TaxTMI 
TaxTMI 
2019 (3) TMI 1920
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.... order is being passed. 2. Learned D. R., at the outset, submitted that assessee, upto assessment year 2008-09, had been claiming exemption u/s 11 under the head 'objects of general public utility' whereas from assessment year 200910 the assessee had claimed the exemption under the head 'preservation of environment'. Learned D. R. submitted that to avoid the proviso inserted in section 2(15) of the Act, (whereby the activities of general public utility are not treated as charitable if the activities involve trade or business) the assessee had claimed exemption under different head of preservation of forests. Learned D. R. placed reliance on the order of the Assessing Officer wherein the Assessing Officer did not allow the exemption u/s 11 of the Act. Learned D. R. further submitted that assessee had claimed certain expenses which related to prior period and therefore, the Assessing Officer had rightly made the addition and which learned CIT(A) has wrongly deleted. Further arguing the deletion of addition on account of forest development expenses, Learned D. R. submitted that Assessing Officer had rightly made the addition which learned CIT(A) had wrongly allowed. Similar arguments....
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....e assessee had claimed exemption under the head 'objects of general public utility'. However, during the year under consideration the assessee had claimed exemption under the specific head 'preservation of environment' (including watersheds, forest and wildlife) as this specific head has been included in the definition of section 2(15) w.e.f. 01/04/2009. The activities of the assessee remained same and the activities being carried out by the assessee has already been held charitable in nature. Learned CIT(A), while allowing relief to the assessee, has held that if the assessee falls into a specific category then specific category will have precedent over the general category. The matter regarding registration has attained finality when Hon'ble Supreme Court dismissed the appeal of the Revenue. The facts regarding grant of registration u/s 12AA has been reproduced by Tribunal in its order dated 13/12/2018for assessment year 02-03 to 08-09, which for the sake of convenience are reproduced below: "5. We have heard the rival parties and have gone through the material placed on record. We find that assessee was initially denied registration u/s 12AA of the Act and later on the app....
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....P) before the Hon'ble Supreme Court against the order dated 26-11-2002 as passed by the Hon'ble Allahabad High Court, for remanding the case back to CIT, Lucknow to decide the grant of registration afresh. While deciding the said SLP the Hon'ble Supreme Court vide its order dated 27-11-2007 reported under citation no (165 TAXMAN 533 ) held that the primary condition for grant of exemption under Section 11 is to have a registration under Section 12A of the Act and the same being pending for disposal before the Hon'ble Tribunal. The Hon'ble Tribunal was directed to decide the grant of registration against the order passed by the Commissioner rejecting the application filed under section 12A of the Act without being influenced by any of the findings recorded by the Hon'ble High Court in the impugned order. (vi) In pursuance of the directions of the Hon'ble Supreme Court in case reported under citation no 165 TAXMAN 533, the Hon'ble Income-Tax Appellate Tribunal at Lucknow in I.T.A No 512/LUC/2007 vide order dated 1601-2009 has proceeded to grant the registration under Section 12A of the Act with its findings that appellant is doing a charitable activi....
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....axman 527 wherein it exploitation of forest was held to be commercial activity and the AO not observing the directions of the Hon'ble Supreme Court as given -in Judgment reported in (165 Taxman 533). (b) The appellant vide its submissions has also rebutted the finding of the AO who relied on the judgment of the Hon'ble Allahabad High Court in appellants case dated 26-11-2002 cited under citation (129 TAXMAN 527) wherein the Hon'ble Court has held that the exploitation of forest is a commercial activity. (c) In this regard, I have gone through the submission of the appellant and the background in which the Hon'ble Court has pronounced its ruling dated 26/11/2002 cited under citation (129 TAXMAN 527). The subject ruling was pronounced by the Hon'ble Allahabad High Court with respect to the appellant's contention that its income is eligible for exemption under Section 11 of the Act if the benefit of Section 10(20) of the Act is not available to it. In the course of deciding the matter the Hon'ble High Court has stated that the exploitation of forest is to be said considered as a commercial in nature. It is undisputed fact that for the said year in appeal be....
