ORDER
H.S. Sidhu, J.M.
1. Since the issues and facts involved in all these appeals filed by the different assessees, as agreed by both the parties, are same and the arguments advanced by the learned Counsel for the assessees and the learned Departmental Representative in these appeals were identical, I am disposing of all these appeals by this single order for the sake of convenience.
2. These are appeals by the different assessees against the orders of the learned CIT passed under Section 12AA of the IT Act, 1961, Nagpur, refusing to register them as charitable institution under Section 12A/12AA of the IT Act, 1961. It is admitted by both the parties that the grounds raised in all these appeals are common which read as under:
“(1) On the facts and circumstances of the case, the learned CIT erred in rejecting assessee’s application under Section 12AA of the IT Act, 1961.
(2) The learned CIT failed to see that the objects of assessee-market committee are advancement of general public utility as contemplated under Section 2(15) of the IT Act, 1961.
(3) The learned CIT erred in observing that the assessee did not submit any document in support of the aims and objects of general public utility as claimed by it. He failed to appreciate that the documents submitted on record did not reveal that the aims and objects of assessee committee are of general public utility.
(4) The learned CIT erred in not appreciating that the market committee was formed with the objects to see that the agriculturist get fair price for their produce, they are not exploited, goods are properly graded and weighed and they are not cheated, make proper arrangement for sellers and purchasers in market price and allied matter and that all these objects constituted the objects of general public utility, coupled with the fact that the assessee committee is prohibited from doing any business of purchase and sale. All these aspects negatived the assumption of learned CIT that the object and activity of the assessee are commercial in nature.
(5) The learned CIT erred in not properly interpreting the true meaning and intent of the term ‘advancement of general public utility’.
(6) The learned CIT failed to see and appreciate that merely because the assessee is not governed by Bombay Public Trust Act, 1950, is no ground for holding that the objects of the assessee are not that of advancement of general public utility.
(7) The learned CIT erred in ignoring the letter of Finance Minister dt. 18th Nov., 2002 to the Chief Minister, Delhi that Agricultural Produce Market Committee working for advancement of general public utility and without profit motive can claim exemption from income-tax as charitable institution after fulfilling certain prescribed conditions.
(8) Reliance placed by CIT on the decision of Bombay High Court in the case of President APMC Tumsar v. Murati (1986) Maharashtra Law Journal 258 (SB) is misplaced and not relevant to the issue in question.”
3. It is necessary to elaborate the factual background leading to the passing of the impugned orders by the CIT under Section 12A/12AA of the Act. The facts, in brief, of the cases are as under:
3.1 The Agricultural Produce Committees are created under the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963, for every market area specified in the notification issued by the State Government for regulating the marketing of agricultural produce in specified area which generally covers various villages and towns of a Tahsil. The preamble of the said Act states as under:
“An Act to regulate the marketing of agricultural and certain other produce in market areas to be established therefor in the State; to confer powers upon market committees to be constituted in connection with or acting for purposes connected with such markets; to establish market fund for purposes of the market committees and to provide for purposes connected with the matters aforesaid.”
Market committee is a body corporate and have a perpetual succession and common seal. Under Section 11(2) of the Act, the market committee is deemed to be a “local authority”. Market committee is managed by elected members from different categories as per its constitution as specified in Section 13 of the Act. The object of the market committee find place in the form of powers and duties as enumerated in Section 29(1) and (2) of the Act. All moneys received by the market committee by way of cess, license fee, loans raised by committee and all grants, loans and contribution made by the State Government constitute the market fund as specified in Section 36 of the Act. It is to be kept invested in such manner as may be prescribed and the market fund is to be expended for the purposes specified in Section 37 of the Act. In case of suspension of market committee all properties vesting in the market committee shall, subject to all its liabilities vest in the State Government. There is no provision for contribution of any share capital by the members elected or otherwise nor is there any provision for distribution of surplus or capital amongst its members. It is run and managed by market fund and the said market fund is to be expended only for the purposes mentioned in the Act.
3.2 It is pertinent to note here that the income of Agricultural Produce Market Committee was exempt under Section 10(20) of the IT Act, 1961 prior to 1st April, 2003 as the market committee was covered within the meaning of the words “local authority” used in that section as per the decision of the Bombay High Court in the case of Krishi Utpanna Bazar Samiti v. ITO and Ors. . However as per the definition of words “local authority” introduced in Explanation to Section 10(20) of the IT Act, 1961 for the first time by the Finance Act of 2002 effective from 1st April, 2003, the local authority meant only Panchayat, Municipality, Municipal Committee and District Board and Cantonment Board. Thus APMC ceased to be a local authority for the purpose of IT Act, 1961, on and from 1st April, 2003 and consequently ceased to enjoy exemption under that section which it used to enjoy earlier. In this context, the Chief Minister of Delhi, Smt. Sheila Dixit by the DO letter dt. 26th Sept., 2002 to Finance Minister had sought clarification about the exemption available to APMC. The Finance Minister by his letter dt. 18th Nov., 2002 (p. 32 of the paper book) stated as under:
“… The tax exemptions available under the IT Act have become inconsistent with the moderate tax regime now prevalent in our country and are, therefore, being phased out as a matter of policy. The urgent need to simply our direct tax laws has also made it necessary to phase out these exemptions.
