1. Since the issues raised in all the captioned tax appeals are the same and the assessee is also the same, those were heard analogously and are being disposed of by this common judgment and order.
2. For the sake of convenience, the Tax Appeal No.627 of 2015 is treated as the lead appeal.
3. This tax appeal under Sec ion 260-A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad 'A' Bench, Ahmedabad dated 29th January, 2015 for the A.Y. 2009-10. The respondent-assessee claims to be a Charitable 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 to the activities of the company, the assessee pointed out the following to the Assessing Officer:
“The assessee is engaged in the activity of providing pollution control treatment for disposal of liquid and solid industrial waste. The company was incorporated on 19.10.1995 and subsequently converted into a company limited by shares incorporated u/s. 25 of the Companies Act, 1956; i.e , a company which does not exist for earning the profit as such but exist for promotion of welfare and wellbeing of the society and people at large. The assessee company presently has been accorded registration u/s.12AA of the Income Tax Act by the Director of Income Tax (Exemption), Ahmedabad and also had been approved and recognized as an institution u/s.80G(5) of the Income Tax Act, 1961. IN point of fact, the company was incorporated with a sale 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. Certified copies of approval u/s.12AA, 80(G) and both the copies of Memorandum & Articles of Association (commercial & section 25) are enclosed herewith as per Annexure-1 (Pages A1 to A60).”
5. The assessee also pointed out the objects of the company as incorporated in the Memorandum of Association at the time of registration dated 19th October, 1995 as under;
“To engage in the business as manufacturers, dealers, importers, exporters, consignment agents, erectors, traders, consultants in all kinds or pollution treatment plants/equipments whether water pollution, air pollution, noise pollution without limiting the scope thereof, establishing the pollution treatment plants for industries, government industrial estate in co-operative section acting as consultants for environmental and pollution problems, carrying on all activities relating to above including plantation 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 brought into existence for the implementation of the directions of Hon'ble Gujarat High Court, but the main object as incorporate in the Memorandum of Association referred to above tells a difference story. It was also pointed out that the comparative Profit & Loss accounts submitted by it in the statement of income total income supports of the objects of memorandum of Association.
It was also pointed out that in the statement of total income, the assessee has claimed deduction of Rs.6,00,75,143/- u/s.11, being the amount applied for charitable or religious purpose. The assessee was asked to describe the nature of charitable or eligious purpose with justification as per definition given in section 2(15) of the Act. It was also asked to justify its claim of exemption and also state since how long it was claiming exemption?”
7. The submissions of the assessee as regards the registration under Section 12A of the Act as noted by the Assessing Officer are as under:
“Initial rejection of application seeking registration u/s 12AA and subsequent grant of registration of U/s 12AA of the Act :- At paragraph 2(a), page 2 of the let er under reply, your honour had made the observation that for want of proper compliance, initially the registration u/s. 12AA has been denied vide letter dated 22/8/2006 and was subsequently granted vide letter dated 4/7/2007 with retrospective effect fom 21/12/2005; In this context, it is submitted that the observation made by your honour is factually incorrect. In the sense, that the denial of registration u/s. 12AA by the Director of Income Tax (Exemption), Ahmedabad was not based upon consideration of the merits of assessee's application. It was mentioned in the order u/s. 12AA dated 22/8/2006 by the Director of Income Tax (Exemption), Ahmedabad that ‘in order to ascertain the genuineness of the activities of the trust, certain details including the nature of activities were called for vide this office letter no. DIT(E)/12AA/2005-06/624 dated 13/6/2006, there was no compliance, thereafter, another letter dated 27/7/2006 was issued and served calling for the details by 10/8/2006, in response to which the assessee failed to furnish the required details, which is mandatory for registration u/s. 12AA.' 0n the above premises, the Director of Income Tax (Exemption), Ahmedabad i.e. Shri Ram Sanehi passed order 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 21/12/2005. The same Director of Income Tax (Exemption), Ahmedabad i.e. Shri Ram Sanehi has accorded approval u/s. 80G(5) to the assessee vide order dated 23/7/2007.”
8. The assessee submitted before the Assessing Officer that the registration granted under Section 12A of the Act and also the recognition under Section 80G(5) of the Act by the Director of Income Tax-(E), Ahmedabad would be binding to the Assessing Officer. The assessee asserted that the registration under Section 12A of the Act is sufficient to arrive at the conclusion that the activities undertaken by the assessee company are charitable and fall within the ambit of Section 2(15) of the Act.
