REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7040 OF 2012
(Arising out of S.L.P. (C) No.20186 of 2010)
Commissioner of Income Tax-II ...Appellant(s)
Versus
M/s. Krishi Utpadan Mandi Samiti ...Respondent(s)
W I T H
Civil Appeal No.7041/2012 @ S.L.P. (C) No.20187 of 2010, Civil Appeal
No.7042/2012 @ S.L.P. (C) No.24153 of 2010, Civil Appeal No. 7044/2012 @
S.L.P. (C) No.28056 of 2010, Civil Appeal No.7045/2012 @ S.L.P. (C)
No.29319 of 2010, Civil Appeal No.7046/2012 @ S.L.P. (C) No.26135 of
2010, Civil Appeal No.7047/2012 @ S.L.P. (C) No.30949 of 2010, Civil
Appeal No.7048/2012 @ S.L.P. (C) No.31204 of 2010, Civil Appeal
No.7049/2012 @ S.L.P. (C) No.33083 of 2010, Civil Appeal No.7050/2012 @
S.L.P. (C) No.224 of 2011, Civil Appeal No.7051/2012 @ S.L.P. (C) No.225
of 2011, Civil Appeal No.7052/2012 @ S.L.P. (C) No.226 of 2011, Civil
Appeal No.7053/2012 @ S.L.P. (C) No.2019 of 2011, Civil Appeal
No.7054/2012 @ S.L.P. (C) No.3080 of 2011, Civil Appeal No.7055/2012 @
S.L.P. (C) No.4770 of 2011, Civil Appeal No.7056/2012 @ S.L.P. (C)
No.6328 of 2011, Civil Appeal No.7057/2012 @ S.L.P. (C) No.7512 of 2011,
Civil Appeal No.7058/2012 @ S.L.P. (C) No.11938 of 2011, Civil Appeal
No.7059/2012 @ S.L.P. (C) No.13820 of 2011, Civil Appeal No.7060/2012 @
S.L.P. (C) No.16812 of 2011, Civil Appeal No.7061/2012 @ S.L.P. (C)
No.16960 of 2011, Civil Appeal No.7062/2012 @ S.L.P. (C) No.17034 of
2011, Civil Appeal No.7063/2012 @ S.L.P. (C) No.17718 of 2011, Civil
Appeal No.7064/2012 @ S.L.P. (C) No.17719 of 2011, Civil Appeal
No.7065/2012 @ S.L.P. (C) No.17720 of 2011, Civil Appeal No.7066/2012 @
S.L.P. (C) No.17721 of 2011, Civil Appeal No.7067/2012 @ S.L.P. (C)
No.17722 of 2011, Civil Appeal No.7068/2012 @ S.L.P. (C) No.17723 of
2011, Civil Appeal No.7069/2012 @ S.L.P. (C) No.17724 of 2011, Civil
Appeal No.7070/2012 @ S.L.P. (C) No.17725 of 2011, Civil Appeal
No.7071/2012 @ S.L.P. (C) No.17727 of 2011, Civil Appeal No.7072/2012 @
S.L.P. (C) No.19985 of 2011, Civil Appeal No.7073/2012 @ S.L.P. (C)
No.19714 of 2011, Civil Appeal No.7074/2012 @ S.L.P. (C) No.19715 of
2011, Civil Appeal No.7075/2012 @ S.L.P. (C) No.19716 of 2011, Civil
Appeal No.7076/2012 @ S.L.P. (C) No.19741 of 2011, Civil Appeal
No.7077/2012 @ S.L.P. (C) No.20347 of 2011, Civil Appeal No.7078/2012 @
S.L.P. (C) No.20348 of 2011, Civil Appeal No.7079/2012 @ S.L.P. (C)
No.21218 of 2011, Civil Appeal No.7080/2012 @ S.L.P. (C) No.22451 of
2011, Civil Appeal No.7081/2012 @ S.L.P. (C) No.22452 of 2011, Civil
Appeal No.7082/2012 @ S.L.P. (C) No.22454 of 2011, Civil Appeal
No.7083/2012 @ S.L.P. (C) No.22287 of 2011, Civil Appeal No.7084/2012 @
S.L.P. (C) No.22288 of 2011, Civil Appeal No.7085/2012 @ S.L.P. (C)
No.22843 of 2011, Civil Appeal No.7086/2012 @ S.L.P. (C) No.22845 of
2011, Civil Appeal No.7087/2012 @ S.L.P. (C) No.22846 of 2011, Civil
Appeal No.7088/2012 @ S.L.P. (C) No.22826 of 2011, Civil Appeal
No.7089/2012 @ S.L.P. (C) No.22828 of 2011, Civil Appeal No.7090/2012 @
S.L.P. (C) No.23056 of 2011, Civil Appeal No.7091/2012 @ S.L.P. (C)
No.23899 of 2011, Civil Appeal No.7092/2012 @ S.L.P. (C) No.24335 of
2011, Civil Appeal No.7093/2012 @ S.L.P. (C) No.24754 of 2011, Civil
Appeal No.7094/2012 @ S.L.P. (C) No.24995 of 2011, Civil Appeal
No.7095/2012 @ S.L.P. (C) No.25992 of 2011 and Civil Appeal No.7096/2012
@ S.L.P. (C) No.27734 of 2010.
