TMI Blog2005 (3) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 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 commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined 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 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-cl. (ii) shall be passed unless the applicant has been given a reasonable opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ofPAMPA. 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 ofPAMPAvest assessee with quasi-judicial powers. These clearly impinge upon the independence of the committee to pursue any objects of public utility (in case of Market Committees). 21 to 60 685/Chd/2003 M.C. Thaneswar CIT, Karnal (Mr. Aneja) 1. Basic requirement of filing the instrument of creation along with application has not been satisfied. 2. Explanation to s. 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, public or social. The ShorterOxfordEnglish 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 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, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered 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 Commerce Industry (1981) 22 CTR (SC) 124 : (1981) 130 ITR 186 (SC) (iv) CIT vs. World Agriculture Fair Memorial Farmers Welfare Trust Society (1984) 42 CTR (Del) 145 : (1985) 155 ITR 370 (Del) (v) CIT vs. Andhra Pradesh State Road Transport Corpn. (1986) 52 CTR (SC) 75 : (1986) 159 ITR 1 (SC) (vi) Director of Income-tax vs. Bharat Diamond Bourse (2003) 179 CTR (SC) 225 : (2003) 259 ITR 280 (SC) Shri Vohra further submitted that the assessees made applications for registration after 1st April, 2003, when Explanation to s. 10(20) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 genuineness of activities. The Board's memorandum explaining the amendment Bill assumes that s. 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 s. 253 of the IT Act w.e.f.1st June, 1999. An important amendment was brought to s. 10 of the IT Act. By the Finance Act, 2002, the s. 10(20), s. 10(29) and s. 10(20A) were amended and exemptions ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and active principle..... a public library may, I think, be property called and institution in that sense'.ManchesterCorpn. 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 a public institution within the meaning of s. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessees 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 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 RoadTransport Corpn. established under Road Transport Corporation Act, 1950, has been treated as a charitable institution under s. 2(15) of IT Act [See Andhra Pradesh State Road Transport Corpn. vs. CIT 1975 CTR (AP) 43 : (1975) 100 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, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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-laws made thereunder in the notified market area and, when so required by the Board, to establish a market therein providing such facilities for persons visiting it in connection with the purchase, sale, storage, weighment and processing of agricultural produce concerned as the Board may from time to time direct; (b) to control and regulate the admission to the market, to determine the conditions for the use of the market and to prosecute or confiscate the agricultural produce belonging to person trading without a valid licence; (c) to bring, prosecute or defend or aid in bringing, prosecuting or defending any suit, action, proceeding, application or arbitration, on behalf of the committee or otherwise when directed by Board. (2) Every person lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the employees; (xvi) expenses incurred in auditing the accounts of the Board; (xvii) with the previous sanction of the State Government, any other purposes which is calculated to promote the general interests of the Board and the Committee (or the national or public interest) : Provided that if the Board decides to give aid of more than five thousand rupees to financially weak Committees under cl. (vii), the prior approval of the State Government to such payment shall be obtained." Sec. 27 provides for establishment of market committee fund. The purposes for which the market committee funds may be expended are given in s. 28 and are as under : "27. Market Committee Fund : (1) All moneys received by a Committee shall be paid into a fund to be called the Market Committee Fund and all expenditure incurred by the Committee under or for the purposes of this Act shall be defrayed out of such fund, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, draught cattle, vehicles and pack animals coming or being brought to the market or on construction and repair of link roads approach roads, culverts, bridges and other such purposes; (ix) expenses incurred in the maintenance of the offices and in auditing the accounts of the Committees; (x) propaganda in favour of agricultural improvements and thrift; (xi) production and betterment of agricultural produce; (xii) meeting any legal expenses incurred by the Committee; (xiii) imparting education in marketing or agricultural; (xiv) payments of travelling and other allowances to the members and employees of the Committee, as prescribed; (xv) loans and advances to the employees; (xvi) expenses of and incidental to elections; and (xvii) with the previous sanction of the Board, any other purpose which is calculated to promote the general interest of the committee or the notified market area (or with the previous sanction of the State Government, any purpose calculated to promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 objects for general public utility, the institution would remain charitable, even if an incidental non-charitable object for achieving that purpose was contemplated. In the case of Andhra Chamber of Commerce, it was held that a chamber of commerce did not cease to be charitable merely because the members of the chamber were incidentally benefited in carrying out its main charitable purpose. This Court approvingly followed the ratio in the case of IRC vs. Yorkshire Agricultural Society (1928) 1 KB 611 (CA) and Institution of Civil Engineers vs. IRC (1932) 1 KIB 149 (CA), for reaching the conclusion that merely because some facilities incidentally arose to the members of a society or institution in the course of carrying out its main charitable purpose, that by itself would not prevent the institution from being a charity. All subsequent judgments have noticed and followed the judgment of the Constitutional Bench in Surat Art Silk s case and the dominant purpose test evolved therein and applied them to the facts before them. Applying this dominant purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CITs in the impugned orders have not brought any material on record to show that assessees were non-charitable institutions, established for personal or private gains. Therefore, prima facie we do not find any objectionable material to treat these institutions as non-charitable. The registration is compulsory to claim exemption under ss. 11 to 13 of IT Act but registration per se cannot be treated as conclusive. It is open to Revenue authorities, while processing returns of income of these assessees, to examine the claim of the assessees under ss. 11 to 13 of IT Act and give such status to these institutions as is warranted by the facts of the case. We hold accordingly. 14. Under s. 12A of IT Act which has been quoted above, one of the conditions for registration is the submission of application in the prescribed form within the time specified in cl. (a) of the section. In the present case, the learned CITs in most of the cases have condoned the delay and, therefore, this condition is fully satisfied. In certain other cases, their applications were treated as out of time. This approach, in our view, is not justified having regard to the fact that change in the statutory pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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