Principal Commissioner of Income Tax-2 vs. M/s Indur Green Power Private Limited

C/TAXAP/627/2015 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 627 of 2015 With R/TAX APPEAL NO. 189 of 2019 With R/TAX APPEAL NO. 138 of 2018 With R/TAX APPEAL NO. 538 of 2018 With R/TAX APPEAL NO. 1053 of 2018

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/-

and HONOURABLE MR.JUSTICE A.C. RAO Sd/-

========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ========================================================== THE COMMISSIONER OF INCOME TAX Versus NARODA ENVIRO PROJECTS LTD. ========================================================== Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 MS MEGHA JANI(1028) for the Opponent(s) No. 1 RULE SERVED(64) for the Opponent(s) No. 1 ========================================================== Page 1 of 96

C/TAXAP/627/2015 JUDGMENT CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO

Date : 29/07/2019

COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. Since the issues raised in all the captioned tax appeals are the same and the assessee is also the same, those were heard analogously and are being disposed of by this common judgment and order. 2. For the sake of convenience, the Tax Appeal No.627 of 2015 is treated as the lead appeal. 3. This tax appeal under Section 260-A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad 'A' Bench, Ahmedabad dated 29th January, 2015 for the A.Y. 2009-10. The respondent-assessee claims to be a Charitable Trust engaged in the activity of preservation of environment by providing pollution control treatment for disposal of the liquid and solid industrial waste. The assessee Company was incorporated on 19th October, 1995, and later in point of time, converted into a Company Limited by shares incorporated under Section 25 of the Companies Act, 1956. 4. The assessee filed its return of income on 30th September, 2009, declaring total income of (-) Rs.258/- along with the Auditor's Report under Section 12A(b) of the Act in Page 2 of 96

C/TAXAP/627/2015 JUDGMENT Form No.10B. The same was processed under Section 143(1) of the Act. Later, the case was selected for scrutiny and notices under Sections 143(2) and 142(1) respectively of the Act along with the questionnaire was issued dated 24th June, 2011. The Assessing Officer called upon the respondent-assessee to make good its case that the assessee company could be said to be constituted for charitable purpose within the meaning of Section 2(15) of the Act. To put it in other words, the respondent-assessee was called upon to make good its case that the company is engaged in preservation of environment or carries on activities of general public utility. With respect to the activities of the company, the assessee pointed out the following to the Assessing Officer: “The assessee is engaged in the activity of providing pollution control treatment for disposal of liquid and solid industrial waste. The company was incorporated on 19.10.1995 and subsequently converted into a company limited by shares, incorporated u/s. 25 of 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 assessee company presently has been accorded registration 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.80G(5) of the Income Tax Act, 1961. IN point of fact, the company was incorporated with a sale object to comply with the directions of the Hon'ble High Court of Gujarat in public interest litigation to curb the polluting industry's pollution. This company was therefore promoted by polluting industries of GIDC, Naroda for establishment and running of Common Effluent Treatment Plant at Naroda (CETP) and treatment, storage and disposal facility at Odhav, Ahmedabad (TSDF) and work for pollution abatement and environmental protection. Thus, the project was set up under the direction, guidance and support of Hon'ble Gujarat High Court and various local and State level as well as Central Page 3 of 96

C/TAXAP/627/2015 JUDGMENT level agencies viz. Collector, GIDC, AMC, GPCB, MOEF, etc. Certified copies of approval u/s.12AA, 80(G) and both the copies of Memorandum & Articles of Association (commercial & section 25) are enclosed herewith as per Annexure-1 (Pages A1 to A60).” 5. The assessee also pointed out the objects of the company as incorporated in the Memorandum of Association at the time of registration dated 19th October, 1995 as under; “To engage in the business as manufacturers, dealers, importers, exporters, consignment agents, erectors, traders, consultants in all kinds or pollution treatment plants/equipments whether water pollution, air pollution, noise pollution without limiting the scope thereof, establishing the pollution treatment plants for industries, government industrial estate in co-operative section acting as consultants for environmental and pollution problems, carrying on all activities relating to above including plantation for the purpose of pollution treatment.” 6. The assessee was also called upon to justify its claim in accordance with Section 2(15) of the Act. In this regard, the Assessing Officer, in his order, has observed as under: “Vide this office letter dated 16.11.2011, it was pointed out that as stated by the assessee in the foregoing paragraph, the company ha been brought into existence pursuant to an Order passed by Hon'ble Gujarat High Court on 5th August, 1995 in Special Civil Application No.770 of 1995 for the work for pollution abatement and environmental protection, prevention and control of Water pollution, Air pollution and Management Handling and Trans-boundary movement of Hazardous Waste discharged/generated by industries set up in the Industrial estate at Naroda, Vatva and Odhav by installation and operation of a Common Effluent Treatment Plant (CEPT) at Naroda and land fill site for solid waste at Odhav, Ahmedabad. The assessee was asked to justify its claim of exemption Page 4 of 96

C/TAXAP/627/2015 JUDGMENT in the light of above referred legal and factual position and the definition of charitable activities u/s. 2(15) of the Act, as the assessee has reported that the company was brought into existence for the implementation of the directions of Hon'ble Gujarat High Court, but the main object as incorporate in the Memorandum of Association referred to above tells a difference story. It was also pointed out that the comparative Profit & Loss accounts submitted by it in the statement of income total income supports of the objects of memorandum of Association. It was also pointed out that in the statement of total income, the assessee has claimed deduction of Rs.6,00,75,143/- u/s.11, being the amount applied for charitable or religious purpose. The assessee was asked to describe the nature of charitable or religious purpose with justification as per definition given in section 2(15) of the Act. It was also asked to justify its claim of exemption and also state since how long it was claiming exemption?” 7. The submissions of the assessee as regards the registration under Section 12A of the Act as noted by the Assessing Officer are as under: “Initial rejection of application seeking registration u/s 12AA and subsequent grant of registration of U/s 12AA of the Act :- At paragraph 2(a), page 2 of the letter under reply, your honour had made the observation that for want of proper compliance, initially the registration u/s. 12AA has been denied vide letter dated 22/8/2006 and was subsequently granted vide letter dated 4/7/2007 with retrospective effect fom 21/12/2005; In this context, it is submitted that the observation made by your honour is factually incorrect. In the sense, that the denial of registration u/s. 12AA by the Director of Income Tax (Exemption), Ahmedabad was not based upon consideration of the merits of assessee's application. It was mentioned in the order u/s. 12AA dated 22/8/2006 by the Director of Income Tax (Exemption), Ahmedabad that ‘in order to ascertain the genuineness of the activities of the trust, certain details including the nature of activities were called for vide this office letter no. DIT(E)/12AA/2005-06/624 dated Page 5 of 96

