Thursday, November 22, 2012

Performing regulatory function by BIS isn’t a business activity even if it earned profit from such functions

The BIS (“the assessee”), a statutory body, was established under the Bureau of Indian Standards Act, 1986 ("the BIS Act"). The exemption granted to assessee under section 10(23C)(iv) was withdrawn by DIT(E) on the contention that the nature of activities carried on by the assessee was hit by proviso to section 2(15), as the activities carried on by assessee were in the nature of business. The DIT(E) further noted that the assessee had earned substantial amount of income. The assessee, thus, filed instant writ against the order of DIT(E).

The High Court held in favour of assessee as under:

1) Assessee is a statutory body established under the BIS Act and brought into existence "for the harmonious development of the activities of standardization, marking and quality certification of goods". This has been its primary and pre-dominant object, and the profit/revenue earned on discharging its functions is purely incidental;

2) The assessee performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, it could not be said that it was carrying on an activity of trade, commerce or business;

3) "Rendering any service in relation to trade, commerce or business" couldn’t cover within its fold the regulatory and sovereign authorities, set up to act as agencies of the State in public duties;

4) The primary object for setting up such regulatory bodies is to ensure general public utility. Further, it couldn’t be said that the public utility activity of evolving, prescribing and enforcing standards, "involves" the carrying on of trade or commercial activity.

Therefore, the impugned order of DIT was quashed by High Court - Bureau of Indian Standards v. DGIT(E) [2012] 27 127 (Delhi)

Extension of period to submit ITR-V can’t validate a time-barred Sec. 143(2) notice

In this case, the return was e-filed by the assessee on 25-09-2009. The ITR-V for the same was received by CPC on 29-11-2010 i.e., within the period as extended by Circular No. 3/2009. Consequently, the AO issued a section 143(2) notice on 26-08-2011 and also passed the order under section 143(3). Assessee contended that the time limit for issue of notice should be reckoned from the date of e-filing of return. Consequently, the order passed by AO was without jurisdiction as it was passed on the basis of a time-barred notice.
Deliberating on the issue, the Tribunal held in favour of assessee as under:

1) According to the CBDT Scheme framed in this respect, the date of transmitting the return electronically shall be the date of furnishing of return if the form ITR-V is furnished in the prescribed manner and within the period specified;

2) Since ITR-V, received by CPC was within the prescribed time in the prescribed manner and in the prescribed form, hence, for all practical purpose, the date of filing of the return shall be the date on which the return was electronically uploaded i.e. 25-09-2009.

In view of the above, it was held that the notice served on the assessee was beyond the period of six months from the end of the financial year in which the return was furnished and therefore, was invalid and could not be acted upon. Consequently, the assessment order passed was quashed - E.K.K. & Co. v. ACIT [2012] 27 111 (Cochin - Trib.)