The DCIT, (Exemption),Circle-2, Ahmedabad V. Nandesari Industries Association, Nandesari

ITA 171/AHD/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8600 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 18-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Earning of tax free income; Benefit of exemption; Revenue expenditure; Capital expenditure
• Section: 12AA; 12; 11; 15

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.171 AND 174/AHD/2018 / ASSTT. YEAR: 2013-14 AND 2014-15 DCIT (EXEMPTIONS)-2 AHMEDABAD. VS. NANDESARI INDUSTRIES ASSOCIATION PLOT NO.134/1 OPP: SHOPPING CENTRE NANDESARI. PAN : AAATN 6770 E / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI MUDIT NAGPAL, SR.DR ASSESSEE BY : SHRI ANKIT CHOKSHI, AR ! / DATE OF HEARING : 08/04/2019 '#$ ! / DATE OF PRONOUNCEMENT: 10/04/2019 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANCE OF THE REVENUE AGAINST SEPARATE ORDERS OF THE LD.CIT(A)-7, AHMEDABAD DATED 2.11.2017 AND 16.11.2017 PASSED FOR THE ASSTT .YEARS 2013- 14 AND 2014-15. 2. COMMON GRIEVANCE OF THE REVENUE IN BOTH THE ASSE SSMENT YEARS RELATES TO DELETION OF ADDITION OF RS.3,28,75 ,751/-MADE ON ACCOUNT OF DISALLOWANCE OF CAPITAL EXPENDITURE, AND ADDITION OF RS.77,43,658/- MADE ON ACCOUNT OF DISALLOWANCE OF E CP CONTRIBUTION EXPENSES BY APPLYING PROVISIONS OF SEC TION 2(15) AND ITA NO.171 & 174/AHD/2018 2 THEREBY REJECTING BENEFIT OF SECTIONS 11 AND 12 OF THE INCOME TAX ACT FOR THE ASSTT.YEAR 2013-14. SIMILAR GRIEVANCE IS RAISED IN THE ASSTT.YEAR 2014-15 WHERE AMOUNT INVOLVED IS RS.1,52 ,43,275/- ON ACCOUNT OF DISALLOWANCE OF CAPITAL EXPENDITURE AND ADDITION OF RS.90,45,483/- MADE ON ACCOUNT OF DISALLOWANCE OF E CP CONTRIBUTION EXPENSES. 3. THE FACTS ON ALL VITAL POINTS ARE COMMON, THEREF ORE FOR THE FACILITY OF REFERENCE WE TAKE THE FACTS FROM THE AS STT.YEAR 2014- 15. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRUST REGISTERED UNDER SECTION 12AA OF THE INCOME TAX ACT . THE ASSESSEE IS RUNNING A COMMON EFFLUENT TREATMENT PLA NT FOR TREATMENT OF POLLUTED WATER GENERATED BY INDUSTRIAL UNITS AROUND NANDESARI AREA, WHO ARE MEMBERS OF THE APPELLANT TR UST. THE ASSESSEE HAS FILED RETURN OF INCOME ON 7.8.2014 DEC LARING NIL INCOME. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT BY ISSUANCE OF NOTICE UNDER SECTION 143( 2) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED T HAT THE ASSESSEE-TRUST HAS CLAIMED APPLICATION OF CAPITAL E XPENDITURE OF RS.4,71,49,186/- WHICH INCLUDED DEPRECIATION OF RS. 3,19,05,911/-. THE AO DOUBTED A PART OF THE CAPITAL EXPENDITURE OF RS.1,52,43,275/- TO BE DISALLOWABLE ON THE GROUND T HAT PREDOMINANT OBJECT OF THE ASSESSEE-TRUST IS TO MAKE PROFIT; THERE WAS NO SPENDING OF THE INCOME EXCLUSIVELY FOR THE P URPOSE OF CHARITABLE ACTIVITIES NOR ANY OBLIGATION ON THE PAR T OF THE ASSESSEE TO SPENT INCOME OR PROFIT ON CHARITABLE PURPOSE ONL Y; THAT THE ACTIVITIES CARRIED OUT BY THE ASSESSEE WAS IN THE N ATURE OF TRADE, BUSINESS OR COMMERCIAL ACTIVITY, AND FOR SUCH ACTIV