THE DCIT, (EXEMPTION),CIRCLE-2,, AHMEDABAD vs. NANDESARI INDUSTRIES ASSOCIATION,, NANDESARI

PER MAHAVIR PRASAD, JUDICIAL MEMBER

ITA No. 333/Ahd/2018 2 . A.Y. 2010-11 1.The Ld. CIT(A) has erred in 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. 2.The Ld.CIT(A) has erred in the law and on facts in deleting the addition of Rs.2,85,05,353/- made on account of disallowance of capital expenditure 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. 3.The Revenue carves 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.

ITA No. 333/Ahd/2018 3 . A.Y. 2010-11 "The scrutiny of the records reveals that you have claimed following expenditure which was in nature of capital expenditure Particulars Amount (Rs)

Infrastructure project margin 2,05,00,000/- a/c provision

Contribution for Infrastructure project 34,00,000/-

Infrastructure of project 3,49,377/-

ECP Contribution 42,55,976/-

Total 2,85,05,353/-

The above expenditures claimed by you as revenue expenditure, are in fact expenditure of capital nature. You are therefore requested to show cause as to why the above expenditure of Rs 2,85,05,353/- should not be disallowed and added to the total income of the assessee trust. Further during the year under consideration, the assessee trust has incurred/applied the income for the object to the extent of Rs. 4,07,92,391/- (6,12,92,391-2,05,00,000 provisions) which was 66.55% of the total income the assessee trust had not applied 85% of income as provided u/s. 11 of the Act. The assessee trust was required to file form no 10 for the accumulation of the funds as provided in section 11(2) of the I.T. Act. On perusal of the records it is found that the assessee trust has not filed prescribe form 10 specifying the accumulation /provisions of Rs. 2,05,00,000/- to this office, stating the purpose and the period for accumulation for future applications. Since assessee trust failed to filed such form no 10, you are requested to show cause why the amount of Rs. 2,05,00,000/- should not disallowed and added to the total income of the trust. " 4. In response to these notices and show cause Shri Ankit Chokshi, CA and authorized representatives of appeared from time to time and furnished the reply of the show cause which is reproduced as under: "Regarding your above show cause notices, your assessee trust humbly submit following

ITA No. 333/Ahd/2018 4 . A.Y. 2010-11 1. Regarding disallowance u/s. 37(1) of the Act as Capital Expenditure

With regards to considering the above mentioned expenses as capital expenditure it is humbly submitted that expenditure of Rs. 2,05,00,000/-debited to "Infrastructure Project Margin A/c Provision" is in respect of provision made for infrastructure margin amount payable to GIDC for S.W. drainage network under CIP II and III. Expenditure of Rs. 34,00, OOO/-debited to "Contribution to Infrastructure Project" is in respect of payment made to GIDC towards contribution for infrastructure project. Rs. 3,49,377/- represents payments to Bank of Baroda towards interest and review charges on term loan for RCC road project. Rs. 42,55,976/-represents M & F contribution to ECP as well as contribution for construction of pipeline (i.e. M&R contribution Rs. 17,55,976/- + Contribution for pipeline Rs. 25,00,000/-). Thus all the expenses under consideration are in nature of "Contribution". No capital asset comes under as'sessee's control by incurring such expenses. Also assessee has no right in asset which comes into existence. In such a scenario "Contribution" needs to be treated as revenue expenditure and the same is allowable u/s 37 of the act. Reliance is placed on the followings. JCIT vs. Deversons Industries Ltd. - 104 ITD 171 (AHD) Head Note:- Section 37(1) of the Income Tax Act, 1961 -Business Expenditure -Allowability of- Assessment Year 1996-97 - Whether contribution made by assessee towards setting-up of a common effluent treatment plan (ETP), as also conveyance of effluent from their points of discharge by polluting units, of which assessee was one, to its ultimate point of disposal, on direction of High Court in a civil petition, was allowable as business expenditure - Held, Yes - Whether contribution having been made, in pursuance to Courts direction with a dominant purpose to prevent disruption/dislocation of business and / or adverse claims on it, time of actual setting-up or operation of facility, which would only be subsequent to time of contribution, being its off spring, to which end contributed amounts were to be utilized by a separate body, would not be relevant for purpose of deduction, contribution having served business purpose insofar as assessee was concerned - Held, yes FACTS:

