The Commissioner of Income-tax (Exemptions) v. Naroda Enviro Projects Ltd
[Citation -2020-LL-0921-34]

Citation 2020-LL-0921-34
Appellant Name The Commissioner of Income-tax (Exemptions)
Respondent Name Naroda Enviro Projects Ltd.
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 21/09/2020
Assessment Year 2014-15
Judgment View Judgment
Keyword Tags general public utility • charitable activities • commerce or business • charitable purpose • exempt from tax
Bot Summary: The Assessing Officer while making assessment as provided under Section 143(3) of the Act came to the conclusion that the respondent assessee is a company registered under Section 25 of the Companies Act, 1996 and is inter alia engaged in the activity of management of liquid and solid wastes in Naroda Industrial Area and thereby earned profit. According to the AO, the exemption as provided under Sections 11 and 12 were not available to the respondent assessee and accordingly the AO made addition of Rs.3,43,02,447 under Section 11(1)(a) and Rs.4,16,24,503/- under Section 11(2) of the Act and assessing the income of the respondent assessee in aggregate at Rs.7,59,26,949/-. In the appeal filed by the Revenue for the AY 2009-10 in the case of Commissioner of Income Tax vs. Naroda Enviro Projects Ltd, the Division Bench has extensively considered the proviso of Section 2(15), legislative amendment thereunder and has also considered the purpose of proviso to clause 15 of Section 2. Section 11 exempts various categories of incomes as enumerated under section 11(1)(a) to from the total income of the previous year. The proviso to Section 12A(1) confers the power on the Commissioner to entertain an application under Section 12A even after the expiry of period of one year if he is satisfied that the person was prevented from making an application before the expiry of period of one year for sufficient reasons. Section 11(5) requires every trust or institution for a charitable purpose to invest or deposit the money only in the manner provided therein inter alia investment in Savings Certificates as defined in Government Savings Certificates Act, 1959, deposit with the Post Office Savings Bank, deposit in any account with the scheduled bank i.e., Reserve Bank of India or its subsidiary bank or any scheduled bank under Section 3 of the Banking Companies Act, 1980 or any other bank being a bank included in Second Schedule to Reserve Bank of India Act, 1934 and the like. The breach of Section 11(5) would attract Section 13(1)(d) of the IT Act and the benefit under Sections 11 and 12 would not be available if funds are deposited or invested contrary to Section 11(5) or in breach of Section 13(1) generally and Section 13(1)(d) specifically.


C/TAXAP/223/2020 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 223 of 2020 COMMISSIONER OF INCOME TAX (EXEMPTIONS) Versus NARODA ENVIRO PROJECTS LTD. Appearance: MRS MAUNA M BHATT(174) for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM:HONOURABLE MR. JUSTICE R.M.CHHAYA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 21/09/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE R.M.CHHAYA) 1.0. Heard Mr. Manish Bhatt, learned Senior Advocate assisted by Mrs. Mauna Bhatt, learned advocate for appellant revenue. 2.0. By this appeal under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as Act for sake of brevity) appellant Revenue has challenged order dated 27.11.2019 passed by Income Tax Appellate Tribunal, Bench, Ahmedabad in ITA No.114/AHD/2018 for AY 2014-15. 3.0. following noteworthy facts emerge from record of appeal. 3.1. That respondent assessee is trust and had filed its return of income on 11.10.2014 and declared its income to be NIL. Assessing Officer under Section 143(3) of Act determined total income of respondent assessee vide assessment order dated Page 1 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER 19.12.2016 at Rs.7,59,26,949/-. Assessing Officer while making assessment as provided under Section 143(3) of Act came to conclusion that respondent assessee is company registered under Section 25 of Companies Act, 1996 and is inter alia engaged in activity of management of liquid and solid wastes in Naroda Industrial Area and thereby earned profit. AO also came to conclusion that respondent assessee was engaged in activities which are not in nature of charity but were of business as per proviso 1 and 2 of Section 2(15) r/w Section 13(8) of Act. According to AO, exemption as provided under Sections 11 and 12 were not available to respondent assessee and accordingly AO made addition of Rs.3,43,02,447 under Section 11(1)(a) and Rs.4,16,24,503/- under Section 11(2) of Act and assessing income of respondent assessee in aggregate at Rs.7,59,26,949/-. 3.2. Being aggrieved by such assessment order, respondent assessee filed appeal before CIT(A). CIT(A) considering case of respondent assessee for AY 2010-11, 2011-12, 2012-13 and 2013-14 relying upon decision of Tribunal in case of respondent assessee itself in ITA No.546/AHD/2013 dated 29.6.2015 came to conclusion that respondent-assessee company was engaged in preservation of environment and therefore, it was Page 2 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER engaged in carrying out charitable activities and consequently deleted addition of Rs.7,59,26,949/-. 3.3. Being aggrieved and dissatisfied with judgment and order passed by CIT(A), Revenue preferred appeal before Tribunal and Tribunal relying upon its earlier decision rendered in ITA No.546/AHD/ 2013 confirmed judgment of CIT(A). Being aggrieved and dissatisfied with same, present appeal is filed. 