ITIES OR SERVICES ITA NO.171 & 174/AHD/2018 3 RENDERED BY THE ASSESSEE, THE MEMBERS HAVE PAID ASS ESSEE IN THE FORM OF FEES, CESS AND CHARGES. THEREFORE, THE CLA IM OF THE ASSESSEE WAS HIT BY PROVISIONS OF SECTION 2(15) OF THE ACT AND THE ASSESSEE WAS NOT ELIGIBLE FOR THE BENEFIT UNDER SEC TION 11 OF THE ACT. SIMILARLY, ASSESSEE HAS CLAIMED EXPENDITURE O F RS.90,45,483/- TOWARDS ECP CONTRIBUTION AS REVENUE EXPENDITURE. HOWEVER, THE LD.AO DENIED THE CLAIM OF THE ASSESSEE AND TREATED THE SAME TO BE CAPITAL EXPENDITURE, AND ADDED TO TH E INCOME OF THE ASSESSEE. HOWEVER, IN THE APPEAL BEFORE THE LD. FIRST APPELLATE AUTHORITY, BOTH THE DISALLOWANCES WERE DELETED. NO W THE REVENUE IS BEFORE THE TRIBUNAL. 5. BEFORE US, BOTH THE PARTIES SUPPORTED THE RESPECT IVE ORDERS OF THE REVENUE AUTHORITIES. THE LD.COUSNEL FOR THE ASSESSEE FURTHER RELIED UPON THE ORDER OF THE TRIBUNAL PASSE D IN THE ASSESSEE OWN CASE FOR THE ASSTT.YEAR 2010-11, WHERE IN TRIBUNAL HAS ALLOWED SIMILAR CLAIM OF THE ASSESSEE. HE PLAC ED ON RECORD A COPY OF THE ORDER OF THE TRIBUNAL PASSED IN ITA NO. 1704/AHD/2014 DATED 28.11.2017 IN THE CASE OF THE ASSESSEE. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE TH ROUGH THE RECORD CAREFULLY, AND ALSO ORDER OF THE TRIBUNAL PA SSED IN THE ASSESSEES OWN CASE ON SIMILAR ISSUE IN THE ASSTT.Y EAR 2010-11. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS TRUST RE GISTERED UNDER SECTION 12AA OF THE ACT WHICH FORMED BY MEMBERS OF NANDESARI INDUSTRIES. THE ASSESSEE TRUST IS ENGAGED IN THE A CTIVITY OF PRESERVATION OF ENVIRONMENT BY TREATING AND CONTROL LING POLLUTION OF ENVIRONMENT I.E. LAND AND WATER. AS A PART OF I TS ACTIVITIES, TRUST IS RUNNING A COMMON EFFLUENT TREATMENT PLANT FOR TREATMENT OF EFFLUENT AND WASTEWATER GENERATED AND DISCHARGED BY THE ITA NO.171 & 174/AHD/2018 4 INDUSTRIAL UNITS SITUATED IN AND AROUND NANDESARI I NDUSTRIAL UNITS, WHO ARE MEMBERS OF THE ASSESSEE TRUST. THIS IS IN ACCORDANCE WITH THE REQUIREMENT OF ENVIRONMENT PROTECT ACT AND VARIOUS NOTIFICATIONS AND GUIDELINES ISSUES BY THE CENTRAL, STATE GOVERNMENTS, AND POLLUTION CONTROL BOARDS. ASSESSEE IS CHARGING FEES FROM MEMBERS FOR MEETING OPERATING COSTS. THIS FACTUAL POSITION HAS NOT BEEN DISPUTED BY THE AO. HOWEVER, ACCORDING TO THE AO PROVISION OF SECTION 2(15) OF THE ACT IS APP LICABLE TO THE ASSESSEE-TRUST, BECAUSE THE PREDOMINANT OBJECT OF T HE ASSESSEE IS IN THE NATURE OF TRADE, BUSINESS OR COMMERCIAL ACTI VITIES AND TO MAKE PROFIT, AND THEREFORE, THERE IS NO EXCLUSIVE U SAGE OF INCOME OR PROFIT FOR THE CHARITABLE PURPOSE AS DEFINED IN SECTION 2(15) OF THE ACT, AND THEREFORE, THE ASSESSEE IS NOT ENTITLE D FOR BENEFIT UNDER SECTION 11 OF THE ACT. THE LD.CIT(A) HAS CON SIDERED BOTH THE ISSUES IN DETAIL AND OBSERVED THAT THE ACTIVITI ES OF THE ASSESSEE TRUST CLEARLY FALLS WITHIN THE AMBIT OF TH E CLAUSE OF PRESERVATION OF ENVIRONMENT AND THE ASSESSEE IS ELI GIBLE FOR ALL THE BENEFITS UNDER SECTIONS 11 AND 12 AND ALL THE CAPIT AL EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE CONSIDERED AS AP PLICATION OF INCOME. BY HOLDING SO, THE LD.CIT(A) HAS ALSO TREAT ED ECP CONTRIBUTION OF RS.90,45,483/- AS PART OF APPLICATI ON OF INCOME, AND ACCORDINGLY DISALLOWANCE TO THIS EXTENT ALSO DE LETED. 