TMI Blog2016 (3) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of which was allowed has application of income in earlier year is to be allowed while computing the income available for application for charitable purpose. The CIT(A) rightly directed the A.O. to allow the depreciation. We do not see any error or infirmity in the order passed by the CIT(A). Application of income towards release of funds to Horticulture department - Held that:- The assessee being a State Govt. organization, constituted under sec. 15 Andhra Pradesh (Agricultural Produce and Livestock) Market Act, 1966 is authorized to spend funds specified by the Government through general or special orders. Therefore, when the Government is directed to spend amount for particular purpose as per the said Act, the assessee is bound to follow the instructions of the Government. The amount is paid to farmers in the form of horticulture subsidy for establishment of cold storage facility, which is coming under one of the objects of the assessee. Therefore, we are of the opinion that the amount spent for the welfare of farmers and paid through horticulture department as directed by the Govt. is application of income for charitable purpose. The CIT(A) has rightly deleted the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of information available on record. 3. During the course of assessment proceedings, the A.O. noticed that the assessee has claimed exemption under sec. 10(26AAB) of the Act. The A.O. further noticed that the Hon ble A.P. High Court vide its order in ITA No.126 of 2011 dated 21.4.2011 in the assessee s own case for the Assessment Year 2004-05 had held that section 10(26AAB) of the Act is prospective in nature and accordingly applicable from Assessment Year 2009-10 onwards. Therefore, issued a show cause notice dated 28.11.2011 and asked to explain why the exemption claimed u/s 10(26AAB) of the Act should not be denied. The assessee neither appeared nor filed any explanations to the show cause notice issued by the A.O. objecting the proposed rejection of exemption. The A.O. further noticed that there was an excess of income over expenditure of ₹ 45,03,292/- for the year under consideration. It was further noticed that the assessee has filed form no.10 along with return of income and accumulated income u/s 11(2) of the Act. On verification of the form no.10 filed by the assessee, the A.O. noticed three defects in the form, i.e. (1) the assessee did not specified t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the facts and circumstances of the case and also considering the fact that the assessee is enjoying registration under sec. 12A of the Act, allowed to file revised form no. 10 rectifying the said defects and allow the benefit of exemption u/s 11 12 of the Act. The CIT(A), after considering the explanations furnished by the assessee, held that the form no. 10 filed by the assessee is valid as the assessee has clearly mentioned the purpose for which the income was accumulated. However, the CIT(A) held that the assessee has failed to mention specific period for which the amount is accumulated and amount of income which was accumulated, which is a serious shortcoming in the form no.10, which is the effect of rendering it invalid. The CIT(A), further observed that section 11(2) of the Act, stipulates that the income sought to be accumulated and the period of accumulation should be specified. Since, the same have not been done I hold that accumulation of income cannot be permitted as sought by the appellant. 5. As far as the issue of depreciation is concerned, the assessee submitted that the Assessing Officer should have allowed the depreciation as a deduction while computi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . submitted that depreciation is not allowable deduction in the case of trusts claiming exemption u/s 11 12 of the Act. The Ld. D.R., further submitted that once the whole expenditure incurred towards acquisition of capital asset is allowed as deduction as application of income, further deduction towards depreciation amounts to double deductions, the same cannot be allowed in computing the income available for application u/s 11 of the Act. 8. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The Assessing Officer denied the benefit of exemption u/s 11 of the Act, for the reason that the form no.10 filed by the assessee is defective in nature. The Assessing Officer was of the opinion that the assessee has filed form 10 without specifying the purpose for which the income was accumulated and purpose mentioned by the assessee was general in nature. The Assessing Officer further was of the opinion that the assessee has not mentioned the period for which the income was accumulated and also the amount of income accumulated was not quantified in the form no 10 filed along with return. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) upheld the assessing officer s contention that the notice for accumulation has not specified any specific purpose and the general purpose which was mentioned in form no.10 cannot be termed as specific and concrete purpose and as such there exists incurable infirmity with regard to the purpose for which the accumulation of its income has been sought. Therefore, despite the grant of registration u/s 12AA, the assessing officer and CIT held that assessee failed in complying with the provisions of section 11(2) of the Act in so far as failing to indicate specific purpose for accumulation of its income. 