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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI A. MOHAN ALANKAMONY
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “B”, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA No.2119/Hyd/2017 Assessment Year: 2013-14 A.P. Forest Development Vs. Deputy Commissioner of Corporation Limited, Income Tax, Guntur. Circle-1(1), PAN: AACCA 0095 Q Hyderabad. (Appellant) (Respondent) Assessee by: Sri Y. Ratnakar Revenue by: Sri Nilanjan Dey, DR Date of hearing: 17/09/2019 Date of pronouncement: 11/10/2019 ORDER PER A. MOHAN ALANKAMONY, AM.:
This appeal is filed by the assessee against the order of the Ld. CIT(A)-1, Hyderabad in appeal No.0026/CIT(A)-1/Hyd/2016-17/2017- 18, dated 04/08/2017 passed U/s. 143(3) r.w.s 250(6) of the Act for the Assessment Year 2013-14.
The assessee has raised several grounds in its appeal however, the cruxes of the issues are that: -
(i) Ld. CIT (A) has erred by holding that the assessee does not have valid registration U/s. 12A of the Act.
(ii) The Ld. CIT (A) has erred by holding that the assessee do not fall under the sixth limb of Section 2(15) of the Act viz., “Preservation of environment (including water-sheds, forests and wild-life) and preservation of monuments or places or objects of artistic or historical interest” which was inserted by the Finance Act, 2009 with retrospective effect from 1/4/2009. (iii) The Ld. CIT (A) has erred in confirming the order of the Ld. AO who had treated several residual receipts as the taxable income of the assessee by holding that assessee’s claim of exemption U/s. 11 cannot be accepted.
Brief facts of the case are that the assessee is a company engaged in charitable activities in the nature of preservation of environment, forests, wildlife etc., registered U/s. 12A of the Act, filed its return of income on 7/1/2014 declaring NIL income. Subsequently the case was taken up for scrutiny under CASS. During the course of scrutiny assessment, it was observed by the Ld. AO that the assessee has claimed exemption of its income to the extent of Rs. 3,70,59,197/- U/s. 11 of the Act. It was further observed by the Ld. AO that the main activities of the assessee were sale of forests produce such as Eucalyptus – Rs. 75,72,70,975/-, Bamboo – Rs. 5,90,90,760/-, Cashew – Rs. 2,61,44,437/-, Coffee Seed Rs. 7,56,54,607/-, Pepper – Rs. 66, 96,983/-, Miscellaneous Forest Produce – Rs. 2,37,06,679/-
aggregating to total revenue receipts of Rs. 94,85,63,441/-. Considering the above activities of the company, the Ld. AO opined that the assessee-company is not involved in any activity connected with preservation of environment, forests, wildlife etc., but the sole purpose of the assessee-company is to earn maximum profit by commercial exploitation of forest resources. The Ld. AO further opined that the responsibilities of preservation of forests are entrusted with the Forest Department of the Government of Andhra Pradesh, therefore, the assessee do not have any role to play in those activities. Thereafter, the Ld. AO after examining the Memorandum of Association of the assessee Company and nature of activities carried on by it came to the conclusion that the assessee is not eligible to claim deduction U/s. 11 of the Act and treated the non-agricultural income earned by the assessee amounting to Rs. 3,70,59,197/- as taxable income by observing as follows:-
“27. Considering all the facts above, it can be concluded that the assessee is engaged in a purely commercial activities of growing/ cultivation of the forest products and sale of the same. By no stretch of imagination these activities can be considered as a charitable activity. 28. From the memorandum of association of the assessee, it can be seen that the assessee's main objectives are as shown below: (i) To develop land for raising Forest Plantation and in particular Eucalyptus, Tropical- Pines, Rubber, Cashew, Cocoa and such other suitable species in the State of Andhra Pradesh for the purpose of development of industries based on their produce. (ii) To plant, grow, cultivate, produce and raise plantations of all kinds of varieties of Forest plants, trees and crops and natural products of every kind and other agricultural crops
and to buy, sell, export, import, process, distribute or otherwise, deal in all kinds of Forest plants, tree crops, natural products and Agricultural crops. (iii) To carry on the business of planters, cultivators, sellers and dealers in timber, plywood, pulpwood, match wood and such other products of every description and to manufacture, dispose of, sell and deal, in products of such plantations and other forest crops of every description. (iv) To establish, administer, own and run industries for manufacturing Forest products. (v) To promote the development of Forest Industries, to operate suitable schemes and for the purpose to prepare and get or cause to be prepared reports, blueprints, statistics, feasibility studies and project reports and other information. (vi) To promote companies, firms, establishments, concerns or undertakings for the purpose of development of industries based on forest produce and to assist and finance any individual firm or ~ company with capital, loan, credit resources etc., 29. After going through the main objectives of the assessee included in the memorandum of Articles of Association of the Assessee, as re- produced above, there no further necessity to explain that the assessee's main objectives are to carry out all types of commercial activities including growing, cultivation, manufacturing, trading, export/ import of forest products. These sorts of activities cannot be called charitable activities. 30. From the main objectives of the assessee, it can be seen that there is no mention of activities including water-shed management, preservation of water tables, conservation of natural forests, creation of employment opportunities to the tribal/rural population etc. Further from the final accounts of the assessee, it is seen that there is no accounts involving the activities including water-shed management, preservation of water tables, conservation of natural forests, creation of employment opportunities to the tribal/rural population etc. From the accounts it becomes clear that the assessee was not involving in any of the charitable activities as mentioned above in this para.