4.0. Revenue in this appeal has raised contention to effect that Tribunal as well as CIT(A) have committed error in coming to conclusion that activity carried on by respondent assessee are charitable in question and has wrongly come to conclusion that preservation of environment would amount to charitable purpose and has raised following substantial questions of law. A.Whether, on facts and in circumstances, Income Tax Appellate Tribunal was justified in affirming view of Commissioner (Appeals) that activities of assessee fall within ambit of Preservation of Environment as envisaged under Section 2(15) of Income Tax Act, 1961 ? B.If above question is answered in negative, whether activities carried out by assessee fall within ambit of proviso to Section 2(15) of Income Tax Act, 1961 ? C.Whether, on facts and in circumstances of case and in law, Hon ble Tribunal is correct in deleting additions relying on decision of Coordinate Bench of Page 3 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER Ahmedabad in ITA No.546/AHD/2013 against which Tax Appeal 627 of 2015 filed and decision of Hon ble High Court has not been accepted though further SLP was not preferred looking to quantum of tax involved? 5.0. It is admitted position that in case of respondent assessee itself by judgment and order dated 29.1.2015 which relates to AY 2009-10, CIT(A) as well as Tribunal had come to conclusion that respondent- assessee is engaged in preservation of environment and therefore, it was engaged in carrying out charitable activities. Being aggrieved by same, appellant Revenue filed Tax Appeal No.627 of 2015 (2019) 419 ITR 482 (Guj) before this Court and this Court dismissed appeal filed by Revenue. said judgment has become final. 6.0. In appeal filed by Revenue for AY 2009-10 in case of Commissioner of Income Tax vs. Naroda Enviro Projects Ltd, Division Bench has extensively considered proviso of Section 2(15), legislative amendment thereunder and has also considered purpose of proviso to clause 15 of Section 2. Division Bench has also considered Memorandum of Association of assessee company and has observed thus: 43. first and foremost question, therefore, we need to consider is whether having regard to activities undertaken by Company, could it be said that Page 4 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER Company is into preservation of environment . assertion on part of assessee company is that it takes care of liquid and solid industrial waste generated by polluting industries by treating same in Common Effluent Treatment Plant, situated at Naroda and also Total Suspended Disposal Facility at Odhav, Ahmedabad (TSDF) and other anciliary activities for purpose of curbing menace of pollution thereby preserving environment. Whether by establishment or running of Common Effluent Treatment Plant at Naroda (CETP) and at Odhav TSDF and other anciliary activities, could it be said that assessee-company undertakes activity of preservation of environment for purpose of Section 2(15) of Act? 44. We are dealing with taxing statute. intention of legislature in taxation statute is to be gathered from language of provisions particularly where language is plain and unambiguous. In Taxing Act, it is not possible to assume any intention or governing purpose of statute more than what is stated in plain language. It is not economic results sought to be obtained by making provision which is relevant in interpreting fiscal statute. Equally impermissible is interpretation which does not follow from plain, unambiguous language of statute. Words cannot be added to or substituted so as to give meaning to statute which will serve spirit and intention of legislature. (See Mathuram Agrawal vs. State of Madhya Pradesh, reported in (1999) 8 SCC 667) 45. first and foremost thing we want to clarify is that registration of assessee as Charitable Institution and license granted to assessee as company under Section 25 of Companies Act would, prima facie, clothe assesseee with character of charitable institution. However, neither of above two events is conclusive and question whether assessee is established for charitable purpose or not must be examined independently with reference to provisions of Act. registration of assessee as charitable institution under Section 12A of Act, 1961 and license granted to assessee under s. 25 of Companies Act are only relevant factors in reaching appropriate conclusion. Unless positive requirements of law are satisfied, assessee, only by virtue of above two events, cannot be regarded as Charitable Institution. objects, for which, assessee is established either as Society or as Company should spell out any charitable purpose. Page 5 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER 6.1. Relying upon catena of judgments on issue has examined similar substantial questions of law raised by appellant-Revenue against same respondent assessee and has further observed as under: 59. We now propose to examine matter, keeping in mind fourth limb of Section 2(15) of Act, i.e., advancement of any other object of general public utility . 60. provision as it existed under Act of 1922 was that once purpose of trust was relief of poor, education, medical relief or advancement of any other object of general public utility, trust was considered to be for charitable purpose. As result of addition of words "not involving carrying on of any activity for profit" at end of definition in section 2(15) of Act even if purpose of trust is "advancement of any other object of general public utility", it would not be considered to be "charitable purpose" unless it is shown that above purpose does not involve carrying of any activity for profit. result, thus, of change in definition is that in order to bring case within fourth category of charitable purpose, it would be necessary to show that : (i) purpose of trust is advancement of any other object of general public utility, and (ii) above purpose does not involve carrying on of any activity for profit. 