Case Law Details
Institute of Driving and Traffic Research Vs Commissioner of Income Tax (ITAT Raipur)
The Institute of Driving and Traffic Research (IDTR), backed by Maruti Suzuki India Ltd. and the Chhattisgarh Government, appealed against the rejection of its Form 10AB application under Sections 12AB and 80G(5) of the Income Tax Act, 1961. The Commissioner of Income Tax (Exemption), Bhopal, declined the application citing commercial activities beyond charitable purposes.
The ITAT Raipur, in ITA No.199/RPR/2024, scrutinized the rejection grounds. The institute argued inadequate opportunity to respond to queries, despite submitting documents. The CIT(E) rejected the application and canceled provisional registration, highlighting perceived commercial nature due to fees charged and revenue from services.
The ITAT reviewed procedural lapses, including the CIT(E)’s failure to consider an adjournment request and subsequent submissions. It found procedural fairness compromised, noting acknowledgment of the adjournment request by CPC, Bengaluru. Consequently, ITAT Raipur directed CIT(E) to re-adjudicate, emphasizing due process.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The captioned appeals filed by the assessee institute are directed against the respective orders passed by the Commissioner of Income-Tax (Exemption), Bhopal dated 19.03.2024, wherein the latter had declined assessee’s application filed in Form 10AB u/ss.12AB & 80G(5) of the Income-tax Act, 1961 (in short ‘the Act’), respectively. As the issues involved in the captioned appeals are inextricably interlinked or in fact interwoven, therefore, the same are being taken up and disposed off by way of a consolidated order.
2. We shall first take up the appeal filed by the assessee institute in ITA No.199/RPR/2024, wherein it has assailed the impugned order on the following grounds of appeal:
“1. That, the rejection of the application Form No. 10AB under Section 12AB is incorrect and unlawful.
2. That, the ld. CIT (Exemption) has erred in interpretation of the provisions governing the society not limited to Section 12AB, Section 11 etc.
3. The order passed by the Ld. CIT (Exemption) is alleged to be bad in law and contrary to legal provisions.
4. The Ld. CIT (Exemption) did not consider the Appellant’s request for adjournment filed on March 12, 2024 and neither considered the reply made on March 19, 2024 for the show cause notice dated 04/03/2024 and passed the impugned ordered which is bad in law. (Attached herewith ” G-1″).
5. The Ld. CIT (Exemption) Order is had in law as he treated the activities of the Appellant as commercial in nature. The Appellant is a society that was founded by an MOU between Maruti Suzuki India Limited and the Department of Transportation, Government of Chhattisgarh, stating charitable objects and purposes.
6. The Appellant Society is subject to Chhattisgarh Government policy and levies modest fees in accordance with that policy rather than for commercial purposes. A copy of the Assessee Society’s fee structure and the Transport Department of the Government of Chhattisgarh’s fee structure are attached for your reference. Because of this, the Appellant’s nature of activities is charity and cannot be categorized as commercial.
Also, in the case of Association of State Road Transport Undertakings vs. Commissioner of Income Tax, ITAT Delhi (2015),155 ITD 1177, it was held that “where the main object of the state transport undertaking of improving public transport in the country, merely because the Assessee received revenue from testing automobile parts and consultancy services, the same could not be held for earing profits.”
Hence, the activities of the Appellant cannot be held to be Commercial in nature and are not in violation of the proviso to Section 2(15) of the Income Tax Act.
7. The Ld. CIT did not consider the following comparable institutes that have been registered and are listed as Exemption Institutions with the Income Tax Department, and are operational in different parts of India:
A copy of regular Registration Form no 10AC of the above said institutes are attached herewith.
8. On facts and circumstances of the case, it is prayed before your honor that the above mentioned grounds may please be considered and necessary directions may please be given to Ld. CIT (Exemption) for granting approval U/s 12A considering merits of the case. The same please be held accordingly.
9. A request for leave to add, alter, or amend the grounds before the final hearing.”
3. Succinctly stated, the assessee is a CSR funded institute under the aegis of Maruti Suzuki India Ltd. and State Transport authority, i.e. a non-profit organization set up under the guidelines of scheme for setting up Institutes of Driving Training and Research (IDTRs), Regional Driver Training Centre. The CIT(Exemption), Bhopal pursuant to the application filed by the assessee for registration/approval u/s. 12AB of the Act had issued “Show Cause Notice” (SCN) dated 05.03.2024 calling upon it to put forth an explanation as to why the aforesaid application for registration/approval in light of certain infirmities may not be rejected. For the sake of clarity, the SCN dated 05.03.2024 issued by the CIT(Exemption) is culled out as under:
“Please refer to your application in Form 10AB filed for registration/approval u/s 12AB under the new provisions of the Income Tax Act, 1961. In response to this office opportunity letter(s), you have submitted reply along with various documents.
2. On perusal of reply, it was found that a memorandum of understanding was made on 29th April 2016 between Department of Transport, Government of Chhattisgarh and Maruti Suzuki India Limited. After the agreement, the assessee society was established to setting up, managing and running of a drivers training institute for imparting quality driving training at New Raipur, Chhattisgarh. As per Memorandum of Association, the main objects are as under:-
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- To conduct induction training course in driving of heavy motor vehicles.
- To conduct induction training course in driving of light motor vehicles.
- To conduct refresher and orientation training course for the driver who are in service.
- To conduct training course for the driver who carry dangerous /hazardous goods including random periodic evaluation.
3. On perusal of documents submitted during the proceedings, it is noticed that the society is imparting various training courses and charging fees with GST on services rendered. Hence, the objects mentioned in the above MOA are commercial it nature and allow the assessee to involve in commercial activities which cannot be treated for charitable purposes. Further the details of nature of Income and total Revenue from operations are as under:-
Thus, it is evident that the activities carried out by the assessee is not for charitable purposes as define in Section 2(15) of the Act and the receipt from commercial activities exceeds 20% of total receipts in violation to proviso to section 2(15) of the Act.