However if the Agricultural Produce Marketing Committees are working for advancement of an object of general public utility and there is no profit motive, they can still claim exemption from income-tax as charitable institution after fulfilling certain conditions prescribed under Section 11 of the IT Act.
Yours Sincerely
Sd/-
Jaswant Singh”
3.3 The Agricultural Produce Market Committee, Pune, one of the APMC of Maharashtra constituted under Agricultural Produce Marketing Act, 1963 by its application dt. 5th Dec., 2002 (p. 40 of the paper book) applied to CIT-I, Pune, under Section 12A for its registration as charitable institution. The CIT, Pune, after satisfying himself about the public charitable nature of APMC, Pune granted a certificate to APMC, Pune vide his letter 14th Oct., 2003 a copy which is filed on p. 33 of the paper book filed by the assessee.
3.4 In this background, the above referred APMCs made applications under Section 12A of the IT Act, 1961, to their respective CITs for their registration under Section 12A/12AA as charitable institution. For the sake of convenience, I am referring to the appeal papers of the sixth appellant above named i.e., APMC Chamorshi in ITA No. 301/Nag/2004. The APMC Chamorshi applied for registration as charitable institution under Section 12A of IT Act, 1961 on 17th March, 2004 vide application dt. 4th March, 2004 before the CIT-IV, Nagpur. It was submitted by the assessee that its object were advancement of general public utility as defined in Section 2(15) of the Act and hence the assessee was entitled to registration under Section 12A/12AA of the Act. It appeared to the CIT that the activity of the assessee was purely commercial in nature and it had nothing to do with the work of charity. Hence, he, by his letter dt. 15th June, 2004 called upon the assessee to show cause as to why his application for registration under Section 12A should not be rejected. The assessee filed reply dt. 28th June, 2004 which is placed on p. 29 of the paper book of the assessee. It was contended that the APMC is established by Government of Maharashtra vide notification dt. 4th Feb., 1999. The object of the APMC is to regulate the marketing of agricultural produce and to protect the sellers of agricultural produce who are unorganised in their selling activities. It renders public utility services for marketing of agricultural commodities and provides facility for auction, for storage of goods, to see that the agriculturist are not exploited and nobody sells or buys agricultural produce below the support price, and other allied activities. Activities are not undertaken with profit motive. There is neither any share capital nor the surplus is distributed amongst the members or the Government. The surplus, if any, is ploughed back and utilised only towards its objects of providing facilities to agriculturist. It is controlled by State Government. In case of suspension of APMC, all its assets and liabilities vest in the State Government. It was contended that the assessee fulfils the object of general public utility as per Section 2(15) of the Act and hence it is entitled to a certificate under Section 12A. It was also submitted that CIT, Pune-1, under identical facts and circumstances had granted registration under Section 12A to the APMC Pune, copy of which was enclosed with the said reply dt. 28th June, 2004.
3.5 The CIT-IV, Nagpur, the respondent, was not satisfied with the submissions of the assessee. He held as follows in his order dt. 31st Aug., 2004:
“As stated above, the assessee was created under the MAPM (Regulation) Act, 1963 and the purpose and the activities of the assessee are governed by the said Act. This Act does not specifically define the aims and objects of Agricultural Produce Marketing Committees. Section 29 of the said Act specifies the powers and duties of these APMCs. On perusal of the above it is seen that the powers and duties of these committees are purely commercial in nature. Powers and duties as per this section are as under:
(i) The regulation of entries of persons and vehicular traffic into the market.
(ii) Supervision over the behaviour of the persons who enter the market for transacting the business.
(iii) To grant, renew, refuse, suspend or cancel licence.
(iv) To maintain and manage the market.
(v) Levy, take, recover and receive charges, fees, rates and other sums or money to which market committee is entitled.
The list goes upto Clause (XXVIII), and all the powers and duties are purely commercial in nature! The Hon’ble Bombay High Court in the case of President, APMC Tumsai v. Muiati (1986) Mahamshtra Law Journal 258 (SB) held that the marketing committee was a commercial establishment. The Court observed that the perusal of the duties specified in Section 29 of the MAMP (Regulation) Act would show that all the activities carried on by the market committee were in relation to the marketing or allied activities carried on by the traders within the jurisdiction of the marketing committee.
The assessee did not furnish any document in support of the claim that it was doing the job of ‘general public utility’.
From the facts discussed above, it is clear that the aim, object and the activity of the assessee is purely commercial in nature. In extends marketing facilities to the farmers for facilitating commercial transactions and charges cess for that. Helping a person or a class of person in a commercial activity for cess cannot be a charitable purpose. The income and expenditure accounts furnished by the assessee also show that the activity of the assessee is commercial in nature. It is also seen that it is not governed by Mumbai Public Charitable Trust Act, 1950 and so was not required to be registered with the Charity Commissioner.
