2016 (2) TMI 396 - AT - Income Tax

Entitlement to registration u/s 12AA - Held that - The assessee neither or nor involved directly rendering any service relating to trade, commerce or business. The activity undertaken by the authority comes within the object of the general public utility but, it cannot be concluded that it involves the carrying on of any activity in the nature of trade, commerce or business. Unless the activity undertaken by the assessee comes within the ambit of trade, commerce or business, the proviso to section 2(15) of the Act would not get attracted. The assessee is created by the sovereign authority i.e. State of Andhra Pradesh for the purpose of development, orderly growth of industries and environmental upgradation by controlling through the assessee various aspects such as utilization of land, water and pollution relating to Petroleum, Chemical and Petrochemical Industry. Therefore, in our opinion, the assessee is entitled for registration u/s 12AA of the Act. - Decided in favour of assessee.

Issues Involved:
1. Eligibility of the assessee for registration under section 12AA of the Income-Tax Act, 1961.
2. Applicability of the proviso to section 2(15) of the Income-Tax Act, 1961.
3. Nature of activities carried out by the assessee and whether they constitute trade, commerce, or business.

Detailed Analysis:

1. Eligibility of the Assessee for Registration under Section 12AA of the Income-Tax Act, 1961:
The assessee, Visakhapatnam Kakinada Petroleum, Chemical and Petrochemical Investment Region, Special Development Authority (VK PCPIR SDA), created by the Government of Andhra Pradesh under section 3 of the Andhra Pradesh Urban Areas Development Act, 1975, applied for registration under section 12AA of the Income-Tax Act, 1961. The Commissioner of Income Tax (CIT) denied the registration, concluding that the assessee's activities attract the proviso to section 2(15) of the Act, thus disqualifying it from registration. The Tribunal, however, found that the assessee's activities align with the objectives of general public utility and do not involve trade, commerce, or business. Therefore, the Tribunal quashed the CIT's order and granted registration under section 12AA.

2. Applicability of the Proviso to Section 2(15) of the Income-Tax Act, 1961:
The proviso to section 2(15) of the Act excludes entities engaged in trade, commerce, or business from being considered as charitable institutions if they charge fees for their services. The CIT argued that the assessee, by collecting development charges and other fees, rendered services in connection with trade, commerce, or business. However, the Tribunal noted that the assessee's activities, such as controlling land use, preparing master plans, and enforcing environmental norms, are statutory functions aimed at public welfare and do not constitute trade, commerce, or business. Thus, the proviso to section 2(15) does not apply.

3. Nature of Activities Carried Out by the Assessee and Whether They Constitute Trade, Commerce, or Business:
The assessee's functions include regulating land use, preparing master plans, enforcing environmental standards, and collecting development charges. The Tribunal observed that these activities are statutory duties performed for public welfare and environmental conservation, not for profit. The Tribunal referenced the Delhi High Court's decision in the case of Bureau of Indian Standards (BIS) vs. Director General of Income Tax, which held that regulatory and sovereign functions performed by statutory bodies do not amount to trade, commerce, or business. The Tribunal also distinguished the assessee's case from other cases cited by the Department, such as Punjab State Seed Certification Authority vs. CIT-I Chandigarh and Andhra Pradesh State Seed Certification Agency vs. CCIT, where the entities were engaged in business activities.

Conclusion:
The Tribunal concluded that the assessee's activities fall under the category of "general public utility" and do not involve trade, commerce, or business. Therefore, the proviso to section 2(15) of the Act is not applicable, and the assessee is entitled to registration under section 12AA of the Income-Tax Act, 1961. The order passed by the Commissioner of Income Tax was quashed, and the appeal filed by the assessee was allowed. The judgment emphasizes the importance of the nature and purpose of an entity's activities in determining its eligibility for charitable status under the Income-Tax Act.

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