I.C. Sudhir, Judicial Member. - The first appellate order has been impugned by the assessee on the following grounds :
"1. That on the facts and in totality of the circumstances, the appellant being a service organ of the State, a charitable institution, the learned CIT grossly erred in rejecting the application under section 12A filed on 16th July, 2005 in limine.
1.1 That the learned CIT erred in not condoning the delay and not granting the registration from 1-4-2002 or in the alternative from subsequent dates.
1.2 That the learned CIT erred in drawing adverse view on account of non-audit of accounts after financial year 1999-2000 from a chartered accountant and expressing view that accounts have to be audited and it is a mandatory requirement for grant of registration.
1.3 That the learned CIT erred in drawing adverse view on account of non-furnishing of returns for the assessment years 2003-04, 2004-05 and 2005-06 and holding that it is mandatory requirement for grant of registration.
1.4 That the learned CIT erred in (sic-not) condoning the delay and in holding that the application had to be made within one year from the date of establishment.
1.5 That the learned CIT erred in drawing adverse inference on account of surplus of income over expenditure during different years and because income of the appellant is by way of collection of market fees/fines, etc. and that its income is not as prescribed under the provisions of sections 11 and 12 of the Act.
1.6 That the learned CIT erred in not following the view expressed by the Delhi Bench of Tribunal, though its copy was duly placed before him and further erred in not granting registration when similar hoards and Samitees are being granted registrations under section 12A of the Act."
2. There is no dispute on facts of the case which, as per the learned Authorised "representative, are as under :
"1. M/s. Rajasthan State Agricultural Marketing Board is a service organ of the States of Rajasthan. It was constituted in exercise of the powers conferred under section 22A(1) of the Rajasthan Agricultural Produce Markets Act, 1961 by the Government of Rajasthan vide Notification No. F.7(6)(5)Agri/V/74 dated 6-6-1974 printed in the Rajasthan Gazette Extraordinary issue of 6-6-1974. The Rajasthan Agricultural Produce Markets Act, 1961 (in short ‘the Act’) was enacted. The Act is intended to provide for the better regulation of buying and selling of agricultural produce and for the establishment of markets therefor, in the State of Rajasthan. The Act providing to establish and regulate markets for sale or purchase of agricultural produce is to protect the agriculturists from being exploited by the middlemen and profiteers and also to secure a fair return of their produce, the Act has been held to be for public purpose by the Rajasthan High Court in Narayan Harishankar v. State 1977 RLW 485. The whole object of the Act is the supervision and control of the transactions of purchase by the traders from the agriculturists in order to prevent exploitation of the latter by the former as held by the Supreme Court in Kewalkishan Puri v. State of Punjab AIR 1980 SC 1008. It is charitable institution and has not been created for purpose of earning any profit. Since its constitution it is functioning under the supervision, control and administration of the State Government. Presently, it is functioning under an administrator appointed by the Government. Its secretary has also been appointed by the Government and is a State employee.
2. It maintains regular and proper books of account on cash system of accounting. All supporting records are kept. The accounts, vouchers and supportings are maintained as required under the Act. Its accounts are being audited by the auditors of the Department of the local self-Government. The board is not carrying on the activity for profit. The Board has to carry out the purposes specified in section 22J of the said Act. The hind or surplus has to be utilized by the Board for the purposes specified in section 22J of the said Act. The surplus, if any, is not to be disturbed or shared by any person but has to be accumulated for the objects and purposes stated under the said Act.