61. Both above conditions must be satisfied before purpose of trust can be held to be charitable purpose. 62. brief analysis of all provisions would show that (i) providing relief of poor; (ii) establishing institution for education; (ii) providing medical relief; and (iv) to advance any other object of general public utility are included within definition of charitable purposes . With effect from 01.04.2009, new definition has been substituted, in that, if advancement of object of general public utility involves carrying on any activity in nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration, such activity shall not be charitable purpose. Except addition of proviso, restricting purport of advancement of any other object of general public utility , there is not much difference in section 2(15) as it existed prior to 01.04.2009, and thereafter. After amendment preservation of environment including watersheds, forest and wild life, and preservation of Page 6 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER monuments or places/objects of artistic or historic interest are also included in definition charitable purpose . Be that as it is, what is important is any institution or organization or entity for advancement of object of general public utility is also considered as institution or trust for charitable purpose. Section 11 exempts various categories of incomes as enumerated under section 11(1)(a) to (d) from total income of previous year. Section 12 exempts voluntary contributions received by trust created for charitable purposes from total income. benefit of Section 11 and/or 12 can be claimed only when conditions as stipulated under Section 12A are satisfied. One such condition is that person in receipt of income has to apply for registration of trust or institution in prescribed form on or before expiry of period of one year from date of creation of trust or establishment of institution. proviso to Section 12A(1) confers power on Commissioner to entertain application under Section 12A (1) even after expiry of period of one year if he is satisfied that person was prevented from making application before expiry of period of one year for sufficient reasons. 63. Section 11(5) requires every trust or institution for charitable purpose to invest or deposit money only in manner provided therein inter alia investment in Savings Certificates as defined in Government Savings Certificates Act, 1959, deposit with Post Office Savings Bank, deposit in any account with scheduled bank i.e., Reserve Bank of India or its subsidiary bank or any scheduled bank under Section 3 of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 or any other bank being bank included in Second Schedule to Reserve Bank of India Act, 1934 and like. breach of Section 11(5) would attract Section 13(1)(d) of IT Act and benefit under Sections 11 and 12 would not be available if funds are deposited or invested contrary to Section 11(5) or in breach of Section 13(1) generally and Section 13(1)(d) specifically. 87. words public utility or general public utility are not capable of precise meaning. question whether service is public utility or not has to be discharged in context of different situations but it is, as considered infra, well settled that public utility means public purpose depending upon context in which it is used in statute or 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). Page 7 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER 88. In cases arising under Income Tax Act, 1922 as well as 1961 Act, it is held that expression object of general public utility must be construed by applying standard of customary law and common knowledge amongst community to which parties interested belong. This test, applied in Trustees of Tribune, seems to have influenced judicial thinking in subsequent decisions as well. object of general public utility would include all objects which promote welfare of general public even it includes taking up steps effecting trade, commerce or manufacture if primary purpose is for advancement of objects of general public utility [Andhra Chamber of Commerce(supra)], even if in insignificant manner person makes some profit in carrying out objects [Surat Art Silk (supra)]. In other words, any activity for benefit of public or section of public, as distinguished from benefit to individual or group of individuals, would be charitable purpose as object is for advancement of general public utility. expression includes all objects to promote welfare of public, and when object is to promote or protect interest of particular trade or industry that object becomes 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 charitable purpose which has as its motive advancement of object of general public utility to which exception carved out in first proviso to Section 2(15) of Act would not apply 6.2. Further considering judgment of this Court in case of Director of Income Tax (Exemption) vs. Sabarmati Ashram Gaushala Trust reported in 360 ITR 539 (Guj) has observed thus: 91. Carrying on 'activity in nature of trade, commerce, or business' or rendering of any service in relation to trade etc. is sine qua non for taking away character of charitable purpose. activity in nature of trade, commerce or business is always carried on with prior object of earning income. What is relevant is intention of person before undertaking such activity. line of distinction needs to be drawn between activities undertaken by society, otherwise satisfying prescription .of section 2(15) 'prior to insertion of proviso, which are aimed at earning income