TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1287
X X X X Extracts X X X X
X X X X Extracts X X X X
....ket Committees, rental income from godowns/shops and interest income earned by the assessee is income from providing commodities and services as stipulated u/s 10(20) of the Income-tax Act, 1961 and exempt from tax within the meaning of section 10(20) of the Income-tax Act, 1961. 4. Brief facts relating to the case are that the assessee is a Board set up under section 3(9) of the Punjab Agricultural Produce Markets Act, 1961 (hereinafter referred to as PAPM Act) by the Government of Haryana with a view to regulate the functioning of market committee in the state of Haryana. Original assessment in this case was finalized on 09.12.2002 determining the total income of Rs. 2,03,15,120/- in the status of AOP. The matter was taken up in appeal and the ITAT vide order No. 1199/Chd/2004 dated 13.9.2005 directed the Assessing officer to finalize the assessment in the status of local authority. In accordance with the direction of the ITAT, the assessment was framed in the status of local authority denying exemption u/s 10(20) of the Income-tax Act, 1961 to the following incomes earned by the assessee. (i) Profit from rent 67,58,423/- (ii) Interest on loan 87,13,433/- (iii) Contribution....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m year to year to return this income under the head "income from business" the assessee was not entitled to claim exemption of the same u/s 10(20) of the Act. Further, the Assessing officer held that income of the assessee was either by way of contribution received from market committees, rent of shops and godowns and interest income and none of these could be said to be derived from supply of services or commodities which income was assessed u/s 10(20)of the Act. Therefore, the Assessing officer held that he assessee was not entitled for exemption u/s 10(20) of the Act vis-à-vis the two incomes. 8. Before the Ld. CIT(A), the assessee made detailed submissions which are reproduced in paras 4.1 ot 4.6 of the CIT(A) order. The gist of submissions made before the Ld. CIT(A) was that the Board was set up for dispensing and providing services to various market committees in the State of Haryana by way of creating infrastructure in the areas of market committees, undertaking construction of roads, buildings, water supply, electrical supply, sewerage and other civic amenities in the area of market committees. The Market Committees were required to make statutory contribution to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rused the facts and carefully considered the submissions. (The appellant board was set up under section 3(1) of the PAPM Act by the Government of Haryana with a view to regulate the functioning of market committees in the state of Haryana. Market Committees are required to levy and collect advaloram fee on the produce brought and sold in the area of the MC Market Committee Fund is maintained by the MCs and all moneys received by the MCs are credited to the said fund as per provisions of section 27(1) of the Act. Section 27(2) requires the Market Committees to contribute specified percentage of license fee, market fees and other receipts. The percentage is specified under the Act and depends on their annual income. The Marketing Committees which are having larger base, higher budget and more projects and functioning contribute more to the appellant board. It is further noted that the contribution is made to the Board to meet the expenses incurred in the normal course of functioning. 5.1 Section 10(20) provides exemption in respect of following income: "(20) the income of a local authority which is chargeable under the head "Income from house property", "Capital gains" or "Income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be regarded as rigidly delimiting the sources of income under different heads for the purpose of the other provisions of the Act (CIT v. Shrildshan Chandmal 60 ITR 303(MP). 5.4 The appellant Board has been set up under a statute and its functions has been prescribed under the PAPM Act. As per section 8 of this Act, the state Govt. may suspend the Board if it is not functioning as required under the law. Thus, the appellant has to carry out prescribed duties within its territory. The AO has denied the exemption on the ground that it is not carrying out the business of supply of a commodity or service within its own jurisdictional area. The contributions received by it are not in lieu of supply of a commodity or service within its own jurisdictional area. The Board receives the contributions as per provisions of section 27 irrespective of the fact whether it carries out its activities or not. Since the contributions received by the appellant have no nexus with the supply of services in its territorial jurisdiction, the AO held that the appellant is not entitled to exemption u/s 10(20) of the Act. 5.5 The oft repeated issue as to whether interpretation should be strict or liberal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red opinion, it is exempt from tax as it has been received from renting of godowns, shops, booths etc. It is immaterial whether the income has been disclosed as 'business income' or under the head, 'income from house property'. The addition has been made on the ground that the rental income has been disclosed by the assessee as business income. Even if, it is shown as business income, the fact remains that the income is earned in lieu of the assets such as godowns, shops etc. rented out to the farmers in the appellant's jurisdiction area. The rental income so derived for providing the services, in my view, deserves to be exempted u/s 10(20) of the Act." 10. Before us Ld. DR placed reliance on the order of the Assessing officer and stated that with respect to the income derived as contribution from market committees, the same had no nexus with the supply of a commodity or service made by the assessee. The Ld. DR stated that exemption u/s 10(20) was granted to income received from a particular source and in the present case, the contributions received from the market committees, being fixed in nature, had no nexus with the rendering of any service by the Board an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rging its functions and also towards administration and other functions' of the Board. It is amply clear from the above facts that the assessee Board while discharging its prescribed functions, is rendering services to the market committees and the same is being financed by contributions received from Market Committees. The surplus generated from the same is nothing but income from rendering services by the Board, as rightly held by the Ld. CIT(A). We see no infirmity in the order of the Ld. CIT(A) on this score. Moreover, the fact that funds have been provided by the Market Committees to carry out the functions of the Board which involve rendering services to the market committees itself proves that the income has arisen on account of supply of services by the assessee to the market committees. The Ld. CIT(A) has rightly held that the impugned income is arising in the course to supply of its services. Even if the word 'services' is interpreted in the manner the Assessing officer has done as being one meaning serving by human resources and through human efforts, we find that all activities undertaken by the Board includes human efforts and thus even by the Assessing officer's def....