AMBUR ECONOMIC DEVELOPMENT ORGANISATION,CHENNAI vs. CIT(E), CHENNAI

The order of the Honourable Commissioner of Income Tax (Exemptions) is without jurisdiction, is contrary to law, facts and circumstances of the case and is opposed to the principles of natural justice, equity and fair play.

The Honourable CIT(E) erred in rejecting the application in Form 10AB filed by the appellant trust seeking registration u/s 12AB of the Income Tax Act, 1961

The Honourable CIT(E), without appreciating the fact that the appellant trust is in the activity of protecting the environment from the effluent of industrial and sewerages, air, water, chemicals rejected the registration u/s 12AB of the act.

The Honourable CIT(E) erred in rejecting the registration u/s 12AB of the act on the grounds that the appellant trust caters to the leather industry units and fails the test of general public utility. For these grounds and such other grounds that may be adduced at or before the time of hearing, the Honourable Commissioner of Income Tax (Exemptions) may be pleased to admit and allow the appeal and render justice.

The brief facts of the case are that the assessee society has filed an application in form no. 10AB under sub clause (ii) of clause (ac) of subsection (1) of section 12A of the Act on 31.07.2025 seeking registration u/s. 12AB of the Act and the same is being rejected as per para 4 of the order of the Ld. CIT(E), Chennai vide order dated: 31.03.2026. The assessee being aggrieved with the same preferred the present appeal before us.

We have gone through the order of the Ld. CIT(E), Chennai and submissions of the assessee alongwith grounds taken before us. It is observed that the main objects to be pursued by the assessee on its incorporation are as below: - Sub-clauses-1, 2 & 4 of Clause III (A) amended, as approved at the Extraordinary General Meeting held on 28.02.2007 and sub-clause 1 further amended, to add the words after anywhere in India, without any profit motive, as approved at the EGM held on 07.03.2008 as under: - To promote, create, construct, erect, maintain, assist and develop all kinds of infrastructural facilities anywhere in India, without any profit motive. To initiate all necessary steps to protect the environment from effluent of industrial and domestic sewerages, air wate chemicals, betterment of industry and public health, other wastes ecology safety needs and using the treated water for industrial, irrigation and domestic purposes. To assist the leather industry, small scale, tiny and cottage industry, in all the technical, financial, research and development, administration, warehousing facilities information technology, marketing, training, recruitment and placement. To assist the members and others in the leather industry to modernize production and processing facilities, upgrade the technology, marketing, training, recruitment and placement. Sub-clauses 5 & 6 of Clause III (A) totally deleted, as approved at the Extraordinary General Meeting held on 07.03.2008. 4. In addition to the above, we have analysed the audited financial results of the assessee and found that the total issued, subscribed and paid-up capital of the company as on 31.03.2025 is Rs. 3542.81 lakhs and being hold by M/s. Ambur Tannery Effluent Treatment Company Ltd. (Amburtee) (50.30%), M/s. Vaniyambadi Tanners Enviro Control Systems Ltd. (Vanitee) (49.68%), Mr. M. Rafeeque Ahmed, Mr. N. Mohamed Sayeed (Legal heirs of Mr. K. Ameen-ur-Rahman, Mr. N. M. Zackriah and Mr. T. Rafeeq Ahmed.

It confirms that the assessee is a company incorporated under the Company’s Act promoted by the major players are Tanery Industry to curtail the pollution generated by them. This job otherwise also a responsibility of the industry concerned and to discharge that function, the assessee organization has been formed. The assessee under consideration, at the max can be considered as trade association and there is a specific provision in the statute to deal with the same, i.e. section 44 of the Act, reproduced as below: -

Section 44A of the Act provides that, in the case of a trade, professional, or similar association which does not distribute any part of its income to its members, the amount of any deficiency (being excess of expenditure, other than capital expenditure, incurred for the advancement of the common interest of the members of the association concerned, over receipts from its members, exclusive of remuneration for rendering any specific services to such members) will be allowed to be deducted from the assessable income of the association to the extent of 50 per cent of the assessable income as arrived at before allowing the aforesaid deduction. The aforesaid deduction will be allowed first from the income of the association chargeable under the head 'Profits and gains of business or professional', and the balance amount, if any, from the assessable income of the association under any other head. The said deduction will be allowable from net assessable income of the association as computed after giving effect to the provisions in the Income-tax Act for the carry forward of depreciation, development rebate and past business losses. Where the assessee derives income from business, if the assets on which depreciation is claimed are used for the purpose of the business carried on by the assessee, the assessee will be entitled to depreciation.