C/TAXAP/627/2015 JUDGMENT 13/6/2006, there was no compliance, thereafter, another letter dated 27/7/2006 was issued and served calling for the details by 10/8/2006, in response to which the assessee failed to furnish the required details, which is mandatory for registration u/s. 12AA.' 0n the above premises, the Director of Income Tax (Exemption), Ahmedabad i.e. Shri Ram Sanehi passed order u/s. 12AA refusing registration to the assessee. The assessee preferred appeal before the ITAT and submitted that as per the letter of the Director of Income Tax (Exemption), Ahmedabad dated 27/7/2006 referred to above, compliance was required to be made by 10/8/2006 and the assessee has furnished the requisite details before the Deputy Director of Income Tax (Exemption), Ahmedabad on 10/8/2006. The Hon'ble ITAT on appreciation of the factual and legal position recorded a finding of fact that the assessee has furnished the requisite details before the department and that the same has not been taken into consideration by the Director of Income Tax (Exemption), Ahmedabad while rejecting the assessee’s claim. Accordingly, the ITAT vide its order dated 14/11/2006 in ITA No.2015/Ahd/2006, set aside the order and remitted back the matter to the file of the Director of Income Tax (Exemption), Ahmedabad with a direction to decide the matter afresh. Subsequently the same Director of Income Tax (Exemption), Ahmedabad i.e. Shri Ram Sanehi passed order u/s. 12AA of the Income Tax Act dated 4/7/2011 whereby registration under that Section is allowed to the assessee with effect from 21/12/2005. The same Director of Income Tax (Exemption), Ahmedabad i.e. Shri Ram Sanehi has accorded approval u/s. 80G(5) to the assessee vide order dated 23/7/2007.” 8. The assessee submitted before the Assessing Officer that the registration granted under Section 12A of the Act and also the recognition under Section 80G(5) of the Act by the Director of Income Tax-(E), Ahmedabad would be binding to the Assessing Officer. The assessee asserted that the registration under Section 12A of the Act is sufficient to arrive at the conclusion that the activities undertaken by the assessee company are charitable and fall within the ambit of Section Page 6 of 96

C/TAXAP/627/2015 JUDGMENT 2(15) of the Act. 9. With regard to the justification as regards the claim for deduction of Rs.6,00,75,143/-, the Assessing Officer observed in his order as under; “In response to query regarding the admissibility of claim of deduction of Rs.6,00,75,143/- the assessee vide letter dated 5/12/2011, submitted that it has been incurred towards the objects of the company i.e. preservation of environment and pollution control. It is further stated in the Notes to computation of total income, which includes Operating expenses and administrative expenses for running the Operations of the company, interest and financial charges as well as acquisition of assets and depreciation. All these expenditure have been incurred for the purpose of carrying out the activities of the company and are duly admissible. Hence, there is no cause for denying the same being not incurred for the purpose of the activities of the company. Any organization is required to incur expenditure for the purpose for which it is set up. In this case, the company is set up for the purpose of controlling the environment and thereby pollution and hence, necessary expenditure incurred including acquisition of fixed assets is treated as application of funds and therefore, is eligible for deduction against the income of the organization. In view of this, the expenditure incurred and claimed is within the meaning of ‘definition’ u/s. 2(15) of the Act. To claim expenditure for running an institute is one thing and to claim it as expenditure for fulfillment of the object as per amended provisions of section 2(15) as well as per provisions of section 11 are two distinct issues and cannot be mixed with each other. The expenses incurred for running a business or to carry out any activity can be considered in that context only and not expenditure incurred including acquisition of fixed assets to be treated as application of funds and therefore, is eligible for deduction against the income of the organization as claimed by the assessee within the meaning of ‘definition’ u/s. 2(15) of the Act. Hence this claim of the assessee is rejected in view of the applicability of Page 7 of 96

C/TAXAP/627/2015 JUDGMENT provisions contained in section 2(15) is discussed in the later part of this order.” 10. With respect to the objects of the assessee company, as mentioned in the Memorandum of Association at the time of incorporation of the company on 19th October, 1995, the Assessing Officer has observed has under; “Vide para 2(a) of this office letter dated 16/11/2011, the assessee was requested to explain its claim of exemption and charitable activities of preservation of environment as defined u/s. 2(15) of the I.T. Act with reference to object as mentioned in the memorandum of Association, at the time of registration on 19/10/1995 of the company which are referred to para 5 above and with reference to the statement made by it that it was brought into existence pursuant to an order passed by Hon’ble Gujarat High Court on 5th August, 1995 in Special Civil Application No.770 of 1995 for the work for pollution abatement and environmental protection, prevention and control of Water pollution, Air pollution and Management, Handling and Trans-boundary movement of Hazardous Waste discharged/generated by industries set up in the Industrial estate at Naroda, Vatva and Odhav by installation and operation of a Common Effluent Treatment Plant (CETP) at Naroda and land fill site for solid waste at Odhav, Ahmedabad. It was also pointed out that the main object as incorporated in the Memorandum of Association as well as the comparative Profit & Loss accounts submitted by it vide letter dated 10/11/2011 supports the objects as mentioned in original Memorandum of Association and thus tells a different story. Thus, the claim of activities falling under the definition of section 2(15) is not correct. The comparative three years profit and loss account submitted by the assessee is as under : For the year ended on Particulars 31.03.2009 31.03.2008 31.03.2007 31.03.2006 31.03.2005 INCOME Dumping & 6,27,76,328 6,06,27,173 5,16,08,028 3,92,57,369 Page 8 of 96