In view of the discussion made above, the claim of the assessee that it fulfils that objectives of the ‘general public utility’ as per Section 2(15) of the IT Act is not found correct and so that institution is not found eligible for being registered under Section 12A of the IT Act, 1961.”
By coming to the above conclusion, the CIT rejected the application of the assessee. Aggrieved by the said orders of the CIT, the assessee is in appeal before the Tribunal on the various grounds which are reproduced herein-above in this order.
4. Shri C.J. Thakar, advocate, the learned Counsel for the assessees submitted that the learned CIT has taken a very narrow and restrictive view of meaning of charitable purpose. Any activity or purpose leading to the advancement of any object of general public utility is a charitable purpose as defined in Section 2(15) of the IT Act, 1961. The very purpose for which the Agricultural Produce Market Committees are established under the Agricultural Produce Marketing (Regulation) Act, 1963 is to regulate the marketing of agricultural produce and to protect the sellers of agricultural produce who are unorganised in their selling activities from being exploited. The Agricultural Produce Market Committee provides various facilities to the class of agricultural producers and traders in the market area such as providing facility for marketing of agricultural produce, regulate and supervise auction, sale, delivery, providing and promoting standardisation and grading of agricultural produce and various other as provided in Section 29 of APM (Regulation) Act, 1963. To meet the cost for providing such facility and other infrastructure such as market place, sheds, buildings, godowns, storage place, etc. it charges cess and fees as prescribed by the State Government. The market committee itself does not do any business of purchase and sale nor is there any profit motive involved in its activities. If there remains any surplus the same is used for the objects of the APMC only and the same is never distributed amongst the members. All these show that the objects and activities of the assessee is the advancement of objects of general public utility as defined in Section 2(15) of the IT Act, 1961. Reliance was placed by the learned Counsel on the following decisions:
1. CIT v. Andhra Chamber of Commerce ;
2. Addl. CIT v. Surat Art Silk Cloth Manufacturers Association ;
3. Director of IT v. Bharat Diamond Bourse (2003) 259 ITR 280 (SC);
4. Commr. of Agrl. IT v. Rubber Board ;
5. Director of IT (Exemption) v. Agri-Horticultural Society ;
6. U.P. Forest Corporation v. Dy. CTR; and 7. ITO v. Manav Hitkati Trust (1987) 28 TTJ (Del) 169: (1987) 20 ITD 42 (Del).
5. It was next submitted by the counsel for the assessee’s that CIT, Pune, under identical facts and circumstances had granted registration under Section 12A/12AA of IT Act, 1961 to the Agricultural Produce Market Committee, Pune. Thus it was not open to the Department acting through other CIT to refuse registration to the appellant APMCs especially when the facts and circumstances in respect of APMC Pune and appellant APMCs are identical. For this purposes the learned Counsel for the assessees relied on the decision of Nagpur Bench of the Bombay High Court in writ petition No. 922 of 2003 decided on 29th Sept., 2003. Copy of the said judgment is placed on record.
6. With regard to the reliance placed by the CIT on the decision of the Bombay High Court in the case of President of APMC Tumsar v. Murati (1986) Maharashtra Law Journal 258 (SB), it was submitted that the same was rendered in respect of the definition of “commercial establishment” given in Section 2(4) of the Bombay Shop and Establishment Act, 1948. The expression “commercial establishment” as used in that Act meant not only establishment which itself carries on any business or trade but also means such establishment which carries on any work in connection with or incidental to or ancillary to any such business or trade. Thus the APMC though by itself was not carrying on any business it carries on work in connection with trade or business and hence it was covered within the expression “commercial establishment” as used in Section 2(4) of the Bombay Shop and Establishment Act, 1948. Relying on this decision the CIT cannot jump to the conclusion that the activities of the APMC are purely commercial in nature and that too with profit motive. It was thus submitted that the said decision had no application to the facts of the case in hand.
7. With regard to the CIT’s observation that the APMC is not governed by Mumbai Public Charitable Trust Act, 1950 it was submitted that such observation is irrelevant to the issue in hand. It is not the requirement of Section 12A or 12AA that the trust or institution should be registered with the Charity Commissioner. It was also pointed out that as per Expln. 1 to Section 13 of the IT Act, 1961 for the purpose of Sections. 11, 12, 12A and this Section (i.e., Section 13) “trust” includes any other legal obligation also. Thus any trust, institution or any other legal obligation is entitled to registration under Section 12A/12AA if its objects are of charitable nature as defined in Section 2(15) of IT Act, 1961 and its activities are genuine. The moment the CIT is satisfied about these two aspects he has to grant registration as provided in Section 12AA.
8. It was thus submitted that looking to the totality of facts and circumstances of the case and the principles of law clearly established by various case laws the appellant was entitled to registration under Section 12A/12AA of IT Act, 1961.
