Commissioner Of Income Tax v. M/S Truck Operators Association

ITA No. 542 of 2006 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 542 of 2006 Date of Decision: 12.8.2010 Commissioner of Income Tax Versus M/s Truck Operators Association ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sanjeev Kaushik, Advocate for the appellant.Mr. Avneesh Jhingan, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.Whether the respondent-Truck Operators Association isentitled to registration under Section 12AA of the Income Tax Act, 1961(in short “the Act”), is the short question which requires adjudication inthis appeal filed by the revenue. 2.The appeal was admitted by this Court on 1.10.2007 fordetermination of the following substantial question of law:- “Whether on the facts and in the circumstances ofthe case, the Hon'ble ITAT was right in directing forgrant of registration under Section 12AA of the Act; ignoring the fact that the assessee society was notformed for advancement of general public utilitywithin the meaning of Section 2 (15) of the Act?” 3.Briefly stated, the facts of the case are that on 27.12.2001,the assessee-M/s Truck Operators Association filed an application inForm 10A for registration of society under Section 12AA of the Actalong with certificate of registration granted by the Registrar of Societiesand copy of memorandum and by-laws of the society. The matter wasexamined by the Income Tax Officer, Hisar who after providing anopportunity of hearing to the assessee submitted his report dated4.6.2002. The Commissioner of Income Tax (in short “the CIT”)rejected the application holding that the association was not formed foradvancement of object of general public utility within the meaning ofSection 2 (15) of the Act. It was noticed that the aims and salientfeatures of the activities carried on by the Association are as under:- “(I)This Association has come into existence onthe dissolution of an old Association and all the oldmembers have become the members of the NewAssociation on compulsory payment of the lump sumamount of Rs.1100/- though this amount has beenfixed at Rs.15,000/- for the other new members. (II)Under the Bye-laws of the Association, thepayment of above amount is mandatory and thesame does not represent any form of donation. (III)The Association has been formed for thewelfare of the Truck operators, their drivers, cleaners mechanics restricted within the Area of Hansi Town/village and not for public in general though they mayrender some occasional help on emergencies ifrequested, by other Association outside the abovearea. (IV)The Association facilitates the loading ofTrucks within the area of its operation and in turn afixed commission of Rs.30/- or Rs.50/- per Truckdepending upon the distance being covered ischarged from the Truck owner. This payment is alsocompulsory and not a donation. (V)The Association is stated to be having TataSumo which is in the name of the Vice President ofthe Association, Shri Kailash Chand Goyal and not inthe name of the Association on the ground that hehas some clout in M.G. Motors which enabled him toget the vehicle on instalments. This vehicle is statedto have been kept to protect the interest of Truckowners so that no outsider/non-member is allowed tooperate the transportation of Trucks within the areaof its operation. (VI)The Association also facilitates transportationof Trucks on behalf of its members from HAFED,FCI, Sugar manufacturing Mills and other Semi-Govt.Agencies etc. on payment of freight to them and suchfreights are disbursed to the Truck owners afterwards. During the financial year ending on31.3.2002, the Association has received more thanRs.64.66 lacs out of which Rs.55.27 lacs have beendisbursed to the Truck Operators.” (VI)The Association also facilitates transportationof Trucks on behalf of its members from HAFED,FCI, Sugar manufacturing Mills and other Semi-Govt.Agencies etc. on payment of freight to them and suchfreights are disbursed to the Truck owners afterwards. During the financial year ending on31.3.2002, the Association has received more thanRs.64.66 lacs out of which Rs.55.27 lacs have beendisbursed to the Truck Operators.” 4.Feeling aggrieved, the assessee filed appeal before theTribunal who allowed the appeal and directed the CIT to grantregistration under Section 12AA to the assessee-society. The relevantobservations read thus:- “We have heard both the parties and perused theorders of the lower authorities and the materialavailable on record. We find that the principal objectof the assessee are to promote and protecttransporting business and to aid, stimulate andpromote the development of the transportingbusiness in India or any part thereof. By theachievement of these objects, it is not intended toserve merely the interest of the members of theassessee association. Advancement of trade leadingto economic prosperity accrues to the benefit ofentire community. The prosperity would be sharedalso by those who engaged in transporting trade buton that account the purpose is not rendered less asobject of general public utility. Promotion of tradecannot be equated with promotion and protection ofactivities and interest merely of persons engaged intrade. In promotion of trade in India the public is vitally interested and if by such activities of theassessee that object is achieved, it would be anadvancement of an object of general public utility.”5.We have heard learned counsel for the parties. 6.The revenue has placed reliance on the judgment in TruckOperators' Union v. Commissioner of Income Tax, New Delhi,[1981] 130 ITR 186 and submitted that the assessee is not a CharitableInstitution and the Tribunal was in error in granting benefit of registrationto the assessee. 7.Controverting the submissions of learned counsel for therevenue, learned counsel for the assessee cited the judgments inCommissioner of Income-Tax, Bombay v. Bar Council ofMaharasthra, [1981] 130 ITR 28 (SC), Commissioner of Income-Taxv. Gujarat Maritime Board, [2007] 295 ITR 561 (SC), Commissionerof Income-Tax v. Imporvement Trust, [2009] 308 ITR 361 (P&H) andCommissioner of Income-tax v. Red Rose School, [2007] 163TAXMAN 19 (ALL) and supported the order of the Tribunal. 