TaxTMI 
TaxTMI 
2019 (10) TMI 150
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....itable Trust engaged in the activity of preservation 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 ....
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....antation for the purpose of pollution treatment." 6. 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....
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....r u/s. 12AA refusing registration to the assessee. The assessee preferred appeal 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/....
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....t any activity can be considered in that context only and not expenditure incurred including acquisition 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 ....
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....he data for the year ending 31.03.2006 are not available right now. The efforts are being made to locate the said folder." 11. The Assessing Officer recorded the submissions of the assessee company as under; "The 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 Techn....
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..../10/2011). This implies that the claim of assessee that it is the saviour of the people living in and around Naroda, Vatva & Odhav Industrial Estates, is baseless as the units which are not its members/beneficiaries are at liberty to pollute the Air, 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 Na....
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.... Direct Taxes. Paragraph 3 of the said letter provides that the newly inserted proviso to Section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. the fourth limb of the definition of the charitable purpose contained 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 i....
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.... Rules 2008 framed under the E(P) Act 1986. The intention behind enactment is to keep in control the pollution generated by various Industrial Units. Under the circumstances justify your claim of exemption with specific reference to the charitable activity as defined u/s 2(15) or for that 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 authorit....
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....ee for A.Y.2009-10 is pending with undersigned. In response to the query regarding detailed note on present activity of the Trust and other information, the assessee company submitted that it was incorporated as a company with sole object to comply with the directions of the Hon'ble High Court of Gujarat in public interest 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....
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....der. The GPCB has not given the address of the units, hence it can not be said that either all the units or none of the unit is operating from industrial estate for which the assessee is rendering services of pollution control. However, it can safely be presumed that majority of the units might be operating from the industrial estates of Naroda, Odhav & 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 industr....
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....the income of such activity. Since the aggregate value of receipts are more than Rs. 10,00,000/- both the proviso to section 2(15) are applicable to the assesee company and it is not entitled for exemption." 13. Thus, the Assessing Officer took the view that the assessee company is not entitled to seek exemption under Section 11 of the Act on the ground that the case of the assessee falls under sub-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 Inco....
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....abetment and controlling pollution of environment i.e. land, water and air and for this objective, the appellant is providing pollution control treatment for disposal of liquid and solid industrial waste. The appellant pointed out that it is incorporated u/s.25 of the Companies Act i.e. the company which does not exist for earning the profit but exist for the welfare and well being of the society. A certificate of 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, ai....
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....llant are allowable and as such, as the appellant is doing charitable activity as per Section 2(15) of the Income Tax Act, the benefit of Section 11 & 12 of the Income Tax Act available to it. The AO is therefore directed to treat the activities of the appellant company as charitable and is therefore directed to delete the addition of Rs. 2,53,21,438/-." 15. Thus, the CIT (A) took the view that the activities of the assessee company could 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 ass....
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.... Act. The plain reading of objects of company reveals that main object is protection of environment by abetment of pollution of various kinds like water, air, soil, etc. In this background, activities of assessee company squarely falls u/s. 2(15) of the Income-tax Act. The proviso to Section 2(15) is applicable to objects of general public utility. The same was also clarified vide CBDT Circular No. 11 dated 19.12.2008. Since assessee company is directly 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 In....
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....ribunal has erred in law and on facts in not appreciating that the activities carried out by the assessee fall within the ambit of the proviso to section 2(15) of the Income Etax Act, 1961? [5] Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in allowing the benefit of exemptions u/s.11 and 12 of the Act without considering the fact that the assessee is involved in widespread commercial activities in the nature of business 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 th....
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....tc. without treating in the effluent treatment plant. It is at that point of time that this idea of setting up of treatment plant was given by the High Court. Ms. Bhatt pointed out that the assessee company primarily treats the effluent and, thereafter, the very same trade effluent is treated further by the Ahmedabad Municipal Corporation. According to Ms. Bhatt, the mere activity of treating the effluent should not be equated with "preservation of environment" and such activity cannot be said 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(....
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....een committed by the ITAT in passing the impugned order. Mr. Soparkar submitted that the assessee is engaged in the activities of preservation of environment. The assessee was incorporated on 19th October, 1995 with the object of complying with the directions issued by this Court in a public interest litigation to curb the menace of pollution in the city of Ahmedabad. Mr. Soparkar submitted that the decision rendered by this Court in public interest is reported, titled as Pravinbhai J. Patel vs. State 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 o....
