Vimal Gandhi, President - (1.) THESE appeals by the assessees are directed against orders of CITs refusing to register these assessees under Section 12A of the IT Act.
(2.) All the applicants, i.e., Punjab State Agriculture Marketing Board, Haryana State Agricultural Marketing Board and various marketing committees at different places in Punjab, Haryana and Delhi were created under the Punjab Agricultural Produce Markets Act, 1961 (PAPMA). All the assessees were enjoying exemption from income-tax under Section 10(20) of IT Act which prior to its amendment by the Finance Act, 2002, w.e.f. 1st April, 2003, provided as under : "Section 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-- xxxxxxxxx (20) the income of a local authority which is chargeable under the head "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area." Through the aforementioned amendment, the following Explanation has been added to the provision : "Explanation--For the purposes of this clause, the expression "local authority" means-- (i) Panchayat as referred to in Clause (d) of Article 243 of the Constitution; or (ii) Municipality as referred to in Clause (e) of Article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund; or (iv) Cantonment Board as defined in Section 3 of the Cantonments Act, 1924 (2 of 1924)." The result of above Explanation is that Agricultural Marketing Board, Committee, etc., cannot be treated as "local authority" for purposes of exemption under the above provision. In reply to letters from the Chief Ministers of Delhi and Punjab pointing out hardships which were likely to be caused to the above committees, the then Hon'ble Finance Minister wrote back that Agricultural Produce Marketing Committees working for advancement of an object of general public utility without profit motive, can still claim exemption from income-tax as "charitable institutions" after fulfilling certain conditions prescribed under Section 11 of the IT Act. Sub-section (15) of Section 2 defining charitable purpose is as under: "(15) 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." The boards and the committees claiming themselves to be "charitable institutions" made applications to the concerned CITs under Section 12A of the IT Act. The applications were filed on Form No. 10A prescribed by Rule 17A of the IT Rules. The relevant provision of Sections 12A and 12AA of the IT Act with which we are concerned are as under : "12A. 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 CIT 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 12AA) : Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of Section 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 CIT 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 CIT is not so satisfied. (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds fifty thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. 12AA. (1) The CIT, on receipt of an application for registration of a trust or institution made under Clause (a) of Section 12A, shall-- (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he-- (i) shall pass an order in writing registering the trust or institution, (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under Sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (1A) All applications, pending before the Chief CIT on which no order has been passed under Clause (b) of Sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the CIT and the CIT may proceed with such applications under that Sub-section from the stage at which they were on that day. (2) Every order granting or refusing registration under Clause (b) of Sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under Clause (a) of Section 12A."
(3.) THE learned CITs as per different orders rejected the claim of above enumerated assessees to be registered under Section 12A of IT Act. Different reasons have been given by the learned CITs in their separate orders. THEse in summarized form are as under : JUDGEMENT_3496_TLIT0_20050.htm JUDGEMENT_3496_TLIT0_20051.htm JUDGEMENT_3496_TLIT0_20052.htm JUDGEMENT_3496_TLIT0_20053.htm Similar reasons have been adopted in other cases to reject requests of the assessees to register them under Section 12A of the IT Act. 5. In appeal before the Tribunal, Shri Ajay Vohra while assailing findings of the CITs submitted that assessee-board or marketing committee might not be trust but were definitely "charitable institution". THE word "institution" as per various dictionaries is understood as under : THE meaning of word 'Institution' Black's Law Dictionary An establishment, especially one of the eleemosynary or public character or one affecting a community. An established or organized society or corporation. It may be private in its character, designed for profit to those composing the organization, or public and charitable in its purposes. An organized society, established either by law or the authority of individuals, for promoting any object, public or social. Public institution. One which is created and exists by law or public authority, for benefit of public in general; e.g. a public hospital charity, college, university, etc. Bouvier's Law Dictionary (Vol. I) An organized society established either by law or the authority of individuals, for promoting any object, public or social. THE Shorter Oxford English Dictionary On Historical Principles An establishment, organization