TaxTMI 
TaxTMI 
2021 (10) TMI 728
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....m it convenient to pass a common order. 3. The issue which requires to be considered for decision as a preliminary issue in the appeals by the revenue is as to 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) of the Income-tax Act,1961 ['the Act' for short] and therefore, the assessee is entitled to benefit of exemption u/s 11 of the Act. The facts and circumstances under which the aforesaid issue has to be adjudicated are that the Mysore State Road Transport Corporation, being the predecessor of all road transport corporations in the State of Karnataka, was constituted in the year 1961 under the Road Transport Corporation Act, 1950 (RTC Act, 1950 in short) for providing safe, progressive and economical transport services to the general public in the State of Karnataka. Subsequently, the same was renamed as 'Karnataka State Road Transport Corporation' (`KSRTC' in short). Subsequently, on 20.08.1992, it was incorporated as a company within the meaning of Section 25 of the Companies Act, 1956. The assessee was granted registration u/s 12A(a) by the CIT Karnatak....
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....K-528 dated 20/08/1992 was restored. 6. In the assessment proceedings for assessment year 2010-10, AO firstly referred to the fact of cancellation of registration u/s 12AA of the Act and also came to conclusion that the assessee was involved in activities in the nature of business and was, therefore, not existing for charitable purposes as per proviso to section 2(15) of the Act for the following reasons: i) Revenue from operations and miscellaneous income was Rs. 1515,06,05,000 and Rs. 150,92,67,000/- respectively and these incomes included income from streams which were commercial in nature. ii) It was providing buses on hire for excursion, wedding, pilgrimage etc., to general public and charges for such letting are collected on commercial basis. iii) The assessee was providing advertisements on buses and charging substantial fees. iv) Assessee carries on activities which are akin to business venture rather than charitable organization. 7. These are the primary reasons assigned by the AO for coming to the conclusion that the assessee was not existing for charitable purpose and therefore was not entitled to the benefit of deduction u/s 11 of the Act. The AO thereafter pr....
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....p; 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/- Addition u/s 40 A(9) 25,71,899/- Prior period expenditure 32,65,000/- Depreciation disallowed 39,71,47,986/- Income from Profits and gains of business or profession 58,19,22,536/- Less: Gratuity paid during the year 13,53,01,048/- Balance Income 44,66,21,488/- Add: Income under Long Term Capital Gains 7,34,45,000/- Total Income 52,00,66,488/- Less: Sale of scrap as the same is reduced from the block of assets as per Sec.50(i) 11,15,79,048/- Balance taxable income 40,84,87,440 AY 2013-14: Net Profit as per Income & Expenditure account 1,74,20,000 Add: 1. Property Insurance Fund 6,39,40,000 2. Deferred Revenue Expenditure disallowed 55,67,287 3 Addition u/s 40A(9) 23,6....
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....emption) (371 ITR 333)(Del). 10. Ld. DR, however, submitted that profit motive is irrelevant and what has to be seen is the actual nature of activities carried on by the Assessee and referred to the decision of the Hon'ble Supreme Court in the case of P.Krishna Menon Vs. CIT 35 ITR 48(SC). He reiterated the stand of the AO that the Assessee as carrying on activities which is in the nature of trade. His next submission was that the learned CIT(A) in coming to the conclusion that the Assessee is not hit by the proviso to Sec.2(15) of the Act, wrongly placed reliance on a decision of the ITAT, Hyderabad in the case of Institute for Development & Research in Banking Technology ITA No.1712/Hyd/2014 dated 30.6.2015. It was submitted by him that the 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....
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....yed the benefit of exemption u/s.10(23C)(iv) of the Act. Sec.10(23C)(iv) provides any income received by any person on behalf of any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States, shall not form part of the total income under the Act. The prescribed authority withdrew the approval granted to the Assessee consequent to the insertion of the proviso to Sec.2(15) of the Act, on the ground that the Assessee was deriving rental income from letting out space for rent during trade fairs and exhibitions, was deriving income from sale of tickets and income from 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....
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....ercial, that does, in any way, affect the nature of the Institution as a charitable institution if it otherwise qualifies for such a character. (v) Merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. If the driving force is not the desire to earn profits but to do charity, the exception carved out in the first proviso to Section 2(15) of the said Act would not apply. (vi) If a literal interpretation 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....
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....cal 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. 13. It can be 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. 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 clear....