Trust managing Liquid & Solid Industrial Wastes can claim section 11 exemption

FULL TEXT OF THE ITAT JUDGEMENT

1. This appeal filed by the Revenue is directed against the order of the Ld. CIT(A)-7, Ahmedabad dated 03.10.2017 pertaining to A.Y. 2014-15 and following grounds have been taken:

1. The Ld. CIT(A) has erred in the law and on facts in considering the activity of the assessee which is in the nature of advancement of general public utility not hit by the newly introduced first and second proviso to sec.2(15) of the Act.

2. The Ld CIT(A) has erred in the law and on facts in allowing the benefit of exemptions u/s. 11 without considering the fact that the assessee is involved in widespread commercial activities in nature of business and the activity of the assessee is covered under first and second proviso to sec.2(15) of the Act.

3. The Ld CIT(A) has erred in the law and on facts in allowing the accumulation of Rs.4,16,24,5037- u/s.11(2) and accumulation @15% of Rs.3,43,02,447/-u/s.11(1)(a) of the Act without appreciating the fact that once the proviso to section 2(15) is applicable, the benefit of section 11 and 12 cannot be allowed further.

4. The revenue craves over leave to add, alter, amend, modify, substitute, delete and/or rescind all or any Grounds of Appeal on or before the final hearing, in necessity so arises.

2. Facts of the case are that the Assessee, Naroda Enviro Project Ltd. is a company registered u/s. 25 of the Companies Act. It is engaged in the activities of management of liquid and solid wastes in Naroda Industrial. Area. The Assessee company is registered u/s. 12AA of ihe 1, T, Act, vi.de order no R.NO. D1T(E)/ 1 2AA/624/05-06 dated 04/07/2007. The company is also approved u/s. 80G(5) of the 1. T. Act, 1961 by the office of the DIT(E), Ahmedabad.

3. During the course of assessments proceeding for AY 2009- 1 0, A.Y, 20 10- 11 and 2011-1.2, 20 12- 13 & 2013-14 it has been continuously held that the Assessee earned profit in the name of protection of environment and hence activities undertaken by the company could not be treated as preservation of environment, but under the limb of the advancement to general public utility. The Assessee was not granted the benefit of section 1.1 and 12 of the l.T, Act, and taxed its profit.

4. During the course of the proceedings, the issues regarding the- activity of the Assessee were under question. Since the factual matrix of the ease was similar to the previous assessment years a show cause notice was issued on 23.11,2016. The Assessee furnished the written reply of show cause on 02,12.2016 which is produced below: –

 5.1 Note on Justification of the Assessee u/s 2(15) of the Income tax Act 1961, The appellant is engaged in the activity of preservation of environment by abatement and controlling pollution of environment i,e, land, water and air and for this objective, the appellant is providing pollution control treatment for disposal of liquid and solid industrial hazardous waste. The: appellant was originally registered as a commercial company under the Companies Act, 1956 on 19/10/1995. Thereafter, the appellant company was subsequently converted into a company limited by shares, incorporated u/s. 25 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 appellant company has been accorded registrations 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. B0G (5) of the Income Tax Act, 1961 and the jurisdiction of the appellant company rests with the Deputy Director of Income tax (Exemption)” Ahmedabad. This registration u/s, 12AA and approval u/s. B0(G)(5) of the IT. Act arc in force even as on this date, advancement of any other object of general public utility”. The AO is therefore in gross error in denying the appellant’s benefit of Section 11 and 12 of the I.T. Act. The activities carried out by the appellant during the year squarely falls within the meaning and scope of charitable activities as defined in Section 2 (15) of the Income Tax Act. For the purpose of ready reference, Section 2 (.15) of the LT. Act is reproduced hereunder:

“2(15) Charitable purpose includes relief of the poor, education, medical relief, preservation of environment (including water sheds, forest and wild life) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility. Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves they carrying on of any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity.

Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lac rupees or less in the previous year.”

A plain reading of Section 2 (15), reproduced hereinabove, will reveal that preservation of environment is a charitable activity by itself. The appellant company had been actively engaged in preservation of the environment by controlling the pollution of air, water and soil by the pollutants generated by the industrial units located in Naroda Industrial Area. As a matter of fact, the Assesses being a company registered u/s. 25 of the Companies Act which does not exist for profit and which has no profit motive and which cannot distribute dividend to the shareholders, has not carried on any business activity as such but had pursued the object for which it was established i.e. protection of environment by controlling the pollution of water, air and soil.

