TMI Blog2022 (10) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... he proviso to Sec. 2(15) of the Act has been discussed in the case of India Trade Promotion Organization vs. DGIT(Exemption) [ 2015 (1) TMI 928 - DELHI HIGH COURT] and the dominant motive is the criteria as laid down therein. Therefore the answer to the arguments put forth by the learned DR are found in the aforesaid decision. As we have already seen, the profit of the Assessee have to be used only for road development, as in the case of the decision in the case of APSRTC [ 1988 (8) TMI 391 - ANDHRA PRADESH HIGH COURT] where the revenues have to be utilized only for the purpose of road development. Tribunal in assessee's own case, we hold that the assessee is not hit by proviso to section 2(15) - Accordingly, the A.O. is directed to grant benefit of exemption u/s. 11 for the relevant assessment year. CIT(E) has rightly and fairly allowed of the assessee. - ITA. No. 268 to 271 & 275/JP/2022 - - - Dated:- 26-9-2022 - DR. S. SEETHALAKSHMI , JM And SHRI RATHOD KAMLESH JAYANTBHAI , AM Assessee by : Shri Suhani Meharwal ( C. A. ) Revenue by : Shri Sanjay Dhariwal ( CIT ) ORDER Per Dr. S. Seethalakshmi , JM These are four appeals filed by the Department a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E), New Delhi which has also resulted in certain delay in approval of filing of appeal and issue of authorization. c. Apart from this due to general AGT non joining of staff also, the work of this office has suffered adversely. 3. Therefore, due to above reasons, the appeal in this case for A.Y. 2016-17 could not be filed in time and has resulted in delay in filing of appeal before the Hon'ble ITAT. 4. Considering the above reasonable cause for delay in filing of appeal before the Hon'ble ITAT, it is humbly prayed that the delay in filing of appeal may kindly be condoned. The inconvenience cause is highly regretted and due care will be taken in future to avoid such delay. 3. We have heard the rival contentions and perused the materials available on record. The prayer as mentioned above by the Revenue for condonation of delay of 21 days has merit and we concur with the submission of the Revenue. Thus the delay of 21 days in filing the appeal by the Revenue is condoned. 4. Since common issues involved, in all the appeals were heard together and disposed off by this common order. First, we take up Department's appeal in ITA No. 275/JP/2022 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities being carried out are not charitable. The corporation runs buses. Person using its services has to pay fare as fixed by it. It is not the case that it is providing free services to the public. Thus, its activities are definitely commercial in nature. Therefore, in view of amended provisions of section 2(15) which defines the Charitable purpose, that if the receipts from activities which are commercial in nature are exceeding Rs. 25 lacs the advancement of any other object of general public utility will not be called charitable. The argument that its income will not be taxable on the principle of mutuality is also not acceptable. The logic given for calling the organization as mutual association is overstretched. The basic principle for exemption of the income of mutual association is that there is common identity of contributors and participants. Here, the corporation cannot be equated with the passengers. In view of above discussion, it is held that the assessee is not entitled for exemption u/s. 11 in view of amended provisions of section 2(15). Accordingly for this year its income is computed on the principle of commercial expediency and taxed accordingly. Here, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as charitable institution and hence the above quoted decision cannot be applied to the assessee. Therefore, the assessee cannot be allowed to carry forward losses for umpteen number of years as per the decision of Maharana Mewar Charitable Foundation. However, as the assessee is assessed according to the principle of commercial expediency, it is allowed to carry forward the losses as per section 72 of the Income Tax Act, 1961. 10. Being aggrieved by the AO the assessee preferred an appeal before the ld. NFAC and the findings are reproduced as under:- 6. Decision: The appeal for assessment year 2010 - 11 and 2011 - 12 was decided, vide 'ITBA/NFAC/S/250/2022-23/1042807601(1) dated 21/04/2022, where vide para-7 of the order, it was held as under: 7. It is seen that Corp has provided transport services to the general public and it was rightly held by honourable ITAT that its services are not limited to any particular section like the weak sections of society or poorer people only, so activity of corporation comes under general public utility as clearly defined in section 2(15). It is also noticed that even though corporation provide certain express and deluxe bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. Further, the theory of the pre-dominant object was also upheld by the Rajasthan High Court as discussed above. Further, it is also seen that the surplus if any generated and available for distribution is to go to the State Government and even then it will not become part of the general revenues of State but rather it can only be utilized for the stated purpose as per sec 30 of the Road Transport Corporation Act 1950, i.e. towards Road Development. Thus the decision of assessing officer to deny exemption under section 11 is not upheld. 8. In the result, the appeals of both years are treated as allowed and the direction of Hon'ble ITAT stands disposed. 5.2. In view of the above, ground number 1 is allowed. Ground number 2 :Application of capital expenditure may be allowed subject to provisions contained in sec 11 (specifically sec 11(6)) and sec 13. The expenses/depreciation eligible for application should be recomputed after verification as per law by the assessing officer as the same was not verified by the assessing officer while making the original assessment. 