9. With regard to the justification as regards the claim for deduction of Rs.6,00,75,143/-, the Assessing Officer observed in his order as under;
“In response to query regarding the admissibility of claim of deduction of Rs.6,00,75,143/- the assessee vide letter dated 5/12/2011, submitted that it has been incurred towards the objects of the company i.e. preservation of environment and pollution control. It is further stated in the Notes to computation of total income, which includes Operating expenses and administrative expenses for running the Operations of the company, interest and financial charges as well as acquisition of assets and depreciation. All these expenditure have been incurred for the purpose of carrying out the activities of the company and are duly admissible. Hence, there is no cause for denying the same being not incurred for the purpose of the a tivities of the company. Any organization is required to incur expenditure for the purpose for which it is set up. In this case, the company is set up for the purpose of controlling the environment and thereby pollution and hence, necessary expenditure incurred including acquisition of fixed assets is treated as applicat on of funds and therefore, is eligible for deduction against the income of the organization. In view of this, the expenditure incurred and claimed is within the meaning of ‘definition’ u/s. 2(15) of the Act.
To claim expenditure for running an institute is one thing and to claim it as expenditure for fulfillment of the object as per amended provisions of section 2(15) as well as per provisions of section 11 are two distinct issues and cannot be mixed with each other. The expenses incurred for running a business or to carry out 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 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 (CETP) at Naroda and land fill site for solid waste at Odhav, Ahmedabad. It was also pointed out that the main object as incorporated in the Memorandum of Association as well as the comparative Profit & Loss accounts submitted by it vide letter dated 10/11/2011 supports the objects as mentioned in original Memorandum of Association and thus tells a different story. Thus, the claim of activities falling under the definition of section 2(15) is not correct. The comparative three years profit and loss account submitted by the assessee is as under :
This case has been received on transfer from the Circle4, Ahmedabad, the folder for A.Y.2006-07 is not readily available and hence the 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 Technologies’ such as incineration, hydrogenation, process for recovery and re-use of waste, to reduce/eliminate pollution at source instead at he end of pipe 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, religion or caste.”
12. The final conclusions drawn by the Assessing Officer are as follows;
“(14) Comments/observations on the submission of the assessee: The contentions of the assessee is considered but not found acceptable. The assessee has given very exhaustive submission but it has failed to bring on record to establish by facts and figures that after its incorporation u/s. 25 of the Companies Act, it has started charitable activities as defined in the amended provisions containing section 2(15) and prior to that the assessee company was engaged in commercial activities as per the objects enumerated in the Memorandum of Association at the time of its incorporation on 19/10/1995. The above referred comparative profit and loss account is a proof to that effect.
(15) Applicability of provisions contained in section 2(15), 11, 12 & 13: Without prejudice to the above, the section 12 start with ‘any voluntary contribution received by trust treated wholly for charitable or religious purposes or by an institution established wholly for such purposes’ ‘not being contributions made with a specific directions that they shall form part of the corpus of the trust or institutions.” Shall for the purpose of section 11 deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly. Technically, none of the provisions contained in amended section 2(15), 11, 12 and 13 are complied in this case hence the claim of exemption of the assessee company is not entertainable.
(16). Membership of the assessee company: Vide para 6(v) of letter dated 10/10/2011. the assessee was asked to clarify whether all the members of various Phases of GIDC. Naroda are its members or some selected or a class of members are its shareholders. The assessee submitted that all the members of various phases of GIDC Naroda, are not share holders/members of the assessee. (para 6(v) of letter dated 10/10/2011). 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 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 the expenditure amounting to Rs.2,53,21,488/ cannot be treated as profit from activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business.
Please note that the activities of the assessee in protecting the environment and controlling the pollution is not in the nature of trade, commerce or business nor is it providing any service in relation to any trade, commerce or business. The beneficiaries of the activities carried on by the assessee in protection and preservation of environment and pollution control are all the human beings at large/society at large not present but future generation also. The assessee therefore strongly objects to your proposal to treat the surplus of Rs.2,53,21,488/as profits by invoking the proviso to Section 2 (15) of the I.T. Act. Kindly take note that the proviso to Section 2(15) of the I.T. Act has no applicability at all to the facts of the assessee’s case because he assessee has not carried out any activity in the nature of trade, commerce or business nor has it rendered any service to trade, commerce or business, as envisaged by you.
