* THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN I.T.T.A.Nos.251, 315, 318, 319, 328, 333, 335 OF 2008, 16 OF 2009, 54, 111, 112 AND 113 OF 2010 % 01.03.2011 # Commissioner of Income Tax, Guntur. ... Appellant VERSUS $ Agricultural Market Committee, Giddalur. ... Respondent < GIST: > HEAD NOTE: ! Counsel for Petitioner: Sri S.R.Ashok ^Counsel for Respondent: Ms. K.Lalitha, Standing Counsel for Agricultural Market Committees ? Cases referred 1. (2007) 295 ITR 561 : (2007) 14 SCC 704 2. (1939) VII ITR 415 (PC) 3. (1965) LV ITR 722 (SC) 4. (1980) 121 ITR 1 (SC) : (1980) 2 SCC 31 5. (1986) 159 ITR 1 (SC) 6. (2007) 291 ITR 419 (Bom) 7. (2007) 294 ITR 563 (P&H) 8. (2009) 308 ITR 380 (MP) 9. (2009) 308 ITR 401 (MP) 10. AIR 1959 SC 300 11. AIR 1962 SC 97 12. AIR 1962 SC 1517 13. AIR 1968 SC 1408 14. AIR 1983 SC 1246 : (1983) 4 SCC 353 15. (1939) VII ITR 415 (PC) 16. (1965) LV ITR 722 (SC) 17. (1980) 121 ITR 1 (SC) : (1980) 2 SCC 31 18. (1986) 159 ITR 1 (SC) 19. (1964) 52 ITR 524 (SC) 20. (2007) 291 ITR 419 (Bom) 21. (2007) 294 ITR 563 (P&H) 22. (2007) 295 ITR 561 : (2007) 14 SCC 704 23. (2009) 308 ITR 380 (MP) 24. (2009) 308 ITR 401 (MP) 25. AIR 2004 SC 86 26. (1944) 1 All ER 119 27. 1909 AC 323 28. AIR 1960 SC 1203 29. AIR 1961 SC 343 30. (2006) 285 ITR 237 THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN I.T.T.A.Nos.251, 315, 318, 319, 328, 333, 335 OF 2008, 16 OF 2009, 54, 111, 112 AND 113 OF 2010 01. 03.2011 Between: Commissioner of Income Tax, Guntur … Appellant AND Agricultural Market Committee, Giddalur … Respondent THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN I.T.T.A.Nos.251, 315, 318, 319, 328, 333, 335 OF 2008, 16 OF 2009, 54, 111, 112 AND 113 OF 2010 COMMON JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao) INTRODUCTION Whether an Agriculture Market Committee constituted by the Government of Andhra Pradesh under Section 4(1) of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 (the AMC Act, for brevity), is an institution for charitable purpose? This is a core question of law that is raised in this batch of appeals filed under Section 260A of the Income Tax Act, 1961, (the IT Act, for brevity), by the Commissioner of Income Tax. These twelve appeals are against the common order passed by Income Tax Appellate Tribunal, Visakhapatnam Bench. Therefore, it is convenient to dispose them by a common Judgment. FACTUAL BACKGROUND The following brief fact of the matter is culled out from I.T.T.A.No.251 of 2008. Agricultural Market Committee, Giddalur (AMC, for brevity) was constituted under Section 4 of the AMC Act vide G.O.Ms.No.842, Food and Agricultural, dated 29.06.1971 as amended by G.O.Ms.No.512, dated 16.08.1978. It was availing exemption as a “local authority” as defined under Section 10(20) read with Section 10(29) of the IT Act. By Finance Act, 2002 with effect from 01.04.2003, Section 10(29) was deleted and an Explanation was added to Section 10(20) mentioning Panchayats, Municipalities, Municipal Committees and Cantonment Boards alone to be a ‘local authority’, for the purpose of Section 10(20). As a result, from the assessment year 2003-2004 onwards, AMC could not claim exemption as a ‘local authority’. They, therefore, made an application on 22.08.2006 in Form 10A to the CIT, Guntur seeking registration under Section 12A of the IT Act. Their authorized representative appeared, furnished information, produced evidence and filed written submissions. The CIT passed orders being F.No.1(50)/R-2/CIT-GNT/2006-07, dated 12.12.2006 rejecting the application for registration under Section 12A of the IT Act. It may be mentioned that the applications made by eleven other AMCs in Prakasam District were also rejected by separate orders passed on the same date. AMC then filed I.T.A.No.268/Vizag/07, before the Visakhapatnam Bench of the Tribunal. This appeal and appeals filed by other AMCs against similar orders of the CIT were heard by the Bench of the Tribunal. Following the Tribunal’s earlier decision, in the case of AMC, Karimnagar in I.T.A.No.556/Hyd/2005, dated 28.02.2007, the appeals were allowed directing the CIT to grant registration to AMCs under Section 12A of the IT Act. CONTENTIONS The Senior counsel for Income Tax Department submits that the amendment of Section 10(20) by the Finance Act, 2002, indicates that the object is to widen the tax base by restricting the benefit only to local self governments which come within the purview of Article 243 of the Constitution of India. Therefore, the AMCs cannot be given the benefit of exemption, which have been permitted under Section 10(20) prior to amendment with effect from 01.04.2003. The Tribunal lost sight of the Finance Act, 2002 and the benefit which has been taken away by Parliament cannot be conferred by treating the AMCs as institutions established for charitable purpose under Section 2(15) of the IT Act. He would urge that the AMC can neither be termed as ‘trust’ nor ‘institution’ within the