3. The Board is a State organ and its income or surplus, if any, is not liable to be taxed under article 289 of the Constitution. Income of the Board is immuned from union taxation. No tax under the Income-tax Act has been levied on the Board since its constitution i.e., 1974 till date. The Income-tax authorities treated the Board and Agricultural Marketing Samitees as local authority and its income exempt under section 10(20) of the Act. An Explanation has been added by the Finance Act, 2002 to take effect from 1-4-2003 i.e., with effect from the assessment year 2003-04. The Income-tax Department is of the view that the Agricultural Marketing Board and Agricultural Marketing Samitees are not entitled to any exemption from income-tax under the said section or any other section and are liable to income-tax on and from the assessment year 2003-04. The Income-tax Department issued notices to some of the Samitees including Krishi Upaj Mandi Samitee, Kota. The said Samitee filed a DB Civil Writ Petition No. 1493 of 2005 before the Hon’ble High Court of judicature, Rajasthan at Jaipur on 26-2-2005 challenging legality, validity, propriety, jurisdiction to assess under the Income-tax Act and claiming that it is in violation of article 289 read with article 265 of the Constitution. The Hon’ble Court heard on 3-3-2005 provided time to the respondents to file the reply, time to the petitioner’s counsel to file the rejoinder and thereafter to fix for final disposal at admission stage. The writ is still pending.
4. Punjab State Agricultural Marketing Board, Haryana State Agricultural Marketing Board, etc. were advised to make application under section 12A of the Income-tax Act to the concerned CITs. The CITs rejected the applications. The applicants filed appeals before the Tribunal, Delhi Bench, Delhi. The Hon’ble Tribunal by order dated 14-3-2005 allowed the appeals and directed the CITs to grant registration after condoning the delay in applications. The order is reported as Market Committee, Sullai Gharat v. CIT [2005] 94. TTJ (Delhi) 692. The Hon’ble Tribunal held that the applicants are charitable institutions. It also allowed the condonation of delay. It rejected the objections as to audit of accounts by a chartered accountant under Explanation below sub-section (2) of section 288. It also observed that such objections are beyond the provisions and unsustainable. Same view has been expressed by Nagpur Bench of Tribunal in Agricultural Produce & Market Committee, Telhaia v. CIT [2005] 97 TTJ (Nag) 165. There were assurances by the Union Finance Minister for exemption under sections 11-13 of the Act. The CIT, Pune and some other CITs have granted registration under section 12A. The CIT, Chandigarh by order dated 3-5-2005 granted registration to Punjab State Agricultural Marketing Board in compliance to the order of the Hon’ble Tribunal dated 14-3-2005.
5. On advice and after seeking sanction, the appellant made an application for granting of registration under section 12A(a) of the Act in Form No. 10A to the Chief CIT, Jaipur on 16-7-2005. An application for condonation of delay was submitted. Delay was duly explained in writing. It was orally submitted that the appellant was under the bona fide belief and on account of abovestated reasons was prevented from filing the application earlier. Delay if any was neither wilful nor intentional and the appellant is a State Government agency for benefit of the people of Rajasthan. However, by order dated 16-11-2005, the CIT, Jaipur-II, Jaipur held that the application does not meet with the maridatory conditions laid down under section 12A and rejected in limine. Hence appeal.
3. Ground Nos. 1, 1.1, 1.3 and 1.4 :
3.1 In these grounds the issue raised is that as to whether the learned CIT was justified in not condoning the delay while rejecting the application under section 12A filed on 16-7-2005. We find from the order of learned CIT that he has rejected the application for condonation of delay in filing, the application under section, 12A on 16-7-2005 on the basis that the application for registration had to be made within one year from the date of establishment and there was, no reasonable cause on the part of the assessee for the delay.
3.2 The submission of learned Authorised Representative in this regard remained that the assessee was under the bona fide belief that the income in the case of assessee is not taxable under section 10(20) of the Act as the Board Was exempted of the income-tax liability under section 10(20) of the Income-tax Act prior to amendment vide Finance Act, 2002. The Department also did not issue any notice till assessment year 2002-03 to the assessee in this regard. As per article 289(1) of the Constitution of India income of property of a State cannot be taxed. He placed reliance on the decision of Hon’ble Allahabad High Court in the case of Krishi Utpadan Mandi Samiti v. Union of India [2004] 267 ITR 460. The learned Authorised Representative submitted further that decision of Delhi Bench of the Tribunal in the case of Market Committee, Sullai Gharat v. CIT [2005] 3 SOT 98 holding that Agricultural Market Committee/Boards established under statutes having objects of general public utility are eligible for registration under section 12A, came to the notice of the assessee later on and in view thereof the assessee applied for registration under section 12A with application for condonation of delay. The learned Authorised Representative referred para No. 4 of the order impugned in this regard. It was pointed out that identical issue of condonation of delay was raised before Delhi Bench of the Tribunal under almost similar circumstances in the case of Market Committee, Sullar Gharat (supra) and the Tribunal held that the approach of learned CIT in rejecting the application for condonation of delay was not justified having regard to the fact that change in statutory provision compelled the assessee to file application for registration, hence delay in the submission of application is liable to be condoned. The learned Authorised Representative also referred following decisions in support :
(i) Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC);
(ii) Bharat Auto Center v. CIT [2006] 282 ITR 366 (All.).