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....;ble ITAT as well as the time of assessment proceedings. Consequent to the findings of the Hon'ble ITAT Lucknow and its examination of the fact that the Appellant is not doing commercial activity and which is upheld by the Hon'ble Higher Judiciary at a later date (in this case after the Hon'ble High Courts order dated 26-11-2002), the said findings of Hon'ble ITAT as duly attained finality would prevail. (e) I find merits in the arguments of the appellant on the basis of the Judgment of the Hon'ble High Court Of Madras in Seshasayee Paper & Boards Ltd. v. Inspecting Assistant Commissioner (24 TAXMAN 604) and the decision of the Hon'ble Mumbai High Court in the case of Murlidhar Bhagwandas v. Commissioner of Income-tax (284 ITR 548). The same has been discussed in detail in Ground 3 above. (f) In view of the above discussion and judgments of the Hon'ble Courts as elaborated above, I hold that the AO has erred in not applying the findings of order of Hon'ble Supreme Court (reported in 165 Tax Mann533). The AO has simply proceeded to rely upon the order of Hon'ble High Court dated 26.11.2002 and denied the exemption claimed u/s 11 of the Act. Th....
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....try; (d)to manage, maintain and develop such forests as are transferred or entrusted to it by the State Government; (e)to perform such functions as the State Government may from time to time require. c) On perusal of the Section for which the appellant was incorporated, it is seen that the very primary purpose for its incorporation was "to undertake removal and disposal of trees and exploitation of forest resources entrusted to it by the State Government". The modus operandi being adopted for removal trees and the exploitation of produce has been diagrammatically explained by the appellant in his submissions put forth before me. It is also to be seen that the activities of the appellant are being done under a defined working plan of the Central Government and the state Government which is duly monitored. The activities undertaken by the appellant are also in line with the findings of the Hon'ble Supreme Court in the case of Vijay Bahadur (2 SCC 365) decided on 23-03-1982, (as reproduced above) and the same cannot be said to be on commercial lines as the same is banned by the Hon'ble Supreme Court. The activities under taken by the appellant are moreover guided by the ....
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....itself. The state by establishing this Corporation does not intend to enter into a commercial activity. The activity is only furtherance of the object of the establishment of the Corporation itself. The prime aim of establishment of the Corporation is environment stability and maintenance of ecological balance. The revision of economical benefit, if any, is only supporting to the principles of the above aim. It is not the prime object and therefore it is difficult to hold that assessee's activities are for commercial exploitation of forest which will disentitle the assessee to obtain registration. Assessee is not treating forest just as a source of revenue. 25. The submission of the assesse to the effect that National Commission on Agriculture bought out its interim report on produce of various tress in August 1972 in which it recommended establishment of Forest Corporation for the purpose of attracting institutional finance for the development schemes of forestry and in pursuance of these recommendations 11 States formed Forest Corporation and in pursuance to the above report, U.P. Forest Corporation was constituted through ordinance on 25.11.1974 cannot be overruled. This C....
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.... the Hon'ble Supreme Court of India. It says that the case reported in 2 SCC 365 in the case of State of U.P. V Vijay Bahadur Singh, the Hon'ble Supreme Court of India held as under:- "In the first place....... The State is not merely interested in realizing revenue but is equally interested in the preservation and development of forests. It cannot knowingly enter into contracts with bidders who must have, at the back of their minds the opportunity or the gamble of illicit felling of trees. In the second place the Corporation is a wholly Government owned Corporation dedicated to the better preservation and development afforests and the better exploitation of forest produce. The profits of the Corporation are in truth the profits of the Slate itself." The Hon'ble Court upheld the Contention of the State for allowing the exploitation of the private contractors to the detriment of national interest in preservation of Forests" 28 The extract from the annual report for the period 1.10.1975 to 30.09.1976 relevant for assessment year 1977-78 has been recorded at page 7 of the paper book-l which reads as under: "Note: "5. Profit, however, is not the only criterion by whic....
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....ax Act has been preferred raising o question whether U.P. Forest is liable for grant of certificate under Section 12-A of the Income-Tax Act 1961 ? It is has been admitted at bar that Hon'ble Supreme Court while dealing with the same issue in a case reported in (2008) 297 ITR 1 U.P. Forest Corporation Vs. Deputy Commissioner of Income-lax, settled that U.P. Forest Corporation is eligible for grant of certificate under Section 12-A of the Income-Tax Act, 1961. In view of the law settled by the Hon'ble Supreme Court there appears to be no justification to admit the appeal on the same issue. So far as condonation of delay is concerned once delay has been condoned there appears to be more justification to admit the appeal on the same issue, Being concluded by finding of fact no substantial question of law involved to entertain the appeal under Section 260 A of the Income Tax Act. Accordingly, appeal is dismissed in limine." Hon'ble Supreme Court in SLP No CC 2590/2011 bearing date 12-05-2011 "This petition was called on for hearing today. ........................................................................... Upon hearing Counsel, the Court made the follow....