From the accounts also becomes clear that the assessee is engaged in only activities of cultivation/ growing of forest products including Eucalyptus, Bamboo, Cashew, Coffee seed, Pepper etc and sale of these products. The expenditure booked by the assessee are relatable to growing cultivation, processing of these products only. There is no mention about any expenditure involving the charitable activities claimed by the assessees.
Considering all the facts, it is clear that the assessee is engaged purely on business activities and cannot be treated as a charitable organisation. Accordingly, the assessee's claim of exemption of income u/s 11 of the IT Act cannot be accepted.”
On appeal, the ld. CIT (A) after examining the nature of non- agricultural income earned by the assessee such as:-
--- agreed with the view of the AO and upheld his order. The Ld. CIT (A) further opined that since the assessee had not applied for 12A registration afresh it cannot be considered as charitable institution holding registration U/s. 12A of the Act and therefore, the benefit of exemption U/s. 11 of the Act cannot be availed.
Before us, the Ld. AR vehemently argued by stating that the assessee was holding 12A registration and therefore it was entitled for the benefit of exemption U/s. 11 of the Act. In order to support his argument, the Ld. AR submitted before us the assessment order passed by the Ld. AO for the assessment year 2016-17 and 2015-16 wherein the Ld. AO had granted exemption to the assessee U/s. 11 of the Act by recognising the fact that the assessee was registered U/s. 12A of the Act. The Ld. AR further argued that the Ld. CIT (A) had erroneously held stating, 12A application must be submitted every year and registration obtained for availing the benefit of section 11 of the Act. The Ld. AR submitted that the entire activities of the assessee-company were with respect to protection of environment, forests and wildlife falling in the 6th limb of section 2(15) of the Act and therefore proviso to section 2(15) of the Act is not applicable in the case of the assessee. It was therefore pleaded that the tax imposed on the assessee by treating the amount of Rs. 3,70,59,197/- as taxable income may be deleted. The Ld. DR on the other hand stoutly argued in support of the orders of the Ld. Revenue Authorities and requested for confirming those orders.
We have heard the rival submissions and carefully perused the materials on record. From the assessment order passed by the Ld. AO for the AY 2016-17 dated 22/12/2018 in the case of the assessee, it is evident that registration was granted to the assessee U/s. 12A of the
Act vide order in H.Qrs.12A/24/91-92, dated 15/10/1991. When the registration is granted to the assessee vide order dated 15/10/1991 the validity of the same is extended year after year unless such registration is revoked. Since, there is nothing on record to suggest that the registration granted U/s. 12A of the Act in the case of the assessee is revoked the assessee is entitled to the benefit of section 11 of the Act on compliance of the other relevant provisions of the Act. Further, on perusing the objects of the assessee, as observed from the order of the Ld. AO extracted hereinabove, it is apparent that the activities relate to preservation of environment, forests and wildlife. The commercial activities mentioned in the Memorandum of Association are only ancillary objects supporting the main objects of the assessee. Therefore, we are of the considered view that the assessee’s objects fall under the 6th limb of section 2(15) of the Act, hence in the case of the assessee the proviso to Section 2(15) of the Act is not applicable. Further on examining the revenue received by the assessee amounting to Rs. 3,70,59,197/- as observed in the Order of the Ld.CIT(A) which is extracted hereinabove, we are of the considered view that they are only residual income arising from the main objects / ancillary objects of the assessee-company. For the above stated reasons, we do not find the order of the Ld. AO justifiable for not granting the benefit of exemption U/s.11 of the Act and treating the amount of Rs. 3,70,59,197/- as the taxable income of the assessee which is upheld by the Ld. CIT (A).
Therefore, we hereby set aside the order of the Ld. CIT (A) and further direct the Ld. AO to delete the tax imposed on the assessee by treating the amount of Rs. 3,70,59,197/- as taxable income.
In the result, appeal of the assessee is allowed.
Pronounced in the open Court on 11th October, 2019.
Sd/- Sd/- (P. MADHAVI DEVI) (A. MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 11th October, 2019 OKK Copy to:- 1) A.P. Forest Development Corpn Ltd., Venkateswara Arcade, Annapurna Nagar, 6th Lane, Gorantla, Guntur – 522 034. 2) DCIT, Circle-1(1), Hyderabad. 3) The CIT(A)-1, Hyderabad 4) The Pr. CIT-1, Hyderabad 5) The DR, ITAT, Hyderabad 6) Guard File