4. On perusal of list of donation provided by the assessee, it is observed that the society has received various CSR donations on 15.11.2021 from Maruti Suzuki India Ltd. However, the society has obtained CSR registration on 18.10.2022. Hence, it is evident that the society has received the CSR donation without CSR registration certificate in violation to the CSR rules as per MCA Notification dated 22nd January, 2021 which also attracts violation of section 12AB(1)(b)(i)(B) of the IT Act by not following the any other law time being in the force and which is also material for the purpose of the assessee.
5. You are hereby given an opportunity to show-cause why the application in Form 10AB for registration/approval u/s 12AB and 80G(5) of the Act should not be rejected. You are also required to show cause why the provisional registration u/s 12AB and 80G(5) in Form 10AC granted by the CPC should not be cancelled on the ibid grounds.”
4. Ostensibly, as the assessee institute failed to comply with the aforesaid notice, therefore, the CIT(Exemption), Bhopal rejected the assessee’s application for grant of registration/approval u/s. 12AB of the Act. Also, provisional registration /approval granted u/s. 12AB of the Act in Form 10AC vide URN No. AABAI9525QF20214 dated 28.05.2021 that was granted by the CPC, Bengaluru was cancelled as per the provisions of Section 12AB(1)(b)(ii)(B) of the Act.
5. The assessee institute being aggrieved with the order of the CIT(Exemption), Bhopal dated 19.03.2024, wherein its application for registration u/s. 12AB of the Act had been rejected, has carried the matter in appeal before us.
6. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record.
7. Shri Ameya Agasti, Ld. Authorized Representative (for short ‘AR’) for the assessee at the threshold submitted that the CIT(Exemption), Bhopal had most arbitrarily without affording any reasonable opportunity to the assessee institute to submit its reply to the queries that were raised by him rejected the assessee’s application for registration u/s. 12AB of the Act. Elaborating on his contention, the Ld. AR submitted that the assessee institute vide its reply dated 12.03.2024 uploaded on the IT portal had though requested for an adjournment of the matter which was fixed on 14.03.2024, but the CIT(Exemption), Bhopal had most arbitrarily without considering the same proceeded with and rejected its application for registration u/s. 12AB of the Act. The Ld. AR in order to fortify his contention had taken us through the application for adjournment dated 12.03.2024 that was filed with the CIT(Exemption), Bhopal, Page 30 of APB. Also, the Ld. AR had taken us through the e-acknowledgement of the aforesaid letter dated 12.03.2024 that was received from the communication@cpc.incometax.gov.in, Page 28 of APB. The Ld. AR had further drawn our attention to the reply that was filed by the assessee a/w. enclosures with the CIT(Exemption), Bhopal on 19.03.2024, but the latter had vide his order of even date rejected the assessee’s application for grant of registration/approval u/s.12AB of the Act. It was, thus, submitted by the Ld. AR that as the assessee institute had remained divested of sufficient opportunity to put forth its case before the CIT(Exemption), Bhopal, therefore, the matter in all fairness be restored to his file with a direction to re-adjudicate the same.
8. Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities.
9. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both the parties in the backdrop of the material available on record. Admittedly, it is a matter of fact borne from record that the CIT(Exemption), Bhopal vide SCN u/s.12AB of the Act dated 05.03.2024 had called upon the assessee institute to furnish reply to certain queries raised by him latest by 14.03.2024. Although, the assessee institute vide its letter dated 12.03.2024 (supra) had requested for adjournment due to non-availability of its Authorized Representative, viz. Shri Ameya Agasti, Chartered Accountant but there is no whisper of the same in the order passed by the CIT(Exemption), Bhopal dated 19.03.2024. At this stage, it would be relevant to point out that uploading of the adjournment request on the e-portal had duly been acknowledged by the e-filing team, CPC, Bengaluru, Page 28-29 of APB.
10. We are of the view that as stated by the Ld. AR, and rightly so, as the assessee institute had remained divested of sufficient opportunity to put forth its case and furnish the requisite details in the course of the proceedings before the CIT(Exemption), therefore, the matter requires to be revisited by the latter. Accordingly, we herein restore the matter to the file of the CIT(Exemption), Bhopal with a direction to re-adjudicate the same. Needless to say, the CIT(Exemption), Bhopal shall pass a fresh order after affording a reasonable opportunity of being heard to the assessee institute. Thus, the Ground of appeal No.4 raised by the assessee institute is allowed for statistical purposes in terms of the aforesaid observations.
11. As we have restored the matter to the file of the CIT(Exemption), Bhopal with a direction to re-adjudicate the same, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the Ld. AR as regards the merits of the case before us.
12. In the result, appeal of the assessee institute in ITA No.199/RPR/2024 is allowed for statistical purposes in terms of our aforesaid observations. ITA No.198/RPR/2024
13. As the facts and issues involved in the captioned appeal pertaining to rejection of the assessee’s application for registration u/s.80G(5) of the Act remains the same as were there before us in ITA No. 199/RPR/2024, therefore, the order therein passed while disposing of the said appeal shall apply mutatismutandis for disposing of the captioned appeal i.e., ITA No.199/RPR/2024. In this case also, we restore the matter to the file of the CIT(Exemption) in terms of the observations recorded while disposing of the appeal of the assessee institute in ITA 198/RPR/2024.
14. In the result, appeal of the assessee institute in ITA No.198/RPR/2024 is allowed for statistical purposes in terms of our aforesaid observations.
15. Resultantly, both the appeals of the assessee institute are allowed for statistical purposes in terms of our aforesaid observations.
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