2016 (2) TMI 1291 - HC - Income Tax

Assessing Charity vs. Commercial Activities: Key Considerations for Registration

The Tribunal analyzed the eligibility of the assessee for registration under section 12A based on the nature of its activities, particularly focusing on ... Exemption u/s 11 - entitled for registration u/s 12A - Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee is entitled for registration under section 12A of the Act, even when the objects of KSRTC will fall under the limb 'any other object of General Public Utility' under section 2(15) of the IT Act and the activities of BMTC under this limb will be hit by the proviso to section 2(15) of IT Act amended w.e.f. 1 .4.2009 as the transport Services are provided to all sections of the society on - commercial basis like any other private transporter and generating such huge surplus year after year and is running its activities on commercial basis? Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee is entitled for registration under section 12A of the Act, even when the functions of BMTC include providing casual contract and chartered services, including luxury buses like Volvo and Mercedes fully air-conditioned are run as well as provided on hire for the occasions like wedding, excursion, pilgrimage and rallies or whenever the general public needs dedicated buses for their travel and these are charged on commercial basis. it is also seen that BMTC is providing Advertisement space on buses to the private sector charging substantial fee, which activity is nothing but commercial activity and there is a deviation from its predominant object of providing transport service? Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee is entitled for registration under section 12A of the Act, even when the KSRTC under the head 'Non operating revenue –“Non-traffic Revenue, has accounted a receipt of ₹ 135.58 crores as miscellaneous Income -which are mainly from advertisement and transportation of luggage and goods are obviously out of its commercial purpose is involved and is charging for every services provided? Whether Tribunal was correct in law in holding that the assessee is entitled for registration under section 12A of the Act. when BMTC was formed by the Government of Karnataka as a Corporation by a legislative Act and is a public limited company under section 25 of Indian Companies Act and in view of the amended provisions of Section 2(15) and as BMTC is run on commercial basis like any other private transporter, the registration granted under section 12A is rightly been cancelled? Whether Hon'ble. Tribunal was right in following the judgment of Hon'ble High Court in the case of the KIADB wherein it is held that the first proviso to section 2(15), which was introduced by Finance Act, 2008 w.e.f. 01.04.2009, cannot be invoked by the registering authority for the purpose of cancellation of registration under section, 12AA(3) even if the assessee is found to be carrying on of any activity in the nature of trade, commerce or business? HELD THAT:- As counsel appearing for appellant and learned counsel appearing for. Learned counsel appearing for both the parties, submitted that, subject matter involved in this appeal. Issues:1. Entitlement for registration under section 12A of the Act based on the nature of activities conducted.2. Classification of activities as charitable or commercial for registration under section 12A.3. Impact of amended provisions of Section 2(15) on registration under section 12A.4. Interpretation of judgments related to cancellation of registration under section 12AA(3).Analysis:Issue 1: Entitlement for registration under section 12AThe primary issue in this judgment revolves around the eligibility of the assessee for registration under section 12A of the Act. The Tribunal was tasked with determining whether the activities of the assessee, specifically related to transport services and commercial operations, qualified for registration under section 12A. The Tribunal had to consider whether the nature of services provided by the assessee fell under the category of 'any other object of General Public Utility' as per section 2(15) of the IT Act. The Tribunal also examined the deviation from the predominant object of providing transport services due to commercial activities like providing luxury buses and advertisement space on buses. The judgment delves into the commercial aspects of the services provided by the assessee to ascertain their eligibility for registration under section 12A.Issue 2: Classification of activities as charitable or commercialAnother crucial aspect of the judgment was the classification of the assessee's activities as charitable or commercial. The Tribunal analyzed various revenue streams of the assessee, such as non-traffic revenue from advertisements and transportation services, to determine the commercial nature of these activities. The judgment scrutinized the provisions of the Indian Companies Act and the amended Section 2(15) to assess whether the assessee's operations aligned with the criteria for charitable registration under section 12A. The distinction between commercial and charitable activities played a pivotal role in deciding the entitlement of the assessee for registration under section 12A.Issue 3: Impact of amended provisions of Section 2(15)The judgment also addressed the impact of the amended provisions of Section 2(15) on the registration process under section 12A. The Tribunal considered the implications of the amended Section 2(15) introduced by the Finance Act, 2008, effective from 01.04.2009, on the assessee's eligibility for registration. The changes in the legal framework necessitated a reevaluation of the criteria for registration under section 12A in light of the amended provisions. The judgment explored how these legislative amendments influenced the decision-making process regarding the registration of entities engaging in activities falling under the purview of Section 2(15).Issue 4: Interpretation of judgments related to cancellation of registrationFurthermore, the judgment involved an in-depth analysis of various judgments, particularly the case of the KIADB, to interpret the provisions related to the cancellation of registration under section 12AA(3). The Tribunal examined the applicability of specific conditions stipulated under section 12AA(3) for canceling registration and the authority vested in the Assessing Authority versus the registering authority. The judgment scrutinized the legal nuances surrounding the cancellation of registration and the subsequent impact on the assessee's entitlement to exemptions under sections 11 and 12. The interpretation of precedents and legal provisions regarding the cancellation of registration formed a critical part of the judgment's deliberation.