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.... 2005 (the same date as the date on which the license under Section 25 of the Act, 1956 came to be granted). Mr. Soparkar also pointed out that a show-cause notice was issued by the DIT (E), Ahmedabad under Section 12AA(3) of the Act. The proceedings, ultimately, came to be dropped on 20th March, 2013. According to Mr. Soparkar, in such circumstances, it could be said that even after the law was amended with effect from A.Y. 2009-10, the CIT accepted that the assessee continued to be a charitable institution. If that be so, according 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 t....
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....ssessee is liable to tax by virtue of proviso to Section 2(15) of the Act and on account of operation of Section 13(8) of the Act. None of the aforesaid provisions apply in case of the Respondent Assessee that is directly engaged in the activity of preservation of environment. The provisos do not apply in respect of the first six limbs of section 2(15) of the Act. The Respondent relies on Circular No.11 of 2008 dated 19.12.2008. A copy of the said circular is enclosed. (vi) Two lower Appellate Authorities i.e. CIT (Appeals) (para 4.4.4, page 39 of Tax Appeal No. 627 of 2015) and ITAT (para 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, wh....
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....d -the advancement of any other object of general public utility [(upto 31-3-1984) not involving the carrying on of any activity for profit]. 34. The subject-matter of this definition has been dealt with under section 11, post. 35. Charitable purpose, defined (operative from 1-4- 2009).-As per section 2(15), newly substituted (w.e.f. 1-4- 2009) by the Finance Act, 2008, the expression "charitable purpose" has been defined by way of an inclusive definition so as to include; -relief to the poor, -education, medical relief, -(w.e.f. 1-4-2009) preservation of environment (including watersheds, forests and Wildlife) and Preservation 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 nat....
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....plicability: This amendment has been made applicable with effect from 1st April, 2009, and shall accordingly apply for the assessment year 2009-10 and subsequent assessment years.'. III The Finance (No.2) Act, 2009-The scope and effect of the substitution (w..e.f. 1-4-2009) of section 2(15) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No.5/2010, dated 3-6-2010, as under:- "Amendment to include certain activities within the ambit of provisions relating to "charitable purpose" in the Income-tax Act. 4.1 For the purposes of the Income-tax Act, "charitable purpose" has been defined in section 2(15) of the Income-tax Act and it includes (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 busin....
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....ent year 2009-10 and subsequent years.'. V. The Finance Act, 2011.-The second proviso to section 2(15) has been amended (w.e.f. 1-4-2012) by section 3 of Act 8 of 2011. The scope and effect of the amendment made in section 2(15) by the Finance Act, 2011 have been elaborated in the following portion of the departmental circular No.2 of of 2012 dated 22-05-012. as follows: Definition of "charitable purpose":- 4.1 For the purpose of the 1961 Act, "charitable Purpose "has been determined in section 2(15) which, among others, include "the advancement of any other object of general public utility". 4.2 However. "the advancement of any other object of general public utility" is not considered as 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. if receipts from such activities is above the specified limit in the previous year. 4.3 Second proviso to sectio....
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....rpose'. Obviously, this way not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected." 40. Our attention was also drawn to the following extract from the reply of the Finance Minister to the Debate in the Lok Sabha on the Finance Bill, 2008:- "―6. Clause 3 of the Finance Bill, 2008 seeks to amend the definition of charitable purpose' so as to exclude 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 or use of application, or retention, of the income from such activity. The intention is to limit the benefit to entities which are engaged in activities such as relief of 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 Com....
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....pe and, to carry out research and development and, activities incidental and ancillary thereto and, to make available benefits of its activities and facilities to the public at large without any distinction of race, region or cast. THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS ARE 2. To promote and endeavour to educate public at large and adopt the techniques to re-use and re-cycle waste water, industrial waste into by-products to adopt Cleaner Production Techniques to minimize waste generation and thereby to reduce/ abate pollution. 3. To undertake activities, enter into treaties for substituting hazardous substances like Chioro Floura Carbon (CFC), Green House Gas (GHC) Reduction,Carbon Trading activities, Ozone Depleting substances or any other such future developments coming up to abate pollution of various kinds. 4. To stimulate amongst 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 pra....