divorced from Page 8 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER objects for which it is charitable por una parte and activities which are aimed at attainment of objects for which It was set up por otra parte. Whereas former fall within mandate of proviso to section 2(15), latter do not. obvious reason is that latter activities are in furtherance of charitable objects of such society and income, if any, resulting from such activities and does not convert otherwise charitable activity [within definition of section 2(15)] into carrying on of business, trade or commerce. It can be understood with help of simple illustration. Supposing association set up for promotion of particular trade, has its own premises from which it carries out activities for promotion of such trade. If association lets out its premises from time to time for enhancing its income, which letting out has no relation with objects for which it was set up as charitable institution, namely, promotion of that particular trade, resultant activity will amount to carrying on trade, commerce or business so as to fall within proviso to section 2(15). 0n other hand, if it uses its premises for undertaking activities for which it was set up and is charitable institution, and while doing so, there results some income, such income will not amount to carrying on any trade, commerce or business. crux of matter is to understand object of carrying on activity which resulted into income. If object is to simply earn income de hors promotion of objects for which it was set up, it will fall within ambit of proviso to section 2(15) and if object of activity is to promote objects for which it was set up, then it will not be caught within sweep of proviso notwithstanding fact that there results some income from carrying out such activity. core of matter is to see whether activity which resulted into some income or loss was carried on with object of doing some trade, commerce or business, etc., or it was in furtherance of objects (non-business) etc., for which assessee was set up. In other words, predominant object of activities should be seen as to whether it is aimed at carrying on some business, trade or commerce or furtherance of object for which it was set up. If it falls in first category, then, case would be covered within proviso to section 2(15) and, in otherwise scenario, assessee will be construed to have carried on its activities of general public utility. (see Society of Indian Automobile Manufactures vs. ITO, Delhi). 6.3. Division Bench further relying upon judgment of Delhi High Court in case of Institute of Page 9 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER Chartered Accountants of India vs. Director General of Income Tax (Exemptions) reported in (2013) 358 ITR 91 has observed thus: 92. Delhi High Court in 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 writ petition, that holding interviews for fees for purpose of campus placements of its students does not amount to carrying on business so as to deny exemption u/s 11 of Act. It further observed that if object or purpose of institution is charitable, fact that institution collects certain charges does not alter character of institution. Delhi High Court further observed in para 67 that purport of first proviso to section 2(15) of Act is not to exclude entities which are essentially for charitable purpose, but are conducting some activities for consideration or fee. object of introducing first proviso is to exclude organizations which are carrying on regular business from scope of "charitable purpose'". High Court also noticed purpose of introducing proviso to section 2(15) of Act from Budget Speech of Finance Minister while introducing Finance Bill 2008 and reproduced relevant extract to Speech as under:' " .....Charitable purpose" includes relief of 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 intention of Parliament and, hence, I propose to amend law to exclude aforesaid cases. Genuine charitable organizations will not in any way be affected. expressions "business", "trade or commerce" as used in first proviso must, thus, be interpreted restrictively and where dominant object of organization is charitable any incidental activity for furtherance of object would not fall within expressions " business". "trade" or "commerce". 7.0. Consequently, we are in total agreement with conclusion arrived at by CIT(A)and Income Tax Appellate Tribunal. We do not find any error in Page 10 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 C/TAXAP/223/2020 ORDER impugned orders passed by CIT(A) as well as Income Tax Appellate Tribunal and have concurrently held that taking on overall view, dominant objects of assessee are charitable in nature and dominant object is not only preservation of environment but one of general public utility and, therefore, assessee is entitled to seek exemption under Section 11 of Act. Following judgment of Division Bench of this Court in case of respondent assessee for three assessment years and Division Bench has considered order passed in relation to AY 2009-10 as lead matter, we do not find any case to take contrary view then view taken by CIT(A) as well as Income Tax Appellate Tribunal. We do not find that this is fit case to interfere in appeal under Section 260-A of Act as findings of fact are not perverse. 8.0. Resultantly, appeal fails and is hereby dismissed. Substantial questions of law as framed are answered in favour of assessee and against Revenue. No costs. (R.M.CHHAYA, J) (ILESH J. VORA,J) DRASHTI K. SHUKLA/kaushik Page 11 of 11 Downloaded on : Mon Oct 12 10:59:58 IST 2020 Commissioner of Income-tax (Exemptions) v. Naroda Enviro Projects Ltd
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