7. WE FIND THAT SIMILAR ISSUE WAS ALSO RAISED BY TH E ASSESSEE IN THE ASSTT.YEAR 2010-11 AND THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE VIDE ORDER DATED 28.11.2017. THE RELE VANT PART OF ORDER OF THE TRIBUNAL READS AS UNDER: 3. THE MATERIAL FACTS ARE NOT IN DISPUTE. THE ASS ESSEE BEFORE US IS A TRUST LOOKING AFTER WELFARE AND WELL BEING OF INDUSTRIES SITUATED IN NANDESARI. TE TRUST IS ALSO PROVIDING INFRASTRUCTU RE FACILITY TO ITA NO.171 & 174/AHD/2018 5 INDUSTRIES OF NANDESARI. DURING THE RELEVANT PREVI OUS YEAR THE TRUST HAS PROVIDED WATER TREATMENT SERVICES AND EFFLUENT SERVICES TO ALL MEMBERS HAVING FACTORIES IN AND AROUND NANDESARI IN DUSTRIAL AREA. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER NOTED THAT THE WATER TREATMENT AND EFFLUENT SERVICE S PROVIDED TO THE TRUSTEES SITUATED IN NANDESARI WERE PROVIDED IN CON SIDERATION OF FEES OR CESS AND THAT THE RECEIPTS, IN RESPECT OF THE S AME CROSSED THE LIMIT OF RS.25 LAKHS. IT WAS IN THIS BACKDROP THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY HE SH OULD NOT BE TREATED AS ASSESSEE BEING COVERED BY FIST PROVISO T O SECTION 2(15) AND ACCORDINGLY DECLINED THE STATUS OF CHARITABLE I NSTITUTION. UPON CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSING O FFICER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE IS RENDERING SERVICES IN RELATION TO TRADE, COMMERCE OR BUSINESS IN CONSIDERATION FOR A FEES THAT THE RECEIPTS OF THE ASSESSEE FROM S UCH SERVICES EXCEEDS THE THRESHOLD LIMIT OF RS.35 LAKHS AND ACCO RDINGLY IN THE LIGHT OF PROVISO TO SECTION 2(15) READ WITH SECTION 13(8) NOTWITHSTANDING THE REGISTRATION GRANTED TO THE ASSESSEE AS CHARITA BLE INSTITUTION THE BENEFIT OF SECTION 11 & 12 ARE TO BE DECLINED TO TH E ASSESSEE. WHILE COMPUTING SO, THE ASSESSING OFFICER OBSERVED AS FOL LOWS :- 6. FACTS OF THE CASE 1. ASSESSEE IS DOING WOK OF WATER TREATMENT AND EFF LUENT SERVICES FOR THE INDUSTRIES SITUATED IN THE NANDESARI AREA. SO ASSESSEE IS RENDERING SERVICES IN RELATION TO TRADE, COMMERC E OR BUSINESS. 2 ASSOCIATION IS CHARGING FEES FOR THESE SERVICES F ROM THE VARIOUS INDUSTRIES. SO ASSESSEE IS PROVIDING SERVI CES FOR A CESS OR FEES. 3. THE TOTAL AMOUNT OF RECEIPTS COMING FROM VARIOU S INDUSTRIES BY CHARGING FEES, IS FAR BEYOND THE 25 LAKHS. SO THE R ECEIPTS OF THE ASSESSEE IS EXCEEDING 25 LAKHS. 