Taxap/1053/2018 Of Commissioner Of Income Tax (Exemptions) v. Naroda Enviro Projects Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 627 of 2015With R/TAX APPEAL NO. 189 of 2019With R/TAX APPEAL NO. 138 of 2018With R/TAX APPEAL NO. 538 of 2018With R/TAX APPEAL NO. 1053 of 2018FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALASd/-andHONOURABLE MR.JUSTICE A.C. RAOSd/-==========================================================1 Whether Reporters of Local Papers may be allowed to Yessee the judgment ?2 To be referred to the Reporter or not ?Yes3 Whether their Lordships wish to see the fair copy of the Nojudgment ?4 Whether this case involves a substantial question of law Noas to the interpretation of the Constitution of India or any order made thereunder ?==========================================================THE COMMISSIONER OF INCOME TAX VersusNARODA ENVIRO PROJECTS LTD. ==========================================================Appearance:MRS MAUNA M BHATT(174) for the Appellant(s) No. 1MS MEGHA JANI(1028) for the Opponent(s) No. 1RULE SERVED(64) for the Opponent(s) No. 1========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAandHONOURABLE MR.JUSTICE A.C. RAO Date : 29/07/2019 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 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 Section 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 29[th] 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 19[th] 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 30[th ]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 24[th] 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: 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 24[th] 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 19[th] 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: “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 5[th] 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 religious 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 letter 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 activities 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 application 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 19[th] 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 5[th] 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 : C/TAXAP/627/2015 JUDGMENT This case has been received on transfer from the Circle-4, 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: 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 the 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. (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 the 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 pollution 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 insection2(15)oftheI.T.Act. (19) Role played by various local and state Government authorities like Gujarat Pollution Control Board, Gujarat, Ahmedabad Municipal (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 Hazardous 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. 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. The reply of the assessee was not found satisfactory hence vide this office letter dated 16/11/2011, it was communicated to the assessee that on going through the provisional order (CCA), consent referred to above, it is seen that it is issued in the name of M/s. Naroda Enviro project Ltd. (CEPT). It implies that if any of the member or beneficiary commits any default or violation of regulation, the GPCB will intimate you regarding such violation and penal action and may withdraw provisional order. The assessee was requested to please clarifythe procedure followed by GPCB in case of default by any of the unit. The assessee was further asked to submit the detail of instances of violation by your members and beneficiaries during the period under consideration and three preceding years as you are acting as per the directions given by Hon'ble High Court of Gujarat. In response to the same the assessee company vide letter dated 5/12/20110 submitted that it is not aware of the procedure followed by the GPCB in case of default in the matter of pollution committed by any of the industrial unit as the actions are initiated directly against the string Unit by GPCB. (22) Information from Gujarat State Pollution Control Board: vide notice u/s. 133(6) of the I.T. Act, below mentioned information was called for from GSPCB. (1) The assessment proceedings in the case of above referred assessee for A.Y.2009-10 is pending with undersigned. In response to the query regarding detailed note on present activity of the Trust and other information, the assessee company submitted that it was incorporated as a company with sole 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. It has further stated that it is a company which does not exist for earning the profit as such but exist for promotion of welfare and well being of the society and people at large. (2) The assessee company has submitted a copy of Provisional Consent Order (CCA) No WH-43865 issued by your office on 12/10/2011 valid upto 19/04/2016. It is understood that you are an 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 Hazardous 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. (2) The assessee company has submitted a copy of Provisional Consent Order (CCA) No WH-43865 issued by your office on 12/10/2011 valid upto 19/04/2016. It is understood that you are an 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 Hazardous 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. (3) Vide this office letter dated 16/11/2011, the assessee company was asked to submit the detail of instances of violation of the regulation by it or by any of its member, if any and resultant penal actions by the competent authority, if any. In response to the same the assessee company 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. However it has tactfully avoided submitting the detail of violation detected by your good office committed by the industrial Units working in Naroda GIDC, i.e. located at Naroda, Odhav and Vatva and penal action taken by your good office. (4) It is requested to please supply the detail of violation of the provisions contained in The Water (Prevention & Control of Pollution) Act 1974, The Air (Prevention & Control of Pollution) Act 1981 and Hazardous Waste (Management, handling and Transboundry Movement) Rules 2008 framed under the E(P) Act 1986 by any of the industrial unit located in Naroda, Vatva or Odhav during financial year 2006-07, 2007-08 and 2008-09 and penal action if any taken by your good office either in person or through a representative duly authorized in