3.3 The learned Departmental Representative, on the other hand, opposes the contentions raised in support of ground Nos. 1, 1.1, 1.3 and 1.4 with this submission that there was no reasonable cause for condonation of delay in filing the application for registration on the part of the applicant. The reasonable cause has been defined in Order IX rule 7 of the CPC wherein under rule 13 sufficient cause has also been defined. The sufficient cause is diluted word of reasonable cause, which should be strictly construed. The reason shown by the applicant that they were not aware of the law is hot excusable and thus unawareness of law is not sufficient reason for delay. He referred decision of Hon’ble Supreme Court in this regard in the case of Vinod Bihari Singh v. Union of India [1993] 1 SCC 572.
3.4 In rejoinder the learned Authorised Representative submitted that sufficient cause is synonymous to reasonable cause and placed reliance in the case of Mst. Katiji (supra). He submitted further that reasonable cause has to be liberally construed. There was no negligence on the part of the assessee and placed reliance on the decision of Hon’ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 TTR 326.
3.5 After considering the above arguments advanced by the parties in view of order of the learned CIT and the decisions relied upon by them, we find substance in the aforesaid submissions of learned Authorised Representative. The applicant had to explain the delay from 1-4-2003 to 19-7-2005 in filing the application for registration under section 12A. The explanation of the applicant in this regard remained that till assessment year 2002-03 the applicant was under this belief that the applicant was exempt under section 10(20) of the Act i.e., prior to amendment by Finance Act, 2002. The Explanation was introduced to section 10(20) of the Act with effect from 1-4-2003 i.e., assessment year 2003-04. Thereafter the decision dated 14-3-2005 in the case of Market Committee, Sullar Gharat (supra) came to the notice of applicant that the exemption enjoyed by the applicant under section 10(20), taken away by inserting Explanation in section 10(20) by Finance Act, 2002 can be enjoyed by such assessee by claiming exemption under section 11 on fulfilment of certain conditions like the assessee will have to apply for registration under section 12A and that the market committee established under a statute can be treated as charitable institution and exemption can be allowed under sections 11 and 12 subject to specific restriction under sections 11 to 13 of the Act, the applicant applied for granting of registration under section 12A(a) of the Act in Form No. 10A to the learned Chief CIT, Jaipur along with application for condonation of delay on 16-7-2005, which as per the learned CIT (para No. 4) was received on 19-7-2005. Considering these explanations in the totality of facts and circumstances of the case and especially that applicant is not an individual but an institution/body under the supervision of the Government, and there was not any inaction on the part of the applicant, we find that there was reasonable cause for the delay in tiling application under section 12A(a) of the Act for the registration. We thus condone the delay in filing the application under section 12A(a) to prefer to decide the matter on its merits.