4. ASSESSEE IS CLAIMING THAT THEY ARE TRADE ASSOCI ATION AND ARE WORKING ON THE PRINCIPLE OF MUTUALITY, BUT THIS CONTENTION IS DISPROVED IN THE DISCUSSION IN THE PARA 4 AS THEY ARE DEALING WITH T HE NON-MEMBERS THAT IS TO SAY OUTSIDE THE GROUP, HENCE NEGATING TH E PRINCIPLE OF MUTUALITY. THIS RESULTS INTO THE FACT THAT THEY FAL L UNDER THE FIRST PROVISO OF SECTION 2(15). ABOVE STATED FACTS ARE GIVING SUFFICIENT GROUND TO ME , TO TAKE THE OPINION THAT ASSESSEE IS HIT BY THE FIRST PROVISO OF THE SU BSECTION 15 OF SECTION 2, WHICH WAS INTRODUCED BY THE FINANCE ACT, 2008 (W.E. F. 1.4.2009), ACCORDING TO WHICH THE ADVANCEMENT OF ANY OTHER OBJECT OF GEN ERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CAR RYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY A CTIVITY OF RENDERING ANY SERVICES IN RELATION TO ANY TRADE, COMMERCE OR BUSI NESS, FOR A CESS OR FEE OR ITA NO.171 & 174/AHD/2018 6 ANY OTHER CONSIDERATION BEYOND RS.25 LAKHS, IRRESPE CTIVE OF THE USE OR APPLICATION OR RETENTION, OF THE INCOME FROM SUCH A CTIVITY. AND THIS LED TO THE FORFEITURE OF EXEMPTION U/S 13(8). 4. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. LD. CIT(A) WHILE U PHOLDING THE ORDER OF THE ASSESSING OFFICER ON THIS POINT INTER ALIA O BSERVED AS FOLLOWS :- 3.3.1. I HAVE CONSIDERED THE SUBMISSIONS OF THE LE ARNED AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. THERE IS NO DISPUTE THAT THE ASSESSEE IS RENDERING SERVICES TO ITS CLIE NTS (ENTREPRENEURS) WHICH IN TURN ENGAGE IN MANUFACTURING OR OTHER BUSINESS A CTIVITIES AGAINST PAYMENT OF FEE. THE FEE COLLECTED BY THE ASSESSEE I S IN LIEU OF SERVICES RENDERED TO THE INDUSTRIALISTS, WHICH BY NO STRETCH OF IMAGINATION CAN BE TERMED AS CHARITABLE ACTIVITY ESPECIALLY AFTER THE INSERTION OF PROVISO TO SECTION 2(15) WITH EFFECT FROM 1.4.2009. THE ASSESS EE RELIED ON THE JUDGMENT OF ICAI ACCOUNTING RESEARCH FOUNDATION V. DGIT (EXEMPTIONS) [2009] 183 TAXMAN 462 (DELHI) BUT THE FACTS OF THAT CASE ARE DIFFERENT. THE RATIO LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN THE AFORESAID CASE IS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE. 3.3.2. THE ACTIVITIES OF THE ASSESSEE ARE AIMED AT EARNING PROFIT AS IT IS CARRYING ON ACTIVITY IN THE NATURE OF TRADE, COMMER CE OR BUSINESS. FURTHER, PROFIT MAKING BY THE ASSESSEE IS NOT MERE INCIDENTA L OR BYPRODUCT OF THE ACTIVITY OF THE ASSESSEE. THE MAIN PRE-DOMINANT P URPOSE OF ASSESSEE IS MAKING PROFIT, IT IS REAL OBJECT OF THE ASSESSEE AN D ALSO THERE IS NO SPENDING OF THE INCOME EXCLUSIVELY FOR THE PURPOSE OF CHARIT ABLE ACTIVITIES AND PROFITS OF THE ASSESSEE NOT USED FOR CHARITABLE PURPOSE UNDER THE TERMS OF THE OBJECT AND THERE IS NO OBLIGATION ON THE PART OF TH E ASSESSEE TO SPEND IT ON 'CHARITABLE PURPOSES' ONLY. THE ACTIVITIES CAN BE C ONSIDERED AS TRADE, BUSINESS OR COMMERCIAL ACTIVITY BECAUSE PROVIDING W ATER TREATMENT SERVICES AND EFFLUENT SERVICES TO ALL MEMBERS HAVING FACTORI ES IN AND AROUND NANDESARI INDUSTRIAL AREA INVOLVES CHARGING OF SUCH FEES. AS PER THE AMENDED DEFINITION OF CHARITABLE PURPOSE UNDER SECT ION 2(15) OF THE ACT, W.E.F. 01.04,2009, ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES T HE CARRYING ON OF ANY ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSI NESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS, FOR A CESS OF FEE OR ANY OTHER CONSIDERATION, IRRESPECTIV E OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. 