7. In respect of ground number 3, the same were allowed to be carried forward earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 2(15) is applicable in the instant case. As per the Assessing officer, the activities of the assessee corporation are commercial in ITA Nos. 885 886/JP/2018 Rajasthan State Road Transport Corporation, Jaipur Vs. DCIT, Jaipur 17 nature for the reason that it is running buses and charging fare from the passengers and it is not providing free services to the public. The ld. CIT(A) referred to the decision of the Hon'ble Delhi High Court in case of India Trade Promotion Corporation vs UOI wherein it was held that the dominant and prime objective of the Institution has to be seen. Where the dominant and prime objective is profit making, it would not be entitled to claim its objects to be charitable purposes and where the institution is not driven primarily by a desire or motive to earn profit but to do charity through the advancement of an object of general public utility, it can be regarded as an institution established for charitable purposes. The ld. AR has further referred to the decision of the Hon'ble Rajasthan High Court in case of Jodhpur Development Authority and Urban improvement Trust, Bikaner wherein similar legal proposition has been laid down. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities to passengers by running of vehicles in the state and outside state for a nominal fare. The Corporation provides various concessions and relief to the society specifically to poor, students, senior citizen, women etc. In brief, various types of relief and concessions are provided by Corporation, which I read few of from page no 1 and 2 of paper book. And that's why your honour, assessee corporation is continue to be within the definition of charitable purpose u/s. 2(15) of the I.T. Act, 1961 in 'Relief to poor' as main limb and first limb. Relief to poor encompasses a vide range of objects for welfare of the economically and socially disadvantaged or needy. It will therefore, include within its ambit purposes such as relief to destitute, orphans or handicapped, disadvantages women or children, or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity. After the insertion of proviso CBDT issued a circular where the relief to poor is explained in para 2.2 (page no 3-4 of paper book) Even, the activities of corporation is deemed to be under advanceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere I have placed print out of ticket booking in both the cases. 7. New insertion in section 2(15) is made by Finance Minister in Finance Bill 2008 with the intension to limit the benefit of exemption to real charitable purposes and he targeted those who were doing commercial activities and earning tax free income in the garb of NGO as stated by FM in parliament. In view of above, assessee corporation qualifies the both the limb of definition of charitable purpose i.e., relief to poor as well as advancement of any other object for general public utility. And its activity does not come under the purview of commercial activity for fee or cess. On the law, I want to refer ITAT Hyderabad in case of DCIT vs A.P. State Civil Supplies Corporation It was held in the case that the aim of Finance Minister is to limit the commercial activities generating profit in the mask of charity. The proviso to section 2(15) is applicable only in relation to the last limb of the definition of charitable purpose i.e., advancement of any other object of general public utility which means the activities which promote the welfare of general public and not the individual interest of some person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other form of transport; (c) the desirability of extending and improving the facilities for road transport in any area and of providing an efficient and economical system of road transport service therein, On account of its primary object being relief of the poor, such losses are being met/borne by the state of Rajasthan. RSRTC is not carrying any activity of trade, commerce or business with a motive to earn profit/income. Section 18 of RSRTCA, 1950 also provide that It shall be the general duty of a Corporation so to exercise its powers as progressively to provide or secure or promote the provision of, an efficient, adequate, economical and properly coordinate system of road transport services in the state Though the Act empowered a corporation to issue shares and to pay dividends, no share capital was raised by the respondent and it entire share capital was provided by the government u/s. 23(1) of RSRTCA, 1950. Sec 30 of RSRTCA, 1950 a Corporation may utilize its net annual profits for the provision of amenities to the passengers using the road transport services, welfare of labour employed by the Corporation any balance utilized for financing the expa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon'ble Delhi High Court in the case of India Trade Promotion Organization vs. DGIT(Exemption) (supra) and the dominant motive is the criteria as laid down therein. Therefore the answer to the arguments put forth by the learned DR are found in the aforesaid decision. As we have already seen, the profit of the Assessee have to be used only for road development, as in the case of the decision in the case M/s. Karnataka State Road Transport Corporation of APSRTC (supra) where the revenues have to be utilized only for the purpose of road development. 5.1 In view of the above order of the Tribunal in assessee's own case, we hold that the assessee is not hit by proviso to section 2(15) of the I.T. Act. Accordingly, the A.O. is directed to grant benefit of exemption u/s. 11 of the I.T. Act for the relevant assessment year. Therefore, calling the activities of the assessee as normal business Activities is totally incorrect and without any evidentry value. The objects of assessee are charitable in nature and as such it had been claiming its income if any as exempt u/s. 11 of IT Act 1961. 