purview of Sections 12A and 12AA of the IT Act and, therefore, grant of registration for the purpose of exemption does not arise. It is nextly contended that an AMC, constituted under Section 4(1) of the AMC Act, does not come within the expression ‘person’ as defined in Section 2(31) of the IT Act. It is constituted by the Government and, therefore, cannot be treated as a trust or an institution. An AMC does not receive any voluntary contribution from the Government or any person. None of the activities or income of the AMC can be correlated to Section 11(1)(a) to (d) or Section 12 of the IT Act. In that view of the matter, the question of granting registration under Section 12A does not arise. A beneficiary of registration under Section 12A has to necessarily comply with Section 11(5) while investing and depositing the money, and an AMC would not be able to comply with such mode of depositing the money which would entail in forfeiture of exemption. Lastly, the senior counsel would contend that, by the Finance Act, 2008 with effect from 01.04.2009, AMCs have been included in Section 10(26AAB) enabling them to be exempted from paying tax. This would show that Parliament never intended to treat the activities carried on by the AMC as charitable. The standing counsel for AMCs submits that all the AMCs are seeking registration as institutions for advancement of general public utility. All of them were availing exemption under Section 10(20). But, with effect from 01.04.2003, AMCs were denied exemption. Therefore, there is no prohibition for them from claiming registration under Section 12A of the IT Act. According to the counsel, at the time of consideration of application for registration under Section 12A, the CIT has to look to the objects for establishment of AMC, and the possible likelihood of non-compliance with Section 11(5) is not relevant. She would urge that all questions of law raised in the Memorandum of Grounds are squarely covered by the decision of the Supreme Court in CIT v Gujarat Maritime Board[1]. The counsel also relied on In re the Trustees of the Tribune[2], Commissioner of Income Tax v Andhra Chamber of Commerce[3], Additional Commissioner of Income Tax v Surat Art Silk Cloth Manufacturers’ Association[4], Commissioner of Income Tax v Andhra Pradesh State Road Transport Corporation[5], Commissioner of Income Tax v Agricultural Produce and Market Committee[6], Commissioner of IT v Market Committee[7], Commissioner of Income Tax v Gujarat Maritime Board, Commissioner of Income Tax v Krishi Upaj Mandi Samiti (1)[8] and Commissioner of Income Tax v Krishi Upaj Mandi Samiti (2)[9]. POINT FOR CONSIDERATION The main point for consideration is whether AMCs constituted by the Government of Andhra Pradesh under Section 4 of the AMC Act are institutions established for advancement of the object of general public utility and, therefore, exist for charitable purpose. All other questions are incidental to the main question and are adverted to at the appropriate place. ANALYSIS OF PROVISIONS OF I.T. ACT Section 2(15) prior to amendment with effect from 01.04.2009 by the Finance Act, 2008 reads as under. 2(15) ‘Charitable purpose’ includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. Section 2(15) was substituted by the Finance Act, 2008. After that, it reads as under. 2(15) “charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity; Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year; Section 2(31) defines ‘person’. 2(31) “person” includes— (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses; Explanation.—For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;] Chapter III contains provisions which deal with incomes which do not form part of total income for the purpose of levy of income tax. As of now, there are fourteen (14) sections. These can be conveniently grouped into four categories. Section 10 enumerates incomes from various sources of various institutions and persons which shall not be included in computing the total income of a previous year of any such person/institution. In first group, Section 10 is the exclusive one. In so far as the incomes stipulated in Section 10 are concerned, subject to satisfying conditionalities if any, exemption is a matter of statutory lenience. Ordinarily, an assessment authority cannot ignore the benefit conferred under Section 10, if the assessee discharges the burden that the income falls within any of the clauses of Section 10. Sections 10A, 10AA, 10B, 10BA, 10BB and 10C are the other group of provisions which are special provisions in respect of newly established undertakings either in free trade zones, Special Economic Zones, 100 per cent export oriented undertakings and industrial undertakings in the North Eastern Region. These permit deduction of whole or part of the profits for certain period while computing the total income for the purpose of levy of tax. By the very nature of the benefit conferred, it is for the assessee to discharge the onus by showing that a particular item of income falls within a specified provision. The third group of provisions is Sections 13A and 13B. These relate to the incomes of political parties or income relating to voluntary contributions received by an electoral trust. The fourth group of provisions is Sections 11 to 13. These deal with the income from property held for charitable or religious purposes. Section 11(1) and (5) as well Section 12A, to the extent relevant, read as under. 