9. On the other hand, Shri R.K. Singh, the learned Departmental Representative has placed on record the written submission dt. 26th April, 2005. He submitted that the application is not accompanied by certificate of registration with Charity Commissioner as required vide Rule 17 of the IT Rules. He also made the submissions to the following effect:
(i) Applicant submitted that the powers and objects were clearly specified in Section 29 of MAPM (Regulation) Act, 1963. However Section 29 enumerates powers and duties of the APMC which is not inclusive of all the objects of the committee. The applicant has made attempt to equate the powers and duties with the objects which is not correct. Further the objects are not charitable within the meaning of Section 2(15) of the IT Act, 1961.
(ii) Market committee does not render services free of cost but it is on payment of cess/fees which shows profit motive. Bombay High Court in APMC Tumsai v. Mwari (supra) has held that market committee was commercial establishment.
(iii) The applicant has referred to the letter of the Union Finance Minister. However it is seen from the letter that it refers to certain conditions required to be fulfilled by the applicant and there is no blanket approval.
(iv) It was submitted by the Departmental Representative that the following submissions of the assessee are not acceptable:
(a) main object of the institution is to render public utility services for marketing of agricultural commodities to the ultimate users,
(b) the institution does not carry out any trading or business activities on its own but collects market cess,
(c) the institution does not have share capital nor surplus is distributed among any of the person,
(d) excess of income over expenditure is utilised for giving benefits and infrastructure facilities to agriculturist, consumers and general public and hence it fulfils all the objects of general public utility.
10. He further submitted that the CIT in the case of Nagpur APMC found that Act imposes certain restrictions on use of any place in market area but gives exemption to certain entities. Hence it cannot be said that the object of APMC is to render services to the ultimate user.
11. He further submitted that the assessee may not be carrying out trading activities still the activities are in relation to marketing activities of trader and further such services are not free. Hence activity of APMC cannot be said to be charitable.
12. He also submitted that the assessee is not having any share capital nor does it distribute surplus has no bearing on the nature of activities of APMC nor does it prove that the activities are of charitable nature.
13. Referring to income expenditure statement of Nagpur APMC, he submitted that the income in excess of liabilities is spent on construction of market yard which helps traders in marketing. This shows that income is applied towards profit making. It also earns interest on fixed deposits with bank.
14. He strongly relied on the decision of the Hon’ble Bombay High Court wherein it has been that market committees are commercial establishment and he submitted that the judgment of the Bombay High Court is binding on the Tribunal.
14A. He also placed his reliance on the decision of the Hon’ble Karnataka High Court reported in CIT v. BEL Employees Death Relief Fund and Service Benefit Fund Association in which it has been held that no commercial activity can be treated as charitable object and that any activity for profit or personal enjoyment or for avoiding tax is not regarded as a charitable purpose.
15. At the end, it was submitted by Departmental Representative that in view of the above facts and circumstances and legal position, the CITs were right in refusing registration to the assessees as charitable institutions under Section 12A/12AA of the IT Act, 1961, and he urged that the impugned orders of the . CIT may be upheld.
16. I have heard both the parties and perused the record available before me. I have also gone through the paper book filed by the assessee which contains various documents on which the learned Counsel for the assessee has placed his reliance. I have also gone through the written submissions filed by the Departmental Representative. I have also considered the various decisions cited by both the parties. I have also carefully gone through the relevant provisions of Agricultural Produce Marketing (Regulation) Act, 1963. The only issue involved before me is whether the assessee is entitled for registration as charitable institution under Section 12A/12AA of the IT Act, 1961 or not. To decide the issue involved in this appeal, it is necessary to reproduce the relevant provisions of the IT Act, 1961. Section 2(15) of the IT Act, 1961, defines the “charitable purpose”. This section reads as under:
“Charitable purpose’ includes relief of the poor, education, medical relief and advancement of any other object of general public utility.”
Section 12A of the IT Act, prescribes certain conditions as to the registration of trusts, etc. This section reads as under:
“12A. The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the CIT before the last day of July, 1973 or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under Section 12AA:
Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of Sections 11 and 12 shall apply in relation to the income of such trust or institution–
(i) from the date of the creation of the trust or the establishment of the institution if the CIT is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid sufficient reasons;
(ii) From the 1st day of financial year in which the application is made, if the CIT is not so satisfied;
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds fifty thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.” Section 12AA of the IT Act, 1961, provides for procedure for registration. This section reads as under:
“12AA (1)–The CIT, on receipt of an application for registration of a trust or institution made under Clause (a) of Section 12A, shall–
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b) after satisfying himself about the objects of the trust or institution and genuineness of its activities, he–
(i) shall pass an order in writing registering the trust or institution;
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution,
and a copy of such order shall be sent to the applicant:
Provided that no order under Sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
(1A) All applications, pending before the Chief CIT on which no order has been passed under Clause (b) of Sub-Section (1) before the 1st day of June, 1999, shall stand transferred on that day to the CIT and the CIT may proceed with such applications under that Sub-section from the stage at which they were on that day.
(2) Every order granting or refusing registration under Clause (b) of Sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under Clause (d) of Section 12A.
(3) Where a trust or an institution has been granted registration under Clause (b) of Sub-section (1) and subsequently, the CIT is satisfied that the activities of such trust or institution are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution.
