Ambur Economic Development Organisation Limited, CHENNAI V. DIT, CHENNAI

ITA 188/CHNY/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7429 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 30-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MO HARANA
• Assessee Lawyers: D ANAND
• Keywords: Charitable institution
• Section: 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AN D SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.188/MDS/2012 AMBUR ECONOMIC DEVELOPMENT ORGANIZATION LTD., AKBER RIFA & CO., C-8, ORCHARD MANOR APARTMENTS, NO.3 DIWAN RAMA ROAD, PURASAIWALKAM, CHENNAI-600 0784. PAN:AAFCA3014L VS. DIRECTOR OF INCOME TAX (EXEMPTIONS), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. D.ANAND, ADVOCATE RESPONDENT BY : MR. S.MO HARANA, CIT DR DATE OF HEARING : 28 TH MARCH, 2012 DATE OF PRONOUNCEMENT : 28 TH MARCH, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAIN ST THE ORDER DATED 30.11.2011 UNDER SECTION 12AA OF THE IN COME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) PASSE D BY THE DIRECTOR OF INCOME TAX (EXEMPTIONS), CHENNAI. 2. THE ASSESSEE IS A COMPANY REGISTERED UNDER SECTI ON 25 OF THE COMPANIES ACT, 1956. THE ASSESSEE COMPANY WA S INCORPORATED WITH FOLLOWING OBJECTS:- ITA NO.188/MDS/ 2012 2 I) TO PROMOTE, CREATE, CONSTRUCT, ERECT, MAINTAI N ASSIST AND DEVELOP ALL KINDS OF INFRASTRUCTURAL FAC ILITIES ANYWHERE IN INDIA WITHOUT ANY PROFIT MOTIVE. II) TO INITIATE ALL NECESSARY STEPS TO PROTECT THE ENVIRONMENT FROM EFFLUENT OF INDUSTRIAL AND DOMESTI C SEWERAGES, AIR, WATER, CHEMICALS, BETTERMENT OF INDUSTRY AND PUBLIC HEALTH OTHER WASTES ECOLOGY SAF ETY NEEDS AND USING THE TREATED WATER FOR INDUSTRIAL, IRRIGATION AND DOMESTIC PURPOSES. III) TO ASSIST THE LEATHER INDUSTRY, SMALL SCALE, TINY AND COTTAGE INDUSTRY IN ALL THE TECHNICAL FINANCIAL RES EARCH AND DEVELOPMENT ADMINISTRATION. WAREHOUSING FACILITIES, INFORMATION TECHNOLOGY, MARKETING, TRAI NING, RECRUITMENT AND PLACEMENT. IV) TO ASSIST THE MEMBERS AND OTHER IN THE LEATHE R INDUSTRY TO MODERNIZE PRODUCTION AND PROCESSING FACILITIES, UPGRADE THE TECHNOLOGY, MARKETING, TRAI NING, RECRUITMENT AND PLACEMENT. 3. THE ASSESSEE MADE AN APPLICATION IN THE PRESCRIB ED FORM ALONG WITH RELEVANT ANNEXURES ON 19.5.2011 TO THE DIRECTOR OF INCOME TAX (EXEMPTIONS) FOR REGISTRATIO N UNDER SECTION 12A OF THE ACT. THE DIRECTOR OF INCOME TAX (EXEMPTIONS) REJECTED THE SAID APPLICATION FOR GRAN T OF REGISTRATION ON THE FOLLOWING GROUNDS:- ITA NO.188/MDS/ 2012 3 1. THERE IS NO SPECIFIC PROVISION IN THE GOVT.OF INDIAS SANCTION ORDER OF THE GRANTS THAT THE INFRASTRUCTURE CREATED OUT OF ITS GRANTS TO THE EXT ENT OF ` 67 CRORES WOULD BE GIVEN TO OTHER INSTITUTIONS FOR MAINTENANCE WHICH ARE GENERATING PROFIT MOSTLY ON ACCOUNT OF RUNNING OF THE SAID INFRASTRUCTURE AS SE EN FROM THE CHART ON PAGE 3. EVEN THOUGH IN SOME YEARS