3.3.3. AS DISCUSSED ABOVE, SINCE THE APPLICANT IS E NGAGED IN THE ACTIVITY IN THE NATURE OF TRADE, COMMERCE AND BUSINESS AND IS E NGAGED IN THE TRADE OF REAL ESTATE BUSINESS PREDOMINANTLY WITH A PROFIT MO TIVE, ITS ENGAGEMENT IN ANY OF THE ACTIVITIES AS STATED ABOVE WILL NOT AFFECT ITS CHARACTER AS SUCH SINCE THE PROVISO PROVIDES THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE REGARDED AS CHA RITABLE PURPOSE IF IT INVOLVES IN CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERING ANY SERVICE IN RELATION TO AN Y TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATI ON IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. ITA NO.171 & 174/AHD/2018 7 ASSESSING OFFICER HAS DEALT IN DETAILS ALL OBJECTIO NS OF THE APPELLANT AND PASSED THE ORDER CONSIDERING VARIOUS CASE LAWS CITE D BY HIM. THERE IS NO INFIRMITY IN THE ORDER OF THE ASSESSING OFFICER AND THE SAME IS UPHELD. 5. ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE ME . WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, MY ATTENTION WAS INVITED TO A DIVISION BENCH ORDER OF THIS TRIBUNAL IN THE CASE O F DDIT VS. NARODA ENVIRO PROJECTS LTD. ITA NO.546/AHD/2013, ORDER DAT ED 29.01.2015, WHEREIN ON MATERIALLY IDENTICAL FACTS OF THE CASE, SIMILAR ACTION OF THE ASSESSING OFFICER WAS HELD TO HAVE BEEN CORRECTLY R EVERSED BY THE CIT(A) ON THE BASIS OF FOLLOWING REASONS: 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATE RIAL ON RECORD, WE FIND THAT MAIN OBJECT OF ASSESSEE COMPANY WAS CO NVERTED AS PER SECTION 25 OF COMPANIES ACT CLARIFIES THAT ASSESSEE COMPANY IS IN AREA OF ENVIRONMENTAL PROTECTION, ABETMENT OF POLLU TION OF WATER, AIR, SOLID, ETC. GENERATED BY INDUSTRIAL UNITS IN AND AR OUND VATVA AND ODHAV AREA OF AHMEDABAD. ACCORDINGLY, ASSESSING OFF ICER HAS NOT DISPUTED THE FACT THAT ASSESSEE IS DOING BASIC ACTI VITY OF TREATMENT OF VARIOUS POLLUTANTS GENERATED BY INDUSTRIAL UNITS. I T IS ALSO NOT DISPUTED BY ASSESSING OFFICER THAT SURPLUS GENERATED IS NOT DISTRIBUTED TO ITS MEMBERS/SHAREHOLDERS, ETC. THE ASSESSEE CANNOT LOOS E EXEMPTION MERELY ON THE GROUND THAT IT HAS MADE SURPLUS AS LO NG AS ASSESSEE IS NOT GENERATING SURPLUS FOR PRIVATE PROFIT OF THE SETTLER OR ANY OTHER PERSON. IN THIS SITUATION, ASSESSING OFFICER WAS NO T JUSTIFIED IN HOLDING THAT ASSESSEE WAS GENERATING SURPLUS OR PROFIT MAKI NG WAS THE PREDOMINANT OBJECT OF ASSESSEE. ASSESSEE COMPANY WA S INCORPORATED WITH A SOLE OBJECT TO COMPLY WITH DIRE CTIONS OF HON'BLE HIGH COURT OF GUJARAT IN A PIL FOR INDUSTRIES OF NA RODA GIDC FOR ESTABLISHMENT IN RUNNING OF COMMON EFFLUENT TREATME NT PLANT AND ITS STORAGE AND DISPOSAL FACILITY AT ODHAV, AHMEDABAD. THE PROJECT WAS SETUP UNDER THE DIRECTIONS AND GUIDELINES OF HON'BL E HIGH COURT OF GUJARAT AND VARIOUS LOCAL AND STATE LEVEL AGENCIES VIZ. COLLECTOR, GIDC, AMC, GPCB, ETC. AS PER DIRECTIONS OF HON'BLE HIGH COURT OF GUJARAT, IT WAS SINE-QUA-NON FOR INDUSTRIAL UNITS T O BECOME MEMBER OF ASSESSEE COMPANY FOR MEETING THE POLLUTION CONTR OL PARAMETERS LAID DOWN BY GPCB. THE