Provided that no order under this Sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.”
From the perusal of the aforesaid provisions of the Act, it is crystal clear that there are some requirements prescribed under the law for obtaining registration under Section 12A/12AA. The Revenue authorities did not dispute the genuineness of the assessee. The requirements for the purpose of granting registration under Section 12A/12AA is limited to two things viz. (1) whether the objects of the trust or institution or any other legal obligation are charitable as defined in Section 2(15) of IT Act, 1961, and (2) whether the activities of the trust and institution are genuine. Thus the main issue for consideration is whether the objects and activities of the assessee institution are for the advancement of the objects of general public utility and covered within the definition of “charitable purpose” as defined in Section 2(15) of the Act. The term “object, of general public utility” has come up for consideration before the Supreme Court in various cases right from 1964 in the case of CIT v. Andhra Chamber of Commerce (supra) till 2003 in the case of Director of IT v. Bharat Diamond Bourse (supra) and the concept of ‘objects of general public utility’ in its different shades has been stabilised by what has been succinctly explained by the Supreme Court in various cases. It is, therefore, necessary to consider some of the important cases of the Supreme Court and then see whether the objects of the assessee institution viz. various APMCs fits into the term advancement of the objects of general public utility.
In the case of Andhra Chamber of Commerce (supra) the primary object of the chamber were to promote and protect trade and commerce and industries, to aid, stimulate and promote the development of trade, commerce and industries and to watch over and protect the general commercial interest of India or any part thereof. The income and property of the chamber of commerce had to be applied for promotion of its objects. It was held by the Supreme Court that the advancement or promotion of trade, commerce and industry leading to economic prosperity enured for the benefit of entire community. That prosperity would be shared also by those who were engaged in trade, commerce and industry, but on the account the purpose was not rendered any less an object of general public utility. It was also held that the legislature had used language of great amplitude in defining “charitable purpose”: the definition was inclusive and not exhaustive or exclusive. It was also held that an object beneficial to a section of the public was an object of general public utility. Such section of public should be sufficiently identifiable by some common, quality of a public or impersonal nature.
17. In the case of CIT v. Surat Art Silk Cloth Manufacturers Association (supra), the objects of the association were:
(a) to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth and cotton cloth.
(b) to carry on all and any of the business of art silk yarn, raw silk, etc. belonging to and on behalf of its members.
(c) to obtain import licence for import of silk, etc. for its members.
(d) to obtain export licence and export cloth manufactured by members, etc.
Income of the association was liable to be applied to the objects of the association.
Assessee’s income was derived from two sources (i) annual subscription from members at the rate of Rs. 3 per power loom, and (ii) commission of certain percentage of the value of licence for import of foreign yarn, etc.
In that case, it was held by the Supreme Court as under:
(i) Primary purpose of the assessee was to promote commerce and trade in art silk yarn, etc., other objects were incidental to above.
(ii) that the dominant or primary purpose of promotion of commerce and trade in art silk, etc. was an object of public utility not involving the carrying on of any activity for profit within the meaning of Section 2(15) and that the assessee was entitled to exemption under Section 11(1)(a).
(iii) So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving implementing such purpose are found, whether by carrying on an activity for profit or not.
(iv) “If the profit must necessarily feed a charitable purpose under terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clear than in the past the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity. ” The restrictive condition that the purpose should not involve carrying on any activity for profit would be satisfied if profit making is not the real object.
(v) The nature of charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and all surrounding circumstance may clearly indicate that the activity is not propelled by dominant profit motive.
18. In the case of Director of IT v. Bharat Diamond Bourse (supra), the objects of the assessee, a non-profit service organisation registered under the Companies Act, 1956 were broadly as under:
“(i) to establish common facilities required to promote export of diamonds.
(ii) To establish and promote effective liaison between the diamond trade and industry in India and abroad.
(iii) To promote, advance, protect and develop trade, commerce and industry in India relating to export and import of diamonds.
(iv) To develop India as a modern and sophisticated diamond market by establishing and maintaining an international trade centre.”
AO held that the objects of the assessee were not charitable within the meaning of Section 2(15) of IT Act, 1961. Tribunal and High Court held that the objects of the assessee were for charitable purpose within the meaning of Section 2(15). The Hon’ble Supreme Court affirming the decision of the High Court, held that the assessee was an institution established for charitable purposes and its objects were objects of the advancement of general public utility within the meaning of Section 2(15). Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (supra) applied.