or association, instituted for the promotion of some object, esp., one of public utility, religious, charitable, educational, etc. Stroud's Judicial Dictionary (Vol. III) THE word "institutions" in the phrase "charitable institutions" has been held to mean institutions in the sense in which boards of trade and chambers of commerce are institutions, such, for example, as a charity organization society or a society for the prevention of cruelty to children [Minister of National Revenue v. Trusts & Guarantee Co. (1940) A.C. 138]. Webster's New World College Dictionary (Fourth Edition) An organization, society or corporation, having a public character, as a school, church, bank, hospital, etc. Webster's Third New International Dictionary (Vol. III) An established society or corporation : an establishment or foundation esp. of a public character (a literary) the Smithsonian Institution (of higher learning)." 6. It was further submitted that Chartered Accountants Society created under a Statute, sport bodies, federation of chamber of commerce, other chambers, transport corporations created under statutes, trade associations, etc., have been treated as charitable institutions by different High Courts and the Hon'ble Supreme Court of India. THE mere fact that assessees were created under a statute and governed by statutory provision, was not bar to deny status of "charitable institution". He further argued that Section 10(20) and Sections 11 and 12 were not mutually exclusive. One institution can take benefit of several provisions under the IT Act, particularly of overlapping provisions like the one referred to above. He submitted that because of the fact that the assessees were earlier treated as local authorities, it does follow that they cannot be "charitable institutions". Shri Vohra submitted that market committees at different stations are to provide infrastructures for purchase/sale, distribution of foodgrains so that farmers get a fair deal and unscrupulous elements are kept out of way to avoid raw deal to the farmers and procurement is made by right agencies. 7. With reference to other objections of CIT that primary object of these bodies cannot be charitable, Shri Vohra submitted that all activities carried by these committees are charitable activities. THE fact that they were being controlled by "public servants" or that committees could also impose and recover fees and fines that there were no voluntary contributions did not affect the character of the institution. Shri Vohra submitted that many educational and trade bodies are headed by IAS officers or other public servants but on that account those bodies do not cease to be charitable. Fine and fee is collected by schools and educational institutions but they continue to remain charitable inspite of above collection. What is required to be considered while disposing of application under Section 12A is to see whether the assessees are existing to carry on activities of public utility or for the making profit. As these institutions did not exist for profit, they were charitable and entitled to registration under Section 12AA of IT Act. Shri Vohra drew our attention to the following decisions in support of the claim that similar institutions could be treated as charitable : (i) CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC) (ii) Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC) (iii) CIT v. Federation of Indian Chambers of Commerce & Industry (1981) 130 ITR 186 (SC) (iv) CIT v. World Agriculture Fair Memorial Farmers' Welfare Trust Society (1985) 155 ITR 370 (Del) (v) CIT v. Andhra Pradesh State Road Transport Corpn. (1986) 159 ITR 1 (SC) (vi) Director of Income-tax v. Bharat Diamond Bourse (2003) 259 ITR 280 (SC) Shri Vohra further submitted that the assessees made applications for registration after 1st April, 2003, when Explanation to Section 10(20) was added to the statute. In most of the cases, the assessees applied for condonation of delay in the submission of the application under Section 12A and the said delay was condoned. At any rate the necessity to file application arose only on account of amendment referred to above and, therefore, there was good ground to condone the delay in the submission of the application. THE learned CITs were not justified in rejecting the claim for registration in few cases on the ground that there was delay in the submission of the application. Discriminatory treatment given in some cases is not justified. Shri Vohra further submitted that audited accounts as required by Rule 17B of IT Rules were also filed in most of the cases. In few cases in which audited accounts were not produced along with the application, the application suffered from a curable defect. THE learned CIT(A) could have asked for audited accounts. At any rate accounts of all the assessees are audited and audit reports have been placed on record. In support of above contention, Shri Vohra relied upon decision of Punjab and Haryana High Court in the case of CIT v. Shahzedanand Chanty Trust (1997) 228 ITR 292 (P&H) as also on the decision of Hon'ble Supreme Court in the case of CIT v. Nagpur Hotel Owners' Association (2001) 247 ITR 201 (SC). Shri Vohra further submitted that there was no requirement under Section 12A for an institution to be registered with Registrar of Societies or under the Trust Act. Similarly, none of the provisions of Punjab Agricultural Produce Markets Act make these institutions "non-charitable". 