JUDGMENT

S.H. Kapadia, CJI.-Heard learned counsel on both sides.

2. Delay condoned.

3. Leave granted.

4. This batch of civil appeals has been filed by the Department. The question, which arises for determination in this batch of civil appeals, is as follows:

“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?”

5. M/s. 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 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, agriculturists, traders, commission agents and arhatiyas. The source of income of the 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 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 is under statutory obligation to enforce the provisions of 1964 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, 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 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 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 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 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 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 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