AMOUNT COLLECTED FROM THE ME MBERS VARIED DEPENDING UPON THE QUANTUM OF EFFLUENT, NATURE OF E FFLUENT TO BE TREATED AS WELL AS OTHER FACTORS PERTAINING TO POLL UTANT OF DIFFERENT KIND COMING FROM THE INDUSTRIAL UNITS. THUS, ASSESSEE IS ENGAGED IN THE ACTIVITY OF PRESERVATION OF ENVIRONMENT BY ABETMENT AND CONTROLLING POLLUTION OF ENVIRONMENT I.E. LAND, WATER AND AIR. FOR THIS OBJECTIVE, ASSESSEE IS PROVIDING POLLUTION CONTROL TREATMENT F OR DISPOSAL OF LIQUID AND SOLID INDUSTRIAL WASTE. IT IS UNDISPUTED THAT A SSESSEE WAS INCORPORATED U/S. 25 OF THE COMPANIES ACT. ASSESSEE WAS DULY REGISTERED U/S. 12AA AND ALSO U/S. 80G(5) OF THE IN COME-TAX ACT. THE SAID CERTIFICATES WERE ISSUED AFTER DUE VERIFICATIO N BY CONCERN AUTHORITIES. ASSESSING OFFICER HAS IGNORED MODIFIED OBJECTS OF ASSESSEE'S MOU AFTER ITS CONVERSION AS COMPANY U/ S . 25 OF THE COMPANIES ACT. THE PLAIN READING OF OBJECTS OF COMP ANY REVEALS THAT ITA NO.171 & 174/AHD/2018 8 MAIN OBJECT IS PROTECTION OF ENVIRONMENT BY ABETMEN T OF POLLUTION OF VARIOUS KINDS LIKE WATER, AIR, SOIL, ETC. IN THIS B ACKGROUND, ACTIVITIES OF ASSESSEE COMPANY SQUARELY FALLS U/ S. 2(15) OF THE INCOME-TAX ACT. THE PROVISO TO SECTION 2(15) IS APPLICABLE TO OBJEC TS OF GENERAL PUBLIC UTILITY. THE SAME WAS ALSO CLARIFIED VIDE CBDT CIRC ULAR NO. 11 DATED 19.12.2008. SINCE ASSESSEE COMPANY IS DIRECTLY ENGA GED IN PRESERVATION OF ENVIRONMENT AS PER SECTION 2(15), T HE PROVISO AS POINTED BY ASSESSING OFFICER IS NOT APPLICABLE IN T HE 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 CAR RYING 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 HA D MADE SURPLUS/ PROFITS AS LONG AS IT IS NOT MEANT FOR PRIVATE PROF IT 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 INCO ME-TAX ACT, BENEFIT OF SECTION 11 & 12 OF THE INCOME-TAX ACT IS AVAILAB LE TO IT. ACCORDINGLY, CIT(A) WAS JUSTIFIED IN DIRECTING ASSE SSING OFFICER TO TREAT THE ACTIVITY OF ASSESSEE COMPANY AS CHARITABL E AND FURTHER RIGHTLY DIRECTED TO DELETE THE ADDITION OF RS.2,53, 21,438. THIS REASONED FINDING OF CIT(A) NEEDS NO INTERFERENCE FR OM OUR SIDE. WE UPHOLD THE SAME. 6. I HAVE ALSO NOTED THAT ON SOMEWHAT SIMILAR MATER IAL FACTS, IN CASE OF A REGULATORY BODY I.E. HIMACHAL PRADESH ENV IRONMENT PROTECTION & POLLUTION CONTROL BOARD VS. CIT, 9 ITR (TRIB) 604, CHANDIGARH B BENCH OF THE TRIBUNAL HELD AS FOLLOW S:- 8. WE HAVE NOTED THAT THE LEARNED COMMISSIONER HA S PROCEEDED ON THE ASSUMPTION THAT THE SCOPE AND CONNOTATIONS O F 'REGULATORY FUNCTION' AND 'CHARITABLE PURPOSES UNDER THE INCOME -TAX ACT' ARE MUTUALLY EXCLUSIVE. WHILE HOLDING THAT THE ASSESSEE WAS NOT ENGAGED IN AN ACTIVITY FOR CHARITABLE PURPOSES, THE LEARNED COMMISSIONER HAS HELD THAT SINCE THE ASSESSEE WAS E NGAGED IN A REGULATORY FUNCTION, IT COULD NOT BE SAID THAT THE ASSESSEE WAS ENGAGED IN AN ACTIVITY WHICH COULD BE SAID TO BE FO R CHARITABLE PURPOSES. WE MUST, THEREFORE, CONSIDER WHETHER OR N OT MERELY BECAUSE AN ASSESSEE IS ENGAGED IN A REGULATORY ACTI VITY, COULD IT BE SAID THAT THE ASSESSEE IS NOT INVOLVED IN ACTIVITY FOR CHARITABLE PURPOSES. 