The Commissioner Of Income Tax (Exemptions v. Naroda Enviro Projects Ltd

C/TAXAP/223/2020 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 223 of 2020 ========================================================== THE COMMISSIONER OF INCOME TAX (EXEMPTIONS) VersusNARODA ENVIRO PROJECTS LTD. ==========================================================Appearance:MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MR. JUSTICE R.M.CHHAYAandHONOURABLE MR. JUSTICE ILESH J. VORADate : 21/09/2020ORAL ORDER (PER : HONOURABLE MR. JUSTICE R.M.CHHAYA) 1.0. Heard Mr. Manish Bhatt, learned Senior Advocateassisted by Mrs. Mauna Bhatt, learned advocate forthe appellant –revenue. assisted by Mrs. Mauna Bhatt, learned advocate forthe appellant –revenue. 2.0. By this appeal under Section 260-A of the Income TaxAct, 1961 (hereinafter referred to as the “Act” for thesake of brevity) the appellant – Revenue has challengedthe order dated 27.11.2019 passed by the Income TaxAppellate Tribunal, A Bench, Ahmedabad in ITANo.114/AHD/2018 for AY 2014-15.Act, 1961 (hereinafter referred to as the “Act” for thesake of brevity) the appellant – Revenue has challengedthe order dated 27.11.2019 passed by the Income TaxAppellate Tribunal, A Bench, Ahmedabad in ITANo.114/AHD/2018 for AY 2014-15. 3.0. The following noteworthy facts emerge from the recordof the appeal. of the appeal. 3.1. That the respondent –assessee is a trust and had filedits return of income on 11.10.2014 and declared itsincome to be NIL. The Assessing Officer under Section143(3) of the Act determined the total income of therespondent –assessee vide assessment order datedits return of income on 11.10.2014 and declared itsincome to be NIL. The Assessing Officer under Section143(3) of the Act determined the total income of therespondent –assessee vide assessment order dated 19.12.2016 at Rs.7,59,26,949/-. The Assessing Officerwhile making assessment as provided under Section143(3) of the Act came to the conclusion that therespondent –assessee is a company registered underSection 25 of the Companies Act, 1996 and is inter aliaengaged in the activity of management of liquid andsolid wastes in Naroda Industrial Area and therebyearned profit. The AO also came to the conclusion thatthe respondent –assessee was engaged in the activitieswhich are not in the nature of charity but were ofbusiness as per proviso 1 and 2 of Section 2(15) r/wSection 13(8) of the Act. According to the AO, theexemption as provided under Sections 11 and 12 werenot available to the respondent –assessee andaccordingly the AO made addition of Rs.3,43,02,447under Section 11(1)(a) and Rs.4,16,24,503/- underSection 11(2) of the Act and assessing the income ofthe respondent –assessee in aggregate atRs.7,59,26,949/-. 3.2. Being aggrieved by such assessment order, respondent–assessee filed an appeal before the CIT(A). The CIT(A)considering the case of the respondent –assessee forthe AY 2010-11, 2011-12, 2012-13 and 2013-14relying upon the decision of the Tribunal in case of therespondent –assessee itself in ITA No.546/AHD/2013dated 29.6.2015 came to the conclusion that therespondent-assessee company was engaged in thepreservation of environment and therefore, it was engaged in carrying out charitable activities andconsequently deleted the addition of Rs.7,59,26,949/-. 3.3. Being aggrieved and dissatisfied with the judgmentand order passed by the CIT(A), the Revenue preferredan appeal before the Tribunal and the Tribunal relyingupon its earlier decision rendered in ITA No.546/AHD/2013 confirmed the judgment of the CIT(A). Beingaggrieved and dissatisfied with the same, the presentappeal is filed. engaged in carrying out charitable activities andconsequently deleted the addition of Rs.7,59,26,949/-. 3.3. Being aggrieved and dissatisfied with the judgmentand order passed by the CIT(A), the Revenue preferredan appeal before the Tribunal and the Tribunal relyingupon its earlier decision rendered in ITA No.546/AHD/2013 confirmed the judgment of the CIT(A). Beingaggrieved and dissatisfied with the same, the presentappeal is filed. 4.0. The Revenue in this appeal has raised the contentionto the effect that the Tribunal as well as CIT(A) havecommitted an error in coming to the conclusion thatactivity carried on by the respondent –assessee arecharitable in question and has wrongly come to theconclusion that the preservation of environment wouldamount to charitable purpose and has raised thefollowing substantial questions of law. “A.Whether, on the facts and in the circumstances, theIncome Tax Appellate Tribunal was justified in affirmingthe view of the Commissioner (Appeals) that the activities ofthe assessee fall within the ambit of “Preservation ofEnvironment” as envisaged under Section 2(15) of theIncome Tax Act, 1961 ? B.If the above question is answered in the negative,whether the activities carried out by the assessee fallwithin the ambit of the proviso to Section 2(15) of theIncome Tax Act, 1961 ? C.Whether, on the facts and in the circumstances of thecase and in law, the Hon’ble Tribunal is correct in deletingthe additions relying on the decision of Coordinate Bench of Ahmedabad in ITA No.546/AHD/2013 against which TaxAppeal 627 of 2015 filed and the decision of the Hon’bleHigh Court has not been accepted though further SLP wasnot preferred looking to the quantum of tax involved? 