TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 150
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....reservation of environment by providing pollution control treatment for disposal of the liquid and solid industrial waste. The assessee Company was incorporated on 19th October, 1995, and later in point of time, converted into a Company Limited by shares incorporated under Section 25 of the Companies Act, 1956. 4. The assessee filed its return of income on 30th September, 2009, declaring total income of (-) Rs. 258/- along with the Auditor's Report under Section 12A(b) of the Act in Form No.10B. The same was processed under Section 143(1) of the Act. Later, the case was selected for scrutiny and notices under Sections 143(2) and 142(1) respectively of the Act along with the questionnaire was issued dated 24th June, 2011. The Assessing Officer called upon the respondent-assessee to make good its case that the assessee company could be said to be constituted for charitable purpose within the meaning of Section 2(15) of the Act. To put it in other words, the respondent-assessee was called upon to make good its case that the company is engaged in preservation of environment or carries on activities of general public utility. With respect to the activities of the company, the asse....
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....The assessee was also called upon to justify its claim in accordance with Section 2(15) of the Act. In this regard, the Assessing Officer, in his order, has observed as under: "Vide this office letter dated 16.11.2011, it was pointed out that as stated by the assessee in the foregoing paragraph, the company ha been brought into existence pursuant to an Order passed by Hon'ble Gujarat High Court on 5th August, 1995 in Special Civil Application No.770 of 1995 for the work for pollution abatement and environmental protection, prevention and control of Water pollution, Air pollution and Management Handling and Trans-boundary movement of Hazardous Waste discharged/generated by industries set up in the Industrial estate at Naroda, Vatva and Odhav by installation and operation of a Common Effluent Treatment Plant (CEPT) at Naroda and land fill site for solid waste at Odhav, Ahmedabad. The assessee was asked to justify its claim of exemption in the light of above referred legal and factual position and the definition of charitable activities u/s. 2(15) of the Act, as the assessee has reported that the company was brought into existence for the implementation of the directions of ....
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....before the ITAT and submitted that as per the letter of the Director of Income Tax (Exemption), Ahmedabad dated 27/7/2006 referred to above, compliance was required to be made by 10/8/2006 and the assessee has furnished the requisite details before the Deputy Director of Income Tax (Exemption), Ahmedabad on 10/8/2006. The Hon'ble ITAT on appreciation of the factual and legal position recorded a finding of fact that the assessee has furnished the requisite details before the department and that the same has not been taken into consideration by the Director of Income Tax (Exemption), Ahmedabad while rejecting the assessee's claim. Accordingly, the ITAT vide its order dated 14/11/2006 in ITA No.2015/Ahd/2006, set aside the order and remitted back the matter to the file of the Director of Income Tax (Exemption), Ahmedabad with a direction to decide the matter afresh. Subsequently the same Director of Income Tax (Exemption), Ahmedabad i.e. Shri Ram Sanehi passed order u/s. 12AA of the Income Tax Act dated 4/7/2011 whereby registration under that Section is allowed to the assessee with effect from 21/12/2005. The same Director of Income Tax (Exemption), Ahmedabad i.e. Shri Ram Sanehi....
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....quisition of fixed assets to be treated as application of funds and therefore, is eligible for deduction against the income of the organization as claimed by the assessee within the meaning of 'definition' u/s. 2(15) of the Act. Hence this claim of the assessee is rejected in view of the applicability of provisions contained in section 2(15) is discussed in the later part of this order." 10. With respect to the objects of the assessee company, as mentioned in the Memorandum of Association at the time of incorporation of the company on 19th October, 1995, the Assessing Officer has observed has under; "Vide para 2(a) of this office letter dated 16/11/2011, the assessee was requested to explain its claim of exemption and charitable activities of preservation of environment as defined u/s. 2(15) of the I.T. Act with reference to object as mentioned in the memorandum of Association, at the time of registration on 19/10/1995 of the company which are referred to para 5 above and with reference to the statement made by it that it was brought into existence pursuant to an order passed by Hon'ble Gujarat High Court on 5th August, 1995 in Special Civil Application No.770 of 1995 for the ....
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....e assessee submitted that the conclusion drawn on the basis of the objects of the company reproduced from the Memorandum of Association is erroneously assumed that the assessee-company does not fall within the meaning of 'charitable purpose'. It also submitted that at the time conversion of company in to section 25 company, the Memorandum has to be suitably modified. The main objects of the company on its conversion as a company u/s. 25 of the Companies Act are modified as under: "To promote, aid, foster and engage in the area of environment protection, abatement of pollution of various kinds such as water, air, solid, noise, vehicular etc. without limiting its scope, to run and develop common Effluent Treatment Plant (CETP), Total Suspended Disposal Facility (TSDF), conserve the natural resources, utilization of other selective resources to reduce pollution, to make adopt the industries and familiarize the concept of 'Cleaner Production', 'cleaner Technologies' such as incineration, hydrogenation, process for recovery and re-use of waste, to reduce/eliminate pollution at source instead at the end of pipe and, to carry out research and development and, activities incidental and ....
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....r, Water & Soil and the assessee is a silent spectator. (17) Profit making activities: Vide letter dated 16/11/2011, the assessee was asked to state the rate structure. It was also asked to submit the details of any preferential treatment are given to the members in recovery of charges or uniform rate is applied for both the members and non members? It was pointed out that as per profit and Loss account filed by it, it is seen that it is recovered the Dumping & Effluent Treatment charges of Rs. 6,27,76,328/-. The assessee was asked to please show cause why the same may not be treated as profit making activity as activity falls within proviso to section 2(15) and exemption may not be denied?" The Assessee vide letter dated 05/12/2011 submitted: "As regards para 2 (b) of your letter under reply, it is clarified that there is no preferential treatment being given to the members. Members of various phases of GIDC Naroda whose manufacturing process involves generation of pollutant waste are members of the assessee company. The rate is charged on the basis of pollutant load and hydraulic load and the methodology of charging is the same for everyone. The excess of receipts over t....