9. WE ARE UNABLE TO SEE ANY CONFLICT IN AN ASSESSE E BEING A REGULATORY BODY AND ITS PURSUING AN 'OBJECT OF GENE RAL PUBLIC UTILITY' WHICH QUALIFIES TO BE A CHARITABLE ACTIVITY UNDER S ECTION 2(15) OF THE ACT. THE SCOPE OF EXPRESSION 'ANY OTHER OBJECT OF G ENERAL PUBLIC UTILITY' IS INDEED VERY WIDE, THOUGH IT WOULD INDEE D EXCLUDE THE OBJECT OF PRIVATE GAIN SUCH AS AN UNDERTAKING FOR COMMERCI AL PROFIT EVEN AS THE UNDERTAKING MAY SUB SERVE GENERAL PUBLIC UTILIT Y. THE HON'BLE COURTS HAVE TAKEN A VERY BROAD VIEW OF THE CONNOTAT IONS OF 'OBJECTS ITA NO.171 & 174/AHD/2018 9 OF GENERAL PUBLIC UTILITY'. IN THE CASE OF CIT V. B AR COUNCIL OF MAHARASHTRA [1981] 130 ITR 28 (SC), THE HON'BLE SUP REME COURT HAS HELD THAT A STATE BAR COUNCIL, WHICH IS CLEARLY A R EGULATORY BODY UNDER THE ADVOCATES ACT, IS PRIMARILY AND PREDOMINA NTLY FOR THE PURPOSES OF 'ADVANCEMENT OF AN OBJECT OF GENERAL PU BLIC UTILITY WITHIN THE MEANING OF SECTION 2(15)'. IT IS NOT APPROPRIAT E TO PROCEED ON THE BASIS, AS THE LEARNED COMMISSIONER HAS CHOSEN TO PR OCEED, THAT REGULATORY FUNCTIONS ARE NOT ACTIVITIES FOR CHARITA BLE PURPOSES, FOR THE ELEMENTARY REASON THAT THE EXPRESSION 'CHARITABLE P URPOSES', UNDER SECTION 2(15), INCLUDES 'ANY OTHER OBJECTS OF THE G ENERAL PUBLIC UTILITY' WHICH, AS WE HAVE NOTED ABOVE, IS AN EXPRESSION OF WIDE IMPORT. IN THE SCHEME OF THINGS WHICH OPERATE IN THE CONTEMPOR ARY SOCIETY, MANY OF THESE REGULATORY FUNCTIONS ARE ENTRUSTED TO THE BODIES INDEPENDENT OF THE GOVERNMENT AND THE OBJECT OF THE BODIES SO ENTRUSTED WITH THE REGULATORY FUNCTIONS ARE, IN OUR HUMBLE UNDERSTANDING, CLEARLY PURSUING OBJECTS OF GENERAL PUBLIC UTILITY. WE MUST EMPHASIZE ONCE AGAIN THAT THE CONNOTATIONS OF 'CHARITABLE PURPOSES', IN VIEW OF SPECIFIC PROVISIONS OF THE AC T, ARE SIGNIFICANTLY WIDER THAN CONNOTATIONS OF THIS EXPRESSION IN COMMO N PARLANCE. 7. LD. DEPARTMENTAL REPRESENTATIVES MAIN CONTENTIO N IS (1) THAT SO FAR AS THE DECISION IN THE CASE OF HIMACHAL PRAD ESH ENVIRONMENT PROTECTION & POLLUTION CONTROL BOARD (SUPRA) IS CON CERNED, IT IS IN THE CASE OF A REGULATORY BODY WHEREAS THE CASE BEFORE M E IS OF A VOLUNTARY ASSOCIATION INDUSTRIES AND; SECONDLY THAT IF THE SAME ACTIVITY WAS TO BE CARRIED OUT BY A COMMERCIAL UNIT , IT WOULD HAVE BEEN RESULTED IN TAXABLE INCOME AND, THEREFORE, JU ST BECAUSE SEVERAL ENTITIES ARE DOING IT TOGETHER, IT CANNOT RESULT IN TAX EXEMPT INCOME. NONE OF THESE CONTENTIONS, HOWEVER, MERIT ACCEPTANC E. AS FOR THE FIRST POINT MADE BY THE LD. DEPARTMENTAL REPRESENTA TIVE, IT IS NOT THE FACT OF A REGULATORY BODY, WHICH IS DECISIVE TO HOL D WHETHER OR NOT THE PROVISO TO SECTION 15 ARE SATISFIED ON THE NATURE O F ACTIVITIES WHICH ARE CARRIED OUT GOVERN THAT. THERE IS NO DISPUTE, THAT THE NATURE OF ACTIVITIES IS EXCLUSIVELY THE SAME AS CARRIED OUT B Y THE REGULATORY BODY. THE LIMITED ISSUE BEFORE ME IS WHETHER IN SU CH A SITUATION THE PROVISO TO SECTION 2(15) WILL COME INTO PLAY OR NOT . I, THEREFORE, SEE NO REASONS TO COME TO A DIFFERENT CONCLUSION IN THE CASE OF THIS ASSESSEE JUST BECAUSE IT IS NOT A GOVERNMENT OR REG ULATORY BODY BECAUSE OF THE FACT WHICH ARE MATERIAL. THE QUESTI ON BEFORE ME IS PARI MATRIA. 