Madras HC Quashes Retrospective Tax Demand On School Buses Owned By An Educational Trust

Bala Bhavan Educational Trust (Trust/petitioner) had sought the quashing of a demand notice issued by the RTO (Chennai Central), which ordered the trust to pay taxes for the buses used by two private unaided educational institutions. The trust's buses were used to carry students and staff, and permits were issued under the Motor Vehicles Act (MV Act) following the payment of necessary taxes at concessional rates as per Section 2(11) of the MV Act.

A Single Bench of Justice G.K. Ilanthiraiyan observed, “The first respondent failed to see the objects of the petitioner Trust, it is an educational Trust. That apart, the first respondent made demand with retrospective effect.”

Senior Advocate Sathish Parasran appeared for the petitioner, while AAG J. Ravindran represented the respondents.

The petitioner argued that the RTO's demand for taxes was based on the claim that the buses were not registered in the name of the Principal, Correspondent, or Manager of the School, as required by Rule 3(2)(iv) of the Tamil Nadu Motor Vehicles (Regulation and Control of School Buses) Special Rules 2012. This led to the RTO classifying the buses as private service vehicles, thereby levying a higher tax rate.

The petitioner further argued that the Trust's sole objective was to operate educational institutions and that the buses had been used for educational activities such as transporting students and staff to events, seminars, and regular school commutes. It was submitted that despite the Trust being the registered owner of the buses, their primary purpose was to benefit the students and staff of the School. Therefore, the buses should be classified as educational institution buses under Section 2(11) of the MV Act and should continue to be taxed at concessional rates.

The High Court remarked, “Thus, it is clear that in order to carry out the educational institution, a Trust was formed for imparting primary, secondary and collegiate education and research…The buses were registered as educational institution bus…Therefore, the petitioner Trust was given concessional rate in respect of road tax.”

The Bench stated that as per Section 2 (11) of the MV Act, the educational institution buses meant an omnibus owned by an educational institution and used solely for the purpose of transporting students or staff of the educational institution in connection with any of its activities. “Therefore, the object of the said definition is to use the vehicle solely for the purpose of transporting educational institutions' students and staff in connection with their activities. In order to give concessional rate of tax as contemplated under Section 3 read with item 8(a) of the first schedule of the Taxation Act,” the Bench noted.

Consequently, the Court held, “In view of the above, the order impugned in this writ petition cannot be sustained and is liable to be quashed.”

Accordingly, the High Court allowed the petition.

Cause Title: M/s. Bala Bhavan Educational Trust v. Regional Transport Officer & Anr.

Petitioner: Senior Advocate Sathish Parasran; Advocate Rahul Balaji

Respondents: AAG J.Ravindran; AGP V. Manoharan

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