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....ned in Section 2 (15). Hence, such entities whose purpose is advancement of any other object of general public utilities will not be eligible for exemption u/s.. 10 or u/s. 10(23C) if they carry on commercial activities. The assessee is not an entity, whose purpose is advancement of any other object of general public utility. The assessee is engaged in preservation of environment, which is charitable purpose as per Section 2 (15). Therefore, it is submitted that the proviso below Section 2(15) of the I.T. Act has no applicability at all to the assessee, which is clarified by the Board vide Circular No.11 of 2008." (18) Findings : The submission of the assessee made vide letter dated 5/12/2011 is considered. In nutshell, the assessee is rendering service of pollution control as per norms laid down by Gujarat State Pollution Control Board or any other authority responsible for regulation of pollution in relation to any trade, commerce or business carried out by the industries located in the industrial area of Naroda, Vatva & Odhav for a uniform cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income of such activity. Si....
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....matter any other relevant provisions of the Act, governing Exemption. (20) The assessec's submission vide its letter dated 05/12/2011 and comments thereon: The assessee submitted that, it may be true that the intention behind enactment of E(P) Act, 1986 is to keep in control the pollution generated by various industrial units. Furthermore, the assessee is a company which does not exist for profit, there is no profit motive. The surplus is only incidental to the activities. There is no distribution of dividend to the shareholders. The assessee has confessed by stating that intention behind enactment "it may be true that the intention behind enactment of E(P) Act, 1986 is to keep in control the pollution generated by various industrial units." Had the object/activity of the assessee had been preservation of pollution, it was not required to get itself registered with the regulatory authorities for pollution control This very facts proves beyond and iota of doubt that the assessee is not doing the activity of preservation of environment but it is rendering the service of control of pollution generated by any trade, commerce or business activity carried out by the units located in i....
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....st litigation to curb the polluting industry's pollution. This company was therefore promoted by polluting industries of GIDC, Naroda for establishment and running of Common Effluent Treatment Plant at Naroda (CETP) and treatment, storage and disposal facility at Odhav, Ahmedabad (TSDF) and work for pollution abatement and environmental protection. Thus, the project was set up under the direction, guidance and support of Hon'ble Gujarat High Court and various local and State level as well as Central level agencies viz. Collector, GIDC, AMC, GPCB, MOEF, etc. It has further stated that it is a company which does not exist for earning the profit as such but exist for promotion of welfare and well being of the society and people at large. (2) The assessee company has submitted a copy of Provisional Consent Order (CCA) No WH-43865 issued by your office on 12/10/2011 valid upto 19/04/2016. It is understood that you are an authority meant for implementation of the provisions contained in The Water (Prevention & Control of Pollution) Act 1974, The Air (Prevention & Control of Pollution) Act 1981 and Hazardous Waste (Management, handling and Transboundry Movement) Rules 2008 framed under....
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....Vatva which are three biggest industrial estates where industries generating pollution are located and which is the area of operation of the assessee company. (24) The modus operandi adopted by you for running CETP & Land Fill by solid waste at Odhav, Query: The assessee was requested to describe in detail the modus operandi adopted by it for running CETP & Land Fill by solid waste at Odhav, detail of statutory obligation for treatment of effluent and name and address of authority responsible for monitoring the level of effluent. The assessee was asked to state whether the members are required to treat the effluent on their own at first stage and then such effluent is released for common treatment.(Para 7 of letter dated 10/10/2011) The assessee vide letter dated 31st October, 2011, submitted the individual industry is required to treat the liquid effluent for all the primary parameters in their own premises and then they are required to discharge the registered quantity of effluent to CEPT collection system for further treatment. The solid sludge generated while giving primary treatment as well as during the manufacturing process is to be dispatched at Odhav TSDF site for. d....
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....section (8) of Section 13 of the Act. The Assessing Officer took the view that the assessee company is engaged in the business of treating the trade effluent generated by the polluting industries in accordance with the norms and the parameters prescribed by the GPCB and the provisions of the Air & Water Pollution Act. In other words, the Assessing Officer took the view that the activities of the assessee do not fall within the definition of the term "Charitable Purpose" as defined under Section 2(15) of the Act. The Assessing Officer took the view that the activities undertaken by the assessee company are not towards "preservation of environment". 14. The assessee, being dissatisfied with the order passed by the Assessing Officer, preferred an appeal before the Commissioner of Income Tax (Appeals). The CIT (Appeals), while allowing the appeal preferred by the assessee company, held as under: "4.4.1 The main object of the appellant company after it was converted as a Section 25 company reproduced above amply clarifies that the appellant company is in the area of environmental protection, abetment of pollution of water, air. solid. etc. generated by the industrial units in and a....
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....registration dated 23.01.2006 was evidenced that the appellant company is a Section 25 Company. It was further pointed out that the appellant is duly registered u/s. 12AA and also u/s. 80G [51 of the Income-tax Act. The appellant pointed out that such certificates were issued after due verification by the necessary authorities. 4.4.3 It was pointed out by the appellant that the A0 has ignored modified objects of the appellant's MOU after its conversion as Company u/s. 25 of the Companies Act. Such modified objects have already been reproduced earlier in the appellate order. It was submitted that the plain reading of the objects of the company will reveal that the main object is protection of environment by the abetment of pollution of various kinds like water, air, soil, etc. It is also seen that the modified objects of the appellant after it was converted into a company duly registered u/s. 25 of the Companies Act are disputed by the AO. To add, the AO has collected certain information from-GPCB uls133(6) about industrial units who have not met pollution parameters laid down by GPCB. The contention of the appellant that it is not aware about those industries who have met the po....