ITA No. 333/Ahd/2018 5 . A.Y. 2010-11 The assessee made payments to the municipal Corporation/Industrial Development Corporation (IDC) and also to company 'O' towards setting-up of common effluent treatment plant (ETP), as also conveyance of said effluent from its point of discharge (by the polluting units, of which the assessee was one) to its ultimate point of disposal, on direction of the High Court. The Assessing Officer held the aforesaid payments as capital expenditure and disallowed same. The Assessing Officer alternatively stated that, even if said expenditure was held to be revenue in nature, it would not merit allowance, as said facility was not actually set-up or put to use, either during assessment year under consideration or even for subsequent two years and so on account of principle of accrual of expenditure, same could not be considered to be relatable to the relevant assessment year. On appeal, the Commissioner (Appeals), however, allowed the assessee's claim, holding that said expenditure, though resulting in an enduring benefit to the assessee yet was not an advantage that could be said to be in capital field and, thus, was allowable as revenue expenditure, being solely for the assessee's business purposes. HELD: It is the duty of the each' industrial unit to discharge the effluent emanating from its work into the public drainage/sewerage system, duly treated, i.e., rendered form, to the extent defined under the relevant laws) of the various toxic and other contaminant material therein. It was, thus, on the failure on the pan of the industrial units, of which the assessee's unit was, admittedly, one to do so that, on a petition being filed before the High Court, it directed the said industries to contribute towards the setting-up of u common ETP, as also towards the cost of the facilities required for its conveyance, as without the same being in place no effective remedy of the malady would come into effect. It was in that background that the assessee, among others, contributed the impugned amount to the Municipal Corporation and '0'. [Para 13] The obligation of the assessee as an industrial unit, under the law, being only to treat the effluent to the required degree prior to its discharge in the public drainage, the contribution made by it, on the direction of the High court to contribute towards the laying of the network of pipelines required for the conveyance of the discharge, in view of the high cost project entailed, being outside the financial capacity of the relevant authority, being Municipal

ITA No. 333/Ahd/2018 6 . A.Y. 2010-11 Corporation, was only an obligation that it assumed as a responsible citizen. In its absence, the entire scheme, as sought to be put in place by the said Court, to alleviate a continuing hardship/problem, would become unworkable/ unfeasible. That, it may have also been motivated, as apart of the group of participating industrial units of the area, to buy peace with the State Industries, or the Pollution Control Department, or to safeguard themselves from the penal consequences, that may visit on account of their violation of the law in the past, though relevant from business stand-point, are irrelevant to the purpose of the nature and scope of the obligation under the law. Rather, if at all, those consideration is only went to support the assessee's argument of the said contribution being made only to protect its business as an ongoing entity and, thus, its business interests/profitability, with no concomitant financial benefit/interest, so that the expenditure was only a revenue expenditure, incurred wholly and exclusively for its business. As such, the arguments of the assessee were to be agreed with, that the said expenditure was revenue in nature, the only advantage the assessee deriving from the said expenditure being avoidance of protracted litigation and enabling its smooth conduct, and, thus, protecting its business profits and assets; it being not charged under law to do so, and, thus, was a revenue expenditure allowable in full. In doing so, the cost of the pipeline 5. The above contentions of the assessee have been carefully considered and found to be self serving and devoid of any force considering the facts of the case and hence not acceptable as for the following reasons. 5.1 The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further, profit making by the assessee is not mere incidental or byproduct of the activity of the assessee. The main pre-dominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend it on 'charitable purposes' only. The activities can be considered as trade, business or commercial activity because providing water treatment services and effluent services to all members having factories in and around Nandesari Industrial area involves charging of such fees.