5.0. It is an admitted position that in case of therespondent – assessee itself by the judgment and orderdated 29.1.2015 which relates to AY 2009-10, theCIT(A) as well as Tribunal had come to the conclusionthat the respondent- assessee is engaged in thepreservation of environment and therefore, it wasengaged in carrying out charitable activities. Beingaggrieved by the same, the appellant –Revenue filedTax Appeal No.627 of 2015 (2019) 419 ITR 482 (Guj)before this Court and this Court dismissed the appealfiled by the Revenue. The said judgment has becomefinal.respondent – assessee itself by the judgment and orderdated 29.1.2015 which relates to AY 2009-10, theCIT(A) as well as Tribunal had come to the conclusionthat the respondent- assessee is engaged in thepreservation of environment and therefore, it wasengaged in carrying out charitable activities. Beingaggrieved by the same, the appellant –Revenue filedTax Appeal No.627 of 2015 (2019) 419 ITR 482 (Guj)before this Court and this Court dismissed the appealfiled by the Revenue. The said judgment has becomefinal. 6.0. In the appeal filed by the Revenue for the AY 2009-10in the case of Commissioner of Income Tax vs. NarodaEnviro Projects Ltd, the Division Bench has extensivelyconsidered the proviso of Section 2(15), legislativeamendment thereunder and has also considered thepurpose of proviso to clause 15 of Section 2. TheDivision Bench has also considered the Memorandumof Association of the assessee company and hasobserved thus:in the case of Commissioner of Income Tax vs. NarodaEnviro Projects Ltd, the Division Bench has extensivelyconsidered the proviso of Section 2(15), legislativeamendment thereunder and has also considered thepurpose of proviso to clause 15 of Section 2. TheDivision Bench has also considered the Memorandumof Association of the assessee company and hasobserved thus: 43. The first and the foremost question, therefore, weneed to consider is whether having regard to the activitiesundertaken by the Company, could it be said that the 43. The first and the foremost question, therefore, weneed to consider is whether having regard to the activitiesundertaken by the Company, could it be said that the Company is into “preservation of environment”. Theassertion on the part of the assessee company is that ittakes care of the liquid and solid industrial wastegenerated by the polluting industries by treating the samein the Common Effluent Treatment Plant, situated atNaroda and also the Total Suspended Disposal Facility atOdhav, Ahmedabad (TSDF) and other anciliary activitiesfor the purpose of curbing the menace of pollution therebypreserving the environment. Whether by establishment orrunning of the Common Effluent Treatment Plant atNaroda (CETP) and at Odhav TSDF and other anciliaryactivities, could it be said that the assessee-companyundertakes the activity of preservation of environment forthe purpose of Section 2(15) of the Act? 44. We are dealing with a taxing statute. The intention ofthe legislature in a taxation statute is to be gathered fromthe language of the provisions particularly where thelanguage is plain and unambiguous. In a Taxing Act, it isnot possible to assume any intention or the governingpurpose of the statute more than what is stated in theplain language. It is not the economic results sought to beobtained by making the provision which is relevant ininterpreting a fiscal statute. Equally impermissible is aninterpretation which does not follow from the plain,unambiguous language of the statute. Words cannot beadded to or substituted so as to give a meaning to thestatute which will serve the spirit and intention of thelegislature. (See Mathuram Agrawal vs. State of MadhyaPradesh, reported in (1999) 8 SCC 667) 45. The first and the foremost thing we want to clarify isthat the registration of the assessee as a CharitableInstitution and the license granted to the assessee as acompany under Section 25 of the Companies Act would,prima facie, clothe the assesseee with the character of acharitable institution. However, neither of the above twoevents is conclusive and the question whether theassessee is established for a charitable purpose or notmust be examined independently with reference to theprovisions of the Act. The registration of the assessee asa charitable institution under Section 12A of the Act, 1961and the license granted to the assessee under s. 25 of theCompanies Act are only relevant factors in reaching anappropriate conclusion. Unless the positive requirementsof law are satisfied, the assessee, only by virtue of theabove two events, cannot be regarded as a CharitableInstitution. The objects, for which, the assessee isestablished either as a Society or as a Company shouldspell out any charitable purpose. 