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....ld be termed as charitable activities falling within the ambit of Section 2(15) of the Act. The CIT (A) also took into consideration the fact that the assessee company is incorporated under Section 25 of the Companies Act. The CIT (A) also took into consideration the modified objects after the company was registered under Section 25 of the Companies Act. 16. The Revenue, being dissatisfied with the order passed by the CIT (Appeals), referred to above, preferred appeal before the Income Tax Appellate Tribunal, Ahmedabad 'A' Bench, Ahmedabad. The Appellate Tribunal, while dismissing the appeal preferred by the Revenue, held as under; "4. After going through rival submissions and material on record, we find that main object of assessee company was converted as per Section 25 of Companies Act clarifies that assessee company is in area of environmental protection, abetment of pollution of water, air, solid, etc. generated by industrial units in and around Vatva and Odhav area of Ahmedabad. Accordingly, Assessing Officer has not disputed the fact that assessee is doing basic activity of treatment of various pollutants generated by industrial units. It is also not disputed by....
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....irectly engaged in preservation of environment as per Section 2(15), the proviso as pointed by Assessing Officer is not applicable in the instant case. Accordingly, Assessing Officer was not justified to conclude that assessee is not doing any charitable activity. With regards to Assessing Officer's contention that assessee is carrying out business activity and is in the nature of profit making, we find that benefit of exemption cannot be denied on the ground that it had made surplus/profits as long as it is not meant for private profit of seller. Profit making is not predominant object of activity. Under the facts and circumstances, CIT(A) was justified in holding that assessee is doing charitable activity as per Section2(15) of the Income-tax Act, benefit of Section 11 & 12 of the Income-tax Act is available to it. Accordingly, CIT(A) was justified in directing Assessing Officer to treat the activity of assessee company as charitable and further rightly directed to delete the addition of Rs. 2,53,21,438/-. This reasoned finding of CIT(A) needs no interference from our side. We uphold the same." 17. The Appellate Tribunal took the view that the assessee company could be said ....
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....and activities of the assessee are covered under first and second proviso to Section 2(15) of the Act ? [6] Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in allowing the benefit of exemptions under Sections 11 and 12 of the Income-tax Act, 1961 without considering the fact that the assessee is involved in wide spread commercial activities in the nature of business and these activities of the assessee are covered under the first and second proviso to Section 2 [15] of the Act ? [7] Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in allowing the benefit of exemptions u/s 11 & 12 of the Act without considering the fact that the assessee is involved in widespread commercial activities in nature of business and holding that the activity of the assessee is covered under first and second proviso to section 2(15) of the Act ?" Submissions on behalf of the Revenue:- 19. Ms. Mauna Bhatt, the learned senior standing counsel appearing for the Revenue submitted that by any stretch of imagination, the activities of the assessee do not fall within the definition of the term "Cha....
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.... to be for charitable purpose. 21. Ms. Bhatt submitted that even otherwise the members of the assessee company are obliged to comply with the statutory rules and regulations and the parameters and guidelines laid by the GPCB for the purpose of discharge of the trade effluent. If a treatment plant is set up by the assessee company for the purpose of treating the trade effluent, the same cannot be said to be for charitable purpose. 22. Ms. Bhatt, the learned counsel appearing for the Revenue, in the alternative, submitted that even if the activities of the assessee are to be treated in the nature of advancement of public utility, the same would not fall within the fourth limb of Section 2(15) of the Act as the activities undertaken are only for the members of the company. The activities cannot be said to be for the benefit of general public, or to put it in other words, an object of general public utility. 23. Ms. Bhatt submitted that mere registration of the assessee company under Section 25 of the Companies Act, 1956, itself, will not make the assessee eligible for exemption under Section 11 of the Act. The entitlement or otherwise of the exemption shall have to be decided by....
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....of Gujarat & Ors., reported in (1995) 36 (2) GLR 1. Mr. Soparkar submitted that the assessee company runs a Common Effluent Treatment Plant at Naroda. It has a treatment storage and disposal facility for the hazardous waste at Odhav, Ahmedabad and is also engaged in the various other activities to spread awareness in respect of the pollution and preservation of environment. The learned counsel pointed out that the project of the company was set up upon the direction, guidance and support of the various local and State agencies like the Collector, GIDC, AMC, GPCB, MOEF etc. 27. Mr. Soparkar submitted that on 21st December, 2005, a license was issued to the company under Section 25 of the Act, 1956. Some of the conditions of the license read as under; "2. That the income and property of the said company whensoever derived, shall be applied solely for the promotion of the objects as at forth in its Memorandum of Association and that no portion thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to persons who at any time are or have been members of the said company or to any of them or to any person claiming through ....
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....rding to the learned senior counsel,the Assessing Officer, much below the rank of the CIT, could not have declined the benefit of exemption under Section 2(15) read with Sections 11 and 12 respectively of the Act. 30. Mr. Soparkar submitted that the assessee has been claiming exemption under Section 11 of the Act. The tax appeals arise out of the various assessment orders passed by the Assessing Officer for the A.Y.2009-10, 2010-11, 2012-13, 2013-14 respectively, inter alia, holding that the assessee is not engaged in the activity with charitable purpose and that the profit earned by it is required to be added to the total income subjected to payment of tax. It is submitted that all the aforesaid orders have been quashed and set aside by the CIT (Appeals) and those have been affirmed by the ITAT. 31. Mr. Soparkar submitted that this Court may not interfere keeping in mind the following; "(i) The Respondent assessee is issued license under Section 25 of the Companies Act, 1956, which requires the Respondent Assessee to apply its profits, if any, or other income in promoting its objects and prohibits payment of any dividend to its members. The main object of the Company on its....
