2022 (10) TMI 397 - AT - Income Tax

Tribunal Upholds Charitable Status, Allows Loss Carry Forward

ACIT (Exemption), Circle, Jaipur Versus Rajasthan State Road Transport Corporation

The tribunal dismissed the appeals of the Revenue, upholding the decisions of the NFAC. The tribunal found that the assessee corporation's activities were ... Exemption u/s 11 - As per AO assessee corporation is registered u/s. 12AA where their business income which is not allowable for exempt u/s. 11 and 12 - As per DR assessee corporation does not come within the definition of section 2(15) of the Act which defines charitable purpose it comes under business income - HELD THAT:- 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. With the view of the CIT(A) and hold that the Assessee is entitled to the benefits of Sec. 11 - AO has not disputed the conditions necessary for allowing exemption u/s. 11 except the applicability of proviso to Sec. 2(15). 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 Sec. 11 - With regard to the arguments of the DR, we are of the view that the same are without any merit. The proviso to Sec. 2(15) of the Act has been discussed in the case of India Trade Promotion Organization vs. DGIT(Exemption) [2015 (1) TMI 928 - DELHI HIGH COURT] and the dominant motive is the criteria as laid down therein. Therefore the answer to the arguments put forth by the learned DR are found in the aforesaid decision. As we have already seen, the profit of the Assessee have to be used only for road development, as in the case of the decision in the case of APSRTC [1988 (8) TMI 391 - ANDHRA PRADESH HIGH COURT] where the revenues have to be utilized only for the purpose of road development. Tribunal in assessee's own case, we hold that the assessee is not hit by proviso to section 2(15) - Accordingly, the A.O. is directed to grant benefit of exemption u/s. 11 for the relevant assessment year. CIT(E) has rightly and fairly allowed of the assessee. Issues Involved:1. Condonation of delay in filing the appeal by the Revenue.2. Whether the activities of the assessee corporation are hit by the proviso to section 2(15) of the Income Tax Act, 1961.3. Whether the assessee corporation is entitled to the benefit of section 11 of the Income Tax Act, 1961.4. Whether the assessee corporation can carry forward losses as per section 72 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal by the Revenue:The Revenue filed an application to condone a 21-day delay in filing the appeal. The reasons cited included the receipt of the appeal order from the CIT's office, the leave of the undersigned officer, and the absence of a regular CIT(E) at Jaipur. The tribunal found the reasons for the delay reasonable and condoned the delay.2. Whether the Activities of the Assessee Corporation are hit by the Proviso to Section 2(15) of the Income Tax Act, 1961:The AO contended that the activities of the assessee corporation, which involved running buses and charging fares, were commercial in nature and thus did not qualify as charitable under the amended provisions of section 2(15). The AO argued that since the receipts from these activities exceeded Rs. 25 lakhs, the corporation's activities were not charitable. The AO also rejected the argument that the corporation's income was exempt on the principle of mutuality, stating that there was no common identity between contributors and participants.The NFAC, however, found that the corporation's activities were charitable as they provided transport services to the general public at reasonable rates and incurred consistent losses. The dominant object of the corporation was not profit-making but providing public utility services. The tribunal upheld this view, noting that the corporation's activities were charitable and not hit by the proviso to section 2(15).3. Whether the Assessee Corporation is Entitled to the Benefit of Section 11 of the Income Tax Act, 1961:The AO denied the benefit of section 11 to the assessee, arguing that the corporation's activities were commercial. The NFAC and the tribunal, however, held that the corporation's activities were charitable and thus entitled to the benefit of section 11. The tribunal noted that the corporation provided various concessions and reliefs to different sections of society, including the poor, students, and senior citizens, and charged fares only to sustain its operations, not to make a profit.4. Whether the Assessee Corporation Can Carry Forward Losses as per Section 72 of the Income Tax Act, 1961:The AO initially did not allow the carry forward of losses, arguing that the corporation was not entitled to exemption under section 12A and thus could not carry forward losses. The NFAC, however, allowed the carry forward of losses as per section 72, noting that the corporation was assessed on the principle of commercial expediency. The tribunal upheld this decision, allowing the carry forward of losses as per section 72.Conclusion:The tribunal dismissed the appeals of the Revenue, upholding the decisions of the NFAC. The tribunal found that the assessee corporation's activities were charitable and not hit by the proviso to section 2(15), thus entitling it to the benefit of section 11. The tribunal also allowed the carry forward of losses as per section 72.