2015 (2) TMI 727 - HC - Income Tax

Entitlement to benefit under section 11 - Tribunal held applicant not entitled to deduction u/s 11 on the ground that the applicant-corporation carried on the work of the applicant - whether salaried employees were not beneficiaries in the teeth of section 30 of the Road Transport Act, 1950 ? - Held that - Tribunal was not right in law in holding that the salaried employees were not beneficiaries in the teeth of section 30 of the Road Transport Act, 1950 as relying on CIT, AP Versus Andhra Pradesh State Road Transport Corporation 1986 (3) TMI 1 - SUPREME Court - Decided in favour of assessee. The beneficiaries of the corporation can be said to be the entire public. They use the facilities created by the corporation for travelling and other allied activities. If the provision is to be understood in such a way that the work in connection with the business must be carried out by the beneficiaries, it must result in a situation, where every passenger must have a say in the administration and business. It is not difficult to imagine chaotic condition that would emerge as a result of that. Obviously realising this, Parliament has chosen to employ the word mainly . The ultimate test is to see as to whether the persons, who are in actual management of the institution, are the persons working for and on behalf of the beneficiaries or whether they have an independent and personal interest of their own. Viewed from that angle, the employees of the corporation ; in the ultimate analysis are none other than the public employees working for and on behalf of the beneficiaries. The role played by the Government is nothing but a systematic activity, through which the will of the public is transmitted or is translated. It hardly needs any mention that where two views are possible while interpreting a provision of taxation law, the one that helps the assessee or beneficiary must be chosen. In the instant case, the assessee is a corporation serving the needs of the travelling public in the State and was enjoying the benefit for the past several decades. Further, sub-section (4A) ceased to be in force on its being deleted in the year 1991. - Decided in favour of assessee.

Summary

Issues Involved:

1. Eligibility of the corporation for exemption under Section 11 of the Income-tax Act, 1961.
2. Interpretation of whether salaried employees can be considered beneficiaries under Section 30 of the Road Transport Act, 1950.
3. Distinction between an organization carrying on business and one operating on business principles as per Supreme Court judgment.
4. Determination of taxable total income under Section 115J of the Income-tax Act, considering losses deductible of earlier years exclusive of depreciation.

Detailed Analysis:

Issue 1: Eligibility of the corporation for exemption under Section 11 of the Income-tax Act, 1961

The corporation, an assessee under the Income-tax Act, 1961, claimed benefits under Section 11, which provides for total exemption of income earned from property held for charitable or religious purposes. The Supreme Court in CIT v. APSRTC [1986] 159 ITR 1 (SC) confirmed that the corporation was entitled to this benefit. However, Parliament amended Section 11 through the Finance Act, 1983, inserting sub-section (4A), which imposed two conditions for exemption: (a) if the assessee is a trust, it must be for public religious purposes and its business must involve printing or publication of books, or be notified by the Central Government; (b) if it is an institution, it must be wholly for charitable purposes and its work must be mainly carried on by its beneficiaries. The assessing authority denied the benefit for the assessment years 1987-88 and 1988-89, arguing that the corporation's work was not carried on by the beneficiaries. This decision was upheld by the Commissioner (Appeals) and the Tribunal.

Issue 2: Interpretation of whether salaried employees can be considered beneficiaries under Section 30 of the Road Transport Act, 1950

The Tribunal's decision that salaried employees were not beneficiaries was contested. The Supreme Court's judgment in Surana Steels Pvt. Ltd. v. Deputy CIT [1999] 237 ITR 777 (SC) was cited, leading to the conclusion that salaried employees could indeed be considered beneficiaries. Therefore, this question was answered in favor of the corporation and against the Revenue.

Issue 3: Distinction between an organization carrying on business and one operating on business principles as per Supreme Court judgment

The corporation argued that it had been enjoying the exemption under Section 11 and that there was no basis to deny this benefit by invoking Section 11(4A)(b). The corporation, created under the Road Transport Corporations Act, 1950, had its activities carried out by its employees, who represent the beneficiaries, i.e., the public. The Bombay High Court's judgment in Director of Income-tax v. Bombay Bullion Association Dharam No Kanto Trust [2002] 254 ITR 708 (Bom) was cited, which emphasized a liberal interpretation of the provision to avoid absurdities and ensure the law's spirit and purpose are upheld.

Issue 4: Determination of taxable total income under Section 115J of the Income-tax Act, considering losses deductible of earlier years exclusive of depreciation

The Tribunal's decision on this matter was challenged, arguing that the interpretation should favor the assessee. The court noted that where two views are possible in interpreting a taxation provision, the one benefiting the assessee should be chosen. Given that sub-section (4A) was deleted in 1991, the court ruled in favor of the corporation.

Conclusion:

The court concluded that the corporation met the criteria for exemption under Section 11, as its activities were charitable and carried out by employees representing the public beneficiaries. The interpretation of salaried employees as beneficiaries was upheld, and the distinction between business operations and business principles was clarified in favor of the corporation. Consequently, all questions were answered in favor of the corporation and against the respondent.