THESE COMPANIES MIGHT HAVE INCURRED LOSS, SAME MAY GENERATE INCOME SUBSEQUENTLY. PROFIT AND LOSS I S PART OF COINS OF BUSINESS. GOVERNMENTS INTENTION CANNOT BE TO GET INCOME GENERATED OR TO GET BUSINES S CARRIED OUT BY ANY INSTITUTION OUT OF ITS GRANT, SP ECIALLY IN ABSENCE OF ANY SPECIFIC DIRECTION. THEREFORE THE ACTIVITY OF THE APPELLANT IS NOT STRICTLY IN ACCORD ANCE WITH SANCTION ORDER OF THE GOVT. 2. THE PROFIT OF LEATHER INDUSTRY IS ENJOYED BY INDIVIDUAL COMPANIES AND ITS OBLIGATION UNDER POLLUTION CONTROL BOARD IS DISCHARGED BY TAX EXEM PT ENTITY. THE DOMINANT ACTIVITY IS TO SERVE A PARTICU LAR TRADE, I.E. LEATHER INDUSTRY. THEREFORE THE ACTIVI TY IS OF GENERAL PUBLIC UTILITY AND NOT PROTECTION OF ENVIRONMENT. 3. THE TURNOVER FROM THE ACTIVITY AND THE ADDIT IONAL INFRASTRUCTURE CREATED FAR EXCEEDS THE THRESHOLD LI MIT OF EVEN ` 25 LAKHS. AS THE PROVISO TO SECTION 2(15) IS HIT, IT IS NO LONGER A CHARITABLE PURPOSE. 4. PRINCIPLE OF MUTUALITY DOES NOT HOLD GOOD AS DISCUSSED IN THE ORDER ABOVE. IN VIEW OF THE ABOVE, THE REGISTRATION REQUESTED FO R CANNOT BE GRANTED AND THE APPLICATION FOR REGISTRAT ION U/S.12AA IS HEREBY REJECTED. ITA NO.188/MDS/ 2012 4 4. THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY WAS SE T UP AS A SPECIAL PURPOSE VEHICLE FOR IMPLEMENTING AND UPGRADATION OF THREE COMMON EFFLUENT TREATMENT PLAN TS FOR THE PURPOSE TO PROTECT THE ENVIRONMENT. HE SUBMITTE D THAT THE ASSESSEE COMPANY ALSO ASSIST THE LEATHER INDUSTRY B Y PROVIDING TECHNICAL, FINANCIAL, RESEARCH AND DEVELO PMENT, ADMINISTRATION, WAREHOUSING FACILITIES, INFORMATION TECHNOLOGY, MARKETING, TRAINING, RECRUITMENT AND PLACEMENT TO T HE PERSONS IN THE LEATHER INDUSTRY. IT ALSO PROVIDES HOSTEL F ACILITIES TO THE WORKERS /PERSONS IN THE LEATHER INDUSTRY. HE SUBMIT TED THAT GOVERNMENT OF INDIA HAS BEEN PROVIDING GRANT FOR UP GRADATION TO INFRASTRUCTURAL FACILITIES AT LEATHER CLUSTER AM BUR AND VANIYAMBADI. HE CONTENDED THAT FOR UPKEEP, MAINTEN ANCE AND MANAGEMENT OF CETPS CONTRACT HAS BEEN GIVEN SEPARATELY TO VANITEC AND AMBURTEC COMPANIES INCORPORATED UNDER PROVISIONS OF COMPANIES ACT WHIC H ARE SEPARATE LEGAL ENTITIES (HEREINAFTER REFERRED TO AS CETPS). THERE IS A TRIPARTITE AGREEMENT BETWEEN THE ASSESSE E, THE ABOVE SAID COMPANIES AND MEMBER UNITS. AS PER THE ITA NO.188/MDS/ 2012 5 AGREEMENT THE COST OF SERVICES RENDERED FOR UPGRADE D PLANTS IS COLLECTED BY THE CETPS. THE SERVICE CHARGES FOR IMPROVED UPGRADED INFRASTRUCTURE ARE RECEIVED BY CETPS, WHE REVER THE SURPLUS AVAILABLE ON THESE ACTIVITIES, THE CETPS AR E PAYING INCOME-TAX. HE SUBMITTED THAT THE ASSESSEE IS NON-P ROFIT MAKING COMPANY, THEREFORE, IT HAS BEEN REGISTERED U NDER SECTION 25 OF THE COMPANIES ACT. PROFITS OR ANY INC OME GENERATING OUT OF THE ACTIVITIES OF THE ASSESSEE ARE NOT DISTRIBUTED AMONGST ITS MEMBERS. HE SUBMITTED THAT DIRECTOR OF INCOME