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....enefits analysis with respect to new methods of Cleaner Technologies. 15. To provide technical or other assistance for the formulation of programmes, designs and projects meant for extension of alternate Cleaner Technologies, programmes in India or any part of the world; 16. To take special steps to develop a group of young Scientists and Technologists working in the field of Environment Protection and Pollution Control and Cleaner Technologies and to identity and to encourage research; 17. To establish and to maintain a technical library and/or Information center and to collect and collate information regarding alternate Technology or Pollution Control and use of Resources; 18. To develop and support Centers of documentation. service. maintenance and supply of data including patent, literature, current status report etc. in the area of environment management; 19. To accept. purchase. receive. take on lease or hire or otherwise. acquire any movable 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 t....
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....development and advancement of any activity in the field of education, healthcare, public welfare, science etc. for their benefit 30. To form, constitute, float. lend money to assist and control similar associations or undertakings whatsoever; 31. To subscribe for, take or otherwise acquire and hold shares, stocks, debentures or other securities of any other Company having objects altogether or in part similar to those of the Company or carrying on any business capable of being conducted so as to directly to benefit the Company. 32. To subscribe or contribute or otherwise to assist or to guarantee money to charitable, benevolent, scientific, national, public, or any other useful institutions in their objects or purposes or for any exhibitions; 33. To appoint any Directors or Managers of any subsidiary company or of any other Company in which this Company is or may be Interested. 34. To establish, provide, maintain and conduct or otherwise subsidise, research, laboratories and experimental workshop for scientific and technical research and experiments and undertake and carry on with all scientific and technical research experiments and te....
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.... of the assets of the company in the employment of persons of learning or skill, the provisions and use of buildings and purchase and maintenance of instruments, materials and appliances to carry out its activities; 41. To establish and support or aid in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or exemployees of the company or the dependants of such persons, and to grant pension and allowances to make payment towards insurance of such persons and generally to provide for superannuation benefits; 42. To procure the company to be registered or recognized in any part of India in the field of environment management; 43. To purchase or take by way of lease, sub-lease, gift, exchange, hire or otherwise acquire movable or immovable property and in particular any land, building, workshop, factories, laboratories, machinery, equipment, furniture, scientific records, experimental data. library etc. 44. To acquire real or leasehold estate and to purchase. or otherwise acquire or provide in any place in which any part of activities of the Company may from time to time be carri....
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....The Liability of the members is limited. VIII. The Authorized Share Capital of the company will consist of Rs. 1.00.00.000/-(Rupees One Crore only) divided into 10,00,000 (Ten Lacs.) Equity shares of Rs. 10/-(Rupees Ten only) each. IX. True accounts shall be kept of all sums of money received and expended by the Company and the matters in respect of which such receipts and expenditure take place and of the property, credits and liabilities of the Company; and, subject to any reasonable restrictions as to the time and manner of inspecting the same that may be imposed in accordance with the regulations of the Company for the time being in force, the accounts shall be open to the inspection of the members. Once at least in every year, the accounts of the Company shall be examined and the correctness of the Balance-sheet and the Income and Expenditure Account ascertained by one or more property qualified Auditor/s. X. If upon a winding up or the dissolution of the Company, there are remains after the satisfaction of all the debts and liabilities, any property whatsoever, the same shall not be distributed amongst the members of the Company but, shall be given ....
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....e and the question whether the assessee is established for a charitable purpose or not must be examined independently with reference to the provisions of the Act. The registration of the assessee as a charitable institution under Section 12A of the Act, 1961 and the license granted to the assessee under s. 25 of the Companies Act are only relevant factors in reaching an appropriate conclusion. Unless the positive requirements of law are satisfied, the assessee, only by virtue of the above two events, cannot be regarded as a Charitable Institution. The objects, for which, the assessee is established either as a Society or as a Company should spell out any charitable purpose. 46. In the aforesaid context, it may be pertinent to refer to the decision of this High Court in the case of Hiralal Bhagwati v. Commissioner of Income Tax, [2000] 161 CTR (Guj) 401, wherein the Court has held as under: "The registration of a charitable trust under section 12A is not an empty formality. This is apparent from the tenor of the provisions of section 12A. It requires that not only an application should be filed in the prescribed form, setting the details of the origin of the trust, but a....
