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Facts
The assessee, a Punjab State Government Undertaking established in 2002 for promoting cultural heritage and tourism, had its registration u/s 12A cancelled by the CIT(E) due to alleged commercial activity from operating fuel stations, deemed a violation of Section 12AB(4)(ii). The CIT(E) cancelled the registration retrospectively from AY 2010-11.
Held
The Tribunal held that the operation of fuel stations, though generating substantial income, was undertaken out of compulsion due to circumstances and was ancillary to the assessee's main charitable objects of preserving heritage and providing education. The cancellation of registration by the CIT(E) was not sustained.
Key Issues
Whether operating fuel stations, even if generating significant income, constitutes a business activity incompatible with charitable objects and warrants cancellation of registration u/s 12A, especially when undertaken due to historical compulsion and ancillary to main objectives.
Sections Cited
12A, 12A(1)(ac)(i), 12AB(4)(ii), 12AB(4)(a), 12AB(4)(c), 148A, 2(15), 11, 12, 12AB(4)(c)(ii)
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHANDIGARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
Punjab Heritage & Tourism Promotion Board CIT (Exemptions) C/o Rajiv Goel & Associates बनाम/ Aaykar Bhawan. SCO 823-824,Sector 22-A Sector 17-E Vs. Chandigarh-160022. Chandigarh-160017 �ायीलेखासं./जीआइआरसं./PAN/GIR No.AAATP-6562-G (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Shri Dhruv Goel (CA) -Ld. AR ��थ�कीओरसे/Respondent by : Smt. Kusum Bansal (CIT) (Virtual) – Ld. DR सुनवाईकीतारीख/Date of Hearing : 17-09-2025 घोषणाकीतारीख /Date of Pronouncement : 07/10/2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aggrieved by cancellation of registrations u/s 12A as well as u/s 12A(1)(ac)(i) vide order dated 04-11-2024 of Ld. Commissioner of Income Tax (Exemption), Chandigarh, [CIT(E)], the assessee is in further appeal before us with following grounds of appeal: -
1. That the learned CIT(E) has erred in law and on facts in initiating proceedings for cancellation of registration u/s 12A and observing that assessee had committed a specified violation as defined in section 12AB(4)(ii).
2. That the learned CIT(E) has erred in law and on facts in cancelling the registration u/s 12A of the assessee as per provisions of section 12AB(4)(ii) of the Act.
3. That the learned C1T(E) has erred in law and on facts in cancelling the registration u/s 12A with retrospective effect from AY 2010-11 onwards.
The Ld. AR advanced arguments and filed written submissions supporting the case of the assessee. The Ld. CIT-DR, on the other hand, referred to the findings of Ld. CIT(E) in the impugned order. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. Proceedings before Ld. CIT(E) 2.1 The assessee is stated to be a Punjab State Government Undertaking and it was constituted by an act of Punjab Government in the year 2002 vide notification No.12/108/2002-3TC/1490 dated 14-08- 2002. The assessee was registered u/s 12A vide order dated 02-07- 2008. In the new regime of registration, the assessee was granted registration u/s 12A(1)(ac)(i) on 06-04-2022 from AYs 2022-23 to 2026- 27. The main objects of the assessee have been enumerated by Ld. CIT(E) in para-2 of the impugned order. The assessee strives to conserve, preserve, disseminate and document cultural heritage of Punjab and to conserve and renovate heritage properties in Punjab. The assessee also strives to setup and promote tourism infrastructure such as conference centers, auditorium, museums, libraries, hotels etc. The assessee could acquire, purchase, exchange, transfer, lease out or hold or dispose of property and to enter into contracts in pursuance of the functions assigned to its Board. 2.2 The cancellation action of Ld. CIT(E) stem from proceedings initiated by the department u/s 148A in relation to an entity namely M/s Coral Filling Station, Madhopur wherein it was noted that this filling station was a unit of the assessee and it was filing return of income under the PAN of the assessee. Upon perusal of assessee’s Income and Expenditure Account, it transpired that the operational income was being earned by the assessee from running of four fuel stations whereas operating fuel stations was not the objective of the assessee’s Board. The assessee earned revenue of Rs.27.77 Crores from these fuel stations as detailed in para 3.1 of the impugned order. The Ld. CIT(E) opined that the assessee was carrying out commercial activity and therefore, it violated the provisions of Sec.12AB(4)(a) r.w.s. 12AB(4)(c) and accordingly, proceeded to cancel the regular registration as granted to the assessee on 02-07-2008 as well as registration granted by CPC on 06-04-2022 in the new regime. The assessee was accordingly show-caused. 