8. AS REGARDS THE SECOND POINT BY THE LD. DEPARTMEN TAL REPRESENTATIVE, ONCE AGAIN IT IS IMPORTANT TO BEAR IN MIND THAT UNDISPUTEDLY THE ASSESSEE TRUST BEFORE ME IS HAVING COMMON CAUSE AND IT IS NOT EVEN THE CASE OF THE ASSESSING OFFICE R THAT IT INVOLVES ANY COMMERCIAL VENTURE. THE LIMITED OBJECTION OF T HE ASSESSING OFFICER WHICH HAS BEEN UPHELD BY THE LD. CIT(A) IS THAT PROVISO TO SECTION 2(15) IS HIT IN THE PRESENT CASE. THAT ASP ECT OF THE MATTER, AS I HAVE NOTED EARLIER, HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TWO DIVISION BENCH DECISIONS OF THIS TRIBUNAL. HONBLE TELANGANA ITA NO.171 & 174/AHD/2018 10 AND ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT (E XEMPTIONS) VS. WATER LAND MANAGEMENT TRAINING AND RESEARCH INSTITU TE [2017] 398 ITR 283 (T&AP) HAS ALSO HELD SO IN THE CONTEXT OF P ROVISO TO SECTION 2(15) OF THE ACT. 9. IN THE LIGHT OF THE ABOVE DISCUSSIONS AND RESPEC TFULLY FOLLOWING THE BINDING JUDICIAL PRECEDENTS OF THE DIVISION BEN CH AS ALSO OF THE HONBLE TELANGANA AND ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT (EXEMPTIONS) VS. WATER LAND MANAGEMENT TRAINING AND RESEARCH INSTITUTE (SUPRA), I UPHOLD THE PLEA OF TH E ASSESSEE AND CONCLUDE THAT IT WAS INDEED NOT A FIT CASE FOR INVO KING PROVISO TO SECTION 2(15) MERELY BECAUSE THE ASSESSEE WAS CHARG ING THE FEE FOR THE SERVICES RENDERED TO THE INDUSTRIAL UNIT. 8. ON DUE CONSIDERATION OF THE FACTS OF THE CASE, F INDING OF THE LD.CIT(A) IN BOTH THE YEARS, AND ALSO CONSIDERING O RDER OF THE ITAT IN THE CASE OF THE ASSESSEE ON SIMILAR ISSUES EXTRA CTED (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDERS O F THE LD.CIT(A) FOR BOTH THE ASSESSMENT YEARS, WHICH WE UPHOLD AND GROUNDS OF APPEAL OF THE REVENUE IN BOTH THE YEARS ARE REJECTE D. 9. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMIS SED. ORDER PRONOUNCED IN THE COURT ON 10 TH APRIL, 2019. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 10/04/2019 ITA NO.171 & 174/AHD/2018 11 %& '() *%)$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. + / THE RESPONDENT. 3. ,, - / CONCERNED CIT 4. - ( ) / THE CIT(A) 5. )./ '' , / DR, ITAT, 6. /01 2 / GUARD FILE. %& / BY ORDER, 3 / ,4 ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION : 08-04-2019 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER. : 09-04-2019 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S : 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT. : 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER : 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P.S./P.S. : 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK. : 10-4-2019 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. : 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER. : 10. DATE OF DESPATCH OF THE ORDER :