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.... and not a body of individuals? (B) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that registration under Section 12-A was a fait accompli to hold the assessing officer back from further probe into the objects of the trust?" 2. By the impugned order, the High Court dismissed the appeals, in limine, relying on a decision of the same Court in Hiralal Bhagwati v. CIT 2000 246 ITR 188, holding that the questions raised in the appeals are covered by the aforesaid decision. 3. Being dissatisfied by the order of the High Court, the Revenue has filed these appeals. 4. This Court, on 22-7-2002, granted leave in respect of Question 'B' only. The appeals were not entertained in respect of Question 'A' and it was noted that the appeals were rightly dismissed by the High Court insofar as Question 'A' is concerned as the appellant did not challenge the correctness of the judgment in Hiralal Bhagwati. 5. On a perusal of the judgment of the Gujarat High Court in Hiralal Bhagwati we now find that Question 'B' is also concluded by the said judgment (refer to the 1st paragraph of ITR ....
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....etitioner is not eligible for exemption for the aforesaid reasons. The grounds for reopening the assessment are clearly contrary to the settled legal position as laid down by this Court in the case of Hiralal Bhagwati v. Commissioner of Income Tax, (supra) as well as in the case of Ahmedabad Urban Development Authority v. Deputy Director of Income Tax (Exemption), wherein the Court has held that section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of sections 11 and 12 as provided in section 12A of the Act. Therefore, once the procedure is complete as provided under 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, and (2) about the objects of the Trust or Institution. While framing the assessment order, it is not open to the Assessing Officer to ignore the certificate of registration granted under section 12AA of the Act by the Director of Income Tax (Exemption). In the facts of the present case, the Assessi....
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....on a mere change of opinion, that too, the opinion of the Revenue Audit Party and not that of the Assessing Officer." 50. The ratio discernible from the aforesaid decision is that once the procedure is completed as provided under subsection (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 (i) the genuineness of the activities of the trust or institution and (ii) about the objects of the trust or institution. While framing the assessment order, it is not open to the Assessing Officer to ignore the certificate of registration granted under Section 12AA of the Act by the Director of Income Tax (Exemption). It is not permissible for the Assessing Officer to go behind the registration obtained by the assessee under Section 12AA of the Act. 51. The legislature has consciously used the word "preservation". Preserve means, to keep something in its original form or keep it in good condition. To put it in other words, to preserve is like keeping things the way they are. The only question is whether preservation would include protection?. To protect means....
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....etation of the provision has to be adopted and when such a construction is placed, it serves the legislative intent. 57. In this context we may refer to the decision in State of T.N. v. Kodaikanal Motor Union (P) Ltd., (1986) 62 STC 272 (SC): (1989) 3 SCC 91, wherein the Supreme Court, after referring to K.P. Varghese vs. Income Tax Officer and and Luke v. Inland Revenue Commissioner, (1964) 54 ITR 692 (HL); (1963) AC 557 (HL), observed thus:- "The courts must always seek to find out the intention of the legislature. Though the courts must find out the intention of the statute from the language used, but language more often than not is an imperfect instrument of expression of human thought. As Lord Denning said it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As Judge Learned Hand said, we must not make a fortress out of dictionary but remember that statutes must have some purpose or object, whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeavour to avoid an unjust or absurd result. We should not make a mockery of legislation. To make sense o....
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....r consideration, such activity shall not be a charitable purpose. Except the addition of the proviso, restricting the purport of the 'advancement of any other object of general public utility', there is not much difference in section 2(15) as it existed prior to 01.04.2009, and thereafter. After the amendment the preservation of environment including the watersheds, forest and wild life, and preservation of monuments or places/objects of artistic or historic interest are also included in the definition 'charitable purpose'. Be that as it is, what is important is any institution or organization or entity for the advancement of object of general public utility is also considered as an institution or trust for charitable purpose. Section 11 exempts various categories of incomes as enumerated under section 11(1)(a) to (d) from the total income of the previous year. Section 12 exempts the voluntary contributions received by a trust created for charitable purposes from the total income. The benefit of Section 11 and/or 12 can be claimed only when the conditions as stipulated under Section 12A are satisfied. One such condition is that a person in receipt of the income has to apply for the....
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....d that a purpose would cease to be charitable even if public welfare is intended to be served thereby if it includes the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture. If the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, is contemplated." 65. In Addl. Commissioner of Income Tax vs. Surat Art Silk, (1980) 121 ITR 1 (SC), a Constitution Bench of the Supreme Court interpreting the words 'not involving the carrying on of any activity for profit' occurring in section 2(15) (as it existed), held that the test of predominant object has to be applied while deciding whether an entity is a charitable trust/institution and that profit making by such institution is not excluded. The relevant observations are as follows. "Therefore, for a purpose to fall under the fourth head of "charitable purpose", it must constitute the advancement of an object of general public utility in which the activity of advancement must not involve a profit making....