ITA No. 333/Ahd/2018 7 . A.Y. 2010-11 5.2 The Facts of the case are as under: i) Assessee is doing work of water treatment and effluent services for the industries situated in the Nandesari area. So assessee is rendering services in relation to trade, commerce or business. ii) Association is charging fees for these services from the various industries so assessee is providing services for a cess or fees. iii) The total amount of receipts coming from various industries by charging fees is far beyond the 25 lakhs. So the receipt of the assessee is exceeding 25 lakhs. iv) Assessee is claiming that they are trade association and are working on the principle of mutuality, but this contention is disproved in the discussion in the para 4 as they are dealing with the non-members that is to say outside the group, hence negating the principle of mutuality. This results into the fact that they fall under the first proviso of section2(15), v) The fact of the cases are different from the case laws cited by the assessee Above stated facts are provides sufficient ground to take the opinion that assessee is hit by the first proviso of the subsection 15 of section 2, which was introduced by the Finance Act, 2008 (w.e.f. 1.4.2009), according to which the advancement of any other object of general public utility shall not, be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any services in relation' to any trade, commerce or business, for a cess or fee or any other consideration beyond Rs.25 lakhs, irrespective of the use or application or retention, of the income from such activity and this led to the forfeiture of exemption u/s 13(8). 6. Section 2(15) of the Act defines 'charitable purposes'. First proviso, thereto with effect from assessment year 2009-10 laid down that, if any trust etc. (a) is engaged in pursuing objects of general public utility ('other objects') and (b) carries on any activity in the nature of trade, business or commerce or provides any services in relation to the trade, commerce services or business and (c) aggregate receipts there from exceed Rs. 25 lacs, it shall be considered that advancement of other objects is not a charitable purpose. If so, such a trust is not eligible for the exemption inasmuch as the primary condition of being existing for charitable purpose is not satisfied.

ITA No. 333/Ahd/2018 8 . A.Y. 2010-11 6.1 During the course of scrutiny assessment, it was established that the assessee was not doing any 'charitable/educational activity' but the main predominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend it on 'charitable purposes' only. Hence, the provisions of Sec 2(15) read with the proviso 1 86 2 are squarely applicable to the facts of the case, and forfeited the exemption u/s 13(8) of the I.T. Act, 1961. 7. On verification of submission as filed by the assessee, the expenditure of Rs. 4,87,76,924/- on account of expenditure on objects of the Trust under schedule 3 includes an amount of Rs. 2,85,05,353/- which are as under: Particulars Amount (Rs)

Infrastructure project margin a/c 2,05,00,000/- provision

Contribution for Infrastructure project 34,00,000/-

Infrastructure of project 3,49,377/-

ECP Contribution 42,55,976/-

Total 2,85,05,353/-

It can be seen from the above mentioned table the above expenditure claimed by the assess as revenue expenditure, are in fact, in fact expenditure of capital in nature, and hence, the same are hereby disallowed and added in the total income of the assessee.

ITA No. 333/Ahd/2018 9 . A.Y. 2010-11 5. At the outset, ld. A.R. stated that matter is squarely covered in assessee’s own case for assessment year 1704/Ahd/2014 wherein relief has been granted by the Co-ordinate Bench of this Tribunal and copy of the said order is reproduced here for the sake of convenience:

“1. Ld. CIT(A) erred in confirming the decision of ld. A.O. that the services to the members of Association were activities “in the nature of trade, commerce or business” and violation of amended provision of finance Act, 2008, w.e.f. 01.04.2009 under section 2(15) r.w.s. 11 of the Income Tax Act, 1961. 2. Ld. CIT(A) erred in confirming that activities of the association of collection of fees from the members and rendering services to them were with the profit motive and not eligible as charitable activity. 3. Ld. CIT(A) as well as Ld. A.O. erred in forfeiting the exemption under section 13(8) of the Income Tax Act, 1961. 4. Ld. CIT(A) erred in confirming the decision of ld. A.O. disallowing the repairs and maintenance expenses of Rs. 6,09,100/-.”

