2019 (11) TMI 644 - AT - Income Tax

Exemption u/s 11 - whether the assessee corporation is entitled for exemption u/s 11 for the year under consideration in view of amended provisions of section 2(15) ? - HELD THAT - The assessee corporation is registered under section 12A(a). The assessee corporation is engaged in providing transportation services in the state of Rajasthan. Provision of transportation services through running of buses is clearly an activity of general public utility as the said services are meant and availed by the public at large and therefore, it would fall in the last limb of definition of charitable purpose as so defined in section 2(15). The argument of assessee corporation provides various concessions and relief in fare to poor, students, senior citizens, women, etc doesn t take away the inherent and fundamental aspect of providing a public utility service of running of buses for the public at large. The services are not limited to particular section of the society but open to all including the poor, marginalized and needy section of our society namely senior citizens, women etc. Therefore, the last limb general public utility clearly defined in section 2(15) and being more specific will be applicable in the instant case and has been rightly invoked by the Assessing officer. 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) - 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. CIT(A) referred to the decision of India Trade Promotion Corporation vs UOI 2015 (1) TMI 928 - DELHI HIGH COURT 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 primarly 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. 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 2016 (7) TMI 1277 - RAJASTHAN HIGH COURT wherein similar legal proposition has bee laid down. However, when it comes to finding on facts in the instant case, the CIT(A) merely held that since its receipts from activities which are commercial in nature exceeds the prescribed threshold, the assessee corporation will be not a charitable corporation. There is no finding by the AO or the ld CIT(A) as to the dominant intent and purposes for which the assessee corporation was set up and whether the dominant purposes was to earn profit or provide public utility services to the public at large. The ld AR in her submissions has referred to various provision of Rajasthan State Road Transportation Corporation Act 1950 and has argued that the object was to provide efficient transport services to the public and not to earn profits. We find that the provision of Rajasthan State Road Transportation Corporation Act 1950 need to be examined in detail to determine the dominant intent and purpose of setting up of the assessee corporation and in the absence of findings of the lower authorities, we are constrained to remand the matter back to the file of the CIT(A) to examine the same afresh.

Summary

Issues Involved:
1. Delay in filing appeals.
2. Withdrawal of exemption under section 11 of the Income Tax Act.
3. Determination of whether the assessee's activities fall under "general public utility" and "relief to the poor."
4. Applicability of proviso to section 2(15) regarding commercial activities.

Detailed Analysis:

1. Delay in Filing Appeals:
The assessee corporation filed two appeals with a delay of 24 days. The Tribunal noted that the assessee submitted a condonation application along with an affidavit. After hearing both parties and reviewing the application, the Tribunal found a reasonable cause for the delay and thus condoned it, admitting the appeals for adjudication.

2. Withdrawal of Exemption under Section 11:
The assessee corporation, registered as a charitable institution under section 12A(a), provides road transportation services. For the assessment years 2010-11 and 2011-12, the Assessing Officer (AO) withdrew the exemption under section 11, reasoning that the corporation's activities were commercial in nature and exceeded the threshold of ?10 lakhs, thus invoking the proviso to section 2(15). The AO held that the corporation's activities, despite being charitable in object, were not charitable in nature as they involved running buses and charging fares, which are commercial activities.

3. Determination of Whether the Activities Fall Under "General Public Utility" and "Relief to the Poor":
The assessee argued that its activities fall under "relief to the poor" and "general public utility" as defined in section 2(15). The corporation provides transportation services at nominal fares, offering concessions to the poor, students, senior citizens, and women, and operates in rural areas where private operators do not. The assessee contended that these activities do not qualify as trade, commerce, or business and thus should not affect its charitable status.

4. Applicability of Proviso to Section 2(15) Regarding Commercial Activities:
The Tribunal examined whether the activities of the assessee corporation involved trade, commerce, or business. The AO and CIT(A) concluded that the corporation's activities were commercial due to charging fares. However, the Tribunal noted that the dominant intent and purpose of the corporation, as established by the Rajasthan State Road Transportation Corporation Act, 1950, needed detailed examination to determine whether the primary objective was profit-making or providing public utility services.

The Tribunal referred to various judicial precedents, including the Delhi High Court's decision in India Trade Promotion Organization vs. UOI and the Rajasthan High Court's decisions in Jodhpur Development Authority and Urban Improvement Trust, Bikaner. These cases emphasized that the dominant objective of an institution must be considered to determine its charitable status.

Conclusion:
The Tribunal found that the lower authorities did not adequately examine the dominant intent and purpose of the assessee corporation. Therefore, the matter was remanded back to the CIT(A) for a fresh examination, considering the relevant legal provisions and judicial precedents. The appeals were allowed for statistical purposes, and the CIT(A) was instructed to provide a reasonable opportunity for the assessee to present its case.

Order Pronounced:
The order was pronounced in the Open Court on 14/10/2019.