TAX (EXEMPTIONS) HAS ERRED IN COMING TO THE CONCLUSION THAT THE ASSESSEE IS NOT ENTITLED FOR RE GISTRATION UNDER THE PROVISIONS OF SECTION 12AA OF THE ACT. 5. ON THE OTHER HAND, LEARNED DR APPEARING ON BEHAL F OF THE DEPARTMENT SUBMITTED THAT APPLICATION FOR REGIS TRATION UNDER SECTION 12AA HAS BEEN RIGHTLY REJECTED BY THE DIRECTOR OF INCOME TAX (EXEMPTIONS) AND STRONGLY SUPPORTED T HE ORDER DATED 30.11.2011 PASSED BY DIRECTOR OF INCOME TAX (EXEMPTIONS) . 6. WE HAVE HEARD THE PARTIES AND HAVE GONE THROUGH THE IMPUGNED ORDER. BOARDS CIRCULAR NO.11 OF 2008 DA TED ITA NO.188/MDS/ 2012 6 19.12.2008 CLARIFIES EXEMPTION UNDER SECTION 11 IN CASE OF ASSESSEE CLAIMING BOTH TO BE CHARITABLE INSTITUTION AS WELL AS MUTUAL ORGANIZATION. THE RELEVANT EXTRACT OF THE CI RCULAR IS REPRODUCED HEREINBELOW:- SECTION 2(15) OF THE INCOME TAX ACT DEFINES CHARI TABLE PURPOSE TO INCLUDE THE FOLLOWING:- I) RELIEF TO THE POOR II) EDUCATION, III) MEDICAL RELIEF IV) ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY. FINANCE ACT, 2008 HAS AMENDED SECTION 2(15) BY ADDING THE PROVISO WHICH STATES THAT THE ADVANCEME NT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHAL L NOT BE A CHARITABLE PURPOSE IF IT INVOLVES THE CARRYING ON OF (A) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE O R BUSINESS; OR (B) ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATI ON TO ANY TRADE, COMMERCE OR BUSINESS; FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, O R RETENTION OF THE INCOME FROM SUCH ACTIVITY. ITA NO.188/MDS/ 2012 7 2. X X X X X X 3. THE NEWLY INSERTED PROVISO TO SECTION 2(15) WILL APPLY ONLY TO ENTITIES WHOSE PURPOSE IS ADVANCEMEN T OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY I.E. THE FOURTH LIMB OF THE DEFINITION OF CHARITABLE PURPOS E CONTAINED IN SECTION 2(15). HENCE, SUCH ENTITIES WI LL NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OR U NDER SECTION 10(23C) OF THE ACT IF THEY CARRY ON COMMERC IAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON A N ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS IS A QUESTION OF FACT WHICH WILL BE DECIDED BASED ON T HE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY . 3.1. THERE ARE INDUSTRY AND TRADE ASSOCIATIONS WHO CLAIM EXEMPTION FROM TAX U/S 11 ON THE GROUND THAT THEIR OBJECTS ARE FOR CHARITABLE PURPOSE AS THESE A RE COVERED UNDER ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. UNDER THE PRINCIPLE OF MUTUALITY, IF TRAD ING TAKES PLACE BETWEEN PERSONS WHO ARE ASSOCIATED TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING O F SOME VENTURE OR OBJECT AND IN THIS RESPECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN A NY SURPLUS RETURNED TO THE PERSONS FORMING SUCH ASSOCIATION IS NOT CHARGEABLE TO TAX. IN SUCH CASES , THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS. ITA NO.188/MDS/ 2012 8 THEREFORE, WHERE