"3. The material facts are not in dispute. The assessee before us is a trust looking after welfare and well being of industries situated in Nandesari. The trust is also providing infrastructure facility to industries of Nandesari. During the relevant previous year the trust has provided water treatment services and effluent services to all members having factories in and around Nandesari Industrial area. In the course of assessment proceedings, the Assessing Officer noted that the water treatment and effluent services provided to the trustees situated in Nandesari were provided in consideration of "fees or cess" and that the receipts, in respect of the same crossed the limit of Rs.25 lakhs. It was in this backdrop the Assessing Officer required the assessee to show cause as to why he should not be treated as assessee being covered by fist proviso to section 2(15) and accordingly declined the status of charitable institution. Upon considering the submissions made by the Assessing Officer, the Assessing Officer was of the view that the assessee is rendering services in relation to trade, commerce or business in consideration for a fees that the receipts of the assessee from such services exceeds the threshold limit of Rs.35 lakhs and accordingly in the light of proviso to section 2(15) read with section 13(8) notwithstanding the registration granted to the assessee as charitable institution the benefit of section 11 & 12 are to be declined to the assessee. While computing so, the Assessing Officer observed as follows :-

ITA No. 333/Ahd/2018 10 . A.Y. 2010-11

“6. Facts of the case 1. Assessee is doing wok of water treatment and effluent services for the industries situated in the Nandesari area. So assessee is rendering services in relation to trade, commerce or business.

2 Association is charging fees for these services from the various industries. So assessee is providing services for a cess or fees.

ITA No. 333/Ahd/2018 11 . A.Y. 2010-11 different. The ratio laid down by the Hon'ble Delhi High Court in the aforesaid case is not applicable in the facts and circumstances of the present case.

3.3.2. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further, profit making by the assessee is not mere incidental or byproduct of the activity of the assessee. The main pre-dominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend it on 'charitable purposes' only. The activities can be considered as trade, business or commercial activity because providing water treatment services and effluent services to all members having factories in and around Nandesari Industrial area involves charging of such fees. As per the amended definition of charitable purpose under Section 2(15) of the Act, w.e.f. 01.04,2009, advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activities in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess of fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.

3.3.3. As discussed above, since the applicant is engaged in the activity in the nature of trade, commerce and business and is engaged in the trade of real estate business predominantly with a profit motive, its engagement in any of the activities as stated above will not affect its character as such since the proviso provides that the advancement of any other object of general public utility shall not be regarded as charitable purpose if it involves in carrying on any activity in the nature of trade, commerce or business or 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.

Assessing Officer has dealt in details all objections of the appellant and passed the order considering various case laws cited by him. There is no infirmity in the order of the Assessing Officer and the same is upheld."

ITA No. 333/Ahd/2018 12 . A.Y. 2010-11 5. Assessee is aggrieved and is in appeal before me. When this appeal was called out for hearing, my attention was invited to a division bench order of this Tribunal in the case of DDIT vs. Naroda Enviro Projects Ltd. ITA No.546/Ahd/2013, order dated 29.01.2015, wherein on materially identical facts of the case, similar action of the Assessing Officer was held to have been correctly reversed by the CIT(A) on the basis of following reasons:

"4. After going through rival submissions and material on record, 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

ITA No. 333/Ahd/2018 13 . A.Y. 2010-11 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/ profits 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." 6. I have also noted that on somewhat similar material facts, in case of a regulatory body i.e. Himachal Pradesh Environment Protection & Pollution Control Board vs. CIT, 9 ITR (Trib) 604, Chandigarh 'B' Bench of the Tribunal held as follows:-

"8. We have noted that the learned Commissioner has proceeded on the assumption that the scope and connotations of "regulatory function" and "charitable purposes under the Income-tax Act" are mutually exclusive. While holding that the assessee was not engaged in an activity for charitable purposes, the learned Commissioner has held that since the assessee was engaged in a regulatory function, it could not be said that the assessee was engaged in an activity which could be said to be for charitable purposes. We must, therefore, consider whether or not merely because an assessee is engaged in a regulatory activity, could it be said that the assessee is not involved in activity for charitable purposes. 9. We are unable to see any conflict in an assessee being a regulatory body and its pursuing an "object of general public utility" which qualifies to be a charitable activity under section 2(15) of the Act. The scope of expression "any other object