6.1. Relying upon the catena of judgments on the issue hasexamined the similar substantial questions of lawraised by the appellant-Revenue against the samerespondent –assessee and has further observed asunder: 59. We now propose to examine the matter, keeping in mindthe fourth limb of Section 2(15) of the Act, i.e., “theadvancement of any other object of general public utility”. 60. The provision as it existed under the Act of 1922 wasthat once the purpose of the trust was relief of the poor,education, medical relief or advancement of any other objectof general public utility, the trust was considered to be for acharitable purpose. As a result of the addition of the words"not involving the carrying on of any activity for profit" at theend of the definition in section 2(15) of the Act even if thepurpose of the trust is "advancement of any other object ofgeneral public utility", it would not be considered to be"charitable purpose" unless it is shown that the abovepurpose does not involve the carrying of any activity forprofit. The result, thus, of the change in the definition is thatin order to bring a case within the fourth category ofcharitable purpose, it would be necessary to show that : (i) the purpose of the trust is advancement of any otherobject of general public utility, and (ii) the above purpose does not involve the carrying on of any activity for profit. 61. Both the above conditions must be satisfied before thepurpose of the trust can be held to be charitable purpose. 62. A brief analysis of all the provisions would show that (i)providing relief of the poor; (ii) establishing institution foreducation; (ii) providing medical relief; and (iv) to advanceany other object of general public utility are included withinthe definition of ‘charitable purposes’. With effect from01.04.2009, a new definition has been substituted, in that,if the advancement of object of general public utility involvescarrying on any activity in the nature of trade, commerce orbusiness or any activity of rendering any service in relationto any trade, commerce or business for cess or fee or anyother consideration, such activity shall not be a charitablepurpose. Except the addition of the proviso, restricting thepurport of the ‘advancement of any other object of generalpublic utility’, there is not much difference in section 2(15)as it existed prior to 01.04.2009, and thereafter. After theamendment the preservation of environment including thewatersheds, forest and wild life, and preservation of monuments or places/objects of artistic or historic interestare also included in the definition ‘charitable purpose’. Bethat as it is, what is important is any institution ororganization or entity for the advancement of object ofgeneral public utility is also considered as an institution ortrust for charitable purpose. Section 11 exempts variouscategories of incomes as enumerated under section 11(1)(a)to (d) from the total income of the previous year. Section 12exempts the voluntary contributions received by a trustcreated for charitable purposes from the total income. Thebenefit of Section 11 and/or 12 can be claimed only whenthe conditions as stipulated under Section 12A are satisfied.One such condition is that a person in receipt of the incomehas to apply for the registration of the trust or institution inthe prescribed form on or before the expiry of a period of oneyear from the date of creation of the trust or establishmentof institution. The proviso to Section 12A(1) confers thepower on the Commissioner to entertain an applicationunder Section 12A (1) even after the expiry of period of oneyear if he is satisfied that the person was prevented frommaking an application before the expiry of period of oneyear for sufficient reasons. 63. Section 11(5) requires every trust or institution for acharitable purpose to invest or deposit the money only in themanner provided therein inter alia investment in SavingsCertificates as defined in Government Savings CertificatesAct, 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 anyscheduled bank under Section 3 of the Banking Companies(Acquisition and Transfer of Undertakings) Act, 1980 or anyother bank being a bank included in Second Schedule toReserve Bank of India Act, 1934 and the like. The breach ofSection 11(5) would attract Section 13(1)(d) of the IT Act andthe benefit under Sections 11 and 12 would not be availableif 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. The words ‘public utility’ or ‘general public utility’ arenot capable of a precise meaning. The question whetherservice is public utility or not has to be discharged in thecontext of different situations but it is, as considered infra,well settled that public utility means public purposedepending upon the context in which it is used in the statuteor the Rules. Indeed, in some decisions, public utility isconsidered very similar to one for public purpose (Hunter vA.G. 1909 AC 323, Babu Bankya Thakur v State of BombayAIR 1960 SC 1203 and Jhandu Lal v State of Punjab AIR1961 SC 343). 