C/TAXAP/627/2015 JUDGMENT Effluent Treatment Charges Other income 1,06,75,007 79,01,791 48,14,193 4,75,780 Total Income 7,34,51,335 6,85,28,964 5,64,22,221 3,97,33,149 Expenditure Operating Expenses 2,97,86,327 2,92,31,480 3,10,33,514 1,62,44,044 Administrative & General Expenses 75,90,435 72,16,710 59,16,501 75,94,422 Interest & Financial Charges 1,80,438 7198 5,95,460 10,16,946 Depreciation 1,05,72,696 1,10,86,334 1,26,18,427 1,39,66,450 Total Expenditure 4,81,29,896 4,75,41,722 5,01,63,902 3,88,21,912 Profit for the year 2,53,21,438 2,09,87,242 62,58,319 836236 Add Balance brought forward 4,07,88,644 1,98,01,402 1,35,43,083 20,44,236 Balance carried to balance sheet 6,61,10,082 4,07,88,644 1,98,01,402 12,08,000 This case has been received on transfer from the Circle- 4, Ahmedabad, the folder for A.Y.2006-07 is not readily available and hence the data for the year ending 31.03.2006 are not available right now. The efforts are being made to locate the said folder.” 11. The Assessing Officer recorded the submissions of the assessee company as under; “The assessee submitted that the conclusion drawn on the basis of the objects of the company reproduced from the Memorandum of Association is erroneously assumed that the assessee-company does not fall within the meaning of ‘charitable purpose’. It also submitted that at the time conversion of company in to section 25 company, the Memorandum has to be suitably modified. The main objects of the company on its conversion as a company u/s. 25 of the Companies Act are modified as Page 9 of 96

C/TAXAP/627/2015 JUDGMENT under: “To promote, aid, foster and engage in the area of environment protection, abatement of pollution of various kinds such as water, air, solid, noise, vehicular etc. without limiting its scope, to run and develop common Effluent Treatment Plant (CETP), Total Suspended Disposal Facility (TSDF), conserve the natural resources, utilization of other selective resources to reduce pollution, to make adopt the industries and familiarize the concept of ‘Cleaner Production’, ‘cleaner Technologies’ such as incineration, hydrogenation, process for recovery and re-use of waste, to reduce/eliminate pollution at source instead at the end of pipe and, to carry out research and development and, activities incidental and ancillary thereto and, to make available benefits of its activities and facilities to the public at large without any distinction of race, religion or caste.” 12. The final conclusions drawn by the Assessing Officer are as follows; “(14) Comments/observations on the submission of the assessee: The contentions of the assessee is considered but not found acceptable. The assessee has given very exhaustive submission but it has failed to bring on record to establish by facts and figures that after its incorporation u/s. 25 of the Companies Act, it has started charitable activities as defined in the amended provisions containing section 2(15) and prior to that the assessee company was engaged in commercial activities as per the objects enumerated in the Memorandum of Association at the time of its incorporation on 19/10/1995. The above referred comparative profit and loss account is a proof to that effect. (15) Applicability of provisions contained in section 2(15), 11, 12 & 13: Without prejudice to the above, the section 12 start with ‘any voluntary contribution received by trust treated wholly for charitable or religious purposes or by an institution established wholly for such purposes’ ‘not being contributions made with a specific Page 10 of 96

C/TAXAP/627/2015 JUDGMENT directions that they shall form part of the corpus of the trust or institutions.” Shall for the purpose of section 11 deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly. Technically, none of the provisions contained in amended section 2(15), 11, 12 and 13 are complied in this case hence the claim of exemption of the assessee company is not entertainable. (16). Membership of the assessee company: Vide para 6(v) of letter dated 10/10/2011. the assessee was asked to clarify whether all the members of various Phases of GIDC. Naroda are its members or some selected or a class of members are its shareholders. The assessee submitted that all the members of various phases of GIDC Naroda, are not share holders/members of the assessee. (para 6(v) of letter dated 10/10/2011). This implies that the claim of assessee that it is the saviour of the people living in and around Naroda, Vatva & Odhav Industrial Estates, is baseless as the units which are not its members/beneficiaries are at liberty to pollute the Air, Water & Soil and the assessee is a silent spectator. (17) Profit making activities: Vide letter dated 16/11/2011, the assessee was asked to state the rate structure. It was also asked to submit the details of any preferential treatment are given to the members in recovery of charges or uniform rate is applied for both the members and non members? It was pointed out that as per profit and Loss account filed by it, it is seen that it is recovered the Dumping & Effluent Treatment charges of Rs.6,27,76,328/-. The assessee was asked to please show cause why the same may not be treated as profit making activity as activity falls within proviso to section 2(15) and exemption may not be denied?” The Assessee vide letter dated 05/12/2011 submitted: “As regards para 2 (b) of your letter under reply, it is clarified that there is no preferential treatment being given to the members. Members of various phases of GIDC Naroda whose manufacturing process involves generation of pollutant waste are members of the Page 11 of 96

C/TAXAP/627/2015 JUDGMENT assessee company. The rate is charged on the basis of pollutant load and hydraulic load and the methodology of charging is the same for everyone. The excess of receipts over the expenditure amounting to Rs.2,53,21,488/ cannot be treated as profit from activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Please note that the activities of the assessee in protecting the environment and controlling the pollution is not in the nature of trade, commerce or business nor is it providing any service in relation to any trade, commerce or business. The beneficiaries of the activities carried on by the assessee in protection and preservation of environment and pollution control are all the human beings at large/society at large not present but future generation also. The assessee therefore strongly objects to your proposal to treat the surplus of Rs.2,53,21,488/as profits by invoking the proviso to Section 2 (15) of the I.T. Act. Kindly take note that the proviso to Section 2(15) of the I.T. Act has no applicability at all to the facts of the assessee’s case because the assessee has not carried out any activity in the nature of trade, commerce or business nor has it rendered any service to trade, commerce or business, as envisaged by you. At this juncture, it is relevant to mention here that as per the defining Section 2(15) of the I.T. Act introduced by the Finance Act, 2008 with effect fiom 1st April, 2009, charitable purposes includes relief of the poor, education, medical relief preservation of environment (including water sheds, forests and wild life) and preservation of monuments or places or projects of artistic or historic interest and the advancement of any other object of general public utility. It may kindly be appreciated that the assessee is engaged in preservation of environment. Therefore, the activities of the assessee in preservation of environment by abatement and controlling the pollution of air, water and soil is fully covered by the definition of charitable purposes. Further, the proviso to that Section is also not applicable to the assessee's case. Kind attention Is invited to Circular No.11 of 2008 dated 19/12/2008 issued by the Central Board of Direct Taxes. Paragraph 3 of the said letter provides that the newly inserted proviso to Section 2(15) will apply only to Page 12 of 96