4. Ground Nos. 1.2, 1.3 and 1.5 :
4.1 The learned CIT while rejecting application for registration raised several objections and-one of those objections was that from the copies of accounts filed along with the application it is noticed that excess of income (earned by the Board) over expenditure in various years is as below :
| Financial Year | Surplus of income over expenditure |
| 1999-2000 | Rs. 6,78,21,357 |
| 2000-2001 | Rs. 5,96,43,946 |
| 2001-2002 | Rs. 17,57,214 |
| 2002-2003 | Rs. 7,68,55,670 |
| 2003-2004 | Rs. 3,46 05,748 |
4.2 The learned CIT observed that the Board is gathering huge surpluses year after year, which indicates that the activities of the Board are not charitable in nature. The applicant was required to explain as to how the activities of the Board can be considered as charitable. The explanation of the assessee in this regard remained that all the surplus will be utilized only for the advancement of the purpose of general public utility and the applicant does not work for personal benefit. The learned CIT did not accept this explanation on the basis that section 12A(b) provides for audit of accounts of the instituting by an accountant as defined in Explanation below sub-section (2) of section 288 and such audited ‘accounts are required to be filed’ along with the return of income for the relevant assessment years whereas applicant has not filed the audited accounts with relation to the financial years 2001-02, 2002-03 and 2003-04, even though the surplus of income over expenditure was much higher than the limit of Rs. 50,000 laid in section 12A(b).
4.3 In support of this ground the learned Authorised Representative submitted that audited account signed on 1-2-2006 for assessment year 2003-04 was filed on 7-2-2006, a copy whereof has been placed at page Nos. 7 to 12 of the paper book-I The learned Authorised Representative also referred page Nos. 49 to 82 of the paper book-II i.e., copy of the return and audited account for assessment year 2005-06 filed on 10-4-2006. He pleaded that audit report can be furnished any time before the assessment and referred the CBDT circular dated 9-2-1978 in this, regard placed at page Nos. 15 to 17 of the paper book Vol. I, wherein it has been made clear that in case where for reasons beyond the control of the assessee some delay has occurred in filing the auditors report, the exemption as available to such trust under sections 11 and 12 may not be denied merely on account of delay in furnishing the auditors’ report and the ITO should record reasons for accepting a belated audit report. The learned Authorised Representative also referred the decision of Delhi Bench of the Tribunal in the case of Market Committee, Sullar Gharat (supra) wherein also as evident from page No. 698 of the decision, copies of audited accounts required under rule 17B were not filed, the Tribunal at page No. 713 of the decision has held that having regard to the fact that assessees are constituted under the statute and are compulsorily required to get their accounts audited and further, the Income-tax returns must accompany audited accounts, there was no much force in the objection raised on behalf of the Revenue. It was held further that as per the provisions laid down under section 12A(a), the learned CIT on the basis of information placed by the assessed or other information gathered by him has to record his satisfaction about the genuineness of the activities of the trust or institution (in the present case boards or committees) and thereafter pass an order in writing registering the institution if he (is) satisfied about the objects of the trust or institution and genuineness of its activity.
4. The learned Departmental Representative on the other hand submitted that the requirement under section 12A(b) of filing audit report along with the return of income is mandatory so as to disentitle the trust from claiming exemption under sections 11 and 12 in case of omission to furnish such report in the prescribed form along with the return. The learned CIT in the present case was neither satisfied with the genuineness of the object nor the activities in absence of the documents like audited account. The account must be audited to secure that it is free from discrepancies. If accounts are not audited it indicates lapses on the part of the assessee. Registration in Income-tax Act is entirely different from the registration under Societies Registration Act since in the case of income-tax the assessee is going to enjoy exemption from taxpayers pocket. The audited account is pre-requirement for application for registration. In article 245(a) to (z) to the Constitution of India there is drastic change with effect from 1-6-1993 leading to certain definition about local body, which required amendment in section 10(20) of the Income-tax Act. The assessee was thus out from the definition of local body with effect from 1-6-1993 and the only option left with the assessee was to apply for registration under section 12A for exemption under sections 11 and 12 of the Income-tax Act. The learned Departmental Representative referred the objects of the Samiti shown in sections 3, 17 and 18 of the Rajasthan Krishi Upaj Mandi Adhiniyam, 1961 with the submission that assessee is acting like a share broker to purchase produce on charging fee, which has no nexus or connection with any charitable purpose. The word in statute is to be strictly construed as per the established position of law, submitted the learned Departmental Representative.
