TMI Blog2007 (9) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO on the ground that the benefit of registration was not conferred on it under s. 12AA. Accordingly, total income was determined at Rs. 77,36,920. The assessee had claimed expenses on construction and repair work of buildings, roads, etc. which were treated by the AO as capital in nature. This disallowance was made because the status of the assessee was taken by the AO as 'local authority' as against 'public charitable institution' claimed by the assessee. It is a matter of record that the Jodhpur Bench of the Tribunal granted registration under s. 12A subsequently but prior to the passing of the impugned order. The learned CIT(A), therefore, noted that the correct status of the assessee has become "public charitable institution" and hence there was no question 'of disallowability on account of capital nature of expenditure. He considered the meaning of the word 'application' for the purposes of s. 11 and came to hold that any capital expenditure which is otherwise not considered as an allowable expense is also treated as expenditure and hence if such amount of expenditure serves the object and purposes of the organization, it is to be treated as 'application', irrespective of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat if any amount is applied/expended for providing facilities as specified in sub-s. (9A) of s. 19 of Rajasthan Agriculture Produce Markets Act, 1961 outside the market area defined in s. 4, the utilization of market fund should not be treated as spent to meet the objects of the public charitable institutions. Against this finding of the learned CIT(A), the assessee has come up in appeal before us. The Revenue is aggrieved to the extent of assessee's submissions accepted in the first appeal by which utilization within the market area and to the expenditure actually spent by the Rajasthan Rajya Krishi Board in this year has been accepted as application of income. 4. We have heard both the sides and perused the relevant material on record. This ground of the assessee basically involves the adjudication upon the two points viz., firstly, whether contribution made to the Rajasthan Rajya Krishj Board, Jaipur [hereinafter called as the Board), would be considered as application irrespective of the fact that the amount has been actually spent by the Board in the relevant year and secondly, whether whole utilization of the funds by the Board including spent outside the local jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, the learned CIT(A) has held that only the amount actually spent by the Board should be treated as application and not the entire amount. In this regard, the learned CIT(A) has relied on the judgment of the Hon'ble Supreme Court in the case of Thanthi Trust. On going through the facts of that case, it transpires that some amount was credited in favour of educational institution and they had drawn from the trust larger sums than what was credited in its favour. The AO held that the credit entries did not amount to application of income. When the matter came up before the Hon'ble High Court, it was held that the amounts credited in favour of the educational institutions did not disentitle the assessee to exemption under s. 11 as there was no doubt about the genuineness of the entries in the books of account. The Hon'ble High Court has recorded a categorical finding that "on the material on record, we are not in a position to say that after making credit entries, the assessee retained any control over the money or beneficial ownership therein". It was further held that "the Revenue cannot insist that unless the educational institution expends the amount donated by the assessee with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. The above-referred decision of the Hon'ble Supreme Court clearly governs the facts of the instant case, "as the Revenue cannot insist that the amount given by the assessee must be spent within the same year". The situation would have been otherwise if the assessee had been in a position to call back the unspent amount from the Board at the end of the year, which obviously is not so. If the case of the Revenue is accepted, it would render absurd results. Suppose, the assessee committee earns Rs. 100 and gives equal amount to the Board out of which a sum of Rs. 60 is spent by the Board and Rs. 40 remains unspent at the end of the year, which amount is, in fact, utilized in the succeeding years again in which the assessee has hypothetically earned Rs. 100 and utilized the said sum for its charitable object. In such a case, in the first year the assessee would be subjected to tax on the remaining portion of Rs. 40, which has not been spent by the Board and in the second year as against the total income of Rs. 100, application of income would become Rs. 140, i.e., Rs. 100 spent in the second year and Rs. 40 brought forward from the first year which has been spent by the Board in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Market Committee Fund or the Marketing Development Fund shall be spent and the manner in which the surpluses with the Board or the committee shall be kept." From the language of the above section, there remains no doubt that the State Government has been empowered to give instructions to the Board or committee and such instructions may include directions relating to the purposes for which the market committee fund or marketing development fund shall be spent. The case before us is of the committee constituted under the Act of 1961 by the State Government and which is subject to supervision and control of the State Government. The amount contributed to the Board towards the construction activity outside the local limits of the committee does not lie within its discretion. It has to act as per the instruction of the State Government. In case it is directed to contribute towards any charitable activity extending beyond its local jurisdiction, the assessee cannot say no and has to comply with the order. So long as the activity remains charitable and is as the purposes defined in the Act, in our considered opinion. no fetters can be placed on the committee for not spending the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been disposed of supra. We, therefore, allow ground No. 2 and dismiss ground No. 3. 12. The only other ground, which has been raised in these two appeals is against not allowing contribution made for renovation of Gang Canal for computing the application of 85 per cent of the income. 13. Para 25 of the impugned order contains the relevant facts as per which the assessee deposited a sum of Rs. 9,52,000 and Rs. 15,00,000 in the asst. yrs. 2003-04 and 2004-05, respectively with the State Government as per instruction of the Agriculture Marketing Directorate, Jaipur, which amount was to be utilized for renovation of Gang Canal. It was pleaded on behalf of the assessee before the learned first appellate authority that the contribution so made was in due course of business of the assessee and the AO had ignored the basic object of public welfare and utility of Krishi Upaj Mandi Samiti. The learned CIT(A) held that the contribution made for these two years cannot be treated as application of income and the amount was only deposited with the State Government which was not actually applied/expended during the relevant assessment year. 14. Having heard both the sides and perused the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts apropos of this ground are that the assessee paid a fixed percentage, as prescribed, of the income derived by it from licence fee, market fees and fines imposed by the Courts as per the provisions of s. 18 of the Act. The AO did not accept the assessee's contention but the learned CIT(A) came to hold that such payment was application of income for charitable purposes. 20. After considering the rival submissions and perusing the relevant material on record, it is noted that the assessee had paid contribution to the Board at a fixed percentage of the income derived from the licence fee, market fees and fines, etc. as per the provisions of the Act. Once this amount is included in the total receipts, its payment has to be treated as application of its income. As per the provisions of the State 1961, Act, the assessee was obliged to make payment to the Board and the amount so collected was payable to the Board since inception. It may be another thing that the licence fee, etc., to the extent it is payable to the Board, is neither treated as income nor application. But, once the amount is received by the assessee and is treated as its income, its subsequent payment to the Board can ..... 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