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.... 4 ,page 45 of Tax Appeal No. 627 of 2015), have both held that the activity undertaken by the assessee is that of preservation of environment. Even the Assessing Officer does not dispute that the Assessee is carrying out the activity of running a CETP for the secondary treatment of polluted industrial waste. If so, the Assessee qualifies for the exemption. In any case, what is the nature of activity of an assessee, whether it is engaged in charitable activity or not is even otherwise a question of fact. No question of law arises in these appeals. (vii) The Appellant, while asserting that the respondent is not engaged in the activity of preservation of environment, has failed to name the activity which would fall in the residuary category of 'advancement of any other object of general public utility' that is undertaken by the Respondent trust. The objects with which the Respondent assessee is incorporated, and its activity lead to only one conclusion that the Respondent assessee is engaged in the activity of preservation of environment and in nothing else." 31. In such circumstances, referred to above, Mr. Soparkar, the learned senior counsel, prays that there being no merit i....
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....of monuments or places or objects of artistic of historic interest and, -the advancement of any other object of general public utility. 36. The first proviso to section 2(15) provides that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity: - in the nature of trade, commerce or business, or -of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 37. The second proviso to section 2(15) as newly inserted (w..e.f. 1-4-2009) by the Finance Act, 2010, further provides that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is -(between 1-4-2009 and 31-3-2012) Rs. 10 lakhs -(w.e.f. 1-4-2012) Rs. 25 lakhs or less in the previous year. 38. Legislative amendments.- I. The Finance Act, 1983-By section 3(a) of Act 11 of 1983, section 2(15) has been amended (w.e.f. 1-4-1984). II The Finance Act, 2008.-The scope and effect of the substitution (w.e.f. 1-4-2009) o....
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.... (a) relief to the poor, (b) education, (c) medical relief and, (d) the advancement of any other object of general public utility. However, as per proviso to the section, the "advancement of any other object of general public utility" shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 4.2 Clause (15) of section 2 has been amended so as to provide that the preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest would be excluded from the applicability of the aforesaid proviso which is applicable to the "advancement of any other object of general public utility". 4.3 Applicability:-These amendments have been made applicable with effect from 1st April, 2009 and will accordingly apply for assessment year 2009-10 and subsequent assessment years.." IV The Financ....
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....n the nature of trade. commerce or business. or any activity of rendering any service in relation to any trade. commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. if receipts from such activities is above the specified limit in the previous year. 4.3 Second proviso to section 2(15) of the 1961 Act has been amended to provide that the specified monetary limit in respect of receipts from such activities shall be 25 lakh rupees instead of 10 lakh rupees. 4.4 Applicability.--This amendment has been made effective from [1st April. 20l2, and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years." Departmental circular.-1. Definition of "Charitable purpose" under section 2(15) of the Income-tax Act, 1961-reg- Section 2(15) of the Income-tax Act, 1961 ("the Act"), defines "charitable purpose" to include the following: (i) relief to the poor (ii) education (iii) medical relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for ....
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.... the poor, education, medical relief and any other genuine charitable purpose, and to deny it to purely commercial and business entities which wear the mask of a charity. A number of Honourable Members have written to me expressing their concern on the possible impact of the proposal on Agricultural Produce Market Committees (APMC) or State Agricultural Marketing Boards (SAMB). Since there is no intention to tax such committees or boards, and in order to remove any doubts, I propose to insert a new clause (26AAB) in section 10 of the Income tax Act to provide exemption to any income of an APMC or SAMB constituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce. I once again assure the House that genuine charitable organisations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether an entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of....
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....gst the members of the Company and public at large, thought and efforts towards the promotion and development of the efficient pollution control and to educate them in theory and practice and to exchange knowledge, experience and ideas on sound environment management principles and practices. 5. To formulate and implement demonstration projects aimed at providing total eco management planning by harnessing alternative sources, techniques of Cleaner Technologies with a objects to evolve long term plans based on the same and otter consultancy for the same. 6. To maintain for the members of the company liaison with organization/s interested in Pollution Control and Environment Management and such activities in furtherance of the objects of the Company such as Chamber of Commerce, Government departments, Management Associations Trade Associations etc. in the State Country and abroad. 7. To collaborate and co-operate with other professional institutions and with educational and research institutions having similar objects. 8. To identify and formulate proposals for the setting up of demonstration of Environment Management Projects. 9. To receive and accept subscription, f....
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....ble or immovable property rights or privileges: and to borrow, raise or secure the payment of any money on such terms and conditions and on such security as may be deemed fit and proper provided they are not inconsistent with the objects of the Company; 20. To compile and maintain a register of qualified Consultants in the area of environment protection and to provide to the members of the Company and public at large, expert advice and service on specialized management problems; 21. To prepare, edit, print, publish, issue, and circulate books. magazines, papers, periodicals. circulars. news letters and other literary undertakings dealing with or bearing upon energy conservation and to establish form and maintain libraries, collection of literature, statistics and scientific data and other information relating thereto to translate, compile, collect, publish, lend or sale and to disseminate the results of the activities; 22. To appoint investigators to study in India and/or abroad financial, constitutional, administrative, scientific, industrial or other problems in regard to scientific and industrial research undertaken by the company; . 23. To retain and/or employ skill....
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....h and experiments and undertake and carry on with all scientific and technical research experiments and tests undertake and to promote studies and research both scientific and technical investigation and invention by providing subsidy or assisting laboratories, workshops, libraries, lectures. meetings and conferences and by providing the scientific or technical professor or teachers and by providing for the awards or exhibition, scholarship, prizes and grants to students or otherwise and generally to encourage, promote and reward studies, researches. Investigation, experiment, tests and invention of any kind that may be considered likely to assist any of the activities which the Company is authorized to carry on. 35. To take part in the management, supervision and control of the business or operation of any company or undertaking having similar objects and for that purpose to appoint any directors or other experts. 36. To amalgamate, enter into partnership or into any arrangement, union of interest, cooperation, reciprocal concession or otherwise with any person, firm or company carrying on or engaged in or about to carry on any activities which may seem capable of being carr....