4.5 The learned Authorised Representative submitted in rejoinder that the requirements laid down under section 12A should not be examined at this stage and what are to be examined at this stage of registration are the requirements laid down under section 12AA of the Income-tax Act. It is not consequential that after registration under section 12A, there would be no check of the Department on the assessee. The fee was collected by the applicant from the farmers to regulate purchases and sales in the market. The learned Authorised Representative referred sections 18, 15 and 22J of the Rajasthan Krishi Upaj Mandi Adhiniyam, 1961 while throwing light on the purposes for which the applicant has been formed. He also referred rule 55 framed under the said Adhiniyam wherein it has been made clear that the assessee has to get their account, audited. The learned Authorised Representative again referred the decision of Delhi Bench of the Tribunal in the case of Market Committee, Sullar Gharat (supra), and that of Nagpur Bench of the Tribunal in the case of Agricultural Produce & Market Committee v. CIT [2005] 97 TTJ (Nag.) 16 wherein purposes of the similar Adhiniyam in other States within the jurisdiction of those Benches of the Tribunal have been discussed while arriving at the conclusion that the marketing committee was having charitable object and purpose.
4.6 Considering the aforesaid arguments advanced by the parties, specially in view of the decisions of Delhi Bench of the Tribunal in the case of Market Committee, Sullar Gharat (supra) and that of Nagpur Bench of the Tribunal in the case of Agricultural Produce & Market Committee (supra), we find substance in the submissions of learned Authorised Representative discussed hereinabove. The relevant extracts of the decision of Delhi Bench of the Tribunal in the aforesaid case on the issue of objection raised by the Revenue regarding non-filing of auditors’ report along with return are being reproduced hereunder for a ready reference :
"15. In some cases, the learned CITs have also raised objection that audited accounts as required under Explanation below sub-section (2) of section 288 were not submitted. The assessees have placed copies of audited accounts in all cases. Even otherwise, it is well known that these committees and boards are required to get their accounts audited under the statute. Otherwise, heavy penalty is provided for not getting accounts audited. Therefore, having regard to the fact that assessees are constituted under the statute and are compulsorily required to get their accounts audited and further the Income-tax returns must accompany audited accounts, we do not find much force in the objection raised on behalf of the Revenue.
16. The provisions of section 12AA quoted above are relevant and important. As per the above provision, the learned CIT on the basis of information placed by the assessee or other information gathered by him has to record his satisfaction about the genuineness of activities of the trust or institution (in the present case, boards or committees) and thereafter pass an order in writing registering the institution if he is satisfied about the objects of the trust or institution and genuineness of its activities.
In the present appeals, CIT has not brought any material nor recorded any finding to hold that activities of assessees were not genuine. In our opinion, it is not easy, in case of statutory body like market board or market committee controlled by Governments to hold that activities of such bodies are not genuine. We are, therefore, unable to agree that these cases were not fit cases for recording satisfaction as required under section 12AA of the Income-tax Act. About object of the institutions, we have already held that those are genuine and are of haritable nature."
4.7 We, thus, do not find substance in, the objection raised by the learned CIT that auditors’ report on the accounts was not filed with the return for the relevant assessment years hence registration cannot be granted on the application moved by the applicant in this regard as at the stage of registration the learned CIT has only to record his satisfaction about the genuineness of activities of institution and its charitable purposes. The non-filing of audited accounts along with return in our view was thus not causing any hurdle in the claim of the assessee relating to registration under section 12A of the Income-tax Act. We thus allow-the ground No. 1.5 of the appeal raised in this regard in favour of the assessee.
4.8 The learned CIT also raised objection about non-furnishing of return for assessment years 2004-05 and 2005-06 (questioned in ground No. 1.2 herein). The learned Authorised Representative submitted that the same is not required under section 12A of the Act and it is outside the purview of examination to be made under section 12A of the Act as it is not a condition precedent for availing registration. He placed reliance on the following decisions in this regard :
(i) Fifth Generation Education Society v. Commissioner Income-Tax. [1990] 185 ITR 634 (All.);
(ii) M.K. Nambyar Saarc Law Charitable Trust v. Union of India [2004] 269 JTR 556 (Delhi).
