COMMISSIONER OF INCOME TAX-IIversusM/S. KRISHI UTPADAN MANDI SAMITI

                         [2012] 8 S.C.R. 934


A               COMMISSIONER OF INCOME TAX-II
                                   v.
               M/S. KRISHI UTPADAN MANDI SAMIT!
                (Civil Appeal No. 7040 of 2012 etc.)

                       SEPTEMBER 27, 2012
8
        [S.H. KAPADIA, CJI., AND MADAN 8. LOKUR, J.]

         Income Tax Act, 1961:

c          ss.11(1)(a) and 2(15) - Assessee-Market Committee
    established under State Krishi Utpadan Mandi Adhiniyam and
    registered uls. 12AA of 1961 Act - Statutorily required to
    transfer its funds to Mandi Parishad (another institution
    established under the Adhiniyam) - Transfer of the funds
    whether would constitute application of income for charitable
0
    purpose within meaning of s. 11 (1 )(a) - Held: The Adhiniyam
    was enacted for advancement of the object of general public
    utility in terms of s. 2(15) of 1961 Act - The transfer by the
    assessee would constitute application of its income for
    charitable purpose (which includes advancement of object of
E   general public utility) u/s. 11 (1 )(a) - Uttar Pradesh Krishi
    Utpadan Mandi Adhiniyam, 1964 - ss. 12.

         s.12(1) - Transfer of funds by Mandi Samiti (assessee)
    to Mandi Parishad - Whether constitutes application of
F   income u/s. 11(1)(a) of 1961 Act- Assessing Officer holding
    that assesee not entitled to claim exemption uls. 12(1)
    because the contribution by the assessee to the Parishad was
    not voluntary but was a statutory requirement - Held:
    Assessing Officer erred in invoking s. 12(1) - ss. 12(1) and
G   11(1)(d) deal with voluntary contribution while the issue in the
    present case pertained to transfer of amount to the Mandi
    Parishad uls. 11(1)(a).

        The question for consideration in the present

H                                934
   C0MMISSIONER OF INCOME TAX-II v. KRISHI            935
           UTPADAN MANDI SAMITI
appeals was whether amounts transferred by the A
assessee-Mandi Samiti 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?

     The Revenue contended that the amounts B
transferred to the Parishad would not constitute
application of income within meaning of s. 11 (1 )(a) of the
Act in view of the fact that the assessee is only a conduit
which collects Mandi Shulk (fees) and utilization of the
fee is by the Parishad (whose accounts are not verifiable), C
and not by the assessee.

    Dismissing the appeals, the Court

    HELD: 1.1 Keeping in mind the statutory scheme of
Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 D
whose object falls u/s. 2(15) of Income Tax Act, 1961, there
is no doubt that the assessee satisfies the conditions of
Section 11 (1 )(a) of the 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 E
charitable purposes which includes advancement of an
object of general public utility. [Para 6] [942-E-G]

     1.2. In the present case, the Department has not
withdrawn the registration under Section 12AA of the Act. F
Even after the amendment of Section 10(20) and Section
10{29) of the Act, the assessee continues. to enjoy the
registration under Section 12AA of the Act for the reason
that the assessee is a Market Committee statutorily
established under Section 12 of the Adhiniyam for the G
advancement of the object of general public utility in
terms of Section 2(15) of the Act. 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 the Adhiniyam. [Para 5] [941-D-G]
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    936     SUPREME COURT REPORTS              ·[2012) 8 S.C.R

A        1.3. Under Section 19(2) of the Adhiniyam, all
     expenditure incurred by the assessee in carrying out the
     purposes of the Adhiniyam [which includes advancing
    credit facilities to farmers and agriculturists as also
    construction of development works in the Market Area]
B   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
    Adhiniyam to indicate application of income. Similarly,
    under Section 19-8(2) of the Adhiniyam, the assessee is
C   statutorily obliged to apply Market Development Fund for
    the purposes of development of Market Area. Under
    Section 19-8(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
D   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
E   Marketing Development Fund. These provisions clearly
    indicate application of income of the assessee to the
    statutory funds set up under the Adhiniyam. [Para 6] [942-
    A-E]