8. THE Departmental Representatives in their arguments supported the impugned orders of the CIT and further submitted as under : "This appeal is against refusing the registration under Section 12AA of the IT Act by the CIT, Hissar. THE above marketing committee was claiming exemption from taxation under Section 10(20) of the IT Act, 1961. In view of amendment w.e.f. asst. yr. 2003-04 the exemption under Section 10(20) was withdrawn, that is why the committee has applied for registration under Section 12AA. THE very purpose of the assessee is to defeat the purpose of the amendment brought as above. THE enactment of Section 12AA has brought important change in law w.e.f. asst. yr. 1997-98, i.e., law now requires the satisfaction of the object of the trust or institution and the genuine of activities. THE CBDT Circular No. 762, dt. 18th Feb., 1998, explained the scope and effect of Section 12AA. Earlier, the position of law was that the process of registration was not an occasion for judging the right to exemption under Section 11 of the Act. THE Courts of law have held that there was no necessity to go into the merit of the activity whether same were of charitable nature and exempt from the tax. THE decisions of such a nature are prior to Section 12AA introduced by the Finance Act (No. 2) 1996, w.e.f. 1st April, 1997, which required that CIT should satisfy after inquiring about genuineness of activities. THE Board's memorandum explaining the amendment Bill assumes that Section 12AA requires registration after CIT is satisfied about the charitable or religious nature of the object and the genuineness of the activities of the trust or institutions. However, reasonable opportunity must be given to the party. Right to appeal against the refusal of registration was brought under Section 253 of the IT Act w.e.f. 1st June, 1999. An important amendment was brought to Section 10 of the IT Act. By the Finance Act, 2002, the Section 10(20), Section 10(29) and Section 10(20A) were amended and exemptions available to the local authorities, warehouse corporations and the Government companies, respectively were withdrawn. THE intention of the legislature was very clear that no exemption will be available to the marketing committees, warehouse corporation and Government companies w.e.f. asst. yr. 2003-04. THE major question arises as to whether the present marketing committee is a trust or institution. As discussed by the CIT, it is not a trust as no trust is set up in case of assessee. Assessee claimed as an institution. THE CIT has also discussed that this is not an institution also and it was constituted primarily as a local authority as stipulated under Section 18 of the Punjab Agriculture Produce Market Act, 1961 (p. 3 of CIT's order). THE assessee vide his submission dt. 28th Aug., 2003, before CIT, Hissar, has mentioned the meaning of word institution (at p. 4). However, it is not clear how this description given helps assessee. It does not talk about inclusion of a marketing committee set up by a state Government under the definition of an institution. As per the book--Words and Phrases Legally Defined, second edition--editor John B. Saunders, Banister-at-law, the word institution is defined as under : This Act applies to every institution established, whether before or after the passing of this act, for effecting all or any of the following purposes, i.e., to say : To give technical instructions...... (ii) To provide the training, mental or physical, necessary for the above purpose, (iii) in connection with the purposes before mentioned, to provide workshop, tools, scientific apparatus and plant of all kinds, libraries, reading rooms, halls for lectures, exhibitions, and meetings, gyms and swimming baths, and also general facilities for mental and physical training, recreation, and amusement and also all necessary and proper accommodation for persons frequenting the institutions (Technical and Industrial Institutions Act, 1892, Section 2). 'Institutions' includes any trusts or undertaking (Charities Act, 1960, Section 46). 'It is little difficult to define the meaning of the term 'institutions' in the modern acceptation of word. It means, I suppose, an undertaking formed to promote some defined purpose having in view generally the instruction or education of public. It is the body (so to speak) called into existent to translate the purpose as conceived in the minds of founders into a living and active principle..... a public library may, I think, be property called and institution in that sense. Manchester Corpn. v. Mc Adam (1896) A.C. 500, per Lord Macnaghten, at pp. 511, 512. Public Institution--means a prison, lockup or hospital and such other public or charitable institution as may be prescribed (Births and Deaths Registration Act, 1953, Section 41) THE question is whether this school, which is established and chiefly maintained by freemasons for the benefit entirely of those who brings to their own body, is a public institution within the meaning of Section 1 of the Factories and Workshops Act, 1907 .... And ... whether the laundry of this school is carried on incidentally to the purpose of public institution..... I think that this is the kind of institution which they (the legislature) contemplated when they provided