11. Income from property held for charitable or religious purposes.—(1) Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income— (a) 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; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property; (c) income derived from property held under trust— (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; (d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. 11 (5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely:— (i) investment in savings certificates as defined in clause (c) of Section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a cooperative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a cooperative land development bank). (iv) to (xi) are omitted as not relevant (xii) any other form or mode of investment or deposit as may be prescribed. 12-A. Conditions as to registration of trusts, etc.— (1) The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:— (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under Section 12-AA: Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of Sections 11 and 12 shall apply in relation to the income of such trust or institution,— (i) from the date of the creation of the trust or the establishment of the institution if the Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons; (ii) from the 1st day of the financial year in which the application is made, if the Commissioner is not so satisfied; Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007; (aa) (b) and (c) are omitted as not relevant (2) Where an application has been made on or after the 1st day of June, 2007, the provisions of Sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made. A brief analysis of all the provisions would show that (i) providing relief of the poor; (ii) establishing institution for education; (ii) providing medical relief; and (iv) to advance any other object of general public utility are included within the definition of ‘charitable purposes’. With effect from 01.04.2009, a new definition has been substituted, in that, if the advancement of object of general public utility involves carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration, such activity shall not be a charitable purpose. AMCs which availed exemption under Section 10(20) as a matter of course sought exemption as charitable institutions after amendment of Section 10(20) by the Finance Act, 2002 with effect from 01.04.2003. They were excluded from the purview of being ‘local authorities’ and, therefore, sought exemption from the assessment year 2003-2004 onwards. Except the addition of the proviso, restricting the purport of ‘advancement of any other object of general public utility’, there is not much difference in Section 2(15) as it existed prior to 01.04.2009, and thereafter. After amendment preservation of environment including watersheds, forest and wild life, and preservation of monuments or places/objects of artistic or historic interest are also included in the definition ‘charitable purpose’. Be that as it is, what is important is any institution or organization or entity for the advancement of object of general public utility is also considered as an institution or trust for charitable purpose. Section 11 exempts various categories of incomes as enumerated under Section 11(1)(a) to (d) from the total income of the previous year. Section 12 exempts the voluntary contributions received by a trust created for charitable purposes from the total income. The benefit of Section 11 and/or 12 can be claimed only when the conditions as stipulated under Section 12A are satisfied. One such condition is that a person in receipt of the income has to apply for registration of the trust or institution in the prescribed form on or before the expiry of a period of one year from the date of creation of the trust or establishment of institution. The proviso to Section 12A(1) confers the power on the Commissioner to entertain an application under Section 12A (1) even after expiry of period of one year if he is satisfied that the person was prevented from making an application before the expiry of period of one year for sufficient reasons. Section 11(5) requires every trust or institution for a charitable purpose to invest or deposit the money only in the manner provided therein inter alia investment in Savings Certificates as defined in Government Savings Certificates Act, 1959, deposit with the Post Office Savings Bank, deposit in