2.3 The assessee defended its registration on the ground that the assessee’s Board was constituted by the Punjab State Government in the year 2002 and it was to be registered as a Public Charitable Trust. The copy of Gazette Notification No.12/108/2002-3TC/1490 dated 14- 08-2002 was furnished. The Board of Trustees were prominent functionaries of state government. It was also stated that main objectives of the assessee-trust were amended in 2008 which were contained in its by-laws of 2008. The same override all previous notifications. In terms of Clause-9, the assessee could acquire, purchase, exchange, transfer, lease out, hold or dispose of property and could also enter into contracts. It was further stated that the main objective of the assessee would be covered within the ambit of ‘preservation of monuments or places or objects of artistic or historic interest’ u/s 2(15) of the Income Tax Act. The main endeavor of the assessee-trust was to preserve various historical monuments and buildings in the state of Punjab to preserve the cultural heritage. There were 94 protected monuments / buildings / forts / tombs / war memorials under the Department of Tourism and Cultural Affairs, Government of Punjab. The assessee acted as an executing agency for preservation, conservation, restoration and maintenance of the said notified monuments as ordered by the Government of Punjab. The detailed list of the same and various notifications as issued there-under was furnished by the assessee. The said activity was stated to be done on case-to-case basis from time to time under technical supervision of experts. The assessee also contended that its activities would also be covered under ‘education’ limb of Sec.2(15). 2.4 With respect to running of fuel stations, it was stated that it was only an ancillary activity being carried out of compulsion due to circumstances arising since 1994. These fuel stations were set up to provide fuel support to the public at large during the troubled and disturbed times in Punjab in 1994 as there were lot of incidents of looting cash and disruption. Essential commodities including petrol and diesel were not available in times of needs specifically in the outskirts of the above towns to the general public. These stations were set up by Punjab Tourism Development Corporation (PTDC) in the year 1994 at outskirts of town limits of Moga, Nidampur, Shambhu, Madhopur and Hoshiarpur on the land owned by Punjab Government for providing essential services to supply petrol and diesel to the general public as there were no petrol pumps in the nearby vicinity of above towns. However, in FY 2002-03, the Punjab Govt. decided to disinvest all assets of PTDC and there were 17 properties which could not be disinvested or leased out and they were transferred to the assessee. As per contractual terms with Indian Oil Corporation Ltd. (IOCL), these filling stations could not be transferred, encumbered or sold by PTDC. Accordingly, these fuel stations were kept operational by the assessee for providing services to the general public. The surplus generated from petrol pumps would be utilized only towards attainment of charitable objects of the assessee and it was thus evident that the petrol pumps were not operated with a view to earn profits but rather being run out of compulsion. These pumps could not be construed as business activity of the assessee. The said activity was merely ancillary to its main object i.e. ‘education’ and ‘preservation of monuments or places or objects of artistic or historic interest’. The assessee also contended that it did not commit any specific violation as given in clauses (a) to (g) of Explanation to Sec.12AB(4)(c). None of its receipts were applied for any purpose other than charitable activities. There was no income which was not incidental to main objects of the assessee-trust. Further, separate books of accounts were being maintained by the assessee for running of fuel stations. The receipts from these fuel stations were not being utilized for the benefit of any religious community or caste. Lastly, all the activities of the assessee-trust were genuine and were being executed in accordance with the by-laws of the Board. 2.5 Partly accepting assessee’s submissions, Ld. CIT(E) show- caused the assessee again proposing denial of exemption on income generated by the assessee out of running of petrol pumps. It was also proposed to cancel the registration from AY 2008-09 onwards. The assessee opposed the same on the ground that it was holding registration u/s 12A(1)(ac)(i) in new regime from AYs 2022-23 to 2026- 27 and the registration was granted as per amended statutory provisions as applicable from AY 2022-23 onwards. The assessee also contended that Sec.12AB(4)(a) was not applicable prior to 01-04-2022. Further, it has not done any violations as alleged and accordingly, opposed any such action by placing reliance on various judicial decisions. The attention was drawn to the fact that two regular assessments were framed by the department against the assessee for AYs 2011-11 and 2012-13 wherein the department had accepted that the assessee’s Board was a charitable public trust and it complied with all the requirements of claiming exemption u/s 12A. In these years also, the assessee was operating these fuel stations. 