2021 (9) TMI 1174 - AT - Income Tax

Tribunal upholds assessee's charitable status for environmental preservation

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision in favor of the assessee. It found the activities to be charitable, falling ... Exemption u/s 11 - claim under the head ‘objects of general public utility’ OR under the head ‘preservation of environment’ - whether activities of the assessee do not fall within 'Preservation of environment (including watersheds, forest and wildlife)' as inserted in Section 2(15) of the Act w.e.f. 01.04.2009? - HELD THAT:- As decided in the assessee’s own case, [2019 (7) TMI 1865 - ITAT LUCKNOW] the position with regard to the activities of the assessee falling within 'Preservation of environment (including watersheds, forest and wildlife)' as inserted in Section 2(15) of the Act w.e.f. 01.04.2009, has duly been taken into consideration and the matter has been decided in favour of the assessee on due appreciation of the same. Vide order dated 16/01/2009, the Tribunal had originally allowed. registration to the assessee. Tribunal held that the activities of the assessee pertaining to removal and disposal of trees was for the preservation of the environment. While holding so, the Assessing Officer’s finding that the activities of the assessee do not fall within the expression 'Preservation of environment (including watersheds, forest and wildlife)' as inserted in Section 2(15) of the Act w.e.f. 01.04.2009, was reversed. The said order dated 16/01/2009, passed by the Tribunal, was upheld by Allahabad Hon'ble High Court [2010 (5) TMI 752 - ALLAHABAD HIGH COURT] and ultimately by Hon'ble Supreme Court [2011 (5) TMI 1014 - SC ORDER] as submitted on behalf of the assessee and not rebutted by the Department. It was in keeping with these orders that the CIT(A) has held the activities of the assessee to be falling within the expression 'Preservation of environment (including watersheds, forest and wildlife)' as inserted in Section 2(15) of the Act w.e.f. 01.04.2009. Thus there is no merit found in the grievance of the Department wherein it has been contended that the activities of the assessee do not fall within the expression 'Preservation of environment (including watersheds, forest and wildlife)' as inserted in Section 2(15) of the Act w.e.f. 01.04.2009; and that the activities of the assessee are commercial and in the nature of trade, commerce or business, hit by the provisions of the first proviso to section 2(15) - Decided in favour of assessee. Issues Involved:1. Whether the activities of the assessee fall within 'Preservation of environment (including watersheds, forest and wildlife)' as per Section 2(15) of the Income Tax Act.2. Whether the activities of the assessee are commercial and in the nature of trade, commerce, or business, thus disqualifying them from being considered as charitable under Section 2(15) of the Income Tax Act.3. Whether the registration under Section 12A of the Income Tax Act was granted for the correct purpose.4. Whether the disallowance of capital expenditure and repayment of loans was justified.5. Whether the exemption under Section 11 of the Income Tax Act was correctly allowed.6. Whether the assessee incurred expenses for the objects for which it was created, despite being involved in trade, commerce, or business activities.Detailed Analysis:Issue 1: Preservation of EnvironmentThe Tribunal found that the activities of the assessee fall within 'Preservation of environment (including watersheds, forest and wildlife)' as inserted in Section 2(15) of the Act w.e.f. 01.04.2009. This position was upheld by various decisions of the Tribunal in previous assessment years, including assessment year 2015-16. The Tribunal relied on its earlier orders, where it was held that the specific clause of 'Preservation of environment' takes precedence over the general clause of 'advancement of any other object of general public utility.' The CIT(A) had also held that the specific category of preservation of environment would prevail over the general category.Issue 2: Commercial ActivitiesThe Tribunal dismissed the Revenue's argument that the assessee's activities are commercial and in the nature of trade, commerce, or business. It was noted that the activities of the assessee remained the same and were held charitable in nature in previous years. The CIT(A) had correctly held that the specific category of preservation of environment would take precedence over the general category of public utility. The Tribunal further noted that the matter regarding registration under Section 12AA had attained finality when the Hon'ble Supreme Court dismissed the appeal of the Revenue.Issue 3: Registration under Section 12AThe Tribunal found that the registration under Section 12A was correctly granted for 'Preservation, supervision and development of forest' and not for the exploitation of forest produce. The CIT(A) had held that the activities of the assessee were in line with its objects and were charitable in nature. The Tribunal upheld this finding, noting that the activities were for the preservation of the environment and not for commercial exploitation.Issue 4: Disallowance of Capital Expenditure and Repayment of LoansThe Tribunal dismissed the Revenue's appeal regarding the disallowance of capital expenditure and repayment of loans. The CIT(A) had allowed these expenses, and the Tribunal found no infirmity in this decision. It was noted that the expenses were determined and crystallized during the assessment year under consideration, and there was no change in the tax rates that would affect the tax liability of the assessee.Issue 5: Exemption under Section 11The Tribunal upheld the CIT(A)'s decision to allow exemption under Section 11 of the Income Tax Act. It was noted that the activities of the assessee were charitable in nature and fell within the specific category of preservation of environment. The Tribunal dismissed the Revenue's argument that the activities were commercial and hit by the first proviso to Section 2(15).Issue 6: Incurrence of Expenses for Charitable ObjectsThe Tribunal found that the assessee had incurred expenses for the objects for which it was created. The CIT(A) had held that the activities of the assessee were in line with its objects and were charitable in nature. The Tribunal upheld this finding, noting that the activities were for the preservation of the environment and not for commercial exploitation.Conclusion:The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s order allowing the appeal of the assessee. The Tribunal found that the activities of the assessee were charitable in nature, fell within the specific category of preservation of environment, and were not commercial activities. The exemption under Section 11 was correctly allowed, and the disallowance of capital expenditure and repayment of loans was not justified. The registration under Section 12A was correctly granted for the preservation of the environment.