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TMI Blog2021 (10) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... for providing transportation facilities to members of the public. The State Government fixes fares for travel by public. Buses ply in areas even where it is not economically viable. Sec.18 of the RTC Act, 1950 lays down duties of the corporation which is to provide, secure and promote efficient, adequate, economical and properly coordinated system of road transport services in the State of Karnataka. Sec.22 of the RTC Act, 1950 lays down that the corporation should act on business principles in the sense it has to recover the cost of services rendered to the public which means that it cannot provide service free of cost. Sec.30 of the RTC Act, 1950 provides how profits of the corporation shall be disposed and it lays down that the same shall be used only for road development. As seen from the various provisions of the RTC Act, 1950 which we have set out in the earlier part of the order that the dominant and prime objective of the Assessee is not profit making. Prior to the introduction of the proviso to Section 2(15) of the Act, there was no dispute that the Assessee was established for charitable purposes. The stream of traffic revenue and non traffic revenue by itself would d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /10A/VOL.A-II/K-528 w.e.f. 20.08.1992. 4. The assessee claimed the benefits of exemption under Sec.11 of the Act on the ground that it was existing for charitable purpose as defined in Sec.2(15) of the Act. Section 2(15) of the Act has been amended by Finance Act, 2010 w.e.f. 01.04.2009 (i.e., w.e.f. Assessment Year 2009-10). As stated earlier, the definition of Charitable Purpose as given in Sec.2(15) of the Act was amended by the Finance Act, 2010, w.e.f. 1.4.2009. By the aforesaid Amendment, a proviso has been inserted to the definition of Charitable Purpose in Sec.2(15) of the Act, which reads as follows:- 2(15) Charitable purpose includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The AO thereafter proceeded to compute the total income of the assessee by treating the excess of income over expenditure as chargeable to tax besides making certain additions also. The computation of total income in each of the AYs was as follows: AY 2010-11: (In Rs.) Computation of Total Income Net Profit as per Income Expenditure account 48,84,68,000 ADD: Provision for Bad and Doubtful Debts disallowed 45,90,000 ADD: Addition on account of welfare fund 46,16,000 ADD: Depreciation disallowed (depcn claimed-depcn allowed= 176 ,81,85,000-67,51,09,753) 109,30,75,247 Income from Profits and gains of business or profession 159,07,49,247 Total Income 159,07,49,247 Tax on Business Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed (190,94,20,000 - 116,62,96,286) (Refer to para No. 17) 74,31,23,714/- Income from Profits and gains of business or profession 141,57,32,350/- Add: Income under Long Term Capital Gains 74,29,12,000/- Total Income 215,86,44,350/- AY 2012-13: (In Rs.) Computation of Total Income Net Profit as per Income Expenditure account 19,41,41,000/- Less: Profit on sale of land (Considered separately) 7,34,45,000/- Balance income 12,06,96,000/- Add: 1. Property Insurance Fund 4,26,24,000/- Deferred Revenue Expenditure disallowed 1,27,77,651/- Welfare fund 28,40,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax thereon 4,19,65,877 Add: Surcharge @ 5% 20,98,294 Total 44,064171 Add: EC SHEC @ 3% 13,21,925 Tax Payable 4,53,86,096 Less: TDS 1,48,24,874 Add: Interest u/s 234B (From 01/04/2013 to 31/03/2016) 11,00,204 Total Tax and Interest Payable 4,15,63,262 AY 2014-15: (In Rs.) Computation of Total Income Net Loss as per Income Expenditure account 755579000 AD Property Insurance Fund 3851000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee in that case was a society established by Reserve Bank of India (RBI) and since RBI Act does not empower it to carry on any activity with profit motive, the case was decided in favour of the Assessee. He pointed out that in the case of the Assessee the RTC Act, 1950 does not prohibit the Assessee from engaging in any activity which might include profit motive. He pointed out that the Assessing Officer (AO) has in paragraph 7.6 of his order referred to objects, functions and activities of the Assessee which do not prohibit the Assessee from earning profit. It was submitted that the CIT(A) has not discussed the facts which were brought out by the AO based on the income and expenditure account of the Assessee. His submission was that the decisions relied upon by the CIT(A) cannot be applied to the facts of the present case of the Assessee. He submitted that the decision of the Hon ble Supreme Court rendered in the case of CIT Vs. APSRTC 1986 1054 (SC) was a case where the proviso to Sec.2(15) of the Act was not considered and it was a case where the entire share capital was held by the State Government and therefore there was no profit motive. His next submission was that u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... food and beverage outlets. The said withdrawal was challenged by the Assessee before the Hon ble Delhi High Court. The Hon ble Delhi High Court had to go into the question as to the scope of the proviso to Sec.2(15) of the Act. The Hon ble Delhi High Court has laid down the following very important principles as to how the proviso to Sec.2(15) of the Act has to be interpreted: (i) The proviso to Sec.2(15) of the Act introduced by virtue of the Finance Act, 2008 with effect from 01.04.2009 has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service ―in relation to any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. In other words, if, by virtue of a cess or fee or any other consideration, income is generated by any of the two sets of activities referred to above, the nature of use of such income or application or retenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). Courts should always endeavour to uphold the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above. (vii) Section 2(15) is only a definition clause. Section 2 begins with the words, ―in this Act, unless the context otherwise requires. The expression charitable purpose appearing in Section 2(15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression charitable purpose , as defined in Section 2(15) of the said Act, is read in the context of Section 10(23C)(iv) of the said Act, we would have to give up the strict and literal interpretation sought to be given to the expression charitable purpose by the revenue. (viii) The expression charitable purpose , as defined in Section 2(15) cannot be construed literally and in absolute terms. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso to Section 2(15) of the Act, there was no dispute that the Assessee was established for charitable purposes. The stream of traffic revenue and non traffic revenue by itself would demonstrate that the Assessee does not exist for profit. 14. Keeping in mind the above factual aspects and the provisions of the RTC, Act, 1950 and principle laid down in the aforesaid decision of the Hon'ble Delhi High Court in the case of India Promotion Organization (supra), in our view, will clearly show that the Assessee does not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The proviso to Sec.2(15) of the Act is therefore not applicable to the case of the Assessee. We therefore concur with the view of the CIT(A) and hold that the Assessee is entitled to the benefits of Sec.11 of the Act. The AO has not disputed the conditions necessary for allowing exemption u/s.11 of the Act, except the applicability of proviso to Sec.2(15) of the Act. In view of our conclusions that the said proviso is not applicable to the case of the Assessee, we hold that the Assessee's income is entitled to the benefits of S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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