88. In cases arising under the Income Tax Act, 1922 as wellas 1961 Act, it is held that the expression ‘object of generalpublic utility’ must be construed by applying the standard ofcustomary law and common knowledge amongst thecommunity to which the parties interested belong. This test,applied in the Trustees of the Tribune, seems to haveinfluenced judicial thinking in the subsequent decisions aswell. The object of general public utility would include allobjects which promote the welfare of the general public evenit includes taking up steps effecting trade, commerce ormanufacture if the primary purpose is for advancement ofobjects of general public utility [Andhra Chamber ofCommerce(supra)], even if in an insignificant manner theperson makes some profit in carrying out the objects [SuratArt Silk (supra)]. In other words, any activity for the benefitof the public or a section of the public, as distinguished fromthe benefit to an individual or a group of individuals, wouldbe charitable purpose as the object is for advancement ofgeneral public utility. The expression includes all objects topromote the welfare of the public, and when an object is topromote or protect the interest of particular trade or industrythat object becomes an object of public utility and would becharitable purpose (Gujarat Maritime Board (2007) 295 ITR561 (SC) [see Commissioner of Income Tax vs. AgriculturalMarket Committee, (2011) 336 ITR 641 (AP)] 89. In our opinion, this could be termed as a charitablepurpose which has as its motive advancement of an objectof general public utility to which the exception carved out inthe first proviso to Section 2(15) of the Act would not apply 6.2. Further considering the judgment of this Court in thecase of Director of Income Tax (Exemption) vs.Sabarmati Ashram Gaushala Trust reported in 360 ITR539 (Guj) has observed thus: 91. Carrying on an 'activity in the nature of trade,commerce, or business' or rendering of any service inrelation to trade etc. is sine qua non for taking away thecharacter of charitable purpose. An activity in the nature oftrade, commerce or business is always carried on with theprior object of earning income. What is relevant is theintention of the person before undertaking such activity. Aline of distinction needs to be drawn between the activitiesundertaken by a society, otherwise satisfying theprescription .of section 2(15) 'prior to the insertion of proviso,which are aimed at earning income divorced from the 91. Carrying on an 'activity in the nature of trade,commerce, or business' or rendering of any service inrelation to trade etc. is sine qua non for taking away thecharacter of charitable purpose. An activity in the nature oftrade, commerce or business is always carried on with theprior object of earning income. What is relevant is theintention of the person before undertaking such activity. Aline of distinction needs to be drawn between the activitiesundertaken by a society, otherwise satisfying theprescription .of section 2(15) 'prior to the insertion of proviso,which are aimed at earning income divorced from the objects for which it is charitable por una parte and theactivities which are aimed at the attainment of the objectsfor which It was set up por otra parte. Whereas the formerfall within the mandate of the proviso to section 2(15), thelatter do not. The obvious reason is that the latter activitiesare in furtherance of the charitable objects of such societyand income, if any, resulting from such activities and doesnot convert the otherwise charitable activity [within thedefinition of section 2(15)] into carrying on of a business,trade or commerce. It can be understood with the help of asimple illustration. Supposing an association set up for thepromotion of a particular trade, has its own premises‘ fromwhich it carries out the activities for the promotion of suchtrade. If the association lets out its premises from time totime for enhancing its income, which letting out has norelation with the objects for which it was set up as acharitable institution, namely, the promotion of thatparticular trade, the resultant activity will amount tocarrying on trade, commerce or business so as to fall withinproviso to section 2(15). 