C/TAXAP/627/2015 JUDGMENT entities whose purpose is advancement of any other object of general public utility i.e. the fourth limb of the definition of the charitable purpose contained in Section 2 (15). Hence, such entities whose purpose is advancement of any other object of general public utilities will not be eligible for exemption u/s.. 10 or u/s. 10(23C) if they carry on commercial activities. The assessee is not an entity, whose purpose is advancement of any other object of general public utility. The assessee is engaged in preservation of environment, which is charitable purpose as per Section 2 (15). Therefore, it is submitted that the proviso below Section 2(15) of the I.T. Act has no applicability at all to the assessee, which is clarified by the Board vide Circular No.11 of 2008.” (18) Findings :The submission of the assessee made vide letter dated 5/12/2011 is considered. In nutshell, the assessee is rendering service of pollution control as per norms laid down by Gujarat State Pollution Control Board or any other authority responsible for regulation of pollution in relation to any trade, commerce or business carried out by the industries located in the industrial area of Naroda, Vatva & Odhav for a uniform cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income of such activity. Since the aggregate value of receipts are more than Rs.10,00,000/- both the proviso to section 2(15) are applicable to the assessee company and it is not entitled for exemption. The assessee has again and again repeated its claim of charitable activity, hence the same is not dealt with once again. The total receipt of Rs.6,27,76,328/- are reflection in Profit & Loss Account and profit of Rs. 2,53,21,428/- proves that it is an activity in the nature of rendering any service in relation to any trade, commerce or business for a cess or fee or any consideration, irrespective of the nature of use or application, or retention, of the income from such activity. If the contention of the assessee is accepted, every factory nufacturing chemicals which are used for reduction or pollution will be eligible to be considered as activity within meaning of charitable purpose as defined in

section

2(15)

the

I.T.

Act.

(19) Role played by various local and state Government authorities like Gujarat Pollution Control Board, Gujarat, Ahmedabad Municipal Page 13 of 96

C/TAXAP/627/2015 JUDGMENT Corporation, GIDC or any other authority granting permission for running as well as monitoring the business/industrial activity? Vide para 6(vii) of letter dated 10/10/2011, the assessee was asked to submit the detail of role played by various local and state Government authorities like Gujarat Pollution Control Board, Gujarat, Ahmedabad Municipal Corporation, GIDC or any other authority granting permission for running as well as monitoring the business/industrial activity. In response to the same the assessee vide para 6(vii) of letter dated 31/10/2011 submitted a copy of Provisional Consent Order (CCA) issued by Central Pollution Control Board on 12/10/2011 valid upto 19/04/2016. Vide this office letter dated 05/12/2011, it was communicated to the assessee that Central Pollution Control Board, is the authority meant for implementation of the provisions contained in The Water (Prevention & Control of Pollution) Act 1974, The Air (Prevention & Control of Pollution) Act 1981 and Hazardous Waste (Management, handling and Transboundry Movement) Rules 2008 framed under the E(P) Act 1986. The intention behind enactment is to keep in control the pollution generated by various Industrial Units. Under the circumstances justify your claim of exemption with specific reference to the charitable activity as defined u/s 2(15) or for that matter any other relevant provisions of the Act, governing Exemption. (20) The assessec’s submission vide its letter dated 05/12/2011 and comments thereon: The assessee submitted that, it may be true that the intention behind enactment of E(P) Act, 1986 is to keep in control the pollution generated by various industrial units. Furthermore, the assessee is a company which does not exist for profit, there is no profit motive. The surplus is only incidental to the activities. There is no distribution of dividend to the shareholders. The assessee has confessed by stating that intention behind enactment “it may be true that the intention behind enactment of E(P) Act, 1986 is to keep in control the pollution generated by various industrial units.” Had the object/activity of the assessee had been preservation of pollution, it was not required to get itself registered with the regulatory authorities for pollution control This very facts proves beyond and iota of doubt that the assessee is not doing the activity of preservation of environment but it is Page 14 of 96

C/TAXAP/627/2015 JUDGMENT rendering the service of control of pollution generated by any trade, commerce or business activity carried out by the units located in industrial area of Naroda, Vatva & Odhav, for a cess or fee or any other consideration. (21) Instances of violation of the regulation and imposition of penalty by controlling/regulatory bodies: vide para 6(viii) of letter dated 10/10/2011, the assessee was asked to submit the detail of instances of violation of the regulation by it or by any member and the resultant penal actions by the competent authority. In response to the said the assessee submitted that all the units are subject to compliance of the environmental norms and they are directly monitored by GPCB. Thus, actions are taken by GPCB including financial penalty and closure of the units. The reply of the assessee was not found satisfactory hence vide this office letter dated 16/11/2011, it was communicated to the assessee that on going through the provisional order (CCA), consent referred to above, it is seen that it is issued in the name of M/s. Naroda Enviro project Ltd. (CEPT). It implies that if any of the member or beneficiary commits any default or violation of regulation, the GPCB will intimate you regarding such violation and penal action and may withdraw provisional order. The assessee was requested to please clarify the procedure followed by GPCB in case of default by any of the unit. The assessee was further asked to submit the detail of instances of violation by your members and beneficiaries during the period under consideration and three preceding years as you are acting as per the directions given by Hon'ble High Court of Gujarat. In response to the same the assessee company vide letter dated 5/12/20110 submitted that it is not aware of the procedure followed by the GPCB in case of default in the matter of pollution committed by any of the industrial unit as the actions are initiated directly against the string Unit by GPCB. (22) Information from Gujarat State Pollution Control Board: vide notice u/s. 133(6) of the I.T. Act, below mentioned information was called for from GSPCB. (1) The assessment proceedings in the case of above Page 15 of 96

