2021 (10) TMI 179 - HC - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - receipts under the heads Revenue from test laboratory and consultancy receipts - Commercial activity or not - whether activities of the assessee do not fall under any of the categories i.e. relief to poor, education, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest - HELD THAT - In any event the assessee-association is charitable in nature and the appellant itself has granted the assessee registration under Section 12A and also recognized under Section 10(23C)(vi) of the Act vide notification No.1348 dated 31st October, 2007. Though the Assessing Officer has held that the assessee-association has various source of income from commercial activities, yet this Court finds that Appellate Authorities i.e. Commissioner (Appeals) and ITAT have held that the assessee-association has not been earning any profit as the main object of the assessee-association is to improve the public transport system in the country and the road safety standards. Undoubtedly, the activities of laboratory testing and consultancy are bringing revenue to the assessee-association but the intent of such activities is not to earn profit for its shareholders/owners. Consequently, this Court is in agreement with the findings of the CIT (A) and ITAT that the assessee-association does not carry on any business, trade or commerce with the intent of earning profit. Supreme Court in State of Haryana Ors. vs. Khalsa Motor Limited Ors. 1990 (8) TMI 416 - SUPREME COURT has held that the High Court was not justified in law in reversing, in second appeal, the concurrent finding of the fact recorded by both the Courts below. The Supreme Court in Hero Vinoth (Minor) vs. Seshammal, 2006 (5) TMI 478 - SUPREME COURT has also held that in a case where from a given set of circumstances two inferences of fact are possible, the one drawn by the lower appellate court will not be interfered by the High Court in second appeal. Adopting any other approach is not permissible. It has also held that there is a difference between question of law and a substantial question of law - Revenue appeal dismissed.

Summary

Issues:
Challenge to ITAT order upholding CIT(A) decision on charitable activities exclusion under Section 2(15) of the Act.

Analysis:
In this case, the appellant challenged the order of the Income Tax Appellate Tribunal (ITAT) dated 25th February, 2020, which dismissed the appellant's appeal. The main issue raised was whether the activities of the respondent-assessee fell under charitable purposes as per Section 2(15) of the Act. The Commissioner, Income Tax (Exemption), Delhi, questioned the correctness of ITAT's decision in upholding the order of CIT(A) concerning the nature of the assessee's activities and their revenue sources exceeding ?10 lakhs. The appellant argued that the ITAT overlooked that the assessee had commercial activities like 'revenue from test laboratory' and 'consultancy receipts,' which were not charitable in nature. Additionally, the appellant contended that the ITAT's reliance on a previous decision for the assessment year 2009-10 was erroneous as an appeal against that decision was pending.

The High Court examined the nature of the assessee-association, an apex coordinating body of nationalized State Road Transport Corporations, operating under the Ministry of Road Transport and Highways, Govt. of India. The association aimed to improve the public transport system and assist members by providing automobile parts at competitive rates. The Court noted that the first proviso to Section 2(15) of the Act does not exclude entities conducting charitable activities for a fee, intending to exclude profit-oriented organizations. The association had been granted registration under Section 12A and recognized under Section 10(23C)(vi) of the Act, indicating its charitable nature.

Although the Assessing Officer identified commercial income sources for the association, the Appellate Authorities found that the association did not operate for profit but to enhance public transport and road safety standards. The revenue from laboratory testing and consultancy did not aim to generate profits for shareholders. The Court concurred with the CIT(A) and ITAT findings that the association did not engage in business activities for profit motives.

The Court cited precedents emphasizing that High Courts should intervene only on substantial questions of law, not factual findings. It highlighted that if two factual inferences are possible, the lower appellate court's decision should not be interfered with. The Court found no perversity in the CIT(A) and ITAT's conclusions, leading to the dismissal of the appeal.

Therefore, the High Court dismissed the appeal, concluding that the association's activities were charitable, and the decision of the CIT(A) and ITAT was upheld due to the absence of merit in the appeal.