8.Before analyzing the judgments relied upon by the counselfor the parties, we delve into the factual matrix. 9.On examination of the objects and the purpose of theAssociation in the present case, it emerges that the respondent-Association is union of Truck Operators constituted for facilitating itsmembers to carry on the trade of transportation and not to allow theoutsider or non-member to undertake any business activity within theprecincts of Hansi Town/village. The Association charges fees from itsmembers before the transportation on the basis of the distance involved. The membership and payment of fees are mandatory and theelement of voluntary contribution is missing. The association isvigorously pursuing transportation business by receiving freightcharges on behalf of its members. The welfare activities adopted forthe truck drivers, cleaners and mechanics of the truck owners are in thenature of staff welfare activities, as are common in other businessorganizations which cannot be termed for general public utility. 10.We now advert to the judgments relied upon by learnedcounsel for the assessee. involved. The membership and payment of fees are mandatory and theelement of voluntary contribution is missing. The association isvigorously pursuing transportation business by receiving freightcharges on behalf of its members. The welfare activities adopted forthe truck drivers, cleaners and mechanics of the truck owners are in thenature of staff welfare activities, as are common in other businessorganizations which cannot be termed for general public utility. 10.We now advert to the judgments relied upon by learnedcounsel for the assessee. 11.In Bar Council of Maharashtra's case (supra), BarCouncil of Maharashtra had claimed itself to be covered under “Objectof General Public Utility” as the same was established for charitablepurpose. The Apex Court opined that the primary or dominant purposeof a State Bar Council being safeguarding the rights, privileges andinterests of Advocates on its roll enjoined upon State Bar Council underthe Advocates Act, 1961 would fall as advancement of an object ofgeneral public utility as encompassed under Section 2(15) of the Act. 12.Interpreting the expression “any other object of generalpublic utility” in Section 2(15) of the Act, the Apex Court in GujaratMaritime Board's case (supra) stressed that it would be of widestconnotation which would prima facie include all objects promoting thewelfare of the general public. The welfare of the general public wasrequired to be predominant object to be covered for charitable purpose.Applying the aforesaid characteristic, the Apex Court upholding thejudgment of the High Court had recorded that the respondent-Boardwhich was constituted under Gujarat Maritime Board Act, 1981 for the purpose of development and maintenance of minor ports in the State ofGujarat was a Charitable Institution. 13.Relying upon the Apex Court decision in Gujarat MaritimeBoard's case, this Court had come to the conclusion that ImprovementTrust was entitled to registration under Section 12AA of the Act beingcovered under Section 2(15) of the Act in Improvement Trust's case (supra). 14.Allahabad High Court in Red Rose School's case (supra)where the assessee-society was running an Institution exclusively foreducational purposes to provide education to children from PrimarySection to Degree level and to improve mental, social and otherdevelopments of the students and not with profit motive but haddefaulted in utilizing its income derived from Charitable Institution for itscharitable activities, it was held that it may be a ground to refuseexemption with respect to that part of income which had not been soutilized but it could not be denied registration. 15.In view of the above, the assessee cannot derive anyadvantage from the judgments relied upon by it. 16.Now, reference is made to the judgment of Delhi HighCourt in Truck Operators' Union's case (supra) whereupon therevenue has placed heavy reliance. 17.The assessee was a union of transport operators registeredas a Trade Union under the Indian Trade Unions Act, 1926. Onanalysis of the objects of the union for which it was constituted, it wasdiscerned that the surplus funds of the trade union could be distributedamong the members at the time of its dissolution. In other words, it was ITA No. 542 of 2006 -8- held that the rules and regulations do not impose a legal obligation onthe assessee or its members to hold the income of the assessee onlyfor charitable purposes and the element of private gain could not beexcluded. The union was, thus, held not to be a Charitable Institution. 18.Accordingly, we are of the opinion that the Tribunal was inerror in holding that the assessee was carrying on activities forcharitable purposes and was, thus, entitled to the benefit of registrationunder Section 12AA of the Act. 19.Consequently, the question claimed above is answered infavour of the revenue and against the assessee. ITA No. 542 of 2006 -8- held that the rules and regulations do not impose a legal obligation onthe assessee or its members to hold the income of the assessee onlyfor charitable purposes and the element of private gain could not beexcluded. The union was, thus, held not to be a Charitable Institution. 18.Accordingly, we are of the opinion that the Tribunal was inerror in holding that the assessee was carrying on activities forcharitable purposes and was, thus, entitled to the benefit of registrationunder Section 12AA of the Act. 19.Consequently, the question claimed above is answered infavour of the revenue and against the assessee. 20.The appeal is allowed and the order of the Tribunal dated28.2.2006 is set aside. (AJAY KUMAR MITTAL) JUDGE August 12, 2010gbs (ADARSH KUMAR GOEL) JUDGE