4. It was fairly admitted that this issue was covered by the decision of the coordinate bench in similar group of cases, wherein the matter was set aside to the file of the assessing officer by observing as under: 6. The first defect pointed out by the Assessing Officer is with regard to the purpose of accumulation of funds. In the Form No. 10, these assessees have stated the purpose of accumulation as under:- For betterment of market Committee including Construction of Structures, Spillover works, New works, to contribute fund to any department as per n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific. 6. Further, Hon ble Punjab Haryana High Court in the case of CIT Vs. Market Committee 201 Taxman 235 also considered similar issue and held as under: Where in the application for accumulation of income, the assessee had stated that accumulation of the funds has been made for development of works and Tribunal clearly found that the purpose stood specified and it was statutory purpose for utilizing the amount i.e. development as per s. 28 of Punjab Agriculture Produce Marketing Act, no substantial question of law arose from the order of the Tribunal allowing exemption under s.11(2). 7. The Hon ble High Court vide para 2 of its judgement discussed the issue in detail as under:- 2. The assessee is a statutory body under the provisions of Punjab Agriculture Produce Marketing Act, 1961 (hereinafter referred to as the PAPM Act ). The AO made addition to the declared income on account of accumulation of funds without compliance of conditions under s. 11(2) of the Act. On appeal the said addition was deleted by the CIT(A) holding that the accumulation was as per the statutory provisions. The said view has been upheld by the Tribunal as follows : M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; (b) ** 8. Respectfully following principles laid down by the above, we direct the assessing officer to consider the claim of section 11(2) afresh in the light of the judgements on the issue. Therefore, the issue of accumulation of income as per provisions of section 11(2) is restored to the file of the assessing officer with a direction to examine and allow the claim after affording due opportunity of being heard to the assessee. 10. Considering the facts and circumstances of the case, we are of the opinion that the Assessing Officer and the CIT(A) was erred in rejecting the revised form no. 10 and denied the benefit of exemption u/s 11(2) of the Act. On perusal of facts, we noticed that the assessee has filed form no.10 along with return of income specifying the purpose for which the income was accumulated. The other two defects pointed out by the A.O. are technical in nature, it can be cured at any time before completion of assessment. In the present case on hand, the assessment is completed in the absence of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee further contended that the decision of Escorts Limited (supra) is rendered under different context, which cannot be made applicable to the facts of present case. 12. We have considered the rival contentions, perused the materials available on record and gone through the case laws. The Ld. A.R. submitted that the issue of depreciation is squarely covered by the decision of ITAT, Visakhapatnam in ITA No.226/Vizag/2009. The A.R. drawn our attention to the Hon ble Karnataka High Court decision in the case of CIT vs. Society of Sisters of St. Anne (1984) 146 ITR 28. The Coordinate Bench of this tribunal, in the above case, under similar circumstances allowed the claim of depreciation. The relevant portion is reproduced hereunder: 11. The third issue agitated is with reference to the claim of depreciation not allowed for want for details. There is no dispute with reference to the issue that assessee is eligible for depreciation. Various judicial authorities have considered the issue of claim of depreciation on capital assets from the income of charitable trust for determining the quantum of funds which have to be applied for the purpose of trust in terms of section 11 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er disallowed the amount paid to horticulture department for the reason that the assessee has paid the amount to other departments/organizations, which are not charitable institutions registered u/s 12AA of the Act. When a donor trust/institution donates its income to another trust having similar objects, the provisions of section 11(1)(a) of the Act said to have been met by such donor trust/institution and the donor trust can be said to have applied its income for charitable objects. But, in the present case, the assessee diverted its funds to other department/organizations which are not charitable trust/institution, therefore, the payments made to other departments is not eligible for exemption u/s 11 of the Act. It was the contention of the assessee that the amount is paid to farmers on the directions of the Horticulture department, therefore, the said amount is eligible for application of