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2023 (11) TMI 694 - AT - Income TaxRegistration of Society u/s 12AB - cancellation of the provisional registration/approval granted by the CPC on the ground that the assessee is found to be engaged primary in business activities in violation of proviso to Section 2(15) - as per physical verification report submitted by ITO(E). Gwalior the society has installed three different types of automatic machines used for kneading dough, rolling of Puris and peeling of potato's respectively but in the Balance Sheet for F.Y. 2021-22, no machine has been shown as fixed assets only one car has been shown - HELD THAT - As per the copy of the agreement produced by the applicant all the three machines were acquired after 01.04.2022 i.e. in the financial year 2022- 23 on rent and its rental charges would appear in the accounts of next year and in the preceding year all the operations were manual. CIT(E) found that out of total 01 to 27 objects the society has started activity only on the object mentioned at point 27 which is providing food for poor at free of cost or at concessional rates. Further. During physical verification at the given address, one temporary counter was set up near the entrance gate of building and one person was distributing small packets of Puri Sabji. The applicant society has been established with various charitable objects which inter alia included an object for providing free/subsidized food to patients in hospital, to aged, poor, deprived and other needy section of the Society and also to create awareness of eradication of hunger and malnutrition. The assessee has submitted a submission on 23/08/2020 by narrating the activities currently undertaken and future plans which have not been considered by the CIT(E). In our opinion, starting only one activity out of many may not be or a bar for registration so long that activity is charitable. Temporary counter and selling of food packets , it is the specific case of the assessee that there was neither any counter nor food packets were being sold as such. The food was distributed though a small window at the site. Society was found using domestic LPG cylinder for cooking of foods - It is found that clause 7(1)(c) of the Liquefied Petroleum Gas (Regulation of Supply and Distribution) Order 2000 mandates that No person shall poses filled or empty cylinder, gas cylinder valve or pressure regulator unless he is a distributor or a consumer. Since the assessee not using unauthorized cylinders but was using them as a customer in our opinion, the above observation of the CIT(E) is completely misplaced. Assessee is providing food some time on free of cost also out of the income from sells of Poori sabji - As per the proviso to Section 2(15) of the Act and clarification of the Hon ble Supreme court has made it clear that the proviso is applicable irrespective of application of income; and further observed that the assessee is found to be engaged primarily in business activities and in violation of proviso to Section 2(15) of the Act and also in violations of any other law as mentioned in Section 12AB(1)(b)(i)(B) of the Act. It is the specific case of the assessee that at no point of time the assessee has claimed that the assessee was using the proceeds from the sale of food for providing food some times on free of cost . On the other hand, it is found that the assessee was regularly providing free food Tiffin to all the patients of the cancer hospital, which can be corroborated from the submission made by the Assessee dated 10/10/2022. Thus, the above findings of the CIT(E) contrary to factual matrix. As noted that the charging of any amount towards consideration for such an activity (advancing general public utility) which is on cost-basis or nominally above cost, cannot be considered to be trade, commerce, or business or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of cess, or fee, or any other consideration towards trade, commerce or business . We are of the opinion that the CIT(E) has not justified in not granting the approval u/s 12AB of the Act - Decided in favour of assessee.
Issues Involved:
1. Rejection of registration of the Society under Section 12AB of the Income Tax Act, 1961. 2. Classification of the Society's activities as trade, commerce, or business under Proviso to Section 2(15) of the Income Tax Act, 1961. 3. Applicability of Proviso to Section 2(15) to the Society's activities. 4. Misplaced reliance on the Supreme Court judgment by the CIT(E). 5. Violation of principles of natural justice by not considering the adjournment application. 6. Alleged use of domestic LPG cylinders and its legal implications. Summary: 1. Rejection of Registration under Section 12AB: The Assessee's appeal challenges the order dated 03.11.2022 by the Learned Commissioner of Income Tax Exemptions (CIT(E)), Bhopal, which rejected the registration of the Society under Section 12AB. The appeal claims the order is arbitrary, unjust, and illegal. 2. Classification of Activities: The CIT(E) held that the Society's activity of providing concessional food packets is in the nature of trade, commerce, or business, violating the Proviso to Section 2(15) of the Income Tax Act, 1961. The Society argued that the concessional rates do not cover the cost, indicating no profit motive, thus not constituting trade, commerce, or business. 3. Applicability of Proviso to Section 2(15): The CIT(E) failed to appreciate that the Society's activities qualify as "Relief to Poor" rather than "advancement of an object of general public utility (GPU Charity)," making the Proviso to Section 2(15) inapplicable. The Tribunal agreed, stating that the Society's activities fall under "Relief to the poor" and not "GPU." 4. Misplaced Reliance on Supreme Court Judgment: The CIT(E) selectively referred to parts of the Supreme Court judgment in Assistant Commissioner of Income Tax (Exemptions) Vs. Ahmedabad Urban Development Authority without considering the entire judgment. The Tribunal highlighted that the CIT(E) misapplied the judgment. 5. Violation of Principles of Natural Justice: The CIT(E) did not consider the adjournment application dated 20.10.2022, thus passing the order without providing the appellant a proper opportunity to respond, violating principles of natural justice. 6. Alleged Use of Domestic LPG Cylinders: The CIT(E) observed that the Society used domestic LPG cylinders for cooking, violating Section 12AB(1)(b)(1)(8) and the Liquefied Petroleum Gas (Regulation of Supply and Distribution) Order 2000. The Tribunal found this observation misplaced, as the Society used the cylinders as a customer, not unauthorizedly. Conclusion: The Tribunal concluded that the CIT(E) unjustly denied the registration under Section 12AB. The Society's activities were charitable and not commercial. The Tribunal set aside the CIT(E)'s order and directed the CIT(E) to grant approval under Section 12AB. The appeal was allowed, and the order was pronounced on 11th July 2023.
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