any account with the scheduled bank i.e., Reserve Bank of India or its subsidiary bank or any scheduled bank under Section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 or any other bank being a bank included in Second Schedule to Reserve Bank of India Act, 1934 and the like. The breach of Section 11(5) would attract Section 13(1)(d) of the IT Act and the benefit under Sections 11 and 12 would not be available if funds are deposited or invested contrary to Section 11(5) or in breach of Section 13(1) generally and Section 13(1)(d) specifically. ANALYSIS OF PROVISIONS OF AMC ACT AMC Act provides for establishment of notified market areas/yards for purchase and sale of agricultural produce and livestock and for better regulation of such markets. Various Provincial States even in pre- independent period had such marketing legislation with the sole purpose of protecting the interests of agriculturists, farmers and growers and to wean them away from exploitation by middlemen. The purpose of marketing legislation is to enable purchasers to get a fair price for the commodities by eliminating middlemen and provide a regulating market with facilities for correct weighments, storage, accommodation and equal powers of bargain for reasonable price to the growers and the consumers (Arunachala Nadar v State of Madras[10], Mohd.Hussain Gulam Mohd v State of Bombay[11], Muhammadbhai Khudabux Chhipa v State of Gujarat[12] and Lakhanlal v State of Bihar[13]). Almost all the States in India have agricultural marketing legislation and the pattern of working for the market committees in each State is almost the same. These Acts and Rules made thereunder provide for complete scheme of markets for the purchase and sale of notified agricultural produce livestock and products. All of them as held by the Supreme Court in three decisions cited hereinabove are intended to serve the welfare of the agriculturists, farmers in getting a fair price for their agricultural produce. The Andhra Pradesh AMC Act is also intended to safeguard the larger interests of agriculturists and farmers who play an important role in the rural economy and contribute to the welfare of the nation. The decision of the Supreme Court in Sreenivasa General Traders v State of A.P.,[14], contains an overview of the AMC Act in paragraphs 11 to 15. Instead of this Court again giving an overview of the Andhra Pradesh AMC Act, it is useful to extract these paragraphs hereunder. 11. The object and purpose of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 as reflected in the long title is to consolidate and amend the law relating to the regulation of purchase and sale of agricultural produce, livestock and products of livestock and the establishment of markets in connection therewith. The legislation is designed to eliminate middlemen in notified agricultural produce, livestock and products of livestock, to protect the producers of such agricultural produce, livestock and products of livestock from exploitation and to ensure to them a fair price for their produce. The material provisions of the Act may be referred to. Section 2 is the definition clause and defines the expression ‘agricultural produce’ in clause (i) to mean anything produced from land in the course of agriculture or horticulture and includes forest produce or any produce of like nature either processed or unprocessed and declared by the Government by notification to be agricultural produce for the purposes of this Act. The term ‘market’ as defined in Section 2(vi) means a market established under sub-section (3) of Section 4 and includes market yard and any building therein. The expression ‘notified area’ as defined in Section 2(xi) means any area notified under Section 3, and ‘notified market area’ in clause (xii) means any area declared to be a market area by notification under Section 4. Under Section 3 of the Act, the State Government is empowered to declare their intention of regulating the purchase and sale of such agricultural produce, livestock or products of livestock in such area as may be specified in such notifications. After considering the objections and suggestions, if any, the State Government is authorised to publish a final notification under sub-section (3) thereof declaring such area to be a notified area. By sub-section (1) of Section 4, the State Government is empowered to constitute a market committee for every notified area which shall be a body corporate having perpetual succession and a common seal. The duty of enforcing the provisions of the Act and the rules and bye-laws is entrusted to a market committee under sub- section (2) thereof. Sub-section (3) of Section 4 empowers the market committee to establish such number of markets as the State Government may, from time to time, direct for the purchase and sale of any notified agricultural produce, livestock or products of livestock. Sub-section (3) of Section 4 provides such facilities in the market as