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.... of the Company may from time to time be carried on, all such offices, warehouses, workshops, buildings. machineries, engines. plants and appliances as may be considered requisite tor the purpose of carrying on the activities of the' Company. 45. Provided that the Company shall not support with its funds or endeavour to impose on or procedure to be observed by its members, or others, any regulation or restriction which, if an object of the Company, would make it a Trade Union. (C) Other Objects : Nil IV. The objects of the Company extend to the whole of India. V 1.. The Income and property of the Company whensoever and howsoever derived shalt be applied solely towards the promotion of the objects of the Company as set forth in this Memorandum of Association. ' 2. No portion thereof shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise howsoever by way of profits to the persons who at any time are or have been members of the Company or to any person claiming through any of them. 3. Except with the previous approval of the Central Government, no remuneration or other benefit in money's worth shall be given by the Company to....
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....pany having objects similar to the objects of this Company to be determined by the members of the company at or before the time or dissolution or in default thereof, by the High Court of Judicature that has or may acquire jurisdiction in the matter." 43. The first and the foremost question, therefore, we need to consider is whether having regard to the activities undertaken by the Company, could it be said that the Company is into "preservation of environment". The assertion on the part of the assessee company is that it takes care of the liquid and solid industrial waste generated by the polluting industries by treating the same in the Common Effluent Treatment Plant, situated at Naroda and also the Total Suspended Disposal Facility at Odhav, Ahmedabad (TSDF) and other anciliary activities for the purpose of curbing the menace of pollution thereby preserving the environment. Whether by establishment or running of the Common Effluent Treatment Plant at Naroda (CETP) and at Odhav TSDF and other anciliary activities, could it be said that the assessee-company undertakes the activity of preservation of environment for the purpose of Section 2(15) of the Act?. 44. We are dealing wi....
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....d/or managers should be furnished. The CIT has to examine the objects of creation as well as an empirical study of the past activities of the applicant. The CIT has to examine that it is really a charitable trust or institution eligible for registration. The Court further held that once the registration under section 12A(a) of the Act is granted, the Income Tax Officer is not justified in refusing the benefit which would, otherwise, accrue under the registration." 47. In the case of Assistant Commissioner of Income Tax v. Surat City Gymkhana, (2008) 300 ITR 214 (SC), the Supreme Court was called upon to deal with the question as to whether on the facts and circumstances of the said case, Income Tax Appellate Tribunal was justified in law in holding that registration under section 12A was a fiat accompli to hold the Assessing Officer back from further probe into the objects of the trust. On a perusal of the judgment of the Gujarat High Court in the case of Hiralal Bhagwati, the Supreme Court held that the question stood concluded by the said judgment, which had attained finality since the revenue did not challenge the decision in the said case. The relevant observations made by th....
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....has attained finality. Question 'B', therefore, is to meet the same fate as Question 'A' as this Court had declined to grant leave in respect of Question 'A' on the ground that the Revenue did not challenge the correctness of the decision in Hiralal Bhagwati. It appears that the fact, that Question 'B' was also covered by the aforementioned judgment, was not brought to the notice of Their Lordships and, therefore, leave granted was restricted to Question 'B'." 48. This High Court in the case of Ahmedabad Urban Development Authority v. Deputy Director of Income Tax (Exemption), (supra), has held thus: "9. Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of sections 11 & 12 as provided in section 12A of the Act. Therefore, once the procedure is complete as provided in sub-section (1) of section 12AA of the Act and a Certificate is issued granting registration to the Trust or Institution it is apparent that the same is a document evidencing satisfaction about : (1) genuineness of the activities of the Trust or institution, (2) about the objects of the Trust or Institution. Section 12A of the Act stipulates that provi....
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....ration the certificate granted by the Commissioner of Income Tax under section 12AA of the Act, and has found that the petitioner carries on charitable activities. In the return of income filed by it, the petitioner had specifically claimed deduction of Rs. 32,40,212/- and Rs. 45,00,000/- totalling to Rs. 77,40,212/- as a Charitable Trust registered under section 12AA of the Act by the Commissioner of Income Tax. During the course of assessment proceedings the Assessing Officer had issued notice pursuant to which the petitioner had given its reply explaining as to why it was entitled to the said deductions. The Assessing Officer after considering the explanation given by the petitioner had passed a scrutiny assessment order under section 143(3) of the Act specifically allowing the above deductions. From the reasons recorded, it is evident that the Assessing Officer has not recorded any independent opinion regarding income having escaped assessment for the reasons stated therein. The sole ground for reopening the assessment appears to be the observations of the Revenue Audit Party that the assessee is not eligible for exemption to the tune of Rs. 77,40,212/- for the year under refer....
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....protect, but this one is more like you are keeping it safe from a potential threat. One simple example of preservation could be "the fossil was perfectly preserve for hundreds of years". If the trade effluent or the liquid or solid, waste generated by the polluting industries is treated in a central treatment effluent plant, the same could be said to be in the direction of protecting the environment. Would this be synonymous to "preservation of environment". Section 2(15) for the purpose of preservation of environment has included watersheds, forests and wildlife, and at the same time, it also talks about preservation of monuments or places or objects of artistic and historic interest. One thing is for sure that while preserving anything, indirectly or directly, that thing is also protected. 52. It is apposite to state that the definition of the term "charitable purpose" remains an inclusive one and is not an exhaustive or exclusive one. In other words, the purposes similar to those mentioned in the aforesaid definition could also constitute 'charitable purpose' under the Act. The expression 'charitable purpose' is sufficiently wide in scope to include a variety of activities....