12. We have considered the rival contention and perused the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 for the assessment years 2011-11 and 2011-12 dated 14.10.2019. The ld. AR has pointed out that the relevant portion of the order in which the assessee's objects and facts of the case is clearly mentioned. The relevant para 21 22 which are reproduced as under:- 21. The next question that arise for consideration is whether the activities of the assessee corporation involves carrying on of activities in the nature of trade, commerce or business or any activity of rendering of services in relation to any trade, commerce or business for a cess, fee or any other consideration and the proviso to section 2(15) is applicable in the instant case. As per the Assessing officer, the activities of the assessee corporation are commercial in nature for the reason that it is running buses and charging fare from the passengers and it is not providing free services to the public. The ld. CIT(A) referred to the decision of the Hon'ble Delhi High Court in case of India Trade Promotion Corporation vs UOI wherein it was held that the dominant and prime objective of the Institution has to be seen. Where the dominant and prime objective is profit making, it would not be entitled to claim i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject is stood a charitable in nature and not profit earning to support this statement. The ld. AR for the assessee has filed documentary proof that the assessee is given various concessions and relief granted to various classes and societies at page No. 1 and 2 of the paper books which are reproduced as under:- The ld. AR for the assessee has relied upon a circulars No. 11 of 2002 dated 19.12.2008 which is related to second definition of charitable Trust u/s. 2(15) of the Income Tax Act, 1961. The relevant part of the Circular which are reproduced as under:- EXEMPTION UNDER SECTION 11 IN CASE OF ASSESSEE CLAIMING BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANISATIONS CIRCULAR NO. 11/2008 , DATED 19-12-2008 Definition of 'Charitable purpose' under section 2(15) of the Income-tax Act, 1961 Section 2(15) of the Income Tax Act, 1961 ('Act') defines charitable purpose to include the following:- (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1. There are industry and trade associations who claim exemption from tax u/s. 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as relief to destitute, orphans or handicapped, disadvantages women or children, or senior citizens in need of aid. Going through the object of the RSRTC that Act where the Ld. AR assessee has produced for our kind perusal in paper books from 52 to 67. The objects of the RSRTC which is published in the Web site which reads as under:- About RSRTC Rajasthan state Road Transport Corporation has entered it's 53 year if since its inception on 1st October, 1964. The corporation has been established under the Road Transport Act, 1960 with the objective of providing economic, adequate, punctual and efficient services to the traveling public in the state with 8 Depots and 421 Buses plying 45000 kilometers carrying 29000 passengers per day. Currently 4500 buses across 51 depots are plying more that 16 lace kilometres and carrying more than 9 lac passengers per day. RSRTC is committed to providing high quality services. Consistently and constantly improving the services for the satisfaction of the passengers to fulfill the commitment RSRTC has incorporated ordinary Express, Deluxe, A.C., Gandhi Rath A.C., A.C. Sleeper, Volvo-Mercedes, Volvo-Pantry. Volvo LCD, Volvo LCD-Pant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending and improving the facilities for road transport in any area and of providing an efficient and economical system of road transport service therein, may, by notification in the Official Gazette, establish a Road Transport Corporation for 1 [the whole or any part of the Union territory of Delhi] under such name as may be specified in the notification. 16. Going through the section 18 of the RSRTC Act which is explains the general duties of the Corporation it shall be the general duty of a Corporation so to exercise its powers as progressively to provide or secure or promote the provision of, an efficient, adequate, economical and properly co-ordinated system of road transport services in the [Union territory of Delhi or part thereof] for which it is established and in any extended area. Provided that nothing in this section shall be construed as imposing on a Corporation, either directly or indirectly, any form of duty or liability enforceable by proceedings before any Court or Tribunal to which it would not otherwise be subject. The ld. AR also submitted that the section 30 of the RSRTC explain disposal of net profit from the above documentary evidence. After making provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Assessee's income is entitled to the benefits of Sec. 11 of the Act. With regard to the arguments of the learned DR, we are of the view that the same are without any merit. The proviso to Sec. 2(15) of the Act has been discussed by the Hon'ble Delhi High Court in the case of India Trade Promotion Organization vs. DGIT(Exemption) (supra) and the dominant motive is the criteria as laid down therein. Therefore the answer to the arguments put forth by the learned DR are found in the aforesaid decision. As we have already seen, the profit of the Assessee have to be used only for road development, as in the case of the decision in the case of APSRTC (supra) where the revenues have to be utilized only for the purpose of road development. In view of the above order of the Tribunal in assessee's own case, we hold that the assessee is not hit by proviso to section 2(15) of the I.T. Act. Accordingly, the A.O. is directed to grant benefit of exemption u/s. 11 of the I.T. Act for the relevant assessment year. Taking into facts and circumstances of the case the ld. CIT(E) has rightly and fairly allowed of the assessee hence, ground nos. A to C is dismissed. I.T.A No (s). 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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