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Commissioner of Income Tax-II Versus M/s. Krishi Utpadan Mandi Samiti

2012 (10) TMI 26 - SUPREME COURT

Trust - application of income for charitable purposes - assessee, a Market Committee incorporated and registered under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 - assessee collects fees etc and transfer to Mandi Parishad for utilisation of same for charitable purposes and purposes as guided by State Government or the Board - Revenue contended that amounts transferred by the assessee to Mandi Parishad cannot constitute application of income for charitable purposes within the meaning .....

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12 of 1964 Adhiniyam for the advancement of the object of general public utility in terms of Section 2(15). Moreover, it is always open to the Department to verify and find out whether the Mandi Parishad has utilized the amounts for the purposes of 1964 Act. - Under Section 19(2) of 1964 Adhiniyam, all expenditure incurred by the assessee in carrying out the purposes of 1964 Adhiniyam has to be defrayed out of the Market Committee Fund and the surplus, if any, has to be invested in such man .....

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ons of Section 11(1)(a) of 1961 Act. Therefore, income has been applied for charitable purposes. Also, Assessing Officer had erred in invoking Section 12(1) since question of “control” may be relevant in the context of Section 11(1)(d) or u/s 12(1). However, in the present case, the question framed deals with application of income u/s 11(1)(a) - Decided against Revenue. - CIVIL APPEAL NO.7040 OF 2012 - Dated:- 27-9-2012 - S.H. KAPADIA AND MADAN B. LOKUR, JJ. JUDGMENT S.H. KAPADIA, CJI Heard lear .....

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d and registered under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 [ 1964 Adhiniyam , for short]. The assessee carries out its activities in accordance with Section 16 of 1964 Adhiniyam under which it is required to provide facilities for sale and purchase of specified agricultural produce in the Market Area. The Members of the said Market Committee consist of producers, brokers, agriculturists, traders, commission agents and arhatiyas. The source of income of the assessee is in the f .....

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ket Committee. Under Section 16(1) of 1964 Adhiniyam, the Market Committee is under statutory obligation to enforce the provisions of 1964 Adhiniyam, the Rules and Bye-laws made thereunder so as to provide such facilities for sale and purchase of specified agricultural produce, as may be specified by the Mandi Parishad from time to time. Section 17 of 1964 Adhiniyam deals with powers of the Mandi Samiti. Section 17(iii), inter alia, empowers the Mandi Samiti to levy and collect market fee payabl .....

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ndi Parishad and Mandi Samiti. Section 19 deals with constitution of Market Committee Fund and its utilization. Section 19(1) stipulates that all monies received by Mandi Samiti shall be credited to a fund called Market Committee Fund . Section 19(2), inter alia, states that all expenditure incurred by the Committee in carrying out the purposes of 1964 Adhiniyam shall be defrayed out of Market Committee Fund and surplus, if any, shall be invested in such manner as may be prescribed. The expenses .....

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Fund shall be utilised has been indicated. Section 26-A of 1964 Adhiniyam deals with establishment of Mandi Parishad [Board]. Under 1964 Adhiniyam, the Board shall be a body corporate. Section 26-P, inter alia, states that the Mandi Parishad [Board] shall have its own fund which shall be deemed to be a local fund and in which shall be credited all monies received by or on behalf of the Board, except monies required to be credited in the State Marketing Development Fund under Section 26-PP. Unde .....

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und under Section 26-PP. The State Marketing Development Fund shall be utilized by the Mandi Parishad [Board] for purposes indicated under Section 26-PP(2). Section 26-PPP deals with establishment of Central Mandi Fund to which amounts specified in sub-section (1) shall be credited. Section 26-PPP(2), inter alia, states that the Central Mandi Fund shall be utilized by Mandi Parishad [Board] for rendering assistance to financially weak and under- developed Market Committees; that the Funds would .....

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from 1st April, 2003, that the word Local Authority has lost its restricted meaning and, therefore, the assessee [Market Committee] has to satisfy the conditions of Section 12AA read with Section 11(1)(a) of 1961 Act, like any other body or person. According to Shri Rajiv Dutta, learned senior counsel for the Department, in view of the said Amendment vide Finance Act No.2 of 2002, the assessee has to show that, during the relevant Assessment Year, income has been derived from property held under .....

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by the assessee but is made by another entity, i.e., Mandi Parishad, whose Accounts are not verifiable and, therefore, according to the Department, such income will not get the benefit of exemption under Section 11(1)(a) of 1961 Act. We find no merit in this contention. In this case, we have analysed the scheme of 1964 Adhiniyam. In this case, the Department has not withdrawn the registration under Section 12AA of 1961 Act. In this case, we are only concerned with the question as to whether tra .....

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terms of Section 2(15) of 1961 Act. [See also Section 16 of 1964 Adhiniyam]. Moreover, it is always open to the Department to verify and find out whether the Mandi Parishad has utilized the amounts for the purposes of 1964 Act. The question is what do we mean by application of income ? This judgment is confined to the statutory scheme of 1964 Adhiniyam. Under Section 19(2) of 1964 Adhiniyam, all expenditure incurred by the assessee in carrying out the purposes of 1964 Adhiniyam [which includes a .....

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er Section 19-B(3), assessee is statutorily obliged to utilize the amounts lying to the credit in the Market Development Fund for extending facilities to the agriculturists, producers and payers of market fees. The Market Development Fund is also to be statutorily utilized for development of market yards. Similarly, all contributions received by the Market Committee [Mandi Samiti] from its members under Section 19(5) shall be statutorily paid by the Market Committee [assessee] to Uttar Pradesh S .....

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charitable purposes which includes advancement of an object of general public utility. Consequently, we see no reason to interfere with the impugned judgement of the High Court. Before concluding, one point needs to be highlighted. In one of the matters, the Assessing Officer has held that, on the facts and circumstances of the case, the assessee was not entitled to avail the benefits of exemption under Section 12(1) of 1961 Act, despite the fact that it was registered under Section 12AA of 196 .....

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