C/TAXAP/627/2015 JUDGMENT referred assessee for A.Y.2009-10 is pending with undersigned. In response to the query regarding detailed note on present activity of the Trust and other information, the assessee company submitted that it was incorporated as a company with sole object to comply with the directions of the Hon'ble High Court of Gujarat in public interest litigation to curb the polluting industry’s pollution. This company was therefore promoted by polluting industries of GIDC, Naroda for establishment and running of Common Effluent Treatment Plant at Naroda (CETP) and treatment, storage and disposal facility at Odhav, Ahmedabad (TSDF) and work for pollution abatement and environmental protection. Thus, the project was set up under the direction, guidance and support of Hon’ble Gujarat High Court and various local and State level as well as Central level agencies viz. Collector, GIDC, AMC, GPCB, MOEF, etc. It has further stated that it is a company which does not exist for earning the profit as such but exist for promotion of welfare and well being of the society and people at large. (2) The assessee company has submitted a copy of Provisional Consent Order (CCA) No WH-43865 issued by your office on 12/10/2011 valid upto 19/04/2016. It is understood that you are an authority meant for implementation of the provisions contained in The Water (Prevention & Control of Pollution) Act 1974, The Air (Prevention & Control of Pollution) Act 1981 and Hazardous Waste (Management, handling and Transboundry Movement) Rules 2008 framed under the E(P) Act 1986. The intention behind enactment is to keep in control the pollution generated by various Industrial Units. (3) Vide this office letter dated 16/11/2011, the assessee company was asked to submit the detail of instances of violation of the regulation by it or by any of its member, if any and resultant penal actions by the competent authority, if any. In response to the same the assessee company submitted that all the units are subject to compliance of the environmental norms and they are directly monitored by GPCB. Thus, actions are taken by GPCB including financial penalty and closure of the units. However it has tactfully avoided submitting the detail of violation detected by your good office committed by the industrial Units working in Naroda GIDC, i.e. located at Page 16 of 96

C/TAXAP/627/2015 JUDGMENT Naroda, Odhav and Vatva and penal action taken by your good office. (4) It is requested to please supply the detail of violation of the provisions contained in The Water (Prevention & Control of Pollution) Act 1974, The Air (Prevention & Control of Pollution) Act 1981 and Hazardous Waste (Management, handling and Transboundry Movement) Rules 2008 framed under the E(P) Act 1986 by any of the industrial unit located in Naroda, Vatva or Odhav during financial year 2006-07, 2007-08 and 2008-09 and penal action if any taken by your good office either in person or through a representative duly authorized in this behalf on or before 30th November 2011. (5) This information is called for exercising the powers conferred upon undersigned u/s 133(6) of the Income Tax Act 1961, in the capacity of assessing officer of the Naroda Enviro Projects Ltd., Ahmedabad. (23) The Gujarat Pollution Control Board vide letter dated 21/12/2012 has submitted a list of 162 persons to whom closure directions has been issued from 01/01/2011 to 28/11/2011 in Ahmedabad Region the same is made Annexure-A to this order. The GPCB also submitted list of 117 industries to whom notice of directions has been served. The same is made in Annexure-B to this order. The GPCB has not given the address of the units, hence it can not be said that either all the units or none of the unit is operating from industrial estate for which the assessee is rendering services of pollution control. However, it can safely be presumed that majority of the units might be operating from the industrial estates of Naroda, Odhav & Vatva which are three biggest industrial estates where industries generating pollution are located and which is the area of operation of the assessee company. (24) The modus operandi adopted by you for running CETP & Land Fill by solid waste at Odhav, Query: The assessee was requested to describe in detail the modus operandi adopted by it for running CETP & Land Fill by solid waste at Odhav, detail of statutory obligation for treatment of effluent and name and address of authority responsible for monitoring the level of effluent. The assessee was asked to state whether the Page 17 of 96

C/TAXAP/627/2015 JUDGMENT members are required to treat the effluent on their own at first stage and then such effluent is released for common treatment.(Para 7 of letter dated 10/10/2011) The assessee vide letter dated 31st October, 2011, submitted the individual industry is required to treat the liquid effluent for all the primary parameters in their own premises and then they are required to discharge the registered quantity of effluent to CEPT collection system for further treatment. The solid sludge generated while giving primary treatment as well as during the manufacturing process is to be dispatched at Odhav TSDF site for. dumping as per the Central Government manifest.

The assessee above referred submission implies that the work of pollution abetment and environmental protection is done by three different entities. First the primary pollution control activity which is generated by individual units is being carried out by them. Thereafter, part of the pollution control treatment is made by you and polluted effluents are being discharged in Pirana treatment Plant. Finally, the Ahmedabad Municipal Corporation discharges it in river Sabarmati after pollution treatment in Pirana treatment Plant. (25) The sum total of the scrutiny is: (i) The assessee is carrying on business activity under the pretext of charitable activity. The incidental profit cannot be for all the years and not to the extent reflected in table given in the order ii) The objects specified in the Memorandum of Association are important but the same have to be considered with reference to the real practice adopted for running the activity i.e. whether it is charitable or for the purpose of making profit. The object included in definition of ‘charitable purpose’ as defined in section 2(15) should be evidenced by Charity; otherwise even environment consultant will also claim exemption u/s.11 being a trust or a company u/s.25 (iii) The action is carried out for the benefit of members to discharge their onus of treatment of chemicals etc. with substantial charge with intention to earn profit Page 18 of 96

C/TAXAP/627/2015 JUDGMENT under the shelter of section 25 of Company Act. (iv) Hence it is held that the assessee is rendering service of pollution control as per the norms laid down by the Gujarat State Pollution Control Board or any other authority responsible for the regulation of pollution in relation to any trade, commerce or business carried out by the industries located in the industrial area of Naroda, Vatva & Odhav for a uniform cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income of such activity. Since the aggregate value of receipts are more than Rs.10,00,000/- both the proviso to section 2(15) are applicable to the assesee company and it is not entitled for exemption.” 13. Thus, the Assessing Officer took the view that the assessee company is not entitled to seek exemption under Section 11 of the Act on the ground that the case of the assessee falls under sub-section (8) of Section 13 of the Act. The Assessing Officer took the view that the assessee company is engaged in the business of treating the trade effluent generated by the polluting industries in accordance with the norms and the parameters prescribed by the GPCB and the provisions of the Air & Water Pollution Act. In other words, the Assessing Officer took the view that the activities of the assessee do not fall within the definition of the term “Charitable Purpose” as defined under Section 2(15) of the Act. The Assessing Officer took the view that the activities undertaken by the assessee company are not towards “preservation of environment”. 14. The assessee, being dissatisfied with the order passed by the Assessing Officer, preferred an appeal before the Commissioner of Income Tax (Appeals). The CIT (Appeals), while allowing the appeal preferred by the assessee company, Page 19 of 96