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....ible." 58. In Keshavji Ravji and Co. v. CIT, (1990) 183 ITR 1 (SC); (1990) 2 SCC 231, it has been held by the Supreme Court that when in a taxation statute where literal interpretation leads to a result that does not sub-serve the object of the legislation another construction in consonance with the object can be adopted. 59. We now propose to examine the matter, keeping in mind the fourth limb of Section 2(15) of the Act, i.e., "the advancement of any other object of general public utility". 60. The provision as it existed under the Act of 1922 was that once the purpose of the trust was relief of the poor, education, medical relief or advancement of any other object of general public utility, the trust was considered to be for a charitable purpose. As a result of the addition of the words "not involving the carrying on of any activity for profit" at the end of the definition in section 2(15) of the Act even if the purpose of the trust is "advancement of any other object of general public utility", it would not be considered to be "charitable purpose" unless it is shown that the above purpose does not involve the carrying of any activity for profit. The result, thus, of the c....
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....eation of the trust or establishment of institution. The proviso to Section 12A(1) confers the power on the Commissioner to entertain an application under Section 12A (1) even after the expiry of period of one year if he is satisfied that the person was prevented from making an application before the expiry of period of one year for sufficient reasons. 63. Section 11(5) requires every trust or institution for a charitable purpose to invest or deposit the money only in the manner provided therein inter alia investment in Savings Certificates as defined in Government Savings Certificates Act, 1959, deposit with the Post Office Savings Bank, deposit in any account with the scheduled bank i.e., Reserve Bank of India or its subsidiary bank or any scheduled bank under Section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 or any other bank being a bank included in Second Schedule to Reserve Bank of India Act, 1934 and the like. The breach of Section 11(5) would attract Section 13(1)(d) of the IT Act and the benefit under Sections 11 and 12 would not be available if funds are deposited or invested contrary to Section 11(5) or in breach of Section 13(1) g....
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....it is enwrapped or enveloped in the activity of advancement. In another case, it may be interwoven into the activity of advancement, so that the resulting activity has a dual nature or is twin faceted. Since we are concerned with the definition of "charitable purpose", and the definition defines in its entirety a "purpose" only, it will be more appropriate to speak of the purpose of profit making being enwrapped or enveloped in the purpose of the advancement of an object of general public utility or, in the other kind of case, the purpose of profit making being interwoven into the purpose of the advancement of that object giving rise to a purpose possessing a dual nature or twin facets. Now, section 2(15) clearly says that to constitute a "charitable purpose" the purpose of profit making must be excluded. In my opinion, the requirement is satisfied where there is either a total absence of the purpose of profit making or it is so insignificant compared to the purpose of advancement of the object of general public utility that the dominating role of the latter rendersthe former unworthy of account. If the profit making purpose holds a dominating role or even constitutes an equal comp....
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....tural Produce and Market Committee, (2007) 291 ITR 419 (Bom) is a case wherein the Bombay High Court considered the question whether the market committees constituted under the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963 are established for charitable purposes and whether they can be registered under section 12A/12AA of the Act. After referring to the various provisions of the Maharashtra Act - the preamble, the powers and duties of market committees, the power to levy and collect fees and regulate the markets, the Court relied on Surat Art Silk (supra) and held as under. (paras 22 and 24) "Applying the tests laid down by the apex court in the aforesaid cases to the facts of the present case, there can be no doubt that the object of the market committees (assessees) established under the 1963 Act is to regulate the entire marketing of agricultural and some other produce from the stage of procuring till it reaches the ultimate consumer, which is squarely covered within the meaning of the expression "advancement of any object of general public utility" contained in section 2(15) of the Act. It is pertinent to note that prior to April 1,1984, the words used....
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....al produce with the intention of benefiting the producers, as well as, the consumers of agricultural products. A market committee is also obliged to provide for conveniences for the activities of a market area like construction of buildings, sheds, plinths, etc. A market committee is also obliged to provide conveniences for persons visiting a market area, like providing for shelter, shade and parking facilities. A market committee is also obliged to look after the safety, health and convenience of persons visiting the market area. A market committee is also obliged to construct and repair link roads, approach roads, culverts, and bridges, etc. One of the many specified activities of a market committee is to extend loans to financially weak communities as well as in the repayment of such loans and the interest thereon. The market committee under reference, in the discharge of its obligations, besides carrying out all the aforesaid activities, is stated to have spent a huge sum of money for the construction, development and repair of link roads, culverts, bridges, etc " 69. In CIT vs. Gujarat Maritime Board, (2007) 295 ITR 561 (SC), the question before the Supreme Court was whether....
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....n so as to include relief to the poor, education, medical relief and advancement of any other object of general public utility. In this case we are concerned with the interpretation of the expression "advancement of any other object of general public utility. Under Section 11(1), income from property held for charitable purposes is not includible and does not form part of total income. Section 11(1) has three sub-sections, (a), (b) and (c). In all the three sub-sections the words used are "income derived from property held under trust wholly for charitable purposes". Under Section 11(4) the expression "property held under trust" includes a business undertaking so held. In other words, income from business undertaking held for charitable purposes can fall under Section 11 subject to such income fulfilling the requisite conditions of that section ... At the outset, we may point out that Section 10(20) and Section 11 of the 1961 Act operate in totally different spheres. Even if the Board has ceased to be a "local authority", it is not precluded from claiming exemption under Section 11(1) of the 1961 Act. Therefore we have to read Section 11(1) in the light of the definition o....
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....nufacturers Association (supra) has pointed out that the restriction must be read with "the advancement of any other object of general public utility" and not "object of general public utility". The Supreme Court, considering the English decisions and the Indian law, has pointed out in the aforesaid decision that : "......... There is no such limitation so far as Indian law is concerned even if a purpose is not within the spirit and intendment of the preamble to the statute of Elizabeth, it would be charitable if it falls within the definition of "charitable purpose" given in the statute Every object of general public utility would, therefore, be charitable under the Indian law, subject only to the condition imposed by the carrying on of any activity for profit" added in the present Act. ......" 72. The apex Court in the case of CIT vs. Federation of Indian Chambers of Commerce & Industry (1981) 130 ITR 186 (SC), after applying the principle laid down in the case of Surat Art Silk Cloth Manufacturers Association (supra), held as under : ".......... the income derived by the respondent from the activities, such as holding the Indian Trade Fair and sponsoring the conference o....
