Payment Made to Agricultural Board for Development Works on Assessee’s Behalf Allowable as Application of Income

Case Details: Market Committee v. Assistant Commissioner of Income-tax - [2024] 161 taxmann.com 568 (Punjab & Haryana)

Judiciary and Counsel Details

• • G. S. Sandhawalia & Ms Lapita Banerji, JJ.
  • Rajesh Garg, Sr. Adv., Ms Neha Matharoo, Adv. & Mandeep Singh, Adv. for the Appellant.
  • Ms Gauri Neo Rampal Opal, Sr. Standing Counsel, S.K. Mahajan, Adv. & M.C. Gohana for the Respondent.

Facts of the Case

The assessee-Market Committee paid a certain amount to the Haryana State Agricultural Market Board (Board) on account of development work on its behalf. While furnishing the return of income, assessee claimed deduction of same as application of income.

The Assessing Officer (AO) construed such payment as repayment of loan taken by the assessee from the Board for construction of rural roads and development of Mandis. Considering it as the discharge of old loan liability, AO denied the exemption under section 11 on such payment.

On appeal, CIT(A) allowed the assessee’s appeal and deleted the additions made by the assessee. Subsequently, the Tribunal reversed the CIT(A) ‘s order and confirmed the additions made by AO.

The matter then reached before the Punjab and Haryana High Court.

High Court Held

The High Court ruled that the Market Committee was applying its funds as per the statutory provisions provided under the Punjab Agricultural Produce Markets Act, 1961 (Market Act).

The Market Committee was vested with the responsibility of effecting improvements besides ensuring that there is repair and maintenance of the existing infrastructure, and the whole purpose as such is to provide better facilities in rural areas and for the safety, health and convenience of persons who visit the market area for the sale of agricultural produce and for the general interest of the persons associated with the activities connected therewith.

Section 26 of the Markets Act provides the purpose for which the Board may expand the market development fund, whereas section 27 provides that part of the funds earned by a Market Committee has to be paid to the Board as construction, and the Board can utilize the same for the purposes enumerated in the Statute.

Thus, the role of the Market Committee is to utilize its funds for allied purposes, and it is interlinked with the Board. The responsibility of the Board is also to collect information in connection with agricultural activities, in addition to educating agriculturists so that they can get better yields and higher returns. Therefore, the market development fund is also to be used to construct link roads, approach roads, culverts and bridges, which is part of the welfare activities the two agencies do.

In the instant case, the payment in question had been made to the Board on account of development works on the Board’s behalf, and the Board had issued the receipt. The receipt would show that the aforesaid amount was deposited for development works. It was accordingly pointed out that the Board had incurred expenditure on development works on account of the assessee.

Accordingly, additions were deleted.

List of Cases Reviewed

• • IT Appeal No. 1831 (Del.) of 2010, dated 31-8-2017 (para 13) set aside.

List of Cases Referred to

• • Escorts Ltd. v. Union of India [1993] 199 ITR 43 (SC) (para 5).