C/TAXAP/627/2015 JUDGMENT held as under: “4.4.1 The main object of the appellant company after it was converted as a Section 25 company reproduced above amply clarifies that the appellant company is in the area of environmental protection, abetment of pollution of water, air. solid. etc. generated by the industrial units in and around Vatva and Odhav area of Ahmadabad. The fact that the appellant is a Section 25 company is not disputed by the AO nor was the object of the appellant company after it modified as Section 25 Company is rebutted by the A0. The AO has not disputed the fact that the appellant is doing the basic activity of treatment of various pollutants generated by industrial units. It is also not disputed by the A0 that the surplus generated is not distributed to its members/shareholders, etc; it is an established position that the appellant cannot lose exemption merely on the ground that it has made surplus as long as appellant is not generating surplus for private profit of the settler or any other person. I find that the AO has not made out a case that generation of surplus or profit making is the predominant object of the appellant. 4.4.2 The appellant company has submitted before me that it was incorporated with a sole object to comply with the directions of Hon'ble High Court of Gujarat in a PIL for the industries of Naroda GIDC for establishment in running of Common Effluent Treatment Plant and its storage and disposal facility at Odhav, Ahmadabad. The appellant company submitted that the project was set up under the directions and guidance of Hon'ble High Court of Gujarat and various local and state level agencies viz. Collector, GIDC, AMC, GPCB, etc. It was further submitted that as per the directions of the Hon'ble High Court of Gujarat, it was sine-qua-non for the industrial units to become member of the appellant company for meeting the pollution control parameters laid down by GPCB. The appellant further submitted that the amount collected from the members varied depending upon the quantum of effluent, the nature of effluent to be treated as well as other factors pertaining to the pollutant of different kind coming from the industrial units. The appellant submitted that it is engaged in the activity of preservation of environment by Page 20 of 96

C/TAXAP/627/2015 JUDGMENT abetment 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 waste. The appellant pointed out that it is incorporated u/s.25 of the Companies Act i.e. the company which does not exist for earning the profit but exist for the welfare and well being of the society. A certificate of registration dated 23.01.2006 was evidenced that the appellant company is a Section 25 Company. It was further pointed out that the appellant is duly registered u/s. 12AA and also u/s. 80G [51 of the Income-tax Act. The appellant pointed out that such certificates were issued after due verification by the necessary authorities. 4.4.3 It was pointed out by the appellant that the A0 has ignored modified objects of the appellant’s MOU after its conversion as Company u/s. 25 of the Companies Act. Such modified objects have already been reproduced earlier in the appellate order. It was submitted that the plain reading of the objects of the company will reveal that the main object is protection of environment by the abetment of pollution of various kinds like water, air, soil, etc. It is also seen that the modified objects of the appellant after it was converted into a company duly registered u/s. 25 of the Companies Act are disputed by the AO. To add, the AO has collected certain information from-GPCB uls133(6) about industrial units who have not met pollution parameters laid down by GPCB. The contention of the appellant that it is not aware about those industries who have met the pollution parameters or not appears to be correct as the appellant is predominantly and basically is doing the Activity of treatment and control of Pollutants given to it by the subscribing members. Such pollutants given to the appellant company are brought down to the admissible level as per the norms laid down by GPCB. It is not expected from the appellant to enforce membership of all industrial units around it where the appellant is located.

4.4.4 After evaluating the rival submissions, I am of the view that the activities of the appellant company squarely falls u/s.2(15) of the income~tax Act. The appellant company is clearly engaged in preservation of environment by controlling the extent of pollution caused Page 21 of 96

C/TAXAP/627/2015 JUDGMENT by various industrial units in and around Odhav and Naroda area. It is a settled principle that 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 the appellant company is directly engaged in preservation of environment as per Section 2(15), the proviso as pointed by the AO is not applicable in the instant case. Accordingly, the conclusion of the AO that the appellant company is not doing any charitable activity is not sustainable, as a result of which the claim of exemption u/s. 11 & 12 shall be available to the appellant 4.4.5 With regard to the AO's contention that the appellant is carrying out business activity and is in the nature of profit making, it may be pointed out that the benefit of exemption cannot be denied to a ground that it had made surplus/profits as long as it is not meant for the private profit of the seller. It is also seen that profit making is not the predominant object of the activity. The contention of the AO that the appellant company is in the business activity is thus not correct. 4.4.6 Considering the above arguments, I am of the view that the grounds raised by the appellant are allowable and as such, as the appellant is doing charitable activity as per Section 2(15) of the Income Tax Act, the benefit of Section 11 & 12 of the Income Tax Act available to it. The AO is therefore directed to treat the activities of the appellant company as charitable and is therefore directed to delete the addition of Rs.2,53,21,438/-.” 15. Thus, the CIT (A) took the view that the activities of the assessee company could be termed as charitable activities falling within the ambit of Section 2(15) of the Act. The CIT (A) also took into consideration the fact that the assessee company is incorporated under Section 25 of the Companies Act. The CIT (A) also took into consideration the modified objects after the company was registered under Section 25 of the Companies Act. Page 22 of 96

C/TAXAP/627/2015 JUDGMENT 16. The Revenue, being dissatisfied with the order passed by the CIT (Appeals), referred to above, preferred appeal before the Income Tax Appellate Tribunal, Ahmedabad 'A' Bench, Ahmedabad. The Appellate Tribunal, while dismissing the appeal preferred by the Revenue, held as under; “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 Page 23 of 96

C/TAXAP/627/2015 JUDGMENT 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. “ 17. The Appellate Tribunal took the view that the assessee company could be said to be carrying on the charitable activities, as the main purpose of the assessee company is to preserve the environment. The fact that the assessee company is duly registered under Section 12A of the Act and has also been issued certificate for the purpose of Section 80G(5) of the Page 24 of 96

C/TAXAP/627/2015 JUDGMENT Act weighed heavily with the Appellate Tribunal. The Tribunal took the view that the Company could be said to be engaged in the charitable activity of preservation of environment and even if the company cannot be said to be preserving the environment, its activities are towards the advancement of object of general public utility. The Tribunal also took the view that the case of the company does not fall within the proviso to Section 2(15) of the Act. 18. The Revenue, being dissatisfied with the order passed by the Appellate Tribunal is here before this Court with the captioned tax appeals. The captioned tax appeals are for the different assessment years starting from 2009-10. The following substantial questions of law have been framed by this Court while admitting the captioned tax appeals; “[1] Whether on the facts and in the circumstances, the Income Tax Appellate Tribunal was justified in affirming the view of the Commissioner (Appeals) that the activities of the assessee fall within the ambit of Preservation of Environment as envisaged under section 2(15) of the Income Tax Act, 1961? [2] If the above question is answered in the negative, whether the activities carried out by the assessee fall within the ambit of the proviso to section 2(15) of the Income Tax Act, 1961? [3]. Whether on the facts and in the circumstances, the Income Tax Appellate Tribunal was justified in affirming the view of the Commissioner (Appeals) that the activities of the assessee fall within the ambit of “Preservation of Environment” as envisaged under section 2(15) of the Income Tax Act, 1961? [4]. Whether the Appellate Tribunal has erred in law and on facts in not appreciating that the activities carried out by the assessee fall within the ambit of the proviso to Page 25 of 96