2.6 However, Ld. CIT(E) held an opinion that operation of fuel stations was neither incidental nor ancillary to the stated objectives of the assessee-trust. There was no reference in the trust deed to carry out such activities. This activity was fundamentally incompatible with the trust’s charitable purpose and it could not be termed as incidental activity. The significant portion of income was derived by the assessee from running of petrol pumps. As per Clause (a) of Explanation to Sec. 12AB(4)(c), the income derived from property held under trust has been applied for purposes that was not aligned with the stated objectives of the assessee-trust for which the registration was granted to the assessee. Further, operating fuel stations could not be included within the charitable objectives of ‘preservation of monuments or places of artistic or historic Interest’ or 'education,' or 'preservation of the environment’. Though the objects of the assessee-trust were charitable but the activity of running fuel stations do not align with its objects. Further, under clause (b) of the said explanation, the operation of fuel stations constitutes a business activity which is not incidental to the attainment of the trust's objectives. Additionally, the requirement to maintain separate books of accounts in respect of such business activities had not been adequately fulfilled by the assessee. The said activity, by its very nature, was a business or trade. It is categorically mentioned in proviso to Sec.2(15) that such an activity could not be charitable irrespective of nature of its use or application or retention. Moreover, under clause (e)(ii) of the said explanation, the said activities being carried out by the trust was not accordance with the objects of the assessee-trust. The said activity was in violation of clauses (a), (b) and (e) of Explanation to Section 12AB(4)(c). Finally, the registration granted to the assessee u/s 12A(1)(ac)(i) and u/s 12A was cancelled pursuant to the provisions of Section 12AB(4)(ii) from AY 2010-11 when the fuel stations were taken over by the assessee in contravention of its stated and approved objectives. The activities of the assessee, particularly the operation of petrol pumps, were in clear violation of the stated objectives of the trust which do not align with charitable purposes as required by the Act. Consequently, the assessee would no longer be eligible to claim exemptions u/s 11 & 12 of Income Tax Act. So aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 3. The undisputed facts that emerges are that the assessee was constituted as Punjab State Government Undertaking and it came into existence by an act of Punjab Government in the year 2002 vide notification No.12/108/2002-3TC/1490 dated 14-08-2002.The assessee enjoyed regular registration as a Charitable Trust u/s 12A since July, 2008. In the new regime of registration also, the assessee has been granted registration u/s 12A(1)(ac)(i) on 06-04-2022 from AYs 2022-23 to 2026-27. The main objects of the assessee-trust, inter-alia, include conservation, preservation, dissemination and documentation of cultural heritage of Punjab. The assessee also undertakes to conserve and renovate heritage properties in Punjab and also strives to setup and promote tourism infrastructure such as conference centers, auditorium, museums, libraries, hotels etc. As per its objects, the assessee could acquire, purchase, exchange, transfer, lease out or hold or dispose of property and could enter into contracts in pursuance of the functions assigned to its Board. The assessee is enjoying the exemption as applicable to charitable trust since the FY 2008-09. In fact, the assessee was subjected to regular assessment proceedings for AYs 2011-12 & 2012-13 wherein the department accepted the charitable character of the assessee and accepted the exemption claim of the assessee despite the fact that there was no change in assessee’s substantial activities since then. The activities of the assessee are primarily covered under the limb ‘preservation of monuments or places or objects of artistic or historic interest’ and ‘education’ u/s 2(15) of the Income Tax Act. In such a case, the proviso to Sec.2(15) debarring the assessee from carrying out commercial activities are not, at all, applicable since this proviso is applicable for activities falling within the limb ‘advancement of any other object of general public utility’.