19. In the case of Commr. of Agrl. IT v. Rubber Board (supra), the respondent Rubber Board was constituted under Section 4 of the Rubber Act, 1947. It functions as a statutory board under administrative control of Ministry of Commerce, Government of India. Board works for the development of rubber and rubber industry in the country as provided under the provisions of the Rubber Act, 1947. The board mainly holds research institutions and for the said purpose, rubber estates are maintained. The board derives income from sale of planting material and rubber. The income, if any, derived by the Rubber Board is utilised for the development of rubber industry. On question whether the Rubber Board was entitled to exemption under Section 4(1)(b) of Kerala Agrl. IT Act, 1950 [similar to Section 11(1)(a) of IT Act, 1961] read with Section 4(6)(c), [similar to Section 2(15) of IT Act, 1961], the High Court held that the assessee exists for advancement of an object of public utility and can be said to exist for charitable purposes. The expression “object of general public utility” is not restricted to objects beneficial to whole mankind. An object beneficial to a section of the public is an object of general public utility. All sums realised by sales of rubber imported or purchased has to be put in a pool fund and the same is to be utilised for rehabilitation of small growers, etc. Activities of the Rubber Board constitute advancement of an object of public utility. Rubber Board is entitled to exemption under Section 4(1)(b) read with Section 4(6)(c).
20. In the case of Director of IT (Exemption) v. Agri-Horticultural Society (supra) the assessee-society was engaged in the business of purchase and sale of agri-horticultural products like manure, seeds, garden implements, flower pots, etc. having engaged more than 259 members and 54 employees. Assessee-society had used its premises for shooting of films and television serials, assessing authority disputed the status of the assessee-society as of charitable nature and denied exemption claimed by the assessee. Tribunal held that assessee was entitled to exemption. Department went in appeal. The High Court dismissed Deparment’s appeal. The Hon’ble High Court held that the fact that the assessee developed various kinds of plants that restored environmental balance and also helped in conservation of various plants was not in dispute. Similarly the fact that the assessee-society was growing plants which were sold in pots and also developed seeds, garden implements, manure, etc. by engaging 54 employees was also not in dispute. If that be so the assessee had to receive minimum sale consideration for giving payment to employees and such act of the society by itself, could not be construed as commercial in nature. Definition of Section 2(15) was inclusive and had a wide connotation. Its meaning could not be restricted. Therefore, even assuming that it had charged for shooting movies and television serials, etc. it only amounted to corpus donation, but would not change the charitable object and purpose of the assessee. Assessee was entitled to exemption under Section 11.
21. From the above referred case laws, I am of the considered opinion that the following principles are required to be considered to treat an institution to be a charitable institution:
(i) The objects or the dominant objects of the trust or institution should be for the benefit of a section of community or a class identifiable by some common quality of public or impersonal nature. The object for being charitable need not be for the benefit of whole mankind.
(ii) The object of promoting, protecting and providing facility to agriculturist or a particular section or class of traders would be an object of general public utility.
(iii) The object should not be propelled by profit motive. So long as the purpose does not involve the carrying on any activity for profit, the requirement of the definition would be met and it is immaterial, how the monies for achieving implementing of such purposes are found whether by carrying on activity for profit or not.
(iv) The definition of the words “charitable purpose” is very wide and inclusive.
(v) If the profit or surplus feed the charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust.
22. After applying above referred principles to the facts of the present cases, I find that the Agricultural Produce Market Committees for different specified market areas in the State of Maharashtra are established by the State Government under the provisions of the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963. The objects of the Agricultural Produce Market Committees as gathered from the preamble of the Act and other sections and particularly Section 29(1) and (2), are mainly to provide necessary facilities for the marketing of agricultural produce within the market area, to regulate and supervise auction of notified agricultural produce to, regulate sales, weighment, delivery, payment and allied matters, to take steps to prevent adulteration and to promote and organise grading and standardisation of agricultural produce, to prevent purchase and sale below the minimum support price fixed by the Government, to collect, maintain, disseminate and supply information in respect of production, sale, storage, processing, prices of notified agricultural produce including information relating to crop statistics, to give fitness certificate, to provide settling of disputes arising out of marketing of agricultural produce, to keep a set of standard weights and measures, to provide storage and warehousing facilities in the market area and take any other activity conducive to the promotion and regulation of agricultural marketing. The Bombay High Court in the case of Solapur Bakar Khatik Association v. Solapur APMC (1978) 16 Maharashtra Law Journal 837 after referring to the preamble of the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963 and various sections of the Act including that of Section 29 held that “indeed the very object of the Act is to protect sellers of agricultural produce who are in our country mostly rural people and who are unorganised in their selling activities”. It is further observed by the Hon’ble High Court as under:
“… the purpose of the Act was for the regulation of buying and selling of commercial crops by providing suitable and regulated market by eliminating middlemen and bringing face to face the purchaser and buyer so that they meet on equal terms….”
23. Thus referring to the tests laid down by the Supreme Court and various other High Courts as also of the above referred judgment of the Bombay High Court, I have no doubt in my mind that the objects of appellant institution are the advancement of the object of general public utility. The object of providing facility for marketing of agricultural produce of agriculturist, help them in sale of their produce, provide facility for storage, marketing, etc., as enumerated in Section 29 are definitely the objects of general public utility.
24. The argument of the learned Departmental Representative that the powers and duties of APMCs cannot be equated with the objects of APMCs has no force and has to be rejected outright. The objects are to be gathered from the Act which are more than clear from the language of the preamble of the Act and provisions of Section 29 of the said Act. The language of the said section and enumeration of the duties of APMCs clearly indicates the objects of the APMC. The Bombay High Court in the above referred case has held that the object of APMC is to protect sellers of agricultural produce who are unorganised in their selling activities.