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....xpression "object of general public utility " appearing in section 2(15) would include only those objects which promote the welfare of general public and not the personal and individual interests of some persons. It is not uncommon to find the objects of general public utility being in conflict with the object of personal welfare of some specified individuals. It is true, as held by the Supreme Court in the case of Andhra Chamber of Commerce [1965] 55 ITR 722 (SC), that personal welfare of specified individuals would be incidental or consequential to the main purpose of general public utility, but a converse of this proposition is not always true. Now, if we examine the objects contained in clauses (a), (b) and (c) from this point of view, it will be at once noticed that these objects seek to protect the interest of "millowners and users of motive power" and also of those concerned with them. Clause (b) contemplates the promotion of good relations between the persons and bodies using such powers and clause (c), which is consequential to clause (a) and (b), contemplates doing of those acts and things by which the objects covered by clause (a) and (b) may be attained. Thus, all these....
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.... and identifiable by some common quality of a public or impersonal nature : where there was no common quality uniting the potential beneficiaries into a class, it might not be regarded as valid." 25. These observations are repeated by the Supreme Court in the subsequent decision in Ahmedabad Rana Caste Association v. Commissioner of Income-tax [1971] 82 ITR 704 (SC). 26. These observations supply a complete answer to the contention of the learned Advocate-General that the category of persons covered by the expression "millowners and users of motive power" constitutes a section of the public, which can legitimately form the object of a charitable purpose. The observations make it clear that the section of the public which is to be benefited to make the purpose a charitable one should have a common quality of either a "public" nature or an "impersonal" nature. Can it be said that "millowners and users of motive power" have a common quality of a "public nature" ? If they have any common quality the same is obviously of a "private" nature, as each one of them is concerned with his own interest and shares nothing in common with the public. It was contended that their common qualit....
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....p which was an impersonal one dependent upon their status a members of that caste. No such relationship of impersonal nature can be found amongst the millowners and users of motive power, and, hence, none of the objects mentioned in clause (a), (b) and (c) can be treated as objects of public utility. 29. We have already dealt with the object found in clause (d). So far as the object contained in clause (e) is concerned it consists of two parts. This first part contemplates establishment or the creation of funds to benefit employees of the association or the dependents of such persons while the second part contemplates subscriptions, donations or guarantees or "charitable or benevolent" purposes at the discretion of the association. Now, so far as the first part is concerned, it is covered by the decision in Oppenheim v. Tobacco Securities Trust Co. Ltd. [1951] AC 297 (HL), to which reference is made by the Supreme Court in Ahmedabad Rana Caste Association's case [1971] 82 ITR 704 (SC) at page 710 of the report. The facts of that English decision were that the trustees were directed to apply certain income in providing for the education of children of employees or "former emp....
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....nd Revenue v. City of Glasgow Police Athletic Association [1953] 34 TC 76 (HL) Lord Cohen has summarised the legal position in such cases as under at page 105 of the report : "(1) If the main purpose of the body of persons is charitable and the only elements in its constitution and operations which are non-charitable are merely incidental to that main purpose, that body of persons is a charity notwithstanding the presence of those elements - Royal College of Surgeons of England v. National Provincial Bank [1952] AC 631 (HL). (2) If, however, a non-charitable object is itself one of the purposes of the body of persons and is not merely incidental to the charitable purposes, the body of persons is not a body of persons formed for charitable purposes only, within the meaning of the Income Tax Acts - Oxford Group v. Inland Revenue Commissioner [1949] 2 All ER 537; 31 TC 221 (CA). (3) If a substantial part of the objects of the body of person is to benefit its own members, the body of persons is not established for charitable purposes only - Inland Revenue Commissioner v. Yorkshire Agricultural Society [1928] 1 KB 611 (CA)." 76. In our opinion, the case on hand falls within t....
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....he declaration of dividends is prohibited. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, we feel that in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important. 79. Ms. Bhatt may be right in her own way to contend that the benefit accrues to the members of the company. The members are none other than the owners of the polluting industries. These members are obliged in law to maintain the parameters as prescribed by the GPCB and in law for the purpose of discharge of their trade effluent. To put it in other words, discharge of solid and liquid waste. If they do not do so, then they would be liable to be prosecuted and their units would also be liable to be closed. However, this, by itself, is not sufficient to take the view that the company has not been se....
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.... therefore, was not entitled to exemption. On appeal, the AAC, relying on the main objects of the association, as laid down in the Memorandum of Association, held that the association was entitled to exemption. The AAC, relied on the decision of the Supreme Court in CIT vs. Andhra Chamber of Commerce (supra) and the decision of the Kerala High Court in CIT vs. Indian Chamber of Commerce, 1971 80 ITR 645. The AAC came to the conclusion that the association fulfilled the conditions as required under Section 11(1)(a) of the Act. The department went up in appeal to the Income Tax Appellate Tribunal. It contended, on the basis of the decision of the Mysore High Court in CIT vs. Sole Trustee Loka Shikshana Trust, 1970 77 ITR 61 and the decision of the Calcutta High Court in CIT vs. Indian Chamber of Commerce, 1971 81 ITR 147 that the conclusions of the AAC were erroneous. On the other hand, the respondent association relied on the decision of the Keral High Court in CIT vs. Cochin Chamber of Commerce & Industry, 1973 87 ITR 83. It also contended that the decision of the Supreme Court in Andhra Chamber of Commerce, 1965 55 ITR 722, despite the fact that it pertained to the provisions of t....
