AND HARYANA AT CHANDIGARH. Commissioner of Income Tax, Hisar. Market Committee, Narwana v. I.T.A. No.1

Judgment

1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (for short, “the Act”) against the order of Income Tax Appellate Tribunal, Chandigarh Bench “B” Chandigarh dated 22.5.2009 in I.T.A. No.358/CHD/ 2009 for the assessment year 2006-07, proposing to raise following substantial questions of law:- “1. Whether on the facts and in the circumstances of the case, the learned ITAT was justified in holding that the expenditure of Rs.92,98,533/- was justified to have I.T.A. No.151 of 2010 2 been contributed to HSAM Board under statutory obligation by virtue of Section 27 of the Punjab Agricultural Produce Market Act, 1961 is allowable without appreciating that no evidence could be produced by the assessee to prove that such expenditure was actually incurred and whether such contribution can be treated to fall within the ambit of application of income for charitable purposes as defined in section 2(15) of the Income-tax Act?”

2. Whether on the facts and in the circumstances of the case, the learned ITAT was justified in holding that the depreciation on fixed asset is allowable in the case of charitable trust/institution particularly when the income is computed as per provisions of sections 11 to 13 of the Income Tax Act, 1961 as question of depreciation does not arise when capital expenditure is also considered as application of income of the assessee and there remains to assets/WDV for claim of depreciation?”

2. The assessee has been constituted under the provisions of the Punjab Agricultural Marketing Produce Act, 1961 to regulate the marketing of agricultural produce. Under the scheme of the Act, certain amounts are required to be paid to the Haryana State Agricultural Marketing Board (in short, “the I.T.A. No.151 of 2010 3 Marketing Board), which is a State level authority to supervise the working of Market Committees, so that the Marketing Board can discharge its statutory obligations. The assessee was registered under Section 12AA of the Act as charitable trust. The Assessing Officer disallowed the amount of contribution paid to the Marketing Board on the ground that proof of expenditure of the amount given as contribution to the Marketing Board was not provided. Claim of depreciation calculated as per statutory provisions was also disallowed on the ground that since income of the assessee was exempt from tax under Sections 11 to 13, allowing depreciation to ascertain whether 85% of funds were applied for purposes of trust, will amount to conferring double benefit. This view was reversed by the CIT(A). It was held that for computation of income, depreciation had to be allowed. As regards payments made to the Marketing Board, it was held that the same were as per statutory requirement of the Statute in

question. Reference was also made to judgment of this Court in Haryana Dal &General Mills v. State AIR 1986 (P&H) 1 as to Scheme of the said Statute. The appeal of the assessee was finally allowed to the extent of proof of utilization of funds. Relevant observations made by CIT(A) are:- “5.2 The issue involved and the submissions made by the appellant have been considered. (a) The case law referred to by the appellant is not applicable in its case keeping in view the facts and circumstances, the appellant and HSAMB are I.T.A. No.151 of 2010 4 governed by the PAPMC Act, 1961; the funds are to be utilized by the HSAMB as well as by the appellant for the specific purposes mentioned in the Act. The Market Development Fund at the disposal of HSAMB has to be utilized for the purposes mentioned u/s 26 of PAPMC Act, 1961 and the Market Committee are to be expended for the purposes mentioned u/s 28 of PAPMC Act, 1961. The appellant cannot voluntarily transfer the funds without any consideration to HSAMB. (b) ‘Application of funds’ does not mean just transferring the funds, it means utilization of the money for the purposes already specified. The appellant has himself submitted, as noted by the AO in the assessment order, that amount of Rs.16384536/- in aggregate was spent on link roads, mandi roads and annual repairs on account of development works through HSAMB. Therefore, only Rs.16384536/- can be treated as application of funds out of total amount of Rs.3,70,00,000/- transferred by the appellant to the Board. (c) The application of funds for charitable purposes works is below 85% of the income of the appellant (this is after taking into account the relief given in respect of ground of appeal no.1). Even if the depreciation of Rs.233472/- is included in the application of funds (otherwise it is not application of funds), the appellant does not fulfill the condition of 85% of the utilization of money for charitable purposes. Therefore, the AOs version is correct and the ground of appeal is dismissed.”