C/TAXAP/627/2015 JUDGMENT section 2(15) of the Income Etax Act, 1961? [5] Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in allowing the benefit of exemptions u/s.11 and 12 of the Act without considering the fact that the assessee is involved in widespread commercial activities in the nature of business and activities of the assessee are covered under first and second proviso to Section 2(15) of the Act ? [6] Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in allowing the benefit of exemptions under Sections 11 and 12 of the Income-tax Act, 1961 without considering the fact that the assessee is involved in wide spread commercial activities in the nature of business and these activities of the assessee are covered under the first and second proviso to Section 2 [15] of the Act ? [7] Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in allowing the benefit of exemptions u/s 11 & 12 of the Act without considering the fact that the assessee is involved in widespread commercial activities in nature of business and holding that the activity of the assessee is covered under first and second proviso to section 2(15) of the Act ?” Submissions on behalf of the Revenue:- 19. Ms. Mauna Bhatt, the learned senior standing counsel appearing for the Revenue submitted that by any stretch of imagination, the activities of the assessee do not fall within the definition of the term “Charitable Purpose” as defined under Section 2(15) of the Act. Ms. Bhatt submitted that the activities, in no manner, could be said to be for the purpose of preservation of environment. Ms. Bhatt pointed out that preservation of environment is one of the charitable purposes under Section 2(15) of the Act. The preservation of environment, as one of the charitable purposes, came to be inserted in Section 2(15) of the Act with effect from 1st April, Page 26 of 96

C/TAXAP/627/2015 JUDGMENT 2009. According to Ms. Bhatt, in such circumstances, the CIT (A) and the ITAT committed a serious error in holding that the assessee falls within the definition of the term “Charitable Purpose” as defined under Section 2(15) of the Act. In other words, the submission of Ms. Bhatt is that the activities undertaken by the assessee company are, in no manner, towards the preservation of environment. Ms. Bhatt submitted that by treating the trade effluent of the polluting industries, the company cannot be said to be preserving the environment. According to Ms. Bhatt, to preserve, means to keep something in its original form or keep it in good condition. Ms. Bhatt gave an illustration “the fossil was perfectly preserved for hundreds of years”. On the other hand, to protect, means to keep away from harm or danger. According to Ms. Bhatt, appropriate example would be, “the police is duty bound to protect the victim from the suspect”. Preserve is like keeping things the way they are, same as protect, but this one is more like you are keeping it save from a potential threat. 20. Ms. Bhatt submitted that way back in the year 1995, this High Court had taken suo motu cognizance of the pollution caused across the city and the areas situated on the outskirts by the polluting industries. In the year 1995, this High Court had taken cognizance of the fact that the industries were discharging their trade effluent directly on land or water bodies etc. without treating in the effluent treatment plant. It is at that point of time that this idea of setting up of treatment plant was given by the High Court. Ms. Bhatt pointed out that the assessee company primarily treats the effluent and, thereafter, the very same trade effluent is treated further by the Ahmedabad Municipal Corporation. According to Ms. Bhatt, the Page 27 of 96

C/TAXAP/627/2015 JUDGMENT mere activity of treating the effluent should not be equated with “preservation of environment” and such activity cannot be said to be for charitable purpose. 21. Ms. Bhatt submitted that even otherwise the members of the assessee company are obliged to comply with the statutory rules and regulations and the parameters and guidelines laid by the GPCB for the purpose of discharge of the trade effluent. If a treatment plant is set up by the assessee company for the purpose of treating the trade effluent, the same cannot be said to be for charitable purpose. 22. Ms. Bhatt, the learned counsel appearing for the Revenue, in the alternative, submitted that even if the activities of the assessee are to be treated in the nature of advancement of public utility, the same would not fall within the fourth limb of Section 2(15) of the Act as the activities undertaken are only for the members of the company. The activities cannot be said to be for the benefit of general public, or to put it in other words, an object of general public utility. 23. Ms. Bhatt submitted that mere registration of the assessee company under Section 25 of the Companies Act, 1956, itself, will not make the assessee eligible for exemption under Section 11 of the Act. The entitlement or otherwise of the exemption shall have to be decided by the Assessing Officer at the time of the assessment. Ms. Bhatt pointed out that the Assessing Officer, upon examination of the activities of the assessee, declined to grant the benefit of exemption holding that the case of the assessee falls under Section 13(8) of the Act. Ms. Bhatt, in support of her submission, placed Page 28 of 96

C/TAXAP/627/2015 JUDGMENT strong reliance on the decision of the Delhi High Court in the case of Sonia Gandhi vs. ACIT, reported in (2018) 407 ITR 594 and also on the decision of the Andhra Pradesh High Court in the case of Hyderabad Race Club vs Commissioner Of Income-Tax, reported in 1985 153 ITR 521 AP. 24. Ms. Bhatt, thereafter, submitted that the registration of the company under Section 12A of the Act will also not make the assessee automatically eligible to seek exemption under Section 11 of the Act. The eligibility or otherwise of exemption shall have to be decided at the time of the assessment. Ms. Bhatt, in support of her submission, has placed reliance on the following three decisions; “(i) Gujarat State Board of School Textbooks vs. Asst. Commissioner of Income Tax, Gandhinagar Circle, reported in (2016) 76 Taxmann.com 312 (Guj.); (ii) N.N. Desai Charitable Trust vs Commissioner Of Income Tax , reported in 246 ITR 452 (Guj.) 25. In such circumstances, referred to above, Ms. Bhatt prays that the order passed by the ITAT is not sustainable in law and deserves to be quashed and set aside. Ms. Bhatt submitted that the substantial questions of law framed by this Court may be answered in favour of the Revenue and against the assessee. Submissions on behalf of the assessee:- 26. On the other hand, Mr. S.N. Soparkar, the learned senior counsel assisted by Ms. Megha Jani, the learned counsel Page 29 of 96