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....y one of the objects must be charitable in order that the trust or institution be upheld as a valid charity. But if the primary or dominant purpose of a trust or institution is charitable, another object, which by itself may not be charitable, but is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or institution from being or valid charity. 15. The fact that the members of the assessed benefited was merely incidental to the carrying out of the main or primary purpose and if the primary purpose was charitable, the subsidiary objects would not militate against its charitable character not would it make the purpose any the less charitable. 16. The Supreme Court referring to its earlier decision in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722, observed that the court had held that the dominant or primary object of the Andhra Chamber of Commerce, which was to promote and protect trade, commerce and industry and to aid, stimulate and promote the development of trade, commerce and industry and to watch over and protect the general commercial interests of India or any part thereof was clearly an object of general public utility. T....
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....n hand, are being benefited and their statutory liability is being discharged by the assessee company, by itself, would not be sufficient to hold that the company could not be said to have been set up for charitable purpose. 83. The Delhi High Court, in the case of India Trade Promotion Organization vs. Director General of Income Tax (Exemptions) & Ors., Writ Petition (C) No.1872 of 2013,, decided on 22nd January, 2015, in context with Section 10(23C)(iv) of the Act vis-a-vis Section 2(15) of the Act, had observed as under; "At this juncture, we may point out that we are in agreement with the argument advanced by Mr Syali that the proviso to Section 2(15) does not make any distinction between entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business on the one hand and genuine charitable organizations on the other. It must be remembered that we are construing the expression "charitable purpose" not in a vacuum, but in the specific context of Section 10(23C)(iv) of the said Act. As pointed out above, Section 10 deals with the incomes not included in total income. And, Section 10(23C)(iv) specifically deals with....
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....an institution established for charitable purposes. Because, if that were to be so, then there would be no necessity to take recourse to Section 10(23C)(iv) for the benefit of an exemption. To put it plainly, if an institution established for charitable purposes did not receive an income at all, then what would be the need for taking any benefit under Section 10(23C)(iv) of the said Act. Therefore, if a meaning is given to the expression charitable ― purpose so as to suggest that in case an institution, having an objective of advancement of general public utility, derives an income, it would be falling within the exception carved out in the first proviso to Section 2(15) of the said Act, then there would be no institution whatsoever which would qualify for the exemption under Section 10(23C)(iv) of the said Act. And, the said provision would be rendered redundant. This is so, because, if the institution had no income, recourse to Section 10(23C)(iv) would not be necessary. And, if such an institution had an income, it would not, on the interpretation sought to be given by the revenue, be qualified for being considered as an institution established for charitable purposes. So,....
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....f having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business or trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of the trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profit, but the object is to promote, aid, foster and engage in the area of Environment Protection, abatement of pollution of various kinds such as water, air, solid, noise, vehicular etc. without limiting its scope. In short, the main object appears to be preservation and protection of environment. 85. The Latin word utilis means 'useful, beneficial, equitable, available'. Chambers Dictionary of English defines 'utility' as useful: power to satisfy the wants of people in general: a useful thing, public utility: public service or a company providing such public service. According to 'New Oxford Dictionary of English' (1998), as a Noun, utility is the status of being useful, profitable or beneficial. 86. The Corpu....
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.... Art Silk (supra)]. In other words, any activity for the benefit of the public or a section of the public, as distinguished from the benefit to an individual or a group of individuals, would be charitable purpose as the object is for advancement of general public utility. The expression includes all objects to promote the welfare of the public, and when an object is to promote or protect the interest of particular trade or industry that object becomes an object of public utility and would be charitable purpose (Gujarat Maritime Board (2007) 295 ITR 561 (SC) [see Commissioner of Income Tax vs. Agricultural Market Committee, (2011) 336 ITR 641 (AP)] 89. In our opinion, this could be termed as a charitable purpose which has as its motive advancement of an object of general public utility to which the exception carved out in the first proviso to Section 2(15) of the Act would not apply. 90. We may refer to and rely upon the decision of this Court in the case of Director of Income Tax (Exemption) vs. Sabarmati Ashram Gaushala Trust, reported in (2014) 44 taxmann.com 141 (Gujarat), wherein this Court was called upon to consider whether the activities of the respondent assessee-Sabarm....
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.... make the cow keeping economically viable; to publish study materials, books, periodicals, monthlies etc., in order to publicize the objects of the trust as also to open schools and hostels for imparting eduction in cow keeping and agriculture having regard to the trust objects. All these were the objects of the general public utility and would squarely fall under section 2 (15) of the Act. Profit making was neither the aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19 th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of 'public utility'. " 91. Carrying on an 'activity in the nature of trade, commerce, or business' or rendering of any service in relation to trade etc. is sine qua non for taking away the character of charitable purpose. An ....
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....into some income or loss was carried on with the object of doing some trade, commerce or business, etc., or it was in furtherance of the objects (non-business) etc., for which the assessee was set up. In other words, the predominant object of the activities should be seen as to whether it is aimed at carrying on some business, trade or commerce or the furtherance of the object for which it was set up. If it falls in the first category, then, the case would be covered within the proviso to section 2(15) and, in the otherwise scenario, the assessee will be construed to have carried on its activities of general public utility. (see Society of Indian Automobile Manufactures vs. ITO, Delhi) 92. The Delhi High Court in the Institute of Chartered Accounts of India v. Director General of Income-tax (Exemptions), 2013 358 lTR 91/217 Taxman 152/35 taxmann.com 140 (Delhi) , observed, while disposing of a writ petition, that holding interviews for fees for the purpose of campus placements of its students does not amount to carrying on a business so as to deny exemption u/s 11 of the Act. It further observed that if the object or purpose of an institution is charitable, the fact that the inst....