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TMI Blog2008 (3) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Act and the law in the field overturned the order passed by the Commissioner of Income-tax (Administration) and directed him to grant registration to the assessee. 3. Questioning the justifiability of the order passed by the Tribunal, the Revenue has preferred the present set of appeals. It is worth noting that as the appeals were preferred at various points of time different questions of law were framed. In view of the aforesaid, a suggestion was given to the learned counsel for the Revenue and learned counsel for the assessees as to whether it should be apposite to frame a single substantial question of law by recasting the same. Learned counsel for the parties fairly accepted the said suggestion and accordingly, the following substantial question of law is recast : "Whether the Income-tax Appellate Tribunal was justified in directing the Commissioner of Income-tax (Administration) to extend the benefit of registration under sections 12A and 12AA of the Act to the assessees in spite of the fact, there has been amendment of sections 10(20) and 10(29) of the Act solely on the foundation that they are entitled to registration as the activities of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as an institution as defined under section 2(15) of the Act and, therefore, conceptually market committee cannot be put on a pedestal of a charitable trust. (d) Section 12AA, as per the decisions of two Division Benches, has been treated to be absolutely procedural or in the realm of adjective law though the enquiry sought to be conducted by the Commissioner of Income-tax pertains fundamentally to the substantive spectrum which has insegregable nexus with the entitlement of grant of registration. (e) The object and the purpose of the 1972 Act and the role assigned to the Krishi Upaj Mandi Samitis under the said enactment per se cannot be said to be charitable. In the absence of any factual data brought on record both Division Benches have adverted to the statutory provisions without appreciating the factual matrix as a consequence of which error has crept in. (f) Assuming the objects and purpose of the enactments are to govern, yet in the Act, there is a provision that the Krishi Upaj Mandi Samitis are bound to transfer the amount when directed by the State Government and in that event they lose the character of charitable institution inasmuch as there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Bench is absolutely correct. (iii) The amendment that has been introduced amending the provision under section 10(20) and omitting section 10(29) do not really affect that status of Krishi Upaj Mandi Samitis for getting registration in the absence of amendment of section 2(15). (iv) The grant of registration is a condition precedent for claiming exemption under section 11 of the Act and the Division Bench though has opined that it is eligible for grant of exemption, the said opinion is to be construed that Krishi Upaj Mandi Samitis are entitled to get exemption as per law, i.e., on fulfilling the conditions incorporated under section 11 of the Act. (v) The provisions in the 1972 Act conferring power on the State Government for transmitting the amount to the State Government do not frustrate the object and the purpose of the Act inasmuch as the section 12AA of the Act is applicable to conceptual eventuality of statutory obligation if they are patent and manifest. (vi) Regard being had to the object of the 1972 Act under which the samitis have been formed, use of a part of the fund cannot be central or seminal factor for grant or refusal of registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption from payment of tax under section 11(1)(a) of the Act is not tenable. On a perusal of the decision rendered in Krishi Upaj Mandi Samiti, Morena (No. 1) [2009] 308 ITR 380 (MP), it is evincible that the Division Bench in para 30 was posed with the question with regard to entitlement of exemption by the Krishi Upaj Mandi Samitis. The Division Bench has held, the exemption can be granted to the marketing committees provided that they spend the amount for charitable purposes as required by sub-section (2) of section 11. However, in para 35, the Division Bench has opined that the market committees fulfil all the requirements of section 11 to get exemption and, therefore, are entitled to registration under section 12A and section 12AA of the Act. The Division Bench at Indore has reiterated the same view. 10. Mr. Rohit Arya, learned senior counsel, has seriously criticized the aforesaid finding and submitted that the exemption cannot be granted per se. Learned counsel appearing on behalf of the assessee-respondents do not dispute the said legal proposition. Mr. Arya, has submitted that the Bench at Gwalior in Krishi Upaj Mandi Samiti, Morena (No. 1) (supra) has referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple in view, when the judgment is read in that context, it would be quite clear that the enumeration by the Division Bench at Gwalior of section 11 is only for the limited purpose of determination of charitable character of the samitis. Therefore, there is no need for reconsideration of the decisions by the larger Bench. 14. Presently, we shall advert to the aspect whether the Krishi Upaj Mandi Samitis are really entitled in law to get the benefit of registration under the scheme of the Act. We may refer to the dictionary clause in section 2(15) of the 1961 Act. Section 2(15) defines charitable purpose which reads as under : "`charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." 15. The aforesaid provision came to be interpreted by the Constitution Bench in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) ; AIR 1980 SC 387, wherein the majority culled out the following principles (headnote) : "ii. Where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out by engaging in an activity which has a predominant profit motive, there would be no scope for controversy because the purpose would, on the face of it, involve the carrying on an activity for profit and it would be non-charitable even though no activity for profit is actually carried on. vii. The test which has now to be applied is whether the pre-dominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But, where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. `If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) That the primary objects of the chamber of commerce were not vague or indefinite. (v) That an object of general public utility, such as, promotion, protection, aiding and stimulation of trade, commerce and industries, need not, to be valid, specify the modus or the steps by which the object might be achieved or secured. (vi) That, if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into. The political domain for achieving that purpose, e.g., promotion or opposition to legislation concerning that purpose, was contemplated. It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures. Such an object ought to be regarded as purely ancillary or subsidiary and not the primary object. (vii) That, therefore, the income of the chamber of commerce from its building was exempt from tax under section 4(3)(i) of the Income-tax Act as the building was held under a legal obligation wholly for charitable purposes." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration [1986] 159 ITR 1 (SC), we find that, in the present case, the Gujarat Maritime Board is established for the predominant purpose of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of sections 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in the State of Gujarat. In the circumstances, in our view, the judgment of this court in Andhra Pradesh State Road Transport Corporation [1986] 159 ITR 1 (SC) squarely applies to the facts of the present case. 17. Before concluding, we may mention that under the scheme of section 11(1) of the 1961 Act, the source of income must be held under trust or under other legal obligation. Applying the said test it is clear that the Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor ports in the State of Gujarat. Therefore, they are entitled to be registered as `charitable trust' under section 12A of the 1961 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Krishi Upaj Mandi Samiti, Morena (No. 1) (supra) are of prima facie in nature. The Bench at Indore has followed the said judgment. It is absolutely unambiguous that section 11 is independent of sections 12A and 12AA. In fact, it has been held by the apex court in the case of Gujarat Maritime Board [2007] 295 ITR 561 that section 12A and section 12AA are in the nature of Explanation to section 11. The apex court after expressing the said opinion has held that the respondent-assessee was a charitable trust and held that it is entitled to registration. The lis in the present appeal was whether the Tribunal was justified in directing the Commissioner of Income-tax (Administration) to register the Krishi Upaj Mandi Samitis. Appeals are restricted to that. Thus, by grant of mere registration to the assessees, ipso facto, they cannot claim exemption. They have to satisfy the conditions precedent enumerated in the said provision. In this context we may usefully refer to the decision rendered by a Division Bench of the High Court of Punjab and Haryana in CIT v. Market Committee [2007] 294 ITR 563 (P&H) ; [2008] 166 Taxman 392 (P&H), wherein the Bench has expressed the view as under (page ..... X X X X Extracts X X X X X X X X Extracts X X X X
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