2025 (6) TMI 399 - AT - Income Tax

Denial of registration u/s 12AB - providing service to pharmacy business and it was continuously generating surplus in the range of 30% to 45% in each of the year - HELD THAT - Assessee is performing statutory functions and it is a statutory body constituted by the Government of Punjab to regulate the pharmacy profession. The sole function of the council is to govern the profession of pharmacy as mandated under The Pharmacy Act 1948. The assessee is performing similar function since the year 1948 and it is collecting fees as per the mandate of legislatures. Simply because it is generating surplus out of its statutory function it could not be said that it is carrying out commercial activities. It is working well within the framework of statutory legislation only. Hon ble Apex Court in its landmark decision titled as CIT vs. Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT has made fine distinction in respect of statutory authorities bodies etc. which have been established by the state / central government for achieving essentially public functions / services. In such a case it has been held that whatever money has been charged for public services the same is to be excluded from the mischief of business or commercial receipts as their objects are essential for advancement of public purpose / function. AR also brought on record a fact that similar registrations have been granted by the revenue to similarly placed organization viz. Punjab Nurses Registration Council and Punjab Medical Council. Considering all these facts we direct the appropriate authority to grant the impugned registration to the assessee. The appeal stand allowed.

Summary

The Appellate Tribunal (ITAT Chandigarh) allowed the assessee's appeal against the rejection of registration under section 12AB by the Commissioner of Income Tax (Exemptions). The assessee, a statutory authority established under The Pharmacy Act, 1948, performs regulatory functions by registering pharmacy professionals and charging statutory fees. Although the assessee generated surpluses of 29.96% to 43.43% in FYs 2019-20 to 2021-22, the Tribunal held that such surplus arising from statutory functions does not amount to commercial activity.Relying on the Supreme Court's decision in CIT vs. Ahmedabad Urban Development Authority (CA No.21762 of 2017), the Tribunal emphasized that statutory authorities providing essential public services are excluded from the "mischief of business or commercial receipts," as their activities advance public purposes. The Tribunal also noted precedent in granting similar registration to comparable bodies like the Punjab Nurses Registration Council. Accordingly, the Tribunal directed grant of registration under section 12A(1)(ac)(iv)(item B), stating: "Simply because it is generating surplus out of its statutory function, it could not be said that it is carrying out commercial activities." The appeal was allowed.