INDUSTRY OR TRADE ASSOCIATIONS CLA IM BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUA L ORGANIZATIONS AND THEIR ACTIVITIES ARE RESTRICTED T O CONTRIBUTIONS FROM AND PARTICIPATION OF ONLY THEIR MEMBERS, THESE WOULD NOT FALL UNDER THE PURVIEW OF THE PROVISO TO SECTION 2(15) OWING TO THE PRINCIPLE OF MUTUALITY. HOWEVER, IF SUCH ORGANIZATIONS HAVE DEALINGS WITH NON-MEMBERS, THEIR CLAIM TO BE CHARITABLE ORGANIZATIONS WOULD NOW BE GOVERNED BY THE ADDITIONAL CONDITIONS STIPULATED IN THE PROVISO TO SECTION 2 (15). 3.2. IN THE FINAL ANALYSIS, HOWEVER, WHETHER THE ASSESSEE HAS FOR ITS OBJECT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY IS A QUESTI ON OF FACT. IF SUCH ASSESSEE IS ENGAGED IN ANY ACTIVITY I N THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERS AN Y SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS, IT WOULD NOT BE ENTITLED TO CLAIM THAT ITS OBJECT IS CHARITABLE PURPOSE. IN SUCH A CASE, THE OBJECT OF GENERAL PUBLIC UTILITY WILL BE ONLY A MASK OR A D EVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATIO N TO TRADE, COMMERCE OR BUSINESS. EACH CASE WOULD, THEREFORE, BE DECIDED ON ITS OWN FACTS AND NO GENERALIZATION IS POSSIBLE. ASSESSEES, WHO CLAIM TH AT THEIR OBJECT IS CHARITABLE PURPOSE WITHIN THE MEA NING ITA NO.188/MDS/ 2012 9 OF SECTION 2(15), WOULD BE WELL ADVISED TO ESCHEW A NY ACTIVITY WHICH IS IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATIO N TO ANY TRADE, COMMERCE OR BUSINESS. THE ASSESSEE IS A COMPANY REGISTERED UNDER THE PROVISIONS OF SECTION 25 OF THE COMPANIES ACT, 1956 . SECTION 25 OF THE COMPANIES ACT LAYS DOWN THE POWER TO DISPENSE WITH THE WORD LIMITED OR THE WORD PRIVA TE LIMITED IN THE NAME OF CHARITABLE OR OTHER COMPANY . THE FACT THAT THE ASSESSEE IS A COMPANY REGISTERED UN DER SECTION 25 OF THE COMPANIES ACT HAS NOT BEEN DISPUT ED BY THE REVENUE. THEREFORE, IT LEAVES NO DOUBT THAT TH E ASSESSEE COMPANY HAS BEEN FORMED AS A LIMITED COMPA NY FOR PROMOTING CHARITY OR ANY USEFUL OBJECT (IN THE CASE OF THE ASSESSEE MAINTAIN AND DEVELOP INFRASTRUCTURE FA CILITIES FOR LEATHER INDUSTRY AND IMPLEMENTATION OF COMMON TREATMENT PLANTS TO PROTECT THE ENVIRONMENT FROM IN DUSTRIAL POLLUTION) AND IT INTENDS TO APPLY ITS PROFITS, IF ANY OR OTHER INCOME IN PROMOTING ITS OBJECTS. FURTHER IT PROHIBI TS THE PAYMENT OF ANY DIVIDEND TO ITS MEMBERS AS PER THE PROVISIONS OF SECTION 25. THUS, THE ACTIVITIES OF T HE ITA NO.188/MDS/ 2012 10 ASSESSEE ARE CHARITABLE IN NATURE AND THEREFORE, FA LL WITHIN THE PURVIEW OF SECTION 2(15) OF THE ACT. 7. LEARNED DIRECTOR OF INCOME TAX (EXEMPTIONS) WHIL E REJECTING THE APPLICATION OF THE ASSESSEE HAS RELIE D ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. BOMBAY OILSEEDS & OIL EXCHANGE LTD., (1993) 71 TAXMAN 351(BOM) TO HOLD THAT THE ASSESSEE DOES NOT FULFILL THE CONDITIONS OF MUTUALITY AND THUS IT CANNOT BE HELD