safeguards for the persons employed in the laundries... is there anything public about this institution ? I think that there is...... To be a freemason does not appear to me to be an entirely private matter...the appellants solicit contributions from a very large body of people, i.e., all freemasons,....and when that is habitually done I cannot come to any other conclusion then that...the word "Public" is a good a word to indicate the kind of instructions at which they were aiming as any word which I can think of. In my opinion, therefore, this is a public institution, and this laundry which is carried on incidentally to its purposes comes within the provisions of the Factories Act. Royal Masonic Institution for Boys Trustees v. Parkes, (1912) 3 K.B. 212, D.C., per Darling, J., at pp. 215-217. From the above it is clear that a market committee or a business enterprises is not included in the above definitions. THE word "Institutions" denote a different meaning and picture other than a place where goods are purchased and sold even if goods contained agriculture products. Further the following tests are also to be applied-- (1) Object of the institutions as well as beneficiaries are specified. (2) Revenue--Institution's main source of revenue is from donations/contributions. (3) Application of income is for entirely aim of the institution, i.e., for charity (4) Charity purpose--THE charity in legal sense comprises four principles as laid down by the Hon'ble Supreme Court in the case of Sabdarjung Enclave Education Society [referred in St. Don Bosco Educational Society v. CIT (2004) 84 TTJ (Lucknow) 805 : (2004) 90 ITD 477 (Lucknow)] (a) for the relief of poverty, (b) advancement of education, (c) advancement of religion, and (d) for other beneficial to the community not falling in above 3 proceeding heads." In nutshell, the submission advanced on behalf of the Revenue is that assessees are not charitable institutions but local bodies. In view of amendment of Section 10(20) withdrawing exemption in case of such local bodies, the assessees are not justified in putting in an alternative claim. THE claim made by the assessees would defeat the very purpose of amendment. THE assessees also failed to fulfil procedural requirements of Section 12A of IT Act in the sense that these institutions failed to file audited report as required by Rule 17B of IT Rules. THE case law cited on behalf of the assessees according to the learned Departmental Representative is related to trust/charitable institutions and not to local authorities like the assessees. THE assessees were statutory bodies governed by statute/Rules and cannot claim status of "charitable institutions" under Sections 11 and 12 of IT Act. This way impugned orders of CIT were supported. 9. We have given careful thought to rival submissions of the parties. THEre is no doubt that assessees before us, prior to amendment of Section 10(20) adding an Explanation w.e.f. 1st April, 2003, were treated as local bodies and accordingly their income was exempt from taxation under the IT Act. In view of statutory change, the legislature withdrew blanket exemption enjoyed by market committees, market boards, like the assessees. However, as made clear by the then Finance Minister in his letters to the Chief Ministers, such bodies can still claim exemption under Section 11 of the Act after fulfilling certain prescribed conditions. THE local bodies like market committees/boards created under an statute can be charitable institution depending upon its object and activities with overriding condition that these were not created for profit. Andhra Pradesh State Road Transport Corpn. established under Road Transport Corporation Act, 1950, has been treated as a charitable institution under Section 2(15) of IT Act (See Andhra Pradesh State Road Transport Corpn. v. CIT (1975) WO ITR 392 (AP)]. We shall further refer to some other illustrative cases. 10. THEre are several other statutory organizations established by law which enjoy status of charitable institutions. We, therefore, do not find any force in the objection that market committees/market boards cannot be treated as charitable institutions, because these are created under a statute. Likewise, registration could not be denied to the assessees on account of amendment of Section 10(20) of IT Act w.e.f. 1st April, 2003. THE exemption in the case of local bodies like market committees, etc., has been withdrawn but there is nothing in the amendment to show that the assessees are precluded from raising an alternative claim under Section 11/12 of the IT Act. THE legislative intention appears to be to put restrictions on these bodies as are contained in Sections 11 to 13 of the Act relating to utilization of income and channelling of investments for public good. Sections 11 to 13 of the Act impose several restrictions and do not allow blanket exemption like Sub-section 10(20) of the Act where the assessee has only to establish that it is a "local authority". No other condition need be fulfilled for claiming exemption under the above sub-section. 11. For similar reasons, we reject objection raised on behalf of the Revenue that committees collect fees and fine, their officers are public servants etc., and, therefore, they cannot be charitable institutions. What is relevant is objects/activities of the institutions and not above aspects.;