2016 (7) TMI 1287 - AT - Income Tax

ITAT affirms CIT(A) decisions on income exemptions under Section 10(20)

DCIT, Panchkula Circle, Panchkula Versus Haryana State Agricultural Marketing Board, Panchkula

DCIT, Panchkula Circle, Panchkula Versus Haryana State Agricultural Marketing Board, Panchkula - TMI Issues Involved:1. Exemption under Section 10(20) of the Income-tax Act, 1961.2. Eligibility of various incomes (rental income, interest income, contributions) for exemption under Section 10(20).3. Allowability of expenditure on prize money to farmers.4. Allowability of donation to Chief Minister Relief Fund.5. Classification of expenditure on information and technology as revenue or capital.6. Allowability of advertisement expenses.7. Allowability of expenditure on rock drilling machine.Detailed Analysis:1. Exemption under Section 10(20) of the Income-tax Act, 1961:The primary issue was whether the activities of the assessee fell within the ambit of Section 10(20) of the Income-tax Act, 1961, and whether the income earned was exempt under this section. The CIT(A) held that the assessee, a Board set up under the PAPM Act, was a local authority and its income from contributions received from market committees and rental income was exempt under Section 10(20). The ITAT upheld this decision, noting that the contributions and rental income were derived from providing services within the Board's jurisdictional area.2. Eligibility of Various Incomes for Exemption:- Rental Income: The CIT(A) and ITAT held that rental income from godowns, shops, and staff quarters was exempt under Section 10(20) as it was derived from providing services within the Board's jurisdictional area.- Interest Income: The CIT(A) upheld the Assessing Officer's denial of exemption for interest income, and the ITAT noted that the Revenue had no grievance on this account.- Contributions from Market Committees: The contributions received from market committees were held to be exempt as they were for carrying out the Board's functions, which involved providing services within its jurisdictional area.3. Allowability of Expenditure on Prize Money to Farmers:The CIT(A) deleted the disallowance of expenditure incurred on Krishak Uphar Yojna, holding that it had a direct nexus with the Board's objective of welfare of farmers. The ITAT upheld this decision, noting that the expenditure encouraged farmers to sell their produce through market committees, thereby increasing the Board's income.4. Allowability of Donation to Chief Minister Relief Fund:The CIT(A) allowed the deduction claimed by the assessee for donation to the Chief Minister Relief Fund under Section 80G of the Income-tax Act. The ITAT upheld this decision, noting that the payment was made by the assessee and was eligible for deduction.5. Classification of Expenditure on Information and Technology:The CIT(A) held that the expenditure on information and technology was revenue in nature as it did not bring into existence any asset and was incurred to enable the assessee to cope with changing economic realities. The ITAT upheld this decision, noting that the expenditure was for creating an electronic network for better control over market committees and carrying out the Board's functions effectively.6. Allowability of Advertisement Expenses:The CIT(A) directed the Assessing Officer to verify the nature of the expenses claimed under propaganda, publicity, and demonstration and allow them if found to be in the nature of advertisement. The ITAT upheld this decision, noting that advertisement is an allowable business expenditure.7. Allowability of Expenditure on Rock Drilling Machine:The CIT(A) allowed the expenditure incurred on contribution to the Agricultural Department for a rock drilling machine, holding that it was for aiding farmers and increasing their productivity, which would eventually benefit the Board. The ITAT upheld this decision, noting that the Assessing Officer's contention regarding violation of the PAPM Act was unsubstantiated.Conclusion:The ITAT upheld the CIT(A)'s decisions on all counts, dismissing the Revenue's appeals. The Board's income from contributions and rental income was held to be exempt under Section 10(20), and various expenditures were allowed as they were incurred in the course of carrying out the Board's functions and objectives.