The registration granted u/s. 12AA of the LT. Act and recognition/ approval u/s, 80G (5j of the LT, Act are in existence and has legal force and applicability to all the proceedings under the Income Tax Act. Needless to mention here that in the ladder of official hierarchy, the Director of Income Tax (Exemption/ is on the highest rank. The Officer of the highest cadre in the Income Tax Department, after due verification and examination of the issues involved, in his wisdom had thought it fit to grant approval u/s. 12AA of the IT. Act and also approval/recognition u/s. 80(G) (5) of the IT. Act, These documents bear testimony to the fact that the activities of the Assessee are in the nature of ‘charitable purpose’ within the meaning and scope of Section 2(15) of the I.T. Act, as amended by Finance Act, 2008. Please note that the Assesses is directly involved in preservation of environment and conservation of natural resources and also advancement of other object of general public utility. Please note that ‘preservation of environment’ is one of the charitable purposes referred to in Section 2(15) of the I.T. Act. Pollution abatement; environmental protection, prevention and control of water pollution, handling and Irons-boundary movement of hazardous wastage discharged by the industries set up in the in the industrial estate at Naroda, Vatva and Odhau and many other parts of Gujarat only for the industry and even state and Central Government have given recognition and is also for the advancement of general public utility. But for the Assessee’s activities in abating and controlling the pollution of environment, air and water by the industrial waste and pollutant generated by the manufacturing units in the industrial area, the life for the people in and around the industrial area would have been miserable. It is only on appreciation of the relevant facts that the highest authority of the income Tax Authority i.e’: the Director of Income Tax (Exemption) had considered the activity of the Assesses as for charitable purposes and accorded registration u/s, 12AA and approval u/s. 80G (5), There is no change with respect to the facts as well as law.”

It is very significant to mention here that on the basis of the assessment order u/s. 143(3) for A.Y. 2009-10 wherein the AO has denied the benefits of the provisions of Section 11 and 12 to the appellant, the Director of Income Tax (Exemption/, Ahmedabad had issued a show cause notice u/s. 12AA (3j for cancellation of the registration granted to the appellant u/s, 12AA. The Hon’ble Director of Income Tax (Exemption), Ahmedabad on evaluation of evidence and appreciation of facts was convinced of the charitable activities carried out by the appellant and the proceedings initiated u/s. 12AA (3) of the I.T. Act had been dropped vide letter no, DIT(E)/12AA/Naroda/12-13/876 dated 15/3/2013.

The appellant submits that the proviso below Section 2(15) would be applicable only in relation to the activity of advancement of any other object of general public utility, The appellant submits that when the amendment was made to Section 2 (15) of the I.T. Act vide Finance Act, 2008, the then Finance Minister in the Parliament made it very clear that genuine trusts will not suffer by virtue of the amendment, he further stated in his speech in the august house of parliament that the Central Board of Direct Taxes would issue explanatory circular containing guidelines for determining whether any entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Accordingly the definition of Charitable Purpose u/s 2(15) is submitted herewith as per Annexure – 1 (Page Al), Alongwith the same abstracts from the budget and that from the speech of the Hon. Finance Minister are submitted herewith as par Annexure – 2 (Pages A3 & A3) and Annexure – 3 (Page A4). The CBDT subsequently came out with a Circular explaining the definition of charitable purposes as amended by the Finance Act, A copy of the said Circular No, 11/2008 dated 19/12/2008 is submitted herewith as per Annexure – 4 (Pages AS to A6),Para 2,1 of the said circular clearly provides that newly inserted proviso to Section 2 (.15) will not apply in respect of the first three limbs of Section 2 (15) i.e, relief to the poor, education or medical relief. Consequently, where the purpose of the trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities. Since, the object of the appellant company is preservation of environment it is a charitable institution within the meaning of Section 2 (15) of the I.T. Act. The proviso to Section 2 (15) of the I.T. Act has no applicability at all to the facts of the appellant’s case.

It is further submitted that the Income Tax Department has duly accepted the fact lh.nl the appellant Assesses is a charitable institution, the returns of income filed for assessment years -2006 07 to 2008-09 claiming the benefits of Section 11 and 12 of the I.T. Act had been accepted and assessed by the predecessor AO and even m scrutiny assessment made u/s. 14313) for A.Y, 2006-07 and 2008-09, the predecessor AO had made the assessment of the appellant m accordance with the provisions of Section 11 and 12 of the Act. In Other words, as per the records of the Income Tax Department, the appellant had been assessed as a charitable institution in accordance with the provisions of Section 11and 12 of the Income Tax Act.

The principle of consistency of approach postulates that an earlier decision taken on issue is to be followed in the subsequent year if there is no change without respect 1o the facts and law. In the present ca.se of. the appellant Assesse.fi, there has been no change in respect of the activities earned on by the Assesses m the, preceding year and the year under appeal, there has been no change with respect to the facts as well as law. Therefore, the principle of consistency of approach is applicable in the appellant’s case. The appellant submits that on principles of consistency, the action of the AO in denying the appellant benefits of the prow’s ions of Section 11 and 12 of the I.T, Act is not maintainable in law, particularly so when such benefit was allowed to the appellant in the scrutiny assessments made for A.Y. 2008-09, 2006 07 and also in the summary assessment u/s. 143(1) in A.Y. 2007-08. Needless to mention here that the scrutiny assessment u/s. 143(3) r.w.s. 147 for A.Y. 2008-09 was passed by the Assistant Director of Income Tax (Exemption), Ahmedabad on I6/ 12/201 1 wherein the AO had accepted the income returned by the Assesses in accordance with the provisions of Section 1 1 of the Income Tax Act.