0n the other hand, if it uses itspremises for undertaking activities for which it was set upand is a charitable institution, and while doing so, thereresults some income, such income will not amount tocarrying on any trade, commerce or business. The crux ofthe matter is to understand the object of carrying on theactivity which resulted into income. If the object is to simplyearn income de hors the promotion of objects for which itwas set up, it will fall within the ambit of proviso to section2(15) and if the object of the activity is to promote theobjects for which it was set up, then it will not be caughtwithin the sweep of the proviso notwithstanding the factthat there results some income from carrying out suchactivity. The core of the matter is to see whether the activitywhich resulted into some income or loss was carried on withthe object of doing some trade, commerce or business, etc.,or it was in furtherance of the objects (non-business) etc., forwhich the assessee was set up. In other words, thepredominant object of the activities should be seen as towhether it is aimed at carrying on some business, trade orcommerce or the furtherance of the object for which it wasset up. If it falls in the first category, then, the case wouldbe covered within the proviso to section 2(15) and, in theotherwise scenario, the assessee will be construed to havecarried on its activities of general public utility. (see Societyof Indian Automobile Manufactures vs. ITO, Delhi). 6.3. The Division Bench further relying upon the judgmentof the Delhi High Court in the case of Institute ofof the Delhi High Court in the case of Institute of Chartered Accountants of India vs. Director General ofIncome Tax (Exemptions) reported in (2013) 358 ITR91 has observed thus: 6.3. The Division Bench further relying upon the judgmentof the Delhi High Court in the case of Institute ofof the Delhi High Court in the case of Institute of Chartered Accountants of India vs. Director General ofIncome Tax (Exemptions) reported in (2013) 358 ITR91 has observed thus: 92. The Delhi High Court in the Institute of CharteredAccounts of India v. Director General of Income-tax(Exemptions), 2013 358 lTR 91/217 Taxman 152/35taxmann.com 140 (Delhi) , observed, while disposing of awrit petition, that holding interviews for fees for the purposeof campus placements of its students does not amount tocarrying on a business so as to deny exemption u/s 11 ofthe Act. It further observed that if the object or purpose of aninstitution is charitable, the fact that the institution collectscertain charges does not alter the character of theinstitution. The Delhi High Court further observed in para 67that “the purport of the first proviso to section 2(15) of theAct is not to exclude the entities which are essentially forcharitable purpose, but are conducting some activities for aconsideration or a fee. The object of introducing the firstproviso is to exclude the organizations which are carryingon regular business from the scope of "charitable purpose'".The High Court also noticed the purpose of introducing theproviso to section 2(15) of the Act from the Budget Speech ofthe Finance Minister while introducing the Finance Bill 2008and reproduced the relevant extract to the Speech as under:' "….....Charitable purpose" includes relief of the poor,education, medical relief and any other object of generalpublic utility. These activities are tax exempt, as theyshould be. However, some entities carrying on regulartrade, commerce or business or providing services inrelation to any trade, commerce or business and earningincomes have sought to claim that their purposes wouldalso fall under "charitable purpose". Obviously, this wasnot the intention of Parliament and, hence, I propose toamend the law to exclude the aforesaid cases. Genuinecharitable organizations will not in any way be affected.” The expressions "business", "trade“ or “commerce" as usedin the first proviso must, thus, be interpreted restrictivelyand where the dominant object of an organization ischaritable any incidental activity for furtherance of theobject would not fall within the expressions " business"."trade" or "commerce". 7.0. Consequently, we are in total agreement with theconclusion arrived at by the CIT(A)and Income TaxAppellate Tribunal. We do not find any error in theconclusion arrived at by the CIT(A)and Income TaxAppellate Tribunal. We do not find any error in the impugned orders passed by the CIT(A) as well asIncome Tax Appellate Tribunal and have concurrentlyheld that taking on overall view, the dominant objectsof the assessee are charitable in nature and dominantobject is not only preservation of environment but oneof general public utility and, therefore, the assessee isentitled to seek exemption under Section 11 of the Act.Following the judgment of the Division Bench of thisCourt in the case of respondent –assessee for threeassessment years and Division Bench has consideredthe order passed in relation to the AY 2009-10 as leadmatter, we do not find any case to take a contrary viewthen the view taken by the CIT(A) as well as IncomeTax Appellate Tribunal. We do not find that this is a fitcase to interfere in appeal under Section 260-A of theAct as the findings of fact are not perverse. 8.0. Resultantly, the appeal fails and is hereby dismissed.Substantial questions of law as framed are answeredin favour of the assessee and against the Revenue. Nocosts. Substantial questions of law as framed are answeredin favour of the assessee and against the Revenue. Nocosts. (R.M.CHHAYA, J) DRASHTI K. SHUKLA/kaushik (ILESH J. VORA,J)