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... market committees and rental income, is exempt u/s 10(20) of the Act. The ground of appeal raised by the Revenue is dismissed. The appeal filed by the Revenue is therefore dismissed. ITA No. 60/Chd/2009 15. In this appeal, the Revenue has raised the following grounds:- 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is right in holding that the activities of the assessee fail within the ambit of section 10(20) of the Income-tax Act, 1961. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) is right in holding that rental income from godown, license fee and interest income earned by the assessee for providing service is exempt within the meaning of section 10(20) of income-tax Act whereas the Assessing officer has rightly held that rental income declared is not derived from supply of any commodity and service as required u/s 10(20) of the Income-tax Act, 1961.? 16. The issue raised in both the grounds is identical to that which has been adjudicated by us in ITA No.18/Chd/2009 in the assessee's case for assessment year 2000-01 in paras 12 to 14. Following the same, the issue is decided against the Revenue. We may add that the gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the deletion of disallowance made of expenditure incurred on account of prize money given to farmers. Briefly stated during the impugned assessment year, the assessee had incurred expenditure of Rs. 90,292/- on Krishak Uphar Yojna. During assessment proceedings, the assessee had explained the nature of the expenditure being on account of a scheme launched by the Board awarding prize money to farmers who sold through the market committees by draw of lots, thereby encouraging farmers to bring maximum produce to the Mandis and increasing the income of the Board/Market committee in turn. The Assessing officer disallowed the expenditure by holding that it had nothing to do with the objects of the Board, was in fact in violation of the same and was thus not incidental to the running of the business. The Ld. CIT(A) deleted the disallowance by holding that the expenditure had direct nexus with the object of the Board which was to function for the welfare of the farmers. Ld. CIT(A) further held that accounts of the Board were audited and no violation of any provision had been noticed, thus, the observation of the Assessing officer that the assessee was debarred form incurring the expendit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her out of employees contribution or any other source. We, therefore, uphold the order of the CIT(A) on this ground and delete the addition of Rs. 37,404/- made to the income of the assessee. 27. This ground of appeal of the Revenue is dismissed. 28. In ground No. 4, the Revenue has contested the order of the Ld. CIT(A) in holding the expenditure incurred on information and technology as being Revenue in nature as against capital held by the Assessing officer. The facts relating to the issue are that during the impugned assessment year the assessee had claimed deduction of Rs. 1.50 cores on account of contribution made to the Society for information Technology Initiative fund. When confronted with the same, during assessment proceedings, the assessee submitted that the same was paid for e-governance of the Board by developing the following facilities:- 1. Developing replicable and reusable models of E-Governance for the Board. 2. I.T. Innovations in administrative process reengineering. 3. Developing decisions support system, market informatics scheme, interest and other applications enabling technologies in our Board. 4. Imparting focused training awareness and capacity....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on, it is in the nature of revenue expenditure, even if the benefit accurse to the appellant for a number of a years. Accordingly, the ground raised by the appellant is allowed and the AO is directed to delete the addition." 31. Before us, Ld. DR relied upon the order of the Assessing officer while Ld. AR relied upon the order of the Ld. CIT(A). 32. We have heard the rival submissions and have perused the materials available on record. We find no infirmity in the order of the Ld. CIT(A) holding the impugned expenditure as Revenue in nature. Undisputedly, the benefit which accrues to the assessee on account of incurring the impugned expenditure is creation of an electronic network for ensuring better contact over Market Committees and carrying out its other stipulated functions in an effective manner. There is no dispute about this fact since it has not been controverted before us. Clearly, no asset has come into existence by virtue of incurring this expenditure. Ld. CIT(A) has therefore rightly held that the impugned expenditure cannot be categorized as capital in nature. There is no merit in the arguments of Ld. DR, since it is settled law that enduring benefit alone is not a c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that all the payments were made for inserting advertisements in souvenirs and business journals, as is common practice in the trade, to propagate the work and achievement of the assessee. Ld. CIT(A) held that expenditure on advertisement is allowable and directed the Assessing officer to allow the same after verification. Before us, the Ld. DR relied upon the order of the Assessing officer, while the Ld. AR relied upon the order of the CIT(A). 37. We have heard the rival submissions and perused the material available on record. 38. We find no infirmity in the order of CIT(A). Advertisement is an allowable business expenditure and the Ld. CIT(A) has rightly directed the Assessing officer to verify whether the expenses are in the nature of advertisement and accordingly allow the same. The Ld. CIT(A) has not allowed the claim of the assessee as such. Therefore, to this extent the ground raised by the Revenue is incorrect. In view of the same, we uphold the order of the Ld. CIT(A) in directing the Assessing officer to verify the expenses and allow the same if found to be in the nature of advertisement. 40. This ground of appeal of the Revenue is dismissed. 41. Ground No.6 of the....