2024 (7) TMI 1497 - HC - Income Tax

Board's charitable registration restored after activities deemed general public utility under Section 2(20) (20)

The Punjab and Haryana HC upheld ITAT's decision allowing the appeal of a Board constituted under Haryana Rural Development Act, 1986, which had its ... Exemption u/s 11 - definition of 'charitable purpose' under Section 2(15) - ITAT allowed the appeal filed by the assessee/Board setting aside the canceling the Registration of the respondent-Board - HELD THAT:- ITAT has considered the objects for enactment of the Haryana Rural Development Act, 1986. The Board was constituted in terms of the said Act with the purpose of augmenting agricultural production and improving market sales. The activities have been enumerated to improve development of roads, establishment of dispensaries, water supply & sanitation and other public facilities, conversion of notified market areas falling in rural areas by utilizing technical know-how, construction of godowns and storage places for agricultural produce, construction of rest houses for the visitors in the market area. The Board earnings are the fee prescribed under the Haryana Rural Development Act, 1986 to be made as a per centum of the sale proceeds of the agricultural produce. It has, on the said basis, reached to the conclusion that the said Board is carrying out activities of general public utility in terms of the new definition of Section 2 (20) of the Act. Upon reaching the factual findings as above, it proceeded to observe that the Commissioner was not justified in denying the Registration to the assessee. No error in the judgment passed by the ITAT. No substantial question of law. Issues:- Appeal against the order passed by the Income Tax Appellate Tribunal- Interpretation of the definition of 'charitable purpose' under Section 2(15) of the Income Tax Act, 1961- Consideration of commercial activities by charitable organizations- Examination of the Registration under Section 12-AA of the Act- Application of recent judgment by the Supreme Court in a similar caseAnalysis:1. Appeal against ITAT Order:The appellant-revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) dated 28.02.2008, where the ITAT allowed the appeal filed by the respondent-Board and set aside the Commissioner of Income Tax's order canceling the Registration of the respondent-Board under Section 12 of the Income Tax Act, 1961.2. Interpretation of 'Charitable Purpose':The key issue revolved around the interpretation of the definition of 'charitable purpose' under Section 2(15) of the Act. The larger Bench of the Supreme Court clarified that organizations carrying out activities for general public utility could engage in trade, commerce, or business activities as long as these activities are connected to achieving their objects of general public utility and do not exceed specified limits on receipts.3. Consideration of Commercial Activities:The Court emphasized that authorities, corporations, or bodies established by statute may engage in activities that resemble trade, commerce, or business. However, if the consideration charged significantly exceeds costs and mark-ups, such activities would fall under 'trade, commerce, or business' and would need to comply with the quantified limits specified in the Act.4. Examination of Registration under Section 12-AA:The Court examined the Registration under Section 12-AA of the Act in light of the respondent-Board's activities aimed at agricultural production, market sales improvement, infrastructure development, and public facilities enhancement. It concluded that the Board's activities aligned with the new definition of 'general public utility' and hence upheld the ITAT's decision to grant Registration to the respondent.5. Application of Recent Supreme Court Judgment:The appellant-revenue sought to set aside the ITAT's order based on a recent Supreme Court judgment. However, the Court found that the ITAT had correctly considered the objects and activities of the respondent-Board in accordance with the law, and there was no error in the judgment. Consequently, the Court dismissed the appeal and upheld the ITAT's decision.In conclusion, the High Court dismissed the appeal, finding that the ITAT's decision was in line with the law and the recent Supreme Court judgment. The Court upheld the Registration of the respondent-Board, emphasizing the alignment of its activities with the definition of 'charitable purpose' under the Income Tax Act, 1961.