ITA No. 333/Ahd/2018 14 . A.Y. 2010-11 of general public utility" is indeed very wide, though it would indeed exclude the object of private gain such as an undertaking for commercial profit even as the undertaking may sub serve general public utility. The hon'ble courts have taken a very broad view of the connotations of "objects of general public utility". In the case of CIT v. Bar Council of Maharashtra [1981] 130 ITR 28 (SC), the hon'ble Supreme Court has held that a State Bar Council, which is clearly a regulatory body under the Advocates Act, is primarily and predominantly for the purposes of "advancement of an object of general public utility within the meaning of section 2(15)". It is not appropriate to proceed on the basis, as the learned Commissioner has chosen to proceed, that regulatory functions are not activities for charitable purposes, for the elementary reason that the expression "charitable purposes", under section 2(15), includes "any other objects of the general public utility" which, as we have noted above, is an expression of wide import. In the scheme of things which operate in the contemporary society, many of these regulatory functions are entrusted to the bodies independent of the Government and the object of the bodies so entrusted with the regulatory functions are, in our humble understanding, clearly pursuing objects of general public utility. We must emphasize once again that the connotations of "charitable purposes", in view of specific provisions of the Act, are significantly wider than connotations of this expression in common parlance." 7. Ld. Departmental Representative's main contention is (1) that so far as the decision in the case of Himachal Pradesh Environment Protection & Pollution Control Board (supra) is concerned, it is in the case of a regulatory body whereas the case before me is of a voluntary association industries and; secondly that if the same activity was to be carried out by a commercial unit, it would have been resulted in taxable income and, therefore, just because several entities are doing it together, it cannot result in tax exempt income. None of these contentions, however, merit acceptance. As for the first point made by the ld. Departmental Representative, it is not the fact of a regulatory body, which is decisive to hold whether or not the proviso to section 15 are satisfied on the nature of activities which are carried out govern that. There is no dispute, that the nature of activities is exclusively the same as carried out by the regulatory body. The limited issue before me is whether in such a situation the proviso to section 2(15) will come into play or not. I, therefore, see no reasons to come to a different conclusion in the case of this assessee just because it is not a government or regulatory body because of the fact which are material. The question before me is pari matria.

ITA No. 333/Ahd/2018 15 . A.Y. 2010-11 8. As regards the second point by the ld. Departmental Representative, once again it is important to bear in mind that undisputedly the assessee trust before me is having common cause and it is not even the case of the Assessing Officer that it involves any commercial venture. The limited objection of the Assessing Officer which has been upheld by the ld. CIT(A) is that proviso to section 2(15) is hit in the present case. That aspect of the matter, as I have noted earlier, has been decided in favour of the assessee by the two division bench decisions of this Tribunal. Hon'ble Telangana and Andhra Pradesh High Court in the case of CIT (Exemptions) vs. Water Land Management Training and Research Institute [2017] 398 ITR 283 (T&AP) has also held so in the context of proviso to section 2(15) of the Act.

ITA No. 333/Ahd/2018 16 . A.Y. 2010-11 disallowable on the ground that predominant object of the assessee-trust is to make profit; there was no spending of the income exclusively for the purpose of charitable activities nor any obligation on the part of the assessee to spent income or profit on charitable purpose only; that the activities carried out by the assessee was in the nature of trade, business or commercial activity, and for such activities or services rendered by the assessee, the members have paid assessee in the form of fees, cess and charges. Therefore, the claim of the assessee was hit by provisions of section 2(15) of the Act and the assessee was not eligible for the benefit under section 11 of the Act. Similarly, assessee has claimed expenditure of Rs.90,45,483/- towards ECP contribution as revenue expenditure. However, the ld.AO denied the claim of the assessee and treated the same to be capital expenditure, and added to the income of the assessee. However, in the appeal before the ld. First Appellate Authority, both the disallowances were deleted. Now the Revenue is before the Tribunal. 5. Before us, both the parties supported the respective orders of the Revenue authorities. The ld.cousnel for the assessee further relied upon the order of the Tribunal passed in the assessee own case for the Asstt.Year 2010-11, wherein Tribunal has allowed similar claim of the assessee. He placed on record a copy of the order of the Tribunal passed in ITA No.1704/Ahd/2014 dated 28.11.2017 in the case of the assessee. 6. We have considered rival submissions and gone through the record carefully, and also order of the Tribunal passed in the assessee's own case on similar issue in the Asstt.Year 2010-11. It is an undisputed fact that the assessee is trust registered under section 12AA of the Act which formed by members of Nandesari Industries. The assessee trust is engaged in the activity of preservation of environment by treating and controlling pollution of environment i.e. land and water. As a part of its activities, trust is running a common effluent treatment plant for treatment of effluent and wastewater generated and discharged by the Industrial units situated in and around Nandesari Industrial Units, who are members of the assessee trust. This is in accordance with the requirement of Environment Protect Act and various notifications and guidelines issues by the Central, State Governments, and Pollution Control Boards. Assessee is charging fees from members for meeting operating costs. This factual position has not been disputed by the AO. However, according to the AO provision of section 2(15) of the Act is applicable to the assessee-trust, because the predominant object of the assessee is in the nature of trade, business or commercial activities and to make profit, and therefore, there is no exclusive usage of income or profit for the charitable purpose as defined in section 2(15) of the Act, and therefore, the assessee is not entitled for benefit under section 11 of the Act. The ld.CIT(A) has considered both the issues in detail and observed that the activities of the assessee trust clearly falls within the ambit of the clause of preservation of environment and the assessee is eligible for all the benefits under sections 11 and 12 and all the capital expenditure incurred by the assessee has to be considered as application of income. By holding so, the ld.CIT(A) has also