25. The next argument of the learned Departmental Representative is that market committee does not render services free of cost but it is on payment of fees and this shows the profit motive. The market fees as per Rule 32 of Maharashtra Agricultural Produce Marketing (Regulation) Rules, 1967 on declared agricultural produce marketed in the market area is charged from the purchaser of agriculture produce and not from the agriculturist sellers. The fees are charged for providing facilities and fulfilling its objects and is not charged with a view to make profit. The fees so charged along with all monies received by the market committee under the Act constitutes market funds and such market fund is required to be spent as specified in Section 37 solely and exclusively on the objects of the market committees. There is no provision in the Act or Rules to contribute share capital by any one nor are there any provision enabling distribution of surplus. Thus merely because the fees is charged for enabling Agricultural Produce Market Committee to provide facilities for marketing of agricultural produce it cannot by any stretch of imagination be said that the fees is charged with profit motive.
26. The next argument of the learned Departmental Representative is that the Agricultural Produce Market Committees are commercial establishment as held by the Bombay High Court in the case of APMC Tumsar v. Murari (supra) and since it is a commercial establishment it cannot be said to be charitable. Referring to the said decision it will be seen that in that case Shri Murari the respondent had filed an application under Section 33C(2) of the Industrial Dispute Act, 1947, on the ground that he was entitled to minimum wages fixed for the employees in shops and commercial establishment covered under Entry 17 of the Schedule to Minimum Wages Act, 1948 and the expression “shops and commercial establishment” have the meaning assigned to them in Bombay Shop and Establishment Act, 1948. Referring to the said definition of “commercial establishment” as given in Section 2(4) of the said Act, the Hon’ble High Court held that the expression “commercial establishment” means not only establishment which itself carries on any business, trade or profession but also means an establishment which carries on any work in connection with or incidental to or ancillary to any business, trade or profession. Thus even though the establishment of the petitioner APMC may not carry on any business or trade still the question would be whether it carries on any work in connection with any business, trade or profession. Thus if it can be shown that the market committee carries on the work in connection with the said trade or business of traders then by virtue of the definition of the expression “commercial establishment” given in Section 2(4) of the Bombay Shop and Establishment Act, it would be covered by the said definition. Thus the APMC was held to be “commercial establishment” within the meaning of Section 2(4) of the Bombay Shop and Establishment Act, 1948. But on that count it does not cease to be a charitable institution. The said decision is rendered in a different context and cannot be applied in finding out whether the objects of the APMC are charitable under Section 2(15) of the IT Act, 1961. The definition of “commercial establishment” as given in Section 2(4) of the said Act reads as under:
“2(4) Commercial establishment means an establishment which carries on, any business, trade or profession or any work in connection with, or incidental or ancillary to, any business, trade or profession and includes establishment of any legal practitioner, medical practitioner, architect, engineer, accountant, tax consultant or any other technical or professional consultant and also includes a society registered under the Societies Registration Act, 1866 (XXI of 1860), and a charitable or other trust, whether registered or not, which carries on whether for purposes of gain or not any business, trade or profession or work in connection with or incidental or ancillary thereto but does not include a factory, shop, residential hotel, restaurant, eating house, theatre or other place of public amusement or entertainment.”
The above definition shows that even a charitable trust can be a commercial establishment if it renders any service or does work in connection with or incidental or ancillary to any business trade or profession. Thus for example where a charitable hospital engages employees they may be entitled to claim minimum wages under the Minimum Wages Act, 1948 read with Section 2(4) of the Bombay Shop and Establishment Act on the ground that charitable hospital comes within the definition of “commercial establishment” as defined in Section 2(4) of the Bombay Shop and Establishment Act, 1948, but on that count the charitable hospital does not cease to be a charitable trust. Thus, in my view, the reliance placed by the respondent on the said decision of the Bombay High Court reported in (1986) Maharashtra Law Journal 258 (SB) (supra) is unfounded.
27. With regard to the letter of Finance Minister dt. 18th Nov., 2002 the submission of the learned Departmental Representative is that the said letter refers to certain conditions required to be fulfilled by the applicant and there is no blanket approval. It is no body’s case that the said letter gives a blanket approval. However it states that if the Agricultural Produce Marketing Committee are working for advancement of an object of general public utility and there is no profit motive they can still claim exemption from income-tax as charitable institution fulfilling certain conditions prescribed under Section 11 of the IT Act. Thus the letter merely states the legal position. However on analysing the various aspects I have held that the objects of the APMC are of general public utility and that there is no profit motive.
28. It is further submitted by the learned Departmental Representative that the market committee imposes certain restriction on use of place in market area to certain entities and gives exemption to certain other entities and hence it cannot be said that the object of the APMC is to render services to the ultimate user. Market committee does not charge any fees from the agriculturist or consumer but it charges fees from the buyer traders of agricultural produce. Various facilities are provided to all the traders. It is for the APMC to regulate the market in an orderly manner for which they may make appropriate rules. I really fail to understand how it can be said that the APMC is not rendering services to a particular section of a community or a class.