J U D G M E N T
S.H. KAPADIA, CJI
Heard learned counsel on both sides.
Delay condoned.
Leave granted.
This batch of civil appeals has been filed by the Department.
The question, which arises for determination in this batch of
civil appeals, is as follows:
“Whether amounts transferred by the assessee to Mandi Parishad
would constitute application of income for charitable purposes
within the meaning of Section 11(1)(a) of the Income Tax Act,
1961?”
M/s. Krishi Utpadan Mandi Samiti, respondent-assessee herein, is a
Market Committee incorporated 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 form of receipt collected as market fee
from buyers and their agents, development cess on sale and purchase of
agricultural products and licence fees from traders. Under 1964
Adhiniyam, broadly, there are two distinct entities or bodies. One is
Mandi Samiti [Assessee] and the other is Mandi Parishad. Mandi Samiti
[Board] is established and incorporated under Section 12 of 1964
Adhiniyam for a specified Market Area. Section 16 of 1964 Adhiniyam,
inter alia, concerns functions and duties of the Market 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 payable on transactions
of sale of specified agricultural produce in the Market Area at such
rates, as may be prescribed by the State Government. Under Section
17(iii)(b), the Mandi Samiti is also empowered to charge and collect
development cess. Under Section 17(iv), the Mandi Samiti has to utilise
Market Committee Fund for the purposes of 1964 Adhiniyam. Under Section
17(v-a), Mandi Samiti can even advance loans to Mandi Parishad on such
terms and conditions as may be mutually agreed upon between Mandi
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 to be incurred and debited are indicated in Section 19(3).
Section 19-B of 1964 Adhiniyam deals with establishment of Market
Development Fund. Under Section 19-B, the Mandi Samiti shall establish a
fund to be called “Market Development Fund” to which amounts shall be
credited as may be directed from time to time by Mandi Parishad. Under
Section 19-B(2), the Market Development Fund shall be applied for
development of the Market Area. Under Section 19-B(3), the purposes for
which Market Development 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. Under Section 26-PP, State
Marketing Development Fund has been established for Mandi Parishad
[Board] in which amounts received from the Market Committee under Section
19(5) shall be credited. Section 19(5), inter alia, states that every
Market Committee shall, out of its total receipts realised as development
cess, shall pay to the Mandi Parishad [Board] contribution at a specified
rate. The said payment from the Market Committee [Mandi Samiti] shall be
credited to the State Marketing Development Fund 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 be used for
construction, maintenance and repairs of link roads, market yards and
other development works in the Market Area and such other purposes as may
be directed by the State Government or the Board.