At this juncture, it is relevant to mention here that as per the defining Section 2(15) of the I.T. Act introduced by the Finance Act, 2008 with effect fiom 1st April, 2009, charitable purposes includes relief of the poor, education, medical relief preservation of environment (including water sheds, forests and wild life) and preservation of monuments or places or projects of artistic or historic interest and the advancement of any other object of general public utility. It may kindly be appreciated that the assessee is engaged in preservation of environment. Therefore, the activities of the assessee in preservation of environment by abatement and controlling the pollution of air, water and soil is fully covered by the definition of charitable purposes. Further, the proviso to that Section is also not applicable to the assessee's case. Kind attention Is invited to Circular No.11 of 2008 dated 19/12/2008 issued by the Central Board of 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 pollu ion 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. Since the aggregate value of receipts are more than Rs.10 00,000 - both the proviso to section 2(15) are applicable to the assessee company and it is not entitled for exemption. The assessee has again and again repeated its claim of charitable activity, hence the same is not dealt with once again. The total receipt of Rs.6 27,76,328/- are reflection in Profit & Loss Account and profit of Rs. 2,53,21,428/- proves that it is an activity in the nature of rendering any service in relation to any trade, commerce or business for a cess or fee or any consideration, irrespective of the nature of use or application, or retention, of the income from such activity. If the contention of the assessee is accepted, every factory nufacturing chemicals which are used for reduction or pollution will be eligible to be considered as activity within meaning of charitable purpose as defined in section 2(15) of the I.T. Act.
(19) Role played by various local and state Government authorities like Gujarat Pollution Control Board, Gujarat, Ahmedabad Municipal Corporation, GIDC or any other authority granting permission for running as well as monitoring the business/industrial activity? Vide para 6(vii) of letter dated 10/10/2011, the assessee was asked to submit the detail of role played by various local and state Government authorities like Gujarat Pollution Control Board, Gujarat, Ahmedabad Municipal Corporation, GIDC or any other authority granting permission for running as well as monitoring the business/industrial activity. In response to the same the assessee vide para 6(vii) of letter dated 31/10/2011 submitted a copy of Provisional Consent Order (CCA) issued by Central Pollution Control Board on 12/10/2011 valid upto 19/04/2016. Vide this office letter dated 05/12/2011, it was communicated to the assessee that Central Pollution Control Board, is the 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 Haza dous Waste (Management, handling and Transboundry Movement) 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 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 industrial area of Naroda, Vatva & Odhav, for a cess or fee or any other consideration.
(21) Instances of violation of the regulation and imposition of penalty by controlling/regulatory bodies: vide para 6(viii) of letter dated 10/10/2011, the assessee was asked to submit the detail of instances of violation of the regulation by it or by any member and the resultant penal actions by the competent authority. In response to the said the assessee submitted that all the units are subject to compliance of the environmental norms and they are directly monitored by GPCB. Thus, actions are taken by GPCB including financial penalty and closure of the units.
84. From the aforesaid decisions, it is apparent that merely because a fee or some other consideration is collected or received by an Institution, it would not lose its character of 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 Corpus Juris Secundum Volume 73 page 990 elucidates the following legal position.
