TaxTMI 
TaxTMI 
2005 (3) TMI 393
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....g the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- x x x (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 cl. (d) of Art. 243 of the Constitution; or (ii) Municipality as referred to in cl. (e) of Art. 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 s. 3 of the Cantonments Act, 1924 (2 o....
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....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 s. 11 and s. 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-s. (2) of s. 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 cl. (a) of s. 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....
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....; 2. Explanation to s. 10(20) inserted w.e.f. 1.4.2003, making intention of legislature clear that income of board is taxable w.e.f. 1.4.2003 3. The application for the registration has not been filed within a period of one year from the date of creation of trust and no application for condonation of delay filed. 4. No copies of audited accounts required under r. 17B furnished. 5. Not registered as charitable trust with Registrar of Trusts nor with Registrar of Societies. 6. No separate independent legal body as per s. 3 of PAMPA. Services rendered are on quid pro quo basis. The income does not accrue incidentally. 7. Objects are not charitable. 8. A charitable object cannot address itself only to small segment. 9. Powers to collect fee and fine not charitable. 10. Secs. 30, 40, 46 and 46A of PAMPA vest assessee with quas....
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....o reject requests of the assessees to register them under s. 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 An organized society established either by law or the authority of individuals, for promoting any object,....
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....ntrolled 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 s. 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 s. 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 vs. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC) (ii) Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC) (iii) CIT vs. Federation of Indian Chambers of Co....
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....tration under s. 12AA of the IT Act by the CIT, Hissar. The above marketing committee was claiming exemption from taxation under s. 10(20) of the IT Act, 1961. In view of amendment w.e.f. asst. yr. 2003-04 the exemption under s. 10(20) was withdrawn, that is why the committee has applied for registration under s. 12AA. The very purpose of the assessee is to defeat the purpose of the amendment brought as above. The enactment of s. 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 s. 12AA. Earlier, the position of law was that the process of registration was not an occasion for judging the right to exemption under s. 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 s. 12AA introduced by the Finance Act (No. 2) 1996, w.e.f.1st April, 1997, which required that CIT should satisfy after inquiring about genui....
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....ation, and amusement and also all necessary and proper accommodation for persons frequenting the institutions (Technical and Industrial Institutions Act, 1892, s. 2). 'Institutions' includes any trusts or undertaking (Charities Act, 1960, s.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. vs. 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, s. 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 ....
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....assessees would defeat the very purpose of amendment. The assessees also failed to fulfil procedural requirements of s. 12A of IT Act in the sense that these institutions failed to file audited report as required by r. 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 ss. 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 s. 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 s. 11 of th....
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....ct is also applicable to State of Haryana, Union Territory of Chandigarh and State of Himachal Pradesh and Delhi. Sec. 2 of the said Act gives definition of various terms like, board, committee, agricultural produce, market, etc. etc. Sec. 3 provides for constitution of marketing board, its powers and duties. The board apart from other functions has to exercise superintendence and control over the committees. Sec. 6 provides for notification relating to exercise of control over purchase, sale, storage and processing of agricultural produce in specified areas which is called market area. Sec. 7 deals with declaration of market yards, s. 8 prohibits opening of private market in or near places declared to be markets. Secs. 9, 10 and 10A relate to authority for grant of licenses and procedure for issuing licenses required under s. 6 of the Act. Secs. 11 and 12 provide for establishment and constitution of committees. Sec. 13 of the Act relates to duties and powers of committees and is as under: "Sec. 13. Duties and power of Committee : (1) It shall be the duty of a Committee- (a) to enforce the provisions of this Act and the Rules and the bye-l....
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.... produce; (v) general improvements in the markets or their respective notified market areas; (vi) maintenance of the office of the Board and construction and repair of its office buildings, rest-house and staff quarters; (vii) giving aid to financially weak Committees in the shape of loans and grants; (vii-a) repayment of loans and payments of interest thereon; (viii) payment of salary, leave allowance, gratuity, compassionate allowance, compensation for injuries or death resulting from accidents while on duty, medical aid, pension or provident fund to the persons employed by the Board and leave and pension contribution to Government servants on deputation; (ix) travelling and other allowances to the employees of the Board, its members and members of Advisory committees; (x) propaganda, demonstration and publicity in favour of agricultural improvements; (xi) production and betterment of agricultural produce; (xii) meeting any legal expenses incurred by the Board; (xiii) imparting education in marketing (or agriculture); (xiv) construction of godowns; (xv) loans and advances t....
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.... : Subject to the provisions of s. 27, the Market Committee Funds shall be expended for the following purposes: (i) acquisition of sites for the market; (ii) maintenance and improvement of the market; (iii) construction and repair of buildings which are necessary for the purposes of the market and for the health, convenience and safety of the persons using it; (iv) provision and maintenance of standard weights and measures; (v) pay, leave allowances, gratuities, compassionate allowances and contributions towards leave allowances, compensation for injuries and death resulting from accidents while on duty, medical aid, pension or provident fund of the persons employed by the committee; (vi) payment of interest on loans that may be raised for purposes of the market and the provisions of a sinking fund in respect of such loans; (vii) collection and dissemination of information regarding all matters relating to crop statistics and marketing in respect of the agricultural produce concerned; (viii) providing comforts and facilities, such as shelter, shade, parking accommodation and water for the persons, drau....
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....is Court held that, if there are several objects of the institution, some of which are charitable and some non-charitable, and the trustees or the managers in their discretion may apply the income of the institution of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempted from tax. Where the main or primary objects are distributive, each and everyone of the objects must be charitable in order that the trust be held as a valid charity. But, if the primary or dominant purpose of the institution is charitable and another which, by itself, may not be charitable, but is merely ancillary or incidental to the primary or dominant object, it would not prevent the institution from validly being recognized as a charity. The test to be applied is, whether the object which is said to be non-charitable is the main or primary object of the trust or institution or it is ancillary or incidental to the dominant object which is charitable. Reiterating its earlier view in CIT vs. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC), the Supreme Court said in Surat Art Silk's case that if the primary purpose is advancement of o....
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....an institution established for charitable purpose within the meaning of s. 2(15) of the Act." In the view of objects of institutions before us and above authoritative pronouncements treating Art Silk Cloth Manufacturers Associations, Andhra Chamber of Commerce, Agricultural Societies, Institution of Civil Engineers as charitable institutions, we do not see any good reason for holding that statutory bodies like market board and market committees under reference could not be treated as "charitable" within the meaning of s. 2(15) of IT Act. As noted earlier, 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 objects 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 grain Accordingly, we hold that the object of boards and committees is to advance objects of general public utility. The learned CITs in the impugned orders have not brought any material on recor....