DIRECTOR OF INCOME TAX V. M/S. KARNATAKA STATE ROAD

ITA/302/2015

AI Insights

The case revolves around the appeal by the Director of Income Tax (Exemptions) against the Karnataka State Road Transport Corporation (KSRTC) concerning the registration under section 12A of the Income Tax Act, 1961. The primary legal contention was whether KSRTC, despite its commercial activities and surplus generation, was entitled to registration under section 12A, which is typically granted to entities pursuing charitable objectives. The Income Tax Appellate Tribunal had previously ruled in favor of KSRTC, leading to the present appeal by the Revenue. The High Court's decision referenced a similar case involving the Karnataka Industrial Area Development Board, where it was held that the registration under section 12A could not be cancelled or denied based on the commercial nature of some activities, unless explicitly stated otherwise in the law.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 728017 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 12-02-2016
• Assessment Year: misc
• Other Referred Cases: The Director of Income Tax (Exemption) and another Vs. Karnataka Industrial Area Development Board
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A SHANKAR
• Assessee Lawyers: E I SANMATHI
• Keywords: Commercial basis; Exemptions; Income Tax; Public Utility; Registration; Non-operating Revenue
• Section: 12A; 260A; 2(15); 13(8); 12AA(3)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12TH DAY OF FEBRUARY, 2016 :PRESENT: THE HON’BLE MR.JUSTICE N.K. PATIL AND THE HON’BLE MRS.JUSTICE S. SUJATHA I.T.A.NO.302 OF 2015 Between: Director of Income Tax (Exemptions), C.R. Building, Queens Road, Bangalore-560 001. …Appellant (By Sri. E.I. Sanmathi, Advocate) And : M/s. Karnataka State Road Transport Corporation, Central Office, K.H. Road, Shanthinagar, Bangalore-27. …Respondent (By Sri. A. Shankar, Advocate) *** This ITA is filed U/s. 260A of the Income Tax Act, 1961, praying to formulate the substantial question of law, allow the appeal and set aside the order dated 20/02/2015 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore, in ITA No.74/Bang/2012. This ITA coming on for Admission, this day, N.K.PATIL J., delivered the following: 2 :J U D G M E N T: This appeal by the Revenue is arising out of the impugned order dated 20/02/2015, passed in ITA No.74/Bang/2012, by the Income Tax Appellate Tribunal, Bangalore Bench-A, Bangalore, for considering the following substantial questions of law: (1) 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? (2) 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, 3 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? (3) 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 Rs.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? (4) 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, 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? 4 (5) Whether, on the facts and in the circumstances of the case, the 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? (6) Whether, on the facts and in the circumstances of the case, the Tribunal was right in following the judgment of Hon’ble High Court in the case of the KIADB wherein it is held that in the event of first proviso to section 2(15) becomes applicable to an assessee who has already been granted registration under section 12A, the power to deny the benefit of exemption to such assesses vests only with the Assessing Authority under section 13(8) rather than the registering authority under section 12AA (3) by way of cancellation of registration? (7) Whether, on the facts and in the circumstances of the case, the Tribunal was right in following the judgment of Hon’ble High Court in the case of the KIADB wherein it is held that the two conditions stipulated under section 12AA(3), which empowers the registering authority to cancel registration, do not exist in the case of the assessee? (8) Whether, on the facts and in the circumstances of the case, the Tribunal was right in following the judgment of Hon’ble High Court 5 in the case of the KIADB wherein the Hon’ble High Court was correct in law in not considering the statutory position that the assesse would enjoy the benefit of registration under section 12AA and benefit of exemption under section 11 and 12 during the period in which it continued pursuing the objects as enshrined in the original trust deed and in the event of amendment of such objects, the registering authority would suo moto assume the power of review of the registration granted? (9) Whether, on the facts and in the circumstances of the case, the Tribunal was right in following the judgment of Hon’ble High Court in the case of the KIADB wherein the Hon’ble High Court in the case of the KIADB wherein the Hon’ble High Court was not correct in law in holding that cancellation of registration by the registering authority is not permitted without appreciation the fact that by virtue of the amended provisions of section 2(15), the activities of the assessee cannot be considered as charitable in nature and the aggregate value of the receipts from the activities of the assessee has exceeded the threshold limit fixed thereof?” 2. We have heard learned counsel appearing for appellant and learned counsel appearing for respondent. 3. Learned counsel appearing for both the parties, submitted that, subject matter involved in this appeal 6 is directly covered by the judgment passed by the Division Bench of this Court dated 7th November 2014 in ITA No. 261/2013 (The Director of Income Tax (Exemption) and another Vs. Karnataka Industrial Area Development Board). Therefore, they submitted that following the said judgment and in terms of the same, this appeal may also be dismissed holding that substantial questions of law are answered in favour of assessee and against revenue. 4. The above submission made by learned counsel for both the parties is placed on record. 5. Following the judgment of the Division Bench of this Court dated 7th November 2014 in ITA No. 261/2013 (The Director of Income Tax (Exemption) and another Vs. Karnataka Industrial Area Development Board) and in terms of the said judgment and for the reasons stated therein, this appeal is dismissed holding that there is no merit in the appeal 7 and answering the substantial questions of law in favour of the assessee and against the revenue. Learned counsel Sri. A.Shankar is permitted to file vakalath for respondent within four weeks. SD/- JUDGE SD/- JUDGE tsn* "