard the ld. Representatives of the parties and records perused. In the light of the detailed discussion made in ITA Nos.165 & 166/Agr/2011 above, and in the light of the fact that the assessee has been granted registration under section 12A and eligible for exemption under section 11 of the Act, the CIT(A) deleted the addition after considering the A.O.'s remand report. In the light of the facts, we do not find any infirmity in the orders of CIT(A). The orders of CIT(A) are confirmed.
25. In the result, all the three appeals filed by the Revenue are dismissed.
(Order pronounced in the open Court)
Sd/- Sd/-
(BHAVNESH SAINI) (A.L. GEHLOT)
Judicial Member Accountant Member
PBN/*
Copy of the order forwarded to:
1. Appellant
2. Respondent
3. CIT (Appeals) concerned
4. CIT concerned
5. D.R., ITAT, Agra Bench, Agra
6. Guard File.
By Order
Sr. Private Secretary
Income-tax Appellate Tribunal, Agra
True Copy