this behalf on or before 30[th] November 2011. (5) This information is called for exercising the powers conferred upon undersigned u/s 133(6) of the Income Tax Act 1961, in the capacity of assessing officer of the Naroda Enviro Projects Ltd., Ahmedabad. (23) The Gujarat Pollution Control Board vide letter dated 21/12/2012 has submitted a list of 162 persons to whom closure directions has been issued from 01/01/2011 to 28/11/2011 in Ahmedabad Region the same is made Annexure-A to this order. The GPCB also submitted list of 117 industries to whom notice of directions has been served. The same is made in Annexure-B to this order. The GPCB has not given the address of the units, hence it can not be said that either all the units or none of the unit is operating from industrial estate for which the assessee is rendering services of pollution control. However, it can safely be presumed that majority of the units might be operating from the industrial estates of Naroda, Odhav & Vatva which are three biggest industrial estates where industries generating pollution are located and which is the area of operation of the assessee company. (24) The modus operandi adopted by you for running CETP & Land Fill by solid waste at Odhav, Query: The assessee was requested to describe in detail the modus operandi adopted by it for running CETP & Land Fill by solid waste at Odhav, detail of statutory obligation for treatment of effluent and name and address of authority responsible for monitoring the level of effluent. The assessee was asked to state whether the members are required to treat the effluent on their own at first stage and then such effluent is released for common treatment.(Para 7 of letter dated 10/10/2011) (24) The modus operandi adopted by you for running CETP & Land Fill by solid waste at Odhav, Query: The assessee was requested to describe in detail the modus operandi adopted by it for running CETP & Land Fill by solid waste at Odhav, detail of statutory obligation for treatment of effluent and name and address of authority responsible for monitoring the level of effluent. The assessee was asked to state whether the members are required to treat the effluent on their own at first stage and then such effluent is released for common treatment.(Para 7 of letter dated 10/10/2011) The assessee vide letter dated 31[st] October, 2011, submitted the individual industry is required to treat the liquid effluent for all the primary parameters in their own premises and then they are required to discharge the registered quantity of effluent to CEPT collection system for further treatment. The solid sludge generated while giving primary treatment as well as during the manufacturing process is to be dispatched at Odhav TSDF site for. dumping as per the Central Government manifest. The assessee above referred submission implies that the work of pollution abetment and environmental protection is done by three different entities. First the primary pollution control activity which is generated by individual units is being carried out by them. Thereafter, part of the pollution control treatment is made by you and polluted effluents are being discharged in Pirana treatment Plant. Finally, the Ahmedabad Municipal Corporation discharges it in river Sabarmati after pollution treatment in Pirana treatment Plant. (25) The sum total of the scrutiny is: (i) The assessee is carrying on business activity under the pretext of charitable activity. The incidental profit cannot be for all the years and not to the extent reflected in table given in the order ii) The objects specified in the Memorandum of Association are important but the same have to be considered with reference to the real practice adopted for running the activity i.e. whether it is charitable or for the purpose of making profit. The object included in definition of ‘charitable purpose’ as defined in section 2(15) should be evidenced by Charity; otherwise even environment consultant will also claim exemption u/s.11 being a trust or a company u/s.25 (iii)The action is carried out for the benefit of members to discharge their onus of treatment of chemicals etc. with substantial charge with intention to earn profit under the shelter of section 25 of Company Act. (iv)Hence it is held that the assessee is rendering service of pollution control as per the norms laid down by the Gujarat State Pollution Control Board or any other authority responsible for the 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 assesee company and it is not entitled for exemption.” under the shelter of section 25 of Company Act. (iv)Hence it is held that the assessee is rendering service of pollution control as per the norms laid down by the Gujarat State Pollution Control Board or any other authority responsible for the 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 assesee company and it is not entitled for exemption.” 13.Thus, the Assessing Officer took the view that the assessee company is not entitled to seek exemption under Section 11 of the Act on the ground that the case of the assessee falls under sub-section (8) of Section 13 of the Act. The Assessing Officer took the view that the assessee company is engaged in the business of treating the trade effluent generated by the polluting industries in accordance with the norms and the parameters prescribed by the GPCB and the provisions of the Air & Water Pollution Act. In other words, the Assessing Officer took the view that the activities of the assessee do not fall within the definition of the term “Charitable Purpose” as defined under Section 2(15) of the Act. The Assessing Officer took the view that the activities undertaken by the assessee company are not towards “preservation of environment”. 14.The assessee, being dissatisfied with the order passed by the Assessing Officer, preferred an appeal before the Commissioner of Income Tax (Appeals). The CIT (Appeals), while allowing the appeal preferred by the assessee company, held as under: “4.4.1 The main object of the appellant company after it was converted as a Section 25 company reproduced above amply clarifies that the appellant company is in the area of environmental protection, abetment of pollution of water, air. solid. etc. generated by the industrial units in and around Vatva and Odhav area of Ahmadabad. The fact that the appellant is a Section 25 company is not disputed by the AO nor was the object of the appellant company after it modified as Section 25 Company is rebutted by the A0. The AO has not disputed the fact that the appellant is doing the basic activity of treatment of various pollutants generated by