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....en raised under Section 23(2) and the entire capital has been provided by the government under Section 23(1) and the Government is only paid interest thereon under Section 28(1) just as interest would be paid on any money due as a debt. That the activity of the respondent Corporation is not carried on with the object of making profit is made abundantly clear by the provisions of section 30 under which, prior to the amendment of that section by the Amendment Act of 1959, the balance of income left, after utilization of the net profits for the purpose set out in section 30, was to be made over to the State Government for the purpose of road development and after the Amendment Act of 1959 is to be utilized for financing the expansion programmes of the respondent corporation and the remainder, if any, is to be made over to the State Government for the purpose of road development. As pointed out by this Court in Andhra Pradesh Road Transport Corporation v ITO (1964) 52 ITR 524 (SC), the amount handed over to the State Government does not become a part of the general revenues of the State but is impressed with an obligation that it should be utilized only for the purpose for which it is ....
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....ns 10, 11 and 12 of the Act are independent of one another and merely because an assessee is not entitled to claim exemption under one of the aforesaid provisions that cannot ipso facto lead to the conclusion that the claim of the assessee cannot be considered for the grant of tax exemption in some other provisions of the IT Act. The relevant observations are as follows. "It is apparent from the duties and responsibilities of the market committees, delineated in the foregoing two paragraphs, that a market committee, in the background of the provisions of the Markets Act, should be treated as a body, discharging "legal obligation"(s) within the meaning of Section 13(7) of the Income Tax Act. The duties and responsibilities discharged by a market committee, envisaged under the provisions of the Markets Act, referred to above, also lead us to conclude, that the activities of a market committee can be included within the definition of the term "charitable purpose", defined by Section 2(15) of the Income Tax Act. The instant conclusion is inevitable from a cumulative reading and interpretation of Sections 13, 26 and 28 of the Markets Act (analysed in paragraphs 3, 4 and 5 herei....
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.... within the definition of local authority. They, therefore, made an application to the Commissioner for being registered as a charitable institution as defined under section 2(15). The Commissioner rejected the application. The Tribunal as well as the High Court of Gujarat held that the Maritime Board is a charitable institution. The Supreme Court, while construing Section 2(15) and Section 11(1), relied on the Andhra Chamber of Commerce (supra), Surat Art Silk (supra) and APSRTC (supra) and held that the Maritime Board is entitled to be registered as a 'charitable trust' under Section 12A of the Act. The relevant observations are as follows. ; "For the purposes of this section 'property held under trust' includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the assessing officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to b....
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....ould be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so if it seeks to promote the interest of those who conduct the said trade or industry (CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity (CIT v. Surat Art Silk Cloth Manufacturers' Assn (1980) 121 ITR 1 (SC)." 70. Ms. Bhatt, the learned senior standing counsel appearing for the department vehemently submitted that in the instant case, the benefit cannot be extended to the assessee in view of the decision of the Supreme Court in CIT vs. Kamla Town Trust,. (1996) 217 ITR 699 (SC), as the constitution of the assessee company makes it clear that it is only for the benefit of its members. To put it in other words, the vociferous submission of Ms. Bhatt is that the persons who are running the polluting industries and have got themselves enrolled as the members of the Soci....
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........... quality of a public or impersonal nature. 74. The apex Court in the case of Kamla Town Trust (supra), after considering the facts of that case, viz., the trust deed and the rectification agreement, expressed an opinion as under : "............. On the contrary it becomes clear on a close reading of relevant provisions of this clause that the objects are specific and charitable in nature. The beneficiaries are also clearly indicated. There is also no ambiguity about the trustees or the trust properties. Thus all the basic requirements for creation of a public charitable trust do exist on the express language of the relevant clauses of rectified deed. ....." 75. In context with the submission of Ms. Bhatt, referred to above, we may also refer to and rely upon the decision of this Court in the case of Additional Commissioner of Income Tax, Gujarat vs. Ahmedabad, Millowners Association, reported in 1977 (106) ITR 725, wherein this Court held as under; "22. We now proceed to consider whether an object which serves personal interest would fall within the scope of section 2(15) of the Act. There is no dispute that the charitable purposes of relief to poor a....