" A public utility” has been described as a business organization which regularly supplies the public with some commodity or service, such as electricity, gas, water, transportation or telephone or telegraph service. While the term has not been exactly defined, and, as has been said, it would be difficult to construct a definition that would fit every conceivable case, the distinguishing characteristic of a public utility is the devotion of private property by the owner or person in control thereof to such a use that the public generally, or that part of the public which has been served and has accepted the service, has the right to demand that the use or service, s long 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 thinking in the subsequent decisions as well. The object of general public utility would include all objects which promote the welfare of the general public even it includes taking up steps effecting trade, commerce or manufacture if the primary purpose is for advancement of objects of general public utility [Andhra Chamber of Commerce(supra)], even if in an insignificant manner the person makes some profit in carrying out the objects [Surat 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-Sabarmati Ashram Gaushala Trust could be termed as charitable having regard to the object with which the trust was constituted. We may quote the relevant observations;
“What thus emerges from the statutory provisions, as explained in the speech of Finance Minister and the CBDT Circular, is that the activity of a trust would be excluded from the term ‘charitable purpose’ if it is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as ‘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 hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Bharwads; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with rega d to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc.; to establish other allied institutions like leather work and to recognize and help them in order to 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 activity in the nature of trade, commerce or business is always carried on with the prior object of earning income. What is relevant is the intention of the person before undertaking such activity. A line of distinction needs to be drawn between the activities undertaken by a society, otherwise satisfying the prescription .of section 2(15) 'prior to the insertion of proviso, which are aimed at earning income divorced from the objects for which it is charitable por una parte and the activities which are aimed at the attainment of the objects for which It was set up por otra parte. Whereas the former fall within the mandate of the proviso to section 2(15), the latter do not. The obvious reason is that the latter activities 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 resulted into income. If the object is to simply earn income de hors the promotion of objects for which it was set up, it will fall within the ambit of proviso to section 2(15) and if the object of the activity is to promote the objects for which it was set up, then it will not be caught within the sweep of the proviso notwithstanding the fact that there results some income from carrying out such activity. The core of the matter is to see whether the activity which resulted 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 institution collects certain charges does not alter the character of the institution. The Delhi High Court further observed in para 67 that “the purport of the first proviso to section 2(15) of the Act is not to exclude the entities which are essentially for charitable purpose, but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude the organizations which are carrying on regular business from the scope of "charitable purpose'". The High Court also noticed the purpose of introducing the proviso to section 2(15) of the Act from the Budget Speech of the Finance Minister whi e introducing the Finance Bill 2008 and reproduced the relevant extract to the Speech as under:'
.Charitable purpose" includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was 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.
” The expressions "business", "trade“ or “commerce" as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organization is charitable any incidental activity for furtherance of the object would not fall within the expressions " business". "trade" or "commerce".
93. In view of the aforesaid discussion, we have reached to the conclusion that the CIT (A) and the Income Tax Appellate Tribunal are right in their view and could not be said to have committed any error in passing the impugned order.
94. The CIT (A) and the Income Tax Appellate Tribunal have concurrently held that taking an overall view, the dominant objects of the assessee are charitable as the dominant object is not only preservation of environment, but one of general public utility and, therefore, the assessee is entitled to seek exemption under Section 11 of the Act. The Tribunal is the last fact finding body. As a principle, this Court should not disturb the findings of fact in an appeal under Section 260A of the Act unless the findings of fact are perverse.
95. In the result, all the appeals fail and are hereby dismissed. The substantial questions of law, as framed by this Court are answered in favour of the assessee and against the revenue.
Cases Referred to
1. Sonia Gandhi vs. ACIT, reported in (2018) 407 ITR 594
2. Hyderabad Race Club vs Commissioner Of Income-Tax, reported in 1985 153 ITR 521
3. Gujarat State Board of School Textbooks vs. Asst. Commissioner of Income Tax, Gandhinagar Circle, reported in (2016) 76 Taxmann.com 312 (Guj.)
4. N.N. Desai Charitable Trust vs Commissioner Of Income Tax reported in 246 ITR 452 (Guj.)
5. Pravinbhai J. Patel vs State of Gujarat & Ors., reported in (1995) 36 (2) GLR 1
6. (2000) 246 ITR 188 (para-B, 9, 10, 11, 17, 8) Hiralal Bhagwati Vs Commissioner of Income Tax
7. (2008) 14 SCC 169, Assistant Commissioner of Income Tax V/s. Surat City Gymkhana
8. (2013) 355 ITR 384 (para 7. 12), Agricultural Produce Market Committee Vs Income Tax Officer
9. 362 ITR 539 ( para 10-13), Director of Income Tax Vs Sabarmati Ashram Gaushala Trust Sabarmati Gaushala Trust
10. Mathuram Agrawal vs. State of Madhya Pradesh, reported in (1999) 8 SCC 667
11. Agricultural Produce Market Committee vs. Income Tax Officer, reported in (2013) 355 ITR 384
12. CIT vs. Andhra Chamber of Commerce, (1965) 55 ITR 722 (SC)
13. Addl. Commissioner of Income Tax vs. Surat Art Silk, (1980) 121 ITR 1 (SC)
14. CIT vs. Andhra Pradesh State Road Transport Corporation, (1986) 159 ITR 1 (SC)
15. CIT vs. Market Committee, (2007) 294 ITR 563 (P&H)
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