The language of the provisions of section 44A of the Act absolutely matching with the object clause and body of the financial results of the assessee. Further, section 44A of the Act contains special provision for deduction in case of certain computation. In that sense, it is a beneficial provision. It is also a common construction that even in a statute which requires it to be strictly construed, if there is any beneficial provision, it should be liberally construed. This provision in the statute is intended for the benefit of trade or profession and similar associations, as the assessee before us. The intention of the Legislature was to give benefit of section 44A of the Act to all professional associations other than those referred to in section 10(23A) of the Act. The aforesaid expression had the effect of merely limiting the body of professional associations to associations other than those mentioned in section 10(23A) of the Act.

In view of the above discussions and the finding of Ld. CIT(E), Chennai, as reproduced below (but subject to the facts of the matter as enumerated in coming paras 9, 10 and 11), on the principle of consistency we allow the appeal of the assessee and the Ld. CIT(E), Chennai is directed to accord the approval, as the operations and working of the assessee was never under challenge, i.e. even after insertion of section 2(15) of the Act. “(i) The applicant is involved in creation, operation, and facilitation of infrastructure (CETPs). The infrastructure is funded partly by Government grants and thereafter operated through structured revenue mechanisms. Service charges/fees are levied in a systematic and recurring manner. The activities are closely linked to and primarily serve the leather industry cluster. (ii) The applicant's activities involve Creation of capital-intensive infrastructure. Organized service delivery, Collection of consideration linked to services. These features clearly establish that the activities bear the character of business or commercial operations, irrespective of the nomenclature used. The Hon'ble ITAT's observation that absence of profit distribution negates commerciality is legally untenable, a systematic commercial activity itself attracts the proviso to Section 2(15). (iii) The assessee has sought to place reliance on "environment protection" to claim public utility. However, factual analysis shows Services are rendered predominantly to leather industry units. Benefits are restricted to identifiable contributors/users. There is no open access or public interface. Thus, the activity is sector-specific and beneficiary-restricted, failing the test of public utility. The Hon'ble ITAT erred in equating environmental impact with charitable character, ignoring the commercial delivery me mechanism and restricted beneficiary class (iv) As seen from the financials that substantial amount of income is received by way of Rent (Rental agreement is furnished by the applicant) which is of Rs. 17 lakhs out of Rs. 69 lakhs in F.Y. 2024-25. (v) Further, the proviso to section 2(15) of the Act clearly excludes from charitable purpose activities in the nature of trade, commerce or business and rendering of services in relation thereto for consideration. In the present case services are rendered for cess/fee/service charges and Rental Income. Activities are continuous and organized and the consideration is integral to operations. Therefore, the case squarely falls within the statutory exclusion, irrespective of application of income. The ITAT's reasoning that activities are "cost recovery" is factually and legally insufficient, as the statute does not distinguish between profit and cost recovery where consideration is charged.”

The appellant has been enjoying registration under Section 12A of the Act for more than 10 years and has been granted exemption all along, demonstrates that its charitable objects and activities have already been accepted by the Department as per the directions of Honourable ITAT. The exercise was not intended to permit a fresh examination of settled charitable status unless there was a change in objects or activities. In the case under consideration, there was no change in objects or activities of the trust. The appellant trust had been granted registration under Section 12A of the Income-tax Act more than 10 years prior to the impugned proceedings. Throughout this period, the registration remained valid and was never cancelled or withdrawn under the provisions of the Act. The appellant has continuously carried on the very same charitable activities in furtherance of its objects.

In the result, the appeal of the assessee is allowed in above terms.