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....ot so, if it seeks to promote the interests of those who conduct the said trade or industry. 23. This distinction between the protection of the interests of individuals and the protection of interests of an activity, which is of general public utility, goes to the root of the whole problem, and, hence, the Supreme Court has pointedly referred to this problem in Commissioner of Income-tax v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) at page 727 of the report by observing as under : "It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion and protection of activities and interests merely of persons engaged in trade, commerce and industry." 24. In this case, the Supreme Court has pointed out that even an object beneficial to a section of the public is an object of public utility and that to serve a charitable purpose, it is not necessary that the object should be to benefit the whole mankind or person living in a particular country or province. But, while making these observations, the Supreme Court has been careful in pointing out the distinction between " a section of the public " and spec....
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....ucation of a small number of individual relatives of a testatrix. The question which arose was whether these individuals formed a "section of the public" so as to make the trust a charitable trust. Lord Greene M. R. held that the trust was not a valid trust, making the following observations : "No definition of what is meant by a section of the public has, so far as I am aware, been laid down, and I certainly do not propose to be the first to make the attempt to define it. In the case of many charitable gifts it is possible to identify the individuals who are to benefit, or who at any given moment constitute the class from which the beneficiaries are to be selected. This circumstance does not, however, deprive the gift of its public character. Thus, if there is a gift to relieve the poor inhabitants of a parish the class to benefit is readily ascertainable. But they do not enjoy the benefit, when they receive it, by virtue of their character as individuals but by virtue of their membership of the specified class. In such case the common quality which unites the potential beneficiaries into a class is essentially an impersonal one. It is definable by reference to what each ....
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....f good relation between the employers and the employees. So far as this object is concerned, the matter is concluded by the decision of the Supreme Court in the above referred case of Commissioner of Incometax v. Indian Sugar Mills Association [1974] 97 ITR 486 (SC), wherein the relevant clause which the court considered was "to promote good relations between the employers and the employees". This clause was exactly similar to clause (f) with which we are concerned in this reference. With regard to such a clause, the Supreme Court has observed that even assuming that in some remote and indirect manner such an object might be some public utility, it cannot be called a charitable purpose within the meaning of section 4(3)(i) of the Indian Income-tax Act, 1922. In view of this decision, even the object mentioned in clause (f) cannot be considered as the object serving any public utility. 30. If we closely scrutinise the objects contained in rule 3, we find that a substantial part of these objects benefit the association's own members, those connected with them, and their employees. It is no doubt true that the beneficiaries of these objects are also who are nonmembers but....
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....of advancement of an object of general public utility. The argument of the learned senior counsel on behalf of the Revenue is that in view of the introduction of the Proviso to Section 2(15), the assessee company is not entitled to seek exemption. The said proviso has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service ―in relation to any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. In other words, if, by virtue of a cess' or fee' or any other consideration, income is generated by any of the two sets of activities referred to above, the nature of use of such income or application or retention of such income is irrelevant for the purposes of construing the activities as charitable or not. 78. To be clear, if an activity in the nature of trade, commerce or business is carried on and it generates income, the fact ....
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....r its registration under Section 26 of the Indian Companies Act, 1913. The following were the objects of the company; "(a) To promote, develop and protect the brick kiln trade, commerce and industries. (b) To watch and protect the interest of brick kiln owners, contractors, customers and brick dealers, members of the association and the interest of persons engaged in brick trade, commerce or industries legally, morally and socially. (c) To consider all questions connected with brick trade, commerce and industries and to initiate or support necessary action in connection therewith. (d) To protect the trade, with the co-operation of the Government through legislative representation to get the grievances and difficulties of Brick Kiln Association redressed." 81. The High Court took notice of the fact that the other objects appeared to be incidental to the paramount objects and were in the nature of powers to carry out the primary purpose. The association derived its income from the admission fee, membership subscription and rent realized by it from the building belonging to it. The association asserted that its income was entitled to exemption fr....
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....er, the motive to make profit should be in the integrated activity of the buying and disposal. The High Court of Delhi, while dismissing the appeal of the department, held as under; "12. The question referred for our opinion is dependent on the construction and interpretation of "charitable purpose" as defined in s. 2(15) of the I. T. Act, 1961. Section 2(15) reads : "'Charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit." 13. It is well settled that the words "not involving the carrying on of any activity for profit" pertain only to the fourth limb of charitable purpose, i.e., the advancement of any other object of general public utility. 14. However, there has been a conflict of opinion with regard to the meaning of these words. This conflict appears to have been set at rest in view of a recent decision of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturing Association [1980] 121 ITR 1. The assessed therein was a company incorporated under the Indian Companies Act, 1913, and r....