F      2. In one of the matters, the Assessing Officer held
  that the assessee was not entitled to claim the benefit of
  exemption under Section 12(1) of the Act because the
  contribution to the Parishad was not voluntary but a
  statutory requirement. Such finding is not correct. On
G reading the Adhiniyam 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
H by Court/Authorities below is "Whether amounts
   COMMISSIONER OF INCOME TAX-II v. KRISHI             937
           UTPADAN MANDI SAMITI
transferred by the Mandi Samiti would constitute A
application of income under Section 11(1)(a) of the 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
                                                            8
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). In view of the
provisions of the Adhiniyam it is held that the transfer of
the amounts by Mandi Samiti constituted application of
income under Section 11 (1 )(a) of the Act. [Para 7] [943- C
8-E; 944-A]

    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7040 of 2012.
                                                              D
    From the Judgment & Order dated 4.12.2009 of the High
Court of Judicature at Allahabad, Lucknow Bench, Lucknow in
ITA No. 102 of 2009.

                          WITH
                                                            E
C.A. No. 7041, 7042, 7044, 7045, 7046, 7047, 7048, 7049,
7050, 7051, 7052, 7053, 7054, 7055, 7056, 7057, 7058, 7059,
7060, 7061, 7062, 7063, 7064, 7065, 7066, 7067, 7068, 7069,
7070, 7071, 7072, 7073, 7074, 7075, 7076, 7077, 7078, 7079,
7080, 7081, 7082, 7083, 7084, 7085, 7086, 7087, 7088, 7089, F
7090, 7091, 7092, 7093, 7094, 7095 and 7096 of 2012.

     Arijit Prasad, Rahul Kaushik, Sadhana Sandhu, Anil
Katiyar (for B.V. Balaram Das) for the Appellant.

   Akarsh Garg, Sunil Kumar Jain, Dr. Rakesh Gupta, G
Poonam Ahuja, Rani Kiyala, Sunil Kumar for the Respondent.

    The Judgment of the Court was delivered by


                                                              H
    938       SUPREME COURT REPORTS                  [2012] 8 S.C.R.


A        S.H. KAPADIA, CJI. 1. Heard learned counsel on both
    sides.

          Delay condoned.

          Leave granted.
B
       2. This batch of civil appeals has been filed by the
    Department.

        3. The question, which arises for determination in this
    batch of civil appeals, is as follows:
c
          "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?"
D
        4. Mis. 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
E 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, agricuiturists, traders,
  commission agents and arhatiyas. The source of income of the
F 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
G 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
H
    COMMISSIONER OF INCOME TAX-II v. KRISHI                  939
    UTPADAN MANDI SAMITI [S.H. KAPADIA, CJI.]
is under statutory obligation to enforce the provisions of 1964 A
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, B
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 C
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 D
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 E
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 F
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 G
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
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    940      SUPREME COURT REPORTS                 [2012] 8 S.C.R.


A   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
B   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
C   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
D   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
E   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.

F        5. 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
G   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
H
)

        COMMISSIONER OF INCOME TAX-II v. KRISHI                   941
        UTPADAN MANDI SAMIT! [S.H. KAPADIA, CJI.]
    for the Department, in view of the said Amendment vide                A
    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             B
    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     C
    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
     t1(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          D
    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           E
     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                F
    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.                                 G

        6. 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
                                                                          H
    942     SUPREME COURT REPORTS                 [2012] 8 S.C.R.


A  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
B 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 19-8(2) of 1964 Adhiniyam, the
   assessee is statutorily obliged to apply Market Development
   Fund for the purposes of development of Market Area. Under
c Section 19-8(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,
D 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
E 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
F has been applied fpr 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.

G       7. 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
H Section 12AA of 1961 Act, because the assessee was
    COMMISSIONER OF INCOME TAX-II v. KRISHI                     943
    UTPADAN MANDI SAMITI [S.H. KAPADIA, CJI.]
statutorily obliged to contribute to the Fund of the Mandi              A
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             8
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         C
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          D
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           E
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 )(Cl) deals with the fourth item of income. Section 11 (1 )(d),
inter alia, refers to income in the form of voluntary contributions     F
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      G
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
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    944      SUPREME COURT REPORTS               [2012) 8 S.C.R.


A   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.

       8. For the above reasons, these civil appeals filed by the
B   Department are dismissed with no order as to costs.

    K.K.T.                                  Appeals dismissed.