ITA No. 333/Ahd/2018 17 . A.Y. 2010-11 treated ECP contribution of Rs.90,45,483/- as part of application of income, and accordingly disallowance to this extent also deleted. 7. We find that similar issue was also raised by the assessee in the Asstt.Year 2010-11 and the Tribunal has allowed the claim of the assessee vide order dated 28.11.2017. The relevant part of order of the Tribunal reads as under:

"3. The material facts are not in dispute. The assessee before us is a trust looking after welfare and well being of industries situated in Nandesari. The trust is also providing infrastructure facility to industries of Nandesari. During the relevant previous year the trust has provided water treatment services and effluent services to all members having factories in and around Nandesari Industrial area. In the course of assessment proceedings, the Assessing Officer noted that the water treatment and effluent services provided to the trustees situated in Nandesari were provided in consideration of "fees or cess" and that the receipts, in respect of the same crossed the limit of Rs.25 lakhs. It was in this backdrop the Assessing Officer required the assessee to show cause as to why he should not be treated as assessee being covered by fist proviso to section 2(15) and accordingly declined the status of charitable institution. Upon considering the submissions made by the Assessing Officer, the Assessing Officer was of the view that the assessee is rendering services in relation to trade, commerce or business in consideration for a fees that the receipts of the assessee from such services exceeds the threshold limit of Rs.35 lakhs and accordingly in the light of proviso to section 2(15) read with section 13(8) notwithstanding the registration granted to the assessee as charitable institution the benefit of section 11 & 12 are to be declined to the assessee. While computing so, the Assessing Officer observed as follows :-

“6. Facts of the case 1. Assessee is doing wok of water treatment and effluent services for the industries situated in the Nandesari area. So assessee is rendering services in relation to trade, commerce or business.

2 Association is charging fees for these services from the various industries. So assessee is providing services for a cess or fees.

ITA No. 333/Ahd/2018 18 . A.Y. 2010-11 introduced by the Finance Act, 2008 (w.e.f. 1.4.2009), according to which the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any services in relation to any trade, commerce or business, for a cess or fee or any other consideration beyond Rs.25 lakhs, irrespective of the use or application or retention, of the income from such activity. And this led to the forfeiture of exemption u/s 13(8)."

3.3.2. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further, profit making by the assessee is not mere incidental or byproduct of the activity of the assessee. The main pre-dominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend it on 'charitable purposes' only. The activities can be considered as trade, business or commercial activity because providing water treatment services and effluent services to all members having factories in and around Nandesari Industrial area involves charging of such fees. As per the amended definition of charitable purpose under Section 2(15) of the Act, w.e.f. 01.04,2009, advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activities in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess of fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.

3.3.3. As discussed above, since the applicant is engaged in the activity in the nature of trade, commerce and business and is engaged in the trade of real

ITA No. 333/Ahd/2018 19 . A.Y. 2010-11 estate business predominantly with a profit motive, its engagement in any of the activities as stated above will not affect its character as such since the proviso provides that the advancement of any other object of general public utility shall not be regarded as charitable purpose if it involves in carrying on any activity in the nature of trade, commerce or business or 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.