THAT THE ASSESSEE IS ENTITLED FOR BENEFIT UNDER SECTION 12AA OF THE ACT. WE ARE OF THE CONSIDERED OPINION THAT LEARNED DIREC TOR OF INCOME TAX (EXEMPTIONS) HAS ERRED IN APPLYING THE RATIO OF THE AFORESAID JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE FACTS OF THE PRESENT CASE AND COMING TO THE CONCLUSION THAT THE ASSESSEE IS NOT ENTITLED FOR REGISTRATION UNDER SECTION 12AA OF THE ACT. THE ASSESSEE COMPANY HAS BEEN REGI STERED UNDER SECTION 25 OF THE COMPANIES ACT WHICH IMPLIES THAT ITS A NON-PROFIT MAKING COMPANY. A PERUSAL OF THE OBJEC T CLAUSE OF THE COMPANY CLEARLY SHOWS THAT THE COMPANY HAS B EEN INCORPORATED TO PROMOTE, CREATE, CONSTRUCT, ERECT, MAINTAIN ASSIST AND DEVELOP ALL KINDS OF INFRASTRUCTURAL FAC ILITIES ITA NO.188/MDS/ 2012 11 ANYWHERE IN INDIA WITHOUT ANY PROFIT MOTIVE. THE AS SESSEE COMPANY FURTHER TAKES STEPS TO PROTECT THE ENVIRONM ENT FROM EFFLUENT OF INDUSTRIAL AND DOMESTIC SEWERAGES AND PERFORM OTHER RELATED AND ALLIED ACTIVITIES. THE ASSESSEE CREATED CETPS TO PROTECT ENVIRONMENT FROM THE ILL EFFECTS O F POLLUTION CREATED BY LEATHER INDUSTRY. THE ASSESSEE IS RENDER ING ITS SERVICES INTER-ALIA FOR THE PROTECTION OF ENVIRONME NT AND CONTROL OF POLLUTION WHICH OTHERWISE IS VERY HARMFU L TO THE HUMAN BEING, PLANTS AND WILD LIFE. THE OBSERVATION OF THE DIRECTOR OF INCOME TAX (EXEMPTIONS) THAT THE DOMINA NT ACTIVITY OF THE ASSESSE IS TO SERVE A PARTICULAR TR ADE IS NOT CORRECT AS THE COMMON EFFLUENT TREATMENT PLANTS AR E SET UP FOR THE PROTECTION OF ENVIRONMENT AS A WHOLE AND NO T FOR A PARTICULAR INDUSTRY OR A PARTICULAR SECTION OF TH E SOCIETY. HIS FURTHER OBSERVATION THAT THE TURNOVER FROM THE ACTI VITIES AND ADDITIONAL INFRASTRUCTURE CREATED FAR EXCEEDS THE T HRESHOLD LIMIT OF ` 25 LAKHS IS ALSO NOT TENABLE. A PERUSAL OF THE CHA RT ON PAGE 3 OF THE IMPUGNED ORDER SHOWS THAT OPERATING INCOME, PROFIT/LOSS ARE OF THE OTHER COMPANIES VIZ. AMBURT EC AND VANITEC AND NOT THAT OF THE ASSESSEE. IT IS THE ASSESSEE ITA NO.188/MDS/ 2012 12 WHICH IS SEEKING REGISTRATION UNDER SECTION 12AA AN D NOT OTHER COMPANIES WHICH ARE SEPARATE LEGAL ENTITIES A ND HAVE BEEN ROPED IN BY THE ASSESSEE TO MANAGE AND MAINTAI N COMMON EFFLUENT TREATMENT PLANTS. AS REGARDS THE OBSERVATIONS OF DIRECTOR OF INCOME TAX (EXEMPTIONS) WITH REGARD TO PRINCIPLE OF MUTUALITY IS CONCERNED, WE A RE OF THE OPINION THAT THE SAID PRINCIPLE DOES NOT APPLY TO T HE PRESENT CASE FOR THE REASONS AFOREMENTIONED. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE DIRECTOR OF INCOME TA X (EXEMPTIONS) AND HOLD THAT THE ASSESSEE IS ENTITLED FOR REGISTRATION UNDER SECTION 12AA OF THE ACT. ORDERED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MARCH, 2012. SD/- S D/- (ABRAHAM P.GEORGE) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 28 TH MARCH, 2012. SOMU COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F .