29. Similarly the argument of the learned Departmental Representative that even though the appellant may not be carrying out trading activity still the activities are in relation to marketing activity of traders and such services are not free and hence the activity of APMC cannot be said to be charitable has to be outrightly rejected. It has already been held that the objects of the appellant APMC are of public charitable nature for the detailed reasons already given above and it is not necessary to repeat the same. Similarly the submission of the respondent that the fact that the appellant has no share capital and the surplus, if any, is not distributed has no bearing on the nature of activity of APMC nor does it prove that activities are charitable is as futile as anything. The fact that the APMC has no share capital contribution and the surplus, if any, is not distributed and the same is ploughed back and used for the objects of the institution is most vital to prove that there is no profit motive. The entire fund is used for the objects of the institution which are held to be of public charitable nature. Thus there is no scope for assuming that the appellant institution is a commercial establishment with a profit motive.
30. Reliance was placed by the learned Departmental Representative on the decision of Karnataka High Court reported in CIT v. BEL Employees Death Relief Fund and Services Benefit Fund Association (supra). In that case the benefit was to be given to the subscribing member to the fund and/or who were employees of BEL. Thus the benefit of the scheme could be utilised only by specified persons who were required to be the subscriber or their dependant. It was held by the High Court that a trust is not charitable unless it benefits the community or a section of the community. A trust would not be charitable, if it only conferred private benefits. In the present case of APMC, the benefit is to the entire class of sellers of agricultural produce and not to particular specified individuals. Thus the said case has no relevance nor is it in anyway applicable to the facts of the present case.
31. One more grievance was made by the Revenue in written submission that the application is not accompanied by certificate of registration with Charity Commissioner as required by Rule 17 of IT Rules. Reference to Rule 17 appears to be erroneous. The relevant rule relating to application for registration of charitable or religious trust, etc. is Rule 17A and not Rule 17. It says that the application shall be accompanied by following documents, namely where the trust is created or institution is established under an instrument, the instrument in original together with one copy and where the trust or institution is established otherwise than under an instrument, the document evidencing the creation of the trust or the establishment of the institution. In this case, the APMCs have been established by the State Government by notification under the relevant provisions of the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963 and each of the appellant has filed the copy of the notification published in the Official Gazette. Thus the institutions have filed the documents evidencing their creation. It is not the requirement of Rule 17A to file a certificate of registration with Charity Commissioner nor is there any necessity that the institution claiming registration under Section 12A/12AA should be registered with Charity Commissioner. The grievance of the respondent is just casual and futile and deserves to be rejected.
32. The learned Counsel for the assessee had referred to and relied on the judgment of Justice Hon’ble Shri Lodha and Hon’ble Shri Rohee in the case of Tax Practitioners Benevolent Fund v. CIT, dt. 22nd Sept., 2003 in writ petition No. 922 of 2003. Relying on the said judgment it is submitted that since the CIT, Pune, has granted registration certificate under Section 12A to the APMC Pune, under identical facts, the Department acting through CITs Nagpur cannot refuse registration to the appellant APMC under identical facts. In that case the Chartered Accountants Benevolent Fund was granted exemption under Section 80G by Director of IT (Exemption), New Delhi. However on identical facts the CIT, Nagpur refused 80G exemption to Vidarbha Tax Practitioners Benevolent Fund. In a writ petition against the order of CIT, Nagpur, the Hon’ble High Court held as under:
“It is true that exemption under Section 80G to the Chartered Accountants Benevolent Fund has been granted by the Director of IT (Exemption), New Delhi, while the petitioner’s application for grant of exemption under Section 80G has been rejected by the office of the CIT-I,- Nagpur, but the different officers under the IT Act authorised to consider the application for grant of exemption under Section 80G have to apply the same norms, yardstick and parameters while considering the applications under Section 80G and the similar persons cannot be treated differently merely because the officers happen to be different having different territorial jurisdiction.”
The principles laid down in the said decision of the Bombay High Court are squarely applicable to the facts of the present case. When the CIT, Pune, after considering the notification under Maharashtra Agricultural Produce Marketing (Regulation) Act under which APMC Pune was established and after considering the relevant provisions of the said Act held that APMC Pune was a charitable institution entitled to registration under Section 12A, the Department acting through CIT, Nagpur, cannot refuse to give registration under Section 12A/12AA to the appellant APMCs under identical facts.
33. Thus, keeping in view of the aforesaid discussions and the facts of the present case and considering the case laws referred by the parties, I am of the considered opinion that the assessees have fulfilled the requirements of law for registration under Section 12A/12AA of the IT Act, 1961 because the aims and objects of the assessee are accepted for charitable purpose and objects of the advancement of general public utility within the meaning of Section 2(15) of the Act. Therefore, the impugned orders passed by the CITs in all these cases are set aside with a direction to them to grant the registration to the assessees under Section 12A/12AA of the Act as claimed by them.
34. In the result, all the appeals of the assessees are allowed with above direction.