2021 (10) TMI 728 - AT - Income Tax

Transport Corporation entitled to tax exemption under Income-tax Act based on public utility service provision.

M/s. Karnataka State Road Transport Corporation Versus ACIT (Exemptions), Circle – 1, Bengaluru., DCIT (Exemptions), Circle – 1, Bengaluru., The Dy. Director of Income Tax (Exemptions), Circle 17 (1), Bengaluru., The Addl. Director of Income Tax (Exemptions), Range 17, Bengaluru And DCIT (Exemptions), Circle, 6th Floor, Unity Building, Bengaluru. Versus M/s. Karnataka State Road Transport Corporation, Bengaluru

The Tribunal ruled that the assessee, a statutory corporation providing transport services, was entitled to exemption under section 11 of the Income-tax ... Exemption u/s 11 - Denial of exemption as assessee is into providing buses on hire for excursion, wedding, pilgrimage etc., to general public and charges for such letting are collected on commercial basis - whether the CIT(A) was justified in coming to the conclusion that the assessee’s activities do not fall within the ambit of the proviso to section 2(15)? - As per AO Assessee carries on activities which are akin to business venture rather than charitable organization - Revenue from operations and miscellaneous income and these incomes included income from streams which were commercial in nature - HELD THAT:- Assessee is a statutory corporation established under the RTC Act, 1950. It is not driven b profit motive but is 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 demonstrate that the Assessee does not exist for profit. 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 - Decided in favour of assessee. Issues Involved:1. Whether the activities of the assessee fall within the ambit of the proviso to section 2(15) of the Income-tax Act, 1961, and thus, whether the assessee is entitled to the benefit of exemption under section 11 of the Act.2. Whether the other additions made to the total income of the assessee for the respective assessment years should be adjudicated on merits.Issue-Wise Detailed Analysis:1. Applicability of Proviso to Section 2(15) and Entitlement to Exemption under Section 11:The primary issue was whether the activities of the assessee, a statutory corporation established under the RTC Act, 1950, fall within the ambit of the proviso to section 2(15) of the Income-tax Act, 1961, and thus whether the assessee is entitled to the benefit of exemption under section 11 of the Act.- Background and Assessee's Claim: The assessee claimed benefits of exemption under section 11 on the grounds that it existed for charitable purposes as defined in section 2(15) of the Act. The proviso to section 2(15), inserted by the Finance Act, 2010, states that the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves carrying on any activity in the nature of trade, commerce, or business.- Revenue's Argument: The Assessing Officer (AO) concluded that the assessee was involved in activities in the nature of business, such as providing buses on hire for excursions, weddings, and pilgrimages, and charging for advertisements on buses. Therefore, the AO denied the benefit of section 11, treating the excess of income over expenditure as chargeable to tax.- Tribunal's Analysis: The Tribunal noted that the assessee is a statutory corporation established to provide economic and efficient transport services to the public, which is a charitable purpose under the 'advancement of any other object of public utility.' The Tribunal emphasized that the dominant object of the assessee was not profit-making but providing transportation facilities. The revenue from commercial activities was incidental and not the primary objective.- Judicial Precedents: The Tribunal relied on several decisions, including the Karnataka Industrial Area Development Board case and the India Trade Promotion Organization case, where similar activities were not considered as rendering the assessee ineligible for charitable status. The Delhi High Court in the India Trade Promotion Organization case laid down principles for interpreting the proviso to section 2(15), emphasizing the need to examine the dominant and prime objective of the institution.- Conclusion: The Tribunal concluded that the assessee's activities did not fall within the proviso to section 2(15) as the dominant objective was not profit-making. Therefore, the assessee was entitled to the benefits of section 11 of the Act.2. Adjudication of Other Additions on Merits:The second issue was whether the other additions made to the total income of the assessee for the respective assessment years should be adjudicated on merits.- CIT(A)'s Stand: The CIT(A) did not adjudicate the other additions on merits, considering them academic in light of the decision that the assessee was carrying on charitable activities and was entitled to the benefit of section 11.- Tribunal's Direction: The Tribunal found that the other issues raised by the assessee in its appeal survived for consideration. The Tribunal remanded these issues to the CIT(A) for consideration on merits after affording the assessee an opportunity of being heard.Final Order:The appeals by the revenue were dismissed, while the appeals by the assessee were partly allowed for statistical purposes to the extent of grounds raised regarding other additions. The Tribunal directed the CIT(A) to consider these issues on merits.Pronouncement:The order was pronounced in the open court on 28th September 2021.