income. The assessee further stated that the said amount was paid as per the directions of the State Government and any amount paid as per the orders of the Government to other organizations would come within the purview of section 15 of the Andhra Pradesh (Agricultural Produce and Livestock) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence before us. However, allowance of the expenditure consequent to the directions of Director of Marketing has already been decided in a way by Hon ble Jurisdictional High Court in the case of CIT Vs. Agricultural Market Committee, Giddalore and Ors. 336 ITR 641. There, while examining the issue of granting of registration to the Agricultural Market Committee as such, the Hon ble jurisdictional High Court examined the provisions of section 15 of Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 under which the Agricultural Market Committees were constituted. Vide para 12 of the judgement, the issue was considered elaborately as under: 17. The decision of the Supreme Court in Sreenivasa General Traders vs. State of A.P., AIR 1983 SC 1246 : (1983) 4 SCC 353, contains an overview of the AMC Act in paras 11 to 15. Instead of this Court again giving an overview of the Andhra Pradesh AMC Act, it is useful to extract these paras hereunder : 11. The object and purpose of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 as reflected in the long title is to consolidate and amend the law relating to the regulation of purchase and sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, after the establishment of a market under sub-s. (3), declare by notification the market area and such other area adjoining thereto as may be specified in the notification, to be a notified market area for the purposes of the Act. . . . . . . 12. Under the scheme of the Act, the market committee is enjoined by sub-s. (1) of s. 14 to pay into a fund called the 'Market Committee Fund' all moneys received from the traders as market fee on transactions of sale or purchase of agricultural produce taking place within the notified market area and they are to be credited in the nearest Government treasury or in a bank, with the previous sanction of the State Government. All expenditure incurred by the market committee under and for purposes of the Act have to be defrayed out of the said fund and any surplus remaining after such expenditure, has to be invested in such manner as may be prescribed. Under sub-s. (2), every market committee has to pay to the State Government out of its Fund the cost of any special or additional staff employed by the Government with their consultation. Where such additional staff is employed for the purposes of one or more market committee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontribute 10 per cent of its annual income to the Central Market Fund and the contribution so paid shall be placed to the credit of the said Fund. Sub-s. (2) of s. 16 provides that the Central Market Fund shall be vested in the State Government and deposited in the Government treasury at Hyderabad. It is administered and applied by the Director of Marketing for all or any of the purposes set out therein viz. ; 1(i) grant-in-aid of the market committees for the first year after their constitution under this Act; (ii) grant-in-aid of a deficit market committee for a period not exceeding three years; (iii) grant of loans to the market committees at such rates of interest as are charged on loans granted by the Government for development purposes; and (iv) such other similar or allied purposes as may be specified by the Government by general or special order.' 14. In exercise of the powers conferred by s. 33 of the Act, the State Government of Andhra Pradesh have framed the Andhra Pradesh (Agricultural Produce and Livestock) Markets Rules, 1969. Chapter IV of the Rules deals with the powers and functions of the market committees and Chapter V deals with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual succession and a common seal with power to acquire, hold and dispose of the property and may by its corporate name sue and be sued. It is required to establish as many number of markets as the Government may direct for the purchase and sale of notified agricultural produce and shall provide such facilities as may be prescribed by the Government [s. 4(3)(a) of the AMC Act]. There is no dispute that all the AMCs provide platforms, godowns, necessary infrastructural facilities like roads, rest houses, water facilities in the market areas and cater to the needs of the sellers and buyers of the agricultural produce in the notified market area. Can it then be said that the AMC is constituted for a charitable purpose i.e., for the advancement of object of general public utility? 10. The Hon ble High Court went on to discuss the issue elaborately. Suffice to say it was admitted that Govt has power to give directions and such payment as per provisions of governing Act has to be considered for the objects only. Therefore, the issue is no longer res integra as the State Government has power to grant/sanction amounts for any other purpose by a general or specific order. These funds a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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