It is not in dispute that both, the Mandi Samiti and the Mandi
Parishad, are duly registered under Section 12AA of the Income Tax Act,
1961 [“1961 Act”, for short]. It is also not in dispute that, after the
amendment of Section 10(20) and Section 10(29) by Finance Act No.2 of
2002 with effect 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 Trust and that the said income stood applied to
charitable purposes. According to the learned counsel, if one analyses
the scheme of 1964 Adhiniyam, it becomes clear that the amounts
transferred by the assessee to Mandi Parishad cannot constitute
application of income for charitable purposes within the meaning of
Section 11(1)(a) of 1961 Act in view of the fact that the assessee [Mandi
Samiti] is only a conduit which collects Mandi shulk [fees] whereas
utilization of the said Mandi shulk is not 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 transfer of amounts collected
by Mandi Samiti to Mandi Parishad [Board] would constitute application of
income for charitable purposes under Section 11(1)(a) of 1961 Act?” Even
after the amendment of Section 10(20) and Section 10(29) of 1961 Act, the
assessee continues to enjoy the registration under Section 12AA of 1961
Act for the reason that the assessee is a Market Committee statutorily
established under Section 12 of 1964 Adhiniyam for the advancement of
the object of general public utility in 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
advancing credit facilities to farmers and agriculturists as also
construction of development works in the Market Area] has to be defrayed
out of the Market Committee Fund and the surplus, if any, has to be
invested in such manner as may be prescribed. This is one circumstance
in the 1964 Act to indicate application of income. Similarly, under
Section 19-B(2) of 1964 Adhiniyam, the assessee is statutorily obliged
to apply Market Development Fund for the purposes of development of
Market Area. Under 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 State Marketing Development Fund. These
provisions clearly indicate application of income of the assessee to the
statutory Funds set up under 1964 Adhiniyam. Keeping in mind the
statutory scheme of 1964 Adhiniyam, whose object falls under Section
2(15) of 1961 Act, there is no doubt that the assessee satisfies the
conditions of Section 11(1)(a) of 1961 Act. The income derived by the
assessee [which is an institution registered under Section 12AA of 1961
Act] from its property has been applied for 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 1961 Act, because the
assessee was statutorily obliged to contribute to the Fund of the Mandi
Parishad under 1964 Adhiniyam. Therefore, according to the Assessing
Officer, there was no voluntary contribution. Absent such voluntary
contribution, according to the Assessing Officer, the assessee herein was
not entitled to claim the benefit of exemption under Section 12(1) of
1961 Act. We find no merit in this finding of the Assessing Officer.
At the outset, it needs to be mentioned that the Assessing Officer has
not understood the scheme of the 1964 Act. On reading the 1964 Adhiniyam
(Act) it is clear that the word “contribution” in the Adhiniyam is in the
context of what the members contribute to the Fund(s) held statutorily by
the Mandi Samiti which merely transfers the amount(s) to the Fund(s) of
Mandi Parishad. Even the question framed by Court/Authorities below is
“Whether amounts transferred by the Mandi Samiti would constitute
application of income under Section 11(1)(a) of 1961 Act”. Therefore, the
question of voluntary contribution under Section 11(1)(d) or under
Section 12(1) does not arise. The question of “control” may be relevant
in the context of Section 11(1)(d) or under Section 12(1). However, in
the present case, the question framed deals with application of income
under Section 11(1)(a). Hence, the Assessing Officer had erred in
invoking Section 12(1). Section 11(1) deals with four items of “income”
from property held for charitable purposes. These four items of income
are distinct and separate items of income. Section 11(1)(d) deals with
the fourth item of income. Section 11(1)(d), inter alia, refers to
income in the form of voluntary contributions made with a specific
direction that it shall form part of the corpus of the Trust or
Institution whereas Section 12(1) refers to non-corpus voluntary
contribution. In the present case, neither Section 11(1)(d) nor Section
12(1) of 1961 Act is attracted. In the present case, the narrow
controversy is, whether, in the facts and circumstances of the case, the
amounts statutorily transferred to Rajya Krishi Utpadan Mandi Parishad
would constitute application of income for charitable purposes under
Section 11(1)(a) of 1961 Act? Looking to the provisions of 1964
Adhiniyam we hold that the transfer of the amounts by Mandi Samiti
constituted application of income under Section 11(1)(a) of 1961 Act.
For the above reasons, these civil appeals filed by the Department
are dismissed with no order as to costs.
……...........................CJI.
[S.H. KAPADIA]
.…….............................J.
[MADAN B. LOKUR]
New Delhi,
September 27, 2012.