5. But ld. A.O. was not convinced with the contention of the assessee and made addition of Rs. 7,59,26,949/-.

6. Against the said order, assessee preferred first statutory appeal before the ld. CIT(A) who granted relief to the assessee with following observation:

4.2.1 Following the decision of the Hon’ble ITAT, it is seen that the same issue has been decided in favour of the appellant for the preceding Asst. Years i.e. Asst, Years 2010-11, 2011-12,2012-13 & 2013-14 as well . Respectfully following the decisions of my predecessors and the order of the Hon’ble ITAT on the same issue in the appellant’s own case, the it is held that the appellant company was engaged in the preservation of environment and therefore it was engaged in carrying out charitable activities. The addition of Rs. 7,59,26,949/- is accordingly deleted. Grounds of appeal nos. 1 to 6 are allowed.

5. In the result, the appeal is allowed.

7. Now Revenue has come before us by way of second appeal.

8. None appeared on behalf of the assessee but ld. D.R. vehemently relied on order of the Assessing Officer.

9. We have gone through the relevant record and impugned order and heard ld. D.R. As we can see, that ld. CIT(A) granted relief to the assessee following Co­ordinate Bench decision in ITA No. 546/Ahd/2013 for A.Y. 2009-10 wherein Co-ordinate Bench granted relief to the assessee with following observation and dismissed the appeal of the Revenue:

4. After going through rival submissions and material on cord, we find that main object of assessee company was converted as per Section 25 of Companies Act clarifies that assessee company is in area of environmental protection, abetment of pollution of water, air, solid, etc. generated by industrial units in and around Vatva and Odhav area of Ahmedabad. Accordingly, Assessing Officer has not disputed the fact that assessee is doing basic activity of treatment of various pollutants generated by industrial units. It is also not disputed by Assessing Officer that surplus generated is not distributed to its members/shareholders, etc. The assessee cannot loose exemption merely on the ground that it has made surplus as long as assessee is not generating surplus for private profit of the settler or any other person. In this situation, Assessing Officer was not justified in holding that assessee was generating surplus or profit making was the predominant object of assessee. Assessee company was incorporated with a sole object to comply with directions of Hon’ble High Court of Gujarat in a PIL for industries of Naroda GIDC for establishment in running of Common Effluent Treatment Plant and its storage and disposal facility at Odhav, Ahmedabad. The project was setup under the directions and guidelines of Hon’ble High Court of Gujarat and various local and state level agencies viz. Collector, GIDC, AMC, GPCB, etc. As per directions of Hon’ble High Court of Gujarat, it was sine-qua-non for industrial units to become member of assessee company for meeting the pollution control parameters laid down by GPCB. The amount collected from the members varied depending upon the quantum of effluent, nature of effluent to be treated as well as other factors pertaining to pollutant of different kind coming from the industrial units. Thus, assessee is engaged in the activity of preservation of environment by abetment and controlling pollution of environment i.e. land, water and air. For this objective, assessee is providing pollution control treatment for disposal of liquid and solid industrial waste. It is undisputed that assessee was incorporated u/s. 25 of the Companies Act. Assessee was duly registered u/s. 12AA and also u/s. 80G(5) of the Income-tax Act. The said certificates were issued after due verification by concern authorities. Assessing Officer has ignored modified objects of assessee’s MOU after its conversion as Company u/s. 25 of the Companies Act. The plain reading of objects of company reveals that main object is protection of environment by abetment of pollution of various kinds like water, air, soil, etc. In this background, activities of assessee company squarely falls u/s. 2(15) of the Income-tax Act. The proviso to Section 2(15) is applicable to objects of general public utility. The same was also clarified vide CBDT Circular No. 11 dated 19.12.2008. Since assessee company is directly engaged in preservation of environment as per Section 2(15), the proviso as pointed by Assessing Officer is not applicable in the instant case. Accordingly, Assessing Officer was not justified to conclude that assessee is not doing any charitable activity. With regards to Assessing Officer’s contention that assessee is carrying out business activity and is in the nature of profit making, we find that benefit of exemption cannot be denied on the ground that it had made surplus/pro fits as long as it is not meant for private profit of seller. Profit making is not predominant object of activity. Under the facts and circumstances, CIT(A) was justified in holding that assessee is doing charitable activity as per Section2(15) of the Income-tax Act, benefit of Section 11 & 12 of the Income-tax Act is available to it. Accordingly, CIT(A) was justified in directing Assessing Officer to treat the activity of assessee company as charitable and further rightly directed to delete the addition of Rs.2,53,21,438/-. This reasoned finding of CIT(A) needs no interference from our side. We uphold the same.

5. In the result, appeal filed by Revenue is dismissed.

10. In our considered opinion, ld. CIT(A) has granted relief to the assessee on the basis of principle of consistency and following the Co-ordinate Bench order. Thus, we are not inclined to interfere in the order passed by the ld. CIT(A). He has passed detailed and reasoned order.

11. In the result, appeal filed by the Revenue is dismissed.