CIT Vs. PUNJAB MANDI BOARD

JUDGEMENT

(1.) THIS appeal has been preferred by the Revenue under section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dt. 31 -12 -2008, Annex. A.3 passed by the Income -tax Appellate Tribunal, Chandigarh, Bench B (in short, "the Tribunal") in ITA No. 802/Chd/2008, for the assessment year 2005 -06, claiming following substantial question of law:

(2.) BRIEFLY , the relevant facts necessary for adjudication of the controversy involved, as narrated in the appeal, may be noticed. The assessee is an Agricultural Marketing Board and its main object is to consolidate and amend the law relating to better regulation of purchase, sale, storage and processing of agricultural produce and the establishment of markets for agricultural produce in the State of Punjab. It filed its IT return for the assessment year 2005 -06 on 29 -10 -2005 declaring nil income. The case was selected for scrutiny. The assessee claimed exemption under section 11 of the Act and attached Form No. 10B along with return of income. It also furnished computation of income reflecting the working out of the income applied for charitable purposes. It received loan of Rs. 30,08,67,329 during the year which was used for repair of link roads. In its income and expenditure account, the assessee showed the aforesaid amount of loan on income side but showed the expenses of Rs. 1,12,90,64,003 to be spent on rural link road which includes expenses of Rs. 30,08,67,329. The assessee included Rs. 24,62,768 as income -tax deducted at source during the year. The assessing officer observed that the assessee had not claimed the benefit of exemption in regard to income related to tax deduction at source and had not even revised its return of income in this context. In this way, the claim of the assessee relating to tax deduction at source was rejected. Further, the assessee had incurred excess expenditure in earlier years. In the assessment year 2004 -05, the assessee had incurred expenditure of Rs. 2,08,70,39,060 against income of Rs. 1,63,83,36,523 which means an excess expenditure of Rs. 44,87,02,537. The assessing officer observed that the claim of set off was neither present in the original return of income nor the assessee had revised its return of income. The said claim was also rejected by the assessing officer and finally after calculation the taxable income came to Rs. 1,79,61,763. Aggrieved by the order dt. 20 -12 -2007 passed by the assessing officer, Annex. A.1, the assessee filed appeal before the Commissioner (Appeals). Vide order dt. 8 -7 -2008, Annex. A. 2, the appeal was allowed. Not satisfied with the order, the Revenue filed appeal before the Tribunal. Vide order dt. 31 -12 -2008, Annex. A.3, the appeal was dismissed. Hence the instant appeal by the Revenue.

(3.) ON the other hand, learned counsel for the assessee submitted that the CBDT had issued a Circular No. , dt. 24 -1 -1973 wherein it was provided that repayment of a debt incurred for charitable purposes by a charitable trust and loans advanced by education trust would amount to application of income for charitable purposes. It was argued that interpreting the aforesaid circular, the Rajasthan High Court in CIT v. Maharana of Mewar Charitable Foundation : (1987) 164 ITR 439 (Raj) held that where the charitable trust incurs any expenditure in excess in earlier years, the same can be adjusted against income of subsequent year and adjustment was to be treated as application of income in such subsequent year for charitable purposes and the assessee can claim exemption under section 11 of the Act. The said decision was followed by the Gujarat High Court in CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal : (1995) 211 ITR 293 (Guj).