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.... 17. The true meaning of the ten words "not involving the carrying on of any activity for profit" was held to be, that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility, and not its accomplishment or carrying out, which must not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not. The decision of the Supreme Court in Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 was overruled. It was observed that the decisions of the Kerala High Court in CIT v. Cochin Chamber of Commerce and Industry [1973] 87 ITR 83 and the Andhra Pradesh High Court in Andhra Pradesh State Road Transport Corporation v. CIT [1975] 100 ITR 392 laid down the correct interpretation. 18. Applying these principles, it is clear that the dominant intention of the assessed was to promote the brick kiln trade. This purpose did not involve t....
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.... determined by the prescribed authority having regard to the objects of the institution and its importance throughout India or throughout any State or States. There is no denying that having regard to the objects of the petitioner and its importance throughout India in the field of advancement of promotion of trade and commerce, the petitioner would be entitled to be regarded as an institution which would qualify for that exemption. The only thing that we have to examine is - whether the petitioner had been established for charitable purposes? The fact that it derives income does not, in any way, detract from the position that it is an institution established for charitable purposes. Therefore, in our view, merely because the petitioner derives rental income, income out of sale of tickets and sale of publications or income out of leasing out food and beverages outlets in the exhibition grounds, does not, in any way, affect the nature of the petitioner as a charitable institution if it otherwise qualifies for such a character. We have already noted that prior to the amendment being introduced with effect from 01.04.2009, the petitioner had been recognized as an institution ....
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.... Abdul Bakhi and Bros: 1964 (5) STC 644 (SC), the Supreme Court held that ―the word "business" was of indefinite import and in a taxing statute, it is used in the sense of an occupation, or profession which occupies time, attention or labour of a person, and is clearly associated with the object of making profit". This court, in ICAI (I) (supra) held that, while construing the term "business" as appearing in the proviso to Section 2(15), the object and purpose of the Section has to be kept in mind. It was observed therein that a very broad and extended definition of the term "business" was not intended for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act so as to include any transaction for a cess, fee or consideration. The Court specifically held that:- ―An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when profit motive cannot be established / proved. In such cases, there should be evidence and material to show th....
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.... as it is continued shall be conducted with reasonable efficiency and under proper charges. The term is sometimes used in an extended sense to include a great many matters of general welfare to the State and its communities." 87. The words 'public utility' or 'general public utility' are not capable of a precise meaning. The question whether service is public utility or not has to be discharged in the context of different situations but it is, as considered infra, well settled that public utility means public purpose depending upon the context in which it is used in the statute or the Rules. Indeed, in some decisions, public utility is considered very similar to one for public purpose (Hunter v A.G. 1909 AC 323, Babu Bankya Thakur v State of Bombay AIR 1960 SC 1203 and Jhandu Lal v State of Punjab AIR 1961 SC 343). 88. In cases arising under the Income Tax Act, 1922 as well as 1961 Act, it is held that the expression 'object of general public utility' must be construed by applying the standard of customary law and common knowledge amongst the community to which the parties interested belong. This test, applied in the Trustees of the Tribune, seems to have influenced judicial ....
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....s 'charitable purpose'. Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the Trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating 'surplus' is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature. We are wholly in agreement with the view of the Tribunal. The objects of the Trust clearly establish that the same was for general public utility and where for charitable purposes. The main objectives of the trust are to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country; to produce and sale the cow milk; to....
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....vities are in furtherance of the charitable objects of such society and income, if any, resulting from such activities and does not convert the otherwise charitable activity [within the definition of section 2(15)] into carrying on of a business, trade or commerce. It can be understood with the help of a simple illustration. Supposing an association set up for the promotion of a particular trade, has its own premises' from which it carries out the activities for the promotion of such trade. If the association lets out its premises from time to time for enhancing its income, which letting out has no relation with the objects for which it was set up as a charitable institution, namely, the promotion of that particular trade, the resultant activity will amount to carrying on trade, commerce or business so as to fall within proviso to section 2(15). 0n the other hand, if it uses its premises for undertaking activities for which it was set up and is a charitable institution, and while doing so, there results some income, such income will not amount to carrying on any trade, commerce or business. The crux of the matter is to understand the object of carrying on the activity which resulte....