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....orized partly as charitable and partly as non-charitable as they are covered within the objects for which it was incorporated and is functioning on those lines." We do not find any infirmity in the order of learned CIT(A), therefore, ground No. 3 & 5 are also dismissed. 4.2 The activities of the assessee remained same and there is no change and therefore, following the judicial precedent in the case of the assessee itself, the activities being undertaken by the assessee are held to be charitable in nature. As regards the arguments of Learned D. R. that in earlier years the assessee had claimed exemption under the head 'objects of general public utility' whereas in the years under consideration the assessee had claimed exemption under the head 'preservation of environment' (including watersheds, forest and wildlife) we find that the specific clause would always prevail over the general clause. The amendment to section 2(15) was made with effect from 01/04/2009 whereby preservation of environment was included as a specific object u/s 2(15) of the Act and since the activities of the assessee fell in the specific category therefore, learned CIT(A) has rightly considered the same. Th....
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....r enactment (1) (1859) 26 beav. 606, 610.must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply". The rule has been applied as between different provisions of the same statute in numerous cases some of which only need be mentioned: De Winton v. Brecon (1), Churchill v. Crease (2), United States v. Chase (3) and Carrol v. Greenwich Ins. CO. (4). Applying this rule of construction that in cases of conflict between a specific provision and a general provision the specific provision prevails over the general provision and the genera provision applies only to such cases which are not covered by the special provision, we must hold that case laws. 5(a) has no application in a case where the special provisions of case laws. 23 are applicable" m) Even the above contention of appellant that specific clause prevails over the general clause is also supported by the Hon'ble'ble Supreme Court in the case of Commercial Tax Officer vs Binani Cement Ltd. & Anr ( CIVIL APPEAL No. 336 of 2003) pronounced on 19 February, 2014 and the same is extracted below: 42. Having noticed the aforesaid, it could be conclude....
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....at follow in the proviso "shall not be a charitable purpose, if it involves the carrying of any activity in the nature of trade, commerce or business.....etc." replaced the words in the original Section 2(15) "not involving the carrying on of any activity for profit". On a parity of the reasoning in Surat Art Silk case, the words in the proviso that follow the opening words "Provided that the advancement of any other object of general public utility" equally apply to the "object of general public utility" and not to the word "advancement". The plain language of the proviso does not convey an intention to the contrary. Infact, the legislature could have continued the opening part of the amended section 2(15) with the words "not involving" instead of the words "provided that the advancement of any other object of general public utility shall no be a charitable purpose if it involves" in the proviso. Either way the amendment would have been the same. In that event there could have been no doubt whatsoever that the legislature did not seek to set at naught the effect of the judgment of the Supreme Court in this regard in Surat Art silk's case ((supra)). The introduction of the provis....
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....., vide its order dated 16.01.2009 in I.T. Act No 512/LUC/2007, has granted registration to the assesse u/s 12A of the Income-Tax Act, 1961. The asesse vide its written reply dated 29.12.2009 has claimed that in view of the said decision of the Hon'ble I.T.A.T., its entire income is exempt u/s 11 of the Income -Tax Act, 1961, After a careful considerations of the material on record and in compliance with the I.T.A.T.'s directions, exemption claimed by the assesse u/s 11 is allowed and the returned income is accepted 1998-1999 29.12.2009 Section 254 read with Section 143(3) Hon'ble I.T.A.T., vide its order dated 16.01.2009 in ITA No 512/LUC/2007, has granted registration to the assesse u/s 12A of the Income -Tax Act, 1961. The assesse vide its written reply dated 29.12.2009 has claimed that in view of the said decision of the Hon'ble I.T.A.T., its entire income is exempt u/s 11 of the Income -Tax Act, 1961, After a careful considerations of the material on record and in compliance with the I.T.A.T.'s directions, exemption claimed by the assesse u/s 11 is allowed and the returned income is accepted 199-2000 29.12.2009 Section 254 read with Section 143(3) Hon'b....