3. The Tribunal affirmed the order of the CIT(A). I.T.A. No.151 of 2010 5

5. We have heard leaned counsel for the parties. Learned counsel for the revenue submits that depreciation could not be allowed when income itself was exempt as it will confer double benefit which is not permissible as held by the Hon’ble Supreme Court in Escorts Ltd. and another v. Union of India and others [1993] 199 ITR 43.

6. Learned counsel for the assessee submits that the Tribunal rightly decided the issues in favour of the assessee. He relied on the judgments in CIT v. Seth Manilal Ranchhoddas Vishram Bhawan Trust [1992] 198 ITR 598 (Guj), CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad), CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Kar), CIT v. Raipur Pallottine Society [1989] 180 ITR 579 (M.P.) and CIT v. Institute of Banking Personal Selection (IBPS) (2003) 131 TAXMAN 386 (Bom), which have been followed by the Tribunal, and judgment of Madras High Court in Rao Bahadur Calavala Cunnan Chetty Charities (supra) wherein it was observed:- “.......Taking into account the purpose for which the conditions of s.11(1)(a) are imposed, it would be clear that we have to consider the income as arrived at in the context of what is available in the hands of the assessee, subject of course to any adjustment for expenses extraneous to the trust. If the expression “income” is so understood, then we have to take the accounts of the assessee with reference to the receipts and deduct therefrom the expenses I.T.A. No.151 of 2010 6 necessary for earning or looking after that income. The net amount that remains would be available for distribution or application for charitable purpose. In applying the income for charitable purposes, even capital expenditure may be incurred. Therefore, the nature of the expenditure in the hands of the entity which receives the money is not the criterion. So long as the assessee disburses the amount for charitable purposes, whether the amounts are utilised for capital or revenue purposes by the charity concerned, the assessee would have complied with that part of the requirement of s.11, namely, application of the income for charitable purposes. The authorities will have to find out as to whether they are really charitable purposes or not. Subject to such examination, the application of the income for charitable purposes will have to be excluded and it is only the balance that would require examination for finding out whether the assessee has complied with the rule of accumulation to the extent of Rs.10,000 or 25 per cent of the income, whichever is higher.” “In fact wherever the statute contemplated the income being computed in the manner set out in the provisions of the Act, appropriate words are used. For instance, in s.80E, which was considered by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, after the expression “total income” the following words are added in brackets: “as computed in accordance with the other provisions of this Act”. This emphasises that wherever Parliament considered that the computation should be in accordance with the provisions of the I.T.A. No.151 of 2010 7 Act, it introduced the concept by using appropriate language. In the absence of any such language in s.11(1), we consider that the computation as envisaged by the other provisions of the Act cannot be imported into s.11(1). The Tribunal has in a way mixed up the notion of total income in understanding the expression “income from property held under trust”. Section 14 occurs in the chapter “Computation of total income”. It provides that all income for the purposes of charge of income-tax and computation of total income be classified under certain heads. Therefore, the computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chap.III.”

7. We have considered the rival submissions. We are in agreement with the view taken by Madras, M.P., Gujarat, Karnataka and Bombay High Courts referred to above. Judgment of the Hon’ble Supreme Court in Escorts Ltd. and another is distinguishable. Moreover, in I.T.A. No.535 of 2009 The Commissioner of Income Tax, Karnal v. Market Committee, Pipli, decided today dealing with similar matter, we have upheld the view taken by the Tribunal. In this view of the matter, questions proposed have, thus, to be answered against the revenue and in favour of the assessee. I.T.A. No.151 of 2010 8 The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 05, 2010 ashwani ( AJAY KUMAR MITTAL ) JUDGE