2014 (5) TMI 659 - AT - Income Tax

Refusal to grant registration u/s 12AA of the Act Scope of the term charitable purpose u/s 2(15) of the Act Held that - The loan grant/ funds provided by the assessee trust are towards achieving the object of establishing the infrastructure projects creation of infrastructure projects is certainly towards achieving the objects of general public utility since by development of such infrastructure projects, the public at large will be benefitted - The funds received by the Trust under the schemes are given as grants/loans with nominal interest to Municipalities and Municipal Corporations for developing infrastructure facilities under the schemes - the activity of the assessee can be considered to be advancing the objects of general public utility without any profit motive Relying upon COMMISSIONER OF INCOME TAX Versus GUJARAT MARITIME BOARD 2007 (12) TMI 7 - SUPREME COURT OF INDIA - the objects of the assessee trust as mentioned in the trust deed would certainly make it clear that they are in the nature of general public utility since the funding of different projects ultimately are for the benefits of general public - the DIT (E) was not correct in refusing the registration on the aforesaid grounds - the DIT (E) was not justified in not granting registration to the assessee u/s 12AA of the Act thus, the DIT(E) is directed to grant registration to the assessee trust u/s 12A of the Act. Addition of expenses claimed towards EPF Held that - Assessee contended that the amount towards employees contribution to PF was paid to the government account within the due date of filing the return of the AY Relying upon Commissioner of Income Tax Versus AIMIL Limited and others 2009 (12) TMI 38 - DELHI HIGH COURT - the expenditure claimed is allowable u/s 43B of the Act Decided in favour of Assessee. Disallowance of commission payment to agents Genuineness of payment not proved - Held that - The assessee cannot be held responsible if the government departments/PSUs failed to provide any information - the AO has taken up an enquiry with the Government departments/PSUs it is the duty of the AO to obtain necessary information from the concerned departments/PSUs by making necessary enquiry with them - the entire issue relating to payment of commission requires examination at the hands of the AO thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Summary

Issues Involved:
1. Refusal of registration under section 12AA of the Income Tax Act.
2. Disallowance of employees' contribution to Provident Fund (PF).
3. Disallowance of commission payments to agents.

Issue-wise Detailed Analysis:

1. Refusal of Registration under Section 12AA:
The assessee, a trust created by the Government of Andhra Pradesh, applied for registration under section 12AA of the Income Tax Act. The DIT (E) rejected the application, stating that the trust's primary purpose of financing infrastructure projects in Andhra Pradesh does not qualify as a "charitable purpose" under section 2(15) of the Act. The DIT (E) also noted that the trust is wholly owned by the Government of Andhra Pradesh, making the government the sole beneficiary, which disqualifies it from being treated as a public charitable institution.

The Tribunal, after examining the trust deed, observed that the trust's activities, such as providing funds for infrastructure projects like water supply, roads, drainage, solid waste management, etc., indirectly serve the public utility. The Tribunal referred to the Supreme Court's interpretation of "general public utility" and concluded that the trust's objects align with this definition. The Tribunal directed the DIT (E) to grant registration under section 12AA, subject to the assessee explaining the delay in the application.

2. Disallowance of Employees' Contribution to PF:
The assessee, an advertising agency, claimed an expenditure of Rs. 2,12,896 towards employees' contribution to PF, which was disallowed by the Assessing Officer (AO) for being paid beyond the due date under section 2(24)(x) of the Act. The CIT (A) allowed the expenditure if paid within the grace period but disallowed payments beyond it.

The Tribunal, referring to the decisions of the Delhi High Court and Punjab & Haryana High Court, held that if the employees' PF contributions are paid within the due date for filing the return, the expenditure is allowable under section 43B of the Act. The Tribunal directed the deletion of the disallowed amount.

3. Disallowance of Commission Payments to Agents:
The assessee claimed an expenditure of Rs. 1,15,99,328 towards commission payments to agents. The AO disallowed the expenditure, noting that the assessee failed to provide sufficient evidence of services rendered by the agents. The CIT (A) confirmed the disallowance.

The Tribunal observed that the AO had called for information from government departments/PSUs but did not receive any response. The Tribunal held that the AO should have obtained the necessary information and examined the details submitted by the assessee. The Tribunal remitted the issue back to the AO for a fresh examination, directing the AO to conduct necessary enquiries and provide a reasonable opportunity for the assessee to substantiate its claim.

Conclusion:
The Tribunal allowed the appeal for registration under section 12AA, subject to the assessee explaining the delay. It directed the deletion of the disallowed PF contribution and remitted the issue of commission payments back to the AO for a fresh examination. The appeal was partly allowed for statistical purposes.