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....t crystallized at the close of the relevant Financial Year. (c) During the course of appellate proceedings it was submitted that the basis -of determining this expense is a certain percentage which is decided In the Committee meeting held after close of the Financial Year. Therefore, the said amount is crystallized in the subsequent F.Y. in which it is determinable. The appellant in his replies has given a thrust on the time period when these expense are crystallized and thereafter only the same can be recorded in the books of accounts. The appellant contended that unless and until these expenses are not known to the appellant the provision of the said expenses cannot be made in the books of accounts. (d) In this regard, the appellant has placed a strong reliance that the expenses can only be booked in books of accounts once they are crystallised. Reliance in this regard was placed on the following judgments of Hon'ble High courts including Hon'ble jurisdictional High Court i)The Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Ltd. v. CIT (213 ITR 523) held that merely because an expense related to a transaction of an earlier year....
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..... The appellant was certain of the expenses to be paid only when it was decided/finalised by the Committee of the Government of Uttar Pradesh after the close of the earlier year. The contention of the appellant is supported by the judgment of the Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Ltd. v. CIT (213 ITR 523) where it has been categorically held that merely because an expense related to a transaction of an earlier year does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question. (f)The appellants contention is duly supported by judgments of Hon'ble High Courts as outlined in para 5.7(d) above and the fact that the amount in question were determined and crystallized only after the close of an earlier FY. The said amount crystallised in F.Y. 2001-02. Thus, the action of the AO in holding and disallowing these expenses as prior period expenses cannot be upheld. (g)Further, it was also contended that the appellant is a Corporation which is an AOP(Trust) and the tax rates for the appellant remain constant for this assessment year and earlie....
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....e order of learned CIT(A), these grounds of appeal of the Revenue are also dismissed." 5.1 Following the above findings of the Tribunal in the case of the assessee itself, we dismiss ground No. 4 in all appeals. 6. As regards addition on account of forest development expenses in assessment year 2009-10, the learned CIT(A) has deleted the addition by holding as under: "5.7 Ground of appeal No. 7 a)This ground relates to the disallowance of expenses amounting to Rs. 7,13,52,744/- towards forest development expenses which the appellant claimed as utilization of funds in relation to the discharge of statutory functions. In this regard, the Assessing Officer in his order has stated that no details of expenses have been furnished to demonstrate the utilization of amounts towards forest development expenses which are in the nature of charitable expenses. The appellant on the other hand highlighted the fact that at the start of the assessment order, the Assessing Officer has clearly stated that the assessee has submitted reply along with the claim of its expenses for forest development expenses which have been carefully considered and the books of account has been test ch....
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....ssessing Officer in the course of hearings for substantiating the expenses incurred by U.P. Forest Corporation and the same were duly checked and verified by the Assessing Officer. DEPONENT VERIFICATION Verified that the contents of my above said affidavit are true and correct to the best of my knowledge and belief and nothing has been concealed therein. Verified at Lucknow on February 16,2017 DEPONENT The contents of the affidavit were reaffirmed in the course of appellate hearing before me by the deponent wherein the deponent has acknowledged the fact that the records with respect to expenses were produced before the Assessing Officer. The appellant has also furnished the copies of the said minutes along with payment instruments such as cheque, draft as a part of the paper book in the course of appellate proceedings. c) The most vital points to be considered on this issue are as under: i) The clause 17 dealing with finance, account and audit of the appellant makes it mandatory that funds can only be used by the appellant in discharge of its function and not for any other purpose. ii) The books of account of the appellant are duly audited by C&AG and are placed befo....
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....ed below: "5.9 Ground of appeal No. 9 a) This ground relates to the disallowance of expenses debited under the head material loss amounting to Rs. 29,26,607/-. In the course of appellate proceedings the appellant stated that the nature of the activities involved is such that there is human intervention involved. As a result there are incidents of theft, loss by fire or other misappropriations. In this regard the appellant also submitted that the proper committee is there which looks into such matters and proper responsibility of concerned person is fixed and due amounts are recovered where it is possible. The appellant also furnished the copy of the committee along with the report of the concerned logging manager with regard to such losses. As per the grounds taken in this appeal the appellant has also stated that the same was furnished before the Assessing Officer but were not accepted by the Assessing Officer during the course of assessment proceedings. b) It is to be seen that the nature of activities of the appellant do entail such types of losses which would otherwise been a contribution to the state exchequer (state being the custodian of natural resources). Such ....