4.9 He submitted further that genuineness of objects and activities is to be examined under section 12AA of the Act at the stage of granting registration. The learned Authorised Representative referred the decision of Delhi Bench of the Tribunal in the case of Market Committee, Sullar Gharat (supra) specially the contents of page Nos. 706, 710 and 711 paras 9, 13 thereof dealing with similar projects and activities as in the present case. The learned Authorised Representative also referred section 2(15) of the Act wherein "charitable purpose" has been shown includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. The learned Authorised Representative submitted that the object and purpose of the applicant is of general public utility as the Hon’ble Rajasthan High Court has also held the Rajasthan Agricultural Produce Markets Act to be for public purpose in the case of Narayan Harishankar v. State 1977 RLW 485. The learned Authorised Representative also placed reliance on the decision of Nagpur Bench of the Tribunal in the case of Agricultural Produce & Market Committee (supra) on the issue. He also, placed reliance in the case of Gujarat Industrial Development Corpn. v. Asstt. CIT [2006] 10 SOT 23 (URO) (Ahd.).
4.10 The learned Departmental Representative, on the other hand, justified order of the learned CIT while adopting similar arguments as advanced by him opposing ground No. 1.5 hereinabove.
4.11 After having gone through different provisions of the Raiastrn Agricultural Produce Markets Act, 1961, we find that the whole object of the Act is the supervision and control of the transactions of purchase by the traders from the agriculturist in order to prevent exploitation of the latter. Under section 22J the purposes for which the marketing development fund shall be utilized have been explained and clause (v) thereof states as "undertaking education and publicity in relation to matters connected with regulated marketing of agricultural produce in the State". Under the similar set of facts and circumstances, the Delhi Bench of the Tribunal in the case of Market Committee, Sullen Gharat (supra) held as" ...the object to establish market committee and board is to regulate purchase, sale, storage and processing of agricultural produce through establishment of market commiitees, market yards and trusts. The dominant objects of board and committees are to save agriculturists from exploitation of middleman and to provide remunerative price to the agriculturists. It is further to provide better facilities for storage and transportation of foodgrain. Accordingly, we hold that the object of board and committees is to advance objects of general public utility. The learned CITs in the impugned orders have not brought any matenal on record to show that assessees were non-charitable institutions, established for personal or private gains. Therefore, prima facie we do not find any objectionable material to treat these institutions as non-charitable. The registration is compulsory to claim exemption under sections 11 to 13 of Income-tax Act but registration per se cannot be treated as conclusive. It is open to Revenue authorities, while processing returns of income of these assessees, to examine the claim of the assessees under sections. 11 to 13 of Income-tax Act and give such status to these institutions as is warranted by the facts of the case. We hold accordingly." (para No. 13)
4.12 The Tribunal held further that some other objections have been raised by the revenue in the impugned orders and during the course of arguments before the Bench, like the committees and boards being managed by public servants, collection of fines by committees, no voluntary contribution by outsiders, etc. The Tribunal did not find any substance in these objections. It held that at the stage of registration, the learned CIT has only to record his satisfaction about the genuineness of activities of the institution and its charitable purposes. The Tribunal, therefore, did not see any hurdle in their claim relating to registration under section 12AA of Income-tax Act. (para No. 14).
4.13 We are thus of the view that the learned CIT was not justified in raising the other objections like non-filing of return, etc. instead of examining the genuineness of charitable objects of the applicant, which as per Delhi Bench of the Tribunal in the aforesaid case of Market Committee, Sullar Gharat (supra) under the similar provisions in the State of Punjab held as charitable and entitled for registration under section 12A(a ) of the Act. We accordingly allow ground Nos. 1.2, 1.3 and 1.5 in favour of the assessee.
5. In result while setting aside the order in question, we direct the learned CIT to allow the application under section 12A(a) of the Act filed by the assessee for registration for the purpose of exemption under sections 11 and 12 of the Act for the claimed assessment years.
6. The appeal is, thus, allowed in favour of the assessee.
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