2020 (6) TMI 291 - AT - Income Tax

Exemption u/s 11 - grant of registration u/s 12AA denied - establishment of prepaid taxi booths - Charitable activity u/s 2(15) - HELD THAT - CIT(DR) fails to dispute that the CIT(Exemption) herein has nowhere recorded a specific finding as to whether the assessee's dominant activity of providing prepaid taxi booths to railway passengers prima facie involves any profit making or not - circumstances involved in the instant list that such an establishment of prepaid taxi booths is collaboration with local taxi operators; and that too at the local police level, indeed brings the sense of security amongst the general public. Mr. Meena has sought to highlight the CIT(Exemption)'s findings that the setting up of prepaid taxi booths in the name of assessee society amounts to violation of the scheme of the constitution. Also the assessee's aggregate receipts indicate its profit motive whilst earning surplus of income over expenditure right from assessment year 2013-14 to 2016-17. We find no reason to sustain the Revenue's foregoing objections. In DIT(E) vs. Sabarmati Ashram Gaushala Trust Tax 2014 (1) TMI 1539 - GUJARAT HIGH COURT holds that it is the concerned predominant activity that has to be considered as to whether it was in the nature of trade or commerce regarding general public utility limb u/s 2(15) of the Act. Hon'ble apex court's latest decision in M/s. Ananda Social and Educational Trust 2020 (2) TMI 1293 - SUPREME COURT holds that commencement of charitable activities is not a mandatory condition for claiming 12AA registration. We have quoted the lordship's decision keeping in mind the fact that the CIT(Exemption) has declined the assessee's impugned registration on the ground that it has not filed income tax return for four assessment years (Supra). We thus are of the opinion that the CIT(Exemption) needs to examine the entire issue of assessee's registration afresh as per law. We accept the assessee's instant sole grievance for statistical purposes and restore the instant lis back to the CIT(Exemption) for his fresh adjudication within three effective opportunities of hearing - Assessee's appeal is allowed for statistical purposes

Summary

Issues Involved:
1. Whether the objectives and activities of the society are charitable in nature.
2. Whether registration u/s 12AA can be granted when Income-tax has not been paid on surplus of income over expenditure.

Detailed Analysis:

1. Charitable Nature of Objectives and Activities:
The primary objective of the society is to establish, operate, and manage pre-paid taxi booths at designated stations as per the order issued by the Transport Department, Govt. of West Bengal. The CIT(Exemptions) found that the society's activities, which include collecting service charges from passengers, are mercantile and monopolistic in nature. The CIT(Exemptions) argued that the society's operations discourage Taxi Workers' Unions, contradicting the democratic and socialistic principles enshrined in the Constitution of India. The CIT(Exemptions) concluded that the society's activities are not for the advancement of general public utility as per Section 2(15) of the Income Tax Act, 1961, because the entire receipt is from service charges, indicating a trade activity exceeding the permissible limit of 20% of total receipts for charitable activities.

2. Non-Payment of Income Tax:
The society had a surplus of income over expenditure for the financial years 2013-14 to 2016-17 but did not file Income Tax Returns, violating Section 139(1)(b) of the Income Tax Act, 1961. The CIT(Exemptions) emphasized that non-payment of taxes is not genuine and honest, and therefore, the activities of the society cannot be considered genuine. The CIT(Exemptions) argued that granting registration u/s 12AA would preclude the Assessing Officer from taking action under Section 147, thereby allowing the society to avoid paying legitimate taxes. The CIT(Exemptions) concluded that registration u/s 12AA should be denied to ensure compliance with tax laws and prevent any entity from gaining undue advantage by not paying taxes.

Tribunal's Findings:
The Tribunal found that the CIT(Exemptions) did not record a specific finding on whether the society's dominant activity of providing prepaid taxi booths involves profit-making. The Tribunal observed that the establishment of prepaid taxi booths in collaboration with local taxi operators at the police level brings a sense of security among the general public. The Tribunal referred to the Hon'ble Gujarat High Court's decision in DIT(E) vs. Sabarmati Ashram Gaushala Trust, which emphasizes considering the predominant activity's nature regarding trade or commerce. The Tribunal also cited the Hon'ble Supreme Court's decision in M/s. Ananda Social and Educational Trust vs. CIT, which states that commencement of charitable activities is not mandatory for claiming 12AA registration. The Tribunal concluded that the CIT(Exemptions) needs to re-examine the issue of the society's registration afresh, considering the legal precedents and providing the society with three effective opportunities of hearing.

Conclusion:
The Tribunal allowed the society's appeal for statistical purposes, directing the CIT(Exemptions) to re-examine the registration issue afresh as per law. The order was pronounced after ninety days of the hearing, with the period of lockdown due to the COVID-19 pandemic being excluded from the timeline.