The primary driving factor for Ld. CIT(E) to cancel the impugned registrations is the fact that the assessee has operated four fuel stations and derived substantial income there-from which is consistently exceeding 80% of its total receipts. However, the circumstance under which the assessee has come to be operating these fuel stations is to be understood in the correct perspective. Though the main endeavor of the assessee-trust was to preserve various historical monuments and buildings in the state of Punjab to preserve the cultural heritage, the impugned activity has been carried out by the assessee out of compulsion due to circumstances arising since 1994. These fuel stations were set up by State Government to provide fuel support to the public at large during the troubled and disturbed times in Punjab in 1994 as there were lot of incidents of looting cash and disruption. Essential commodities including petrol and diesel were not available in times of needs specifically in the outskirts of the above towns to the general public. These stations were accordingly set up by Punjab Tourism Development Corporation (PTDC) in the year 1994 at the outskirt town limits of Moga, NIdampur, Shambhu, Madhopur and Hoshiarpur on the land owned by Punjab Government for providing essential services to supply petrol and diesel to the general public as there were no petrol pumps in the nearby vicinity of above towns. However, in FY 2002-03, due to mounting losses of PTDC, state government decided to disinvest all assets of PTDC and there were 17 properties which could not be disinvested or leased out which include these fuel stations also. As per contractual terms with IOCL, these filling stations could not be transferred, encumbered or sold by PTDC. Accordingly, these fuel stations were transferred to the assessee and kept operational by the assessee for providing continuous service to the general public keeping in mind the larger public interest. There is no dispute on the fact that the surplus so derived by the assessee has always been utilized towards attainment of charitable objects of the assessee. On these facts, it could be well said that the whole circumstances leading to running of petrol pump was not guided by profit motive but driven out of compulsion as explained by the assessee. These pumps could not be construed as separate business of the assessee but was to be construed as incidental or ancillary to assessee’s main objects i.e., ‘education’ and ‘preservation of monuments or places or objects of artistic or historic interest’. Therefore, the findings of Ld. CIT(E) could not be sustained.
Proceeding further, we find that as per extant provisions of Sec.12AB as applicable from 01-04-2021, the appropriate authority could cancel the registration of the assessee, inter-alia, upon noticing occurrence of one or more specified violations during any previous year. After considering assessee’s replies, the appropriate authority may cancel the registration for such previous year and all subsequent previous years if he is satisfied that one or more specified violations have taken place. The Explanation to this sub-section enumerate specified violations as under: - Explanation.—For the purposes of this sub-section, the following shall mean "specified violation", — (a) where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or (b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or (c) the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public; or (d) the trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or (e) any activity being carried out by the trust or institution, — (i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or ……….. The Ld. CIT(A) has alleged violation of clauses (a), (b) and (e) to cancel assessee’s registration w.e.f. AY 2010-11 i.e., when the fuel stations were taken over by the assessee. However, the case of the assessee could not be covered under clause (a) since it is nowhere the allegation or findings that the income derived by the assessee has been applied, other than for the objects of the assessee-trust. The allegation that the assessee has not maintained separate books of accounts run contrary to assessee’s submissions that it has kept separate books of accounts for the fuel stations. This allegation is not supported by any evidence on record and run contrary to assessee’s submissions. Even otherwise, the activity of running fuel station is to be construed as an activity which is ancillary or incidental to attainment of assessee’s primary objects. The clause (e) could not be applied since genuineness of activities is not under doubt. So far as the condition that the activities were not being carried out in accordance with any of the condition subject to which the assessee was granted registration, is concerned, no such facts could be borne out of record. Pertinently, the assessee’s case has already been scrutinized by the department for AYs 2011-12 & 2012-13 wherein the revenue has already examined the activities of the assessee and accepted exemption claim of the assessee. The assessee was running these fuel stations in these years also and there is no substantial change in assessee’s activities.