Assessing Officer has dealt in details all objections of the appellant and passed the order considering various case laws cited by him. There is no infirmity in the order of the Assessing Officer and the same is upheld."

"4. After going through rival submissions and material on record, 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

ITA No. 333/Ahd/2018 20 . A.Y. 2010-11 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/ profits 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." 6. I have also noted that on somewhat similar material facts, in case of a regulatory body i.e. Himachal Pradesh Environment Protection & Pollution Control Board vs. CIT, 9 ITR (Trib) 604, Chandigarh 'B' Bench of the Tribunal held as follows:-

"8. We have noted that the learned Commissioner has proceeded on the assumption that the scope and connotations of "regulatory function" and "charitable purposes under the Income-tax Act" are mutually exclusive. While holding that the assessee was not engaged in an activity for charitable purposes, the learned Commissioner has held that since the assessee was engaged in a regulatory function, it could not be said that the assessee was engaged in an activity which could be said to be for charitable purposes. We must, therefore, consider whether or not merely because an assessee is engaged in a regulatory activity, could it be said that the assessee is not involved in activity for charitable purposes. 9. We are unable to see any conflict in an assessee being a regulatory body and its pursuing an "object of general public utility" which qualifies to be a charitable

ITA No. 333/Ahd/2018 21 . A.Y. 2010-11 activity under section 2(15) of the Act. The scope of expression "any other object of general public utility" is indeed very wide, though it would indeed exclude the object of private gain such as an undertaking for commercial profit even as the undertaking may sub serve general public utility. The hon'ble courts have taken a very broad view of the connotations of "objects of general public utility". In the case of CIT v. Bar Council of Maharashtra [1981] 130 ITR 28 (SC), the hon'ble Supreme Court has held that a State Bar Council, which is clearly a regulatory body under the Advocates Act, is primarily and predominantly for the purposes of "advancement of an object of general public utility within the meaning of section 2(15)". It is not appropriate to proceed on the basis, as the learned Commissioner has chosen to proceed, that regulatory functions are not activities for charitable purposes, for the elementary reason that the expression "charitable purposes", under section 2(15), includes "any other objects of the general public utility" which, as we have noted above, is an expression of wide import. In the scheme of things which operate in the contemporary society, many of these regulatory functions are entrusted to the bodies independent of the Government and the object of the bodies so entrusted with the regulatory functions are, in our humble understanding, clearly pursuing objects of general public utility. We must emphasize once again that the connotations of "charitable purposes", in view of specific provisions of the Act, are significantly wider than connotations of this expression in common parlance." 7. Ld. Departmental Representative's main contention is (1) that so far as the decision in the case of Himachal Pradesh Environment Protection & Pollution Control Board (supra) is concerned, it is in the case of a regulatory body whereas the case before me is of a voluntary association industries and; secondly that if the same activity was to be carried out by a commercial unit, it would have been resulted in taxable income and, therefore, just because several entities are doing it together, it cannot result in tax exempt income. None of these contentions, however, merit acceptance. As for the first point made by the ld. Departmental Representative, it is not the fact of a regulatory body, which is decisive to hold whether or not the proviso to section 15 are satisfied on the nature of activities which are carried out govern that. There is no dispute, that the nature of activities is exclusively the same as carried out by the regulatory body. The limited issue before me is whether in such a situation the proviso to section 2(15) will come into play or not. I, therefore, see no reasons to come to a different conclusion in the case of this assessee just because it is not a government or regulatory body because of the fact which are material. The question before me is pari matria.

ITA No. 333/Ahd/2018 22 . A.Y. 2010-11 hit in the present case. That aspect of the matter, as I have noted earlier, has been decided in favour of the assessee by the two division bench decisions of this Tribunal. Hon'ble Telangana and Andhra Pradesh High Court in the case of CIT (Exemptions) vs. Water Land Management Training and Research Institute [2017] 398 ITR 283 (T&AP) has also held so in the context of proviso to section 2(15) of the Act.

Order pronounced in Open Court on 14- 10- 2019

Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy sJUDICIAL MEMBER Ahmedabad: Dated 14/10/2019