C/TAXAP/627/2015 JUDGMENT appearing for the assessee has vehemently opposed all the tax appeals. Mr. Soparkar submitted that no error, not to speak of any error of law, could be said to have been committed by the ITAT in passing the impugned order. Mr. Soparkar submitted that the assessee is engaged in the activities of preservation of environment. The assessee was incorporated on 19th October, 1995 with the object of complying with the directions issued by this Court in a public interest litigation to curb the menace of pollution in the city of Ahmedabad. Mr. Soparkar submitted that the decision rendered by this Court in public interest is reported, titled as Pravinbhai J. Patel vs. State of Gujarat & Ors., reported in (1995) 36 (2) GLR 1. Mr. Soparkar submitted that the assessee company runs a Common Effluent Treatment Plant at Naroda. It has a treatment storage and disposal facility for the hazardous waste at Odhav, Ahmedabad and is also engaged in the various other activities to spread awareness in respect of the pollution and preservation of environment. The learned counsel pointed out that the project of the company was set up upon the direction, guidance and support of the various local and State agencies like the Collector, GIDC, AMC, GPCB, MOEF etc. 27. Mr. Soparkar submitted that on 21st December, 2005, a license was issued to the company under Section 25 of the Act, 1956. Some of the conditions of the license read as under; “2. That the income and property of the said company whensoever derived, shall be applied solely for the promotion of the objects as at forth in its Memorandum of Association and that no portion thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to persons who at any time are or have been members of the said company or to any of them or to any person claiming through any Page 30 of 96

C/TAXAP/627/2015 JUDGMENT one or more of them; 3. That no remunerations or other benefit in money or money’s worth shall be given by the company to any of its members whether officers or servants of the company or not except payment of out-of-pocket expenses, reasonable and proper interest on money lent, or reasonable and proper rent on premises let to the company; 4. That no members shall be appointed to any office under the company which is remunerated by salary, fees or in any other manner not excepted by clauses (3)” 28. Mr. Soparkar submitted that the main object of the company on its conversion as a Section 25 company is that of preservation of environment. The main object highlighted by Mr. Soparkar is as under; “To engage in the business as manufacturers, dealers, importers, exporters, consignment agents, erectors, traders, consultants in all kinds of pollution treatment plaints/ equipments whether water pollution, air pollution, noise pollution without limiting the scope thereof, establishing the pollution treatment plants for industries, government industrial estates in co-operative sector acting as consultants for environmental and pollution problems, carrying on all activities relating to above including plantation for the purpose of pollution treatment.” 29. Mr. Soparkar submitted that the assessee had preferred an application for registration under Section 12AA of the Act in form 10A on 22nd February, 2006. The said application came to be rejected by an order dated 22nd August, 2006 for non- compliance of few queries. The said order came to be set aside by the ITAT vide its order dated 14th November, 2006 and the matter was remitted for fresh consideration. The Director of Income Tax (Exemption), Ahmedabad, vide his order dated 4th July, 2007, granted the registration to the company under Page 31 of 96

C/TAXAP/627/2015 JUDGMENT Section 12A with effect from 21st December, 2005 (the same date as the date on which the license under Section 25 of the Act, 1956 came to be granted). Mr. Soparkar also pointed out that a show-cause notice was issued by the DIT (E), Ahmedabad under Section 12AA(3) of the Act. The proceedings, ultimately, came to be dropped on 20th March, 2013. According to Mr. Soparkar, in such circumstances, it could be said that even after the law was amended with effect from A.Y. 2009-10, the CIT accepted that the assessee continued to be a charitable institution. If that be so, according to the learned senior counsel,the Assessing Officer, much below the rank of the CIT, could not have declined the benefit of exemption under Section 2(15) read with Sections 11 and 12 respectively of the Act. 30. Mr. Soparkar submitted that the assessee has been claiming exemption under Section 11 of the Act. The tax appeals arise out of the various assessment orders passed by the Assessing Officer for the A.Y.2009-10, 2010-11, 2012-13, 2013-14 respectively, inter alia, holding that the assessee is not engaged in the activity with charitable purpose and that the profit earned by it is required to be added to the total income subjected to payment of tax. It is submitted that all the aforesaid orders have been quashed and set aside by the CIT (Appeals) and those have been affirmed by the ITAT. 31. Mr. Soparkar submitted that this Court may not interfere keeping in mind the following; “(i) The Respondent assessee is issued license under Section 25 of the Companies Act, 1956, which requires the Respondent Assessee to apply its profits, if any, or other income in promoting its objects and prohibits payment of any dividend to its members. The main Page 32 of 96

C/TAXAP/627/2015 JUDGMENT object of the Company on its incorporation as Section 25 Company is clearly that of preservation of environment. It is this Company with the aforesaid objective that is registered under Section 12AA. The only object with which the Respondent carries on its activity pertains to preservation of environment. (ii) Once the registration as a charitable institution is granted under Section 12AA of the Act, the grant of benefit of exemption of tax cannot be denied. The respondent relies on the following judgments: (a) (2000) 246 ITR 188 (para-B, 9, 10, 11, 17, 18) Hiralal Bhagwati Vs Commissioner of Income Tax (b) (2008) 14 SCC 169, Assistant Commissioner of Income Tax V/s. Surat City Gymkhana (c) (2013) 355 ITR 384 (para 7. 12), Agricultural Produce Market Committee Vs Income Tax Officer (iii) The Assessing Officer has erroneously gone into the issue of the Respondent earning profit. The mere fact that the activities undertaken by a charitable institution results in generating profit is not a relevant consideration for denial of exemption from tax. The respondent relies on (2014) 362 ITR 539 ( para 10-13), Director of Income Tax Vs Sabarmati Ashram Gaushala Trust Sabarmati Gaushala Trust. (iv) In the present case, by virtue of the fact that the Respondent Assessee is a Section 25 Company, profit, if any, is even otherwise not available for distribution. The profit is applied only for advancement of the object with which the company is incorporated which is preservation of environment. The test to determine as to whether an institution is a charitable institution is NOT “how it earns the income” BUT “where it is applied”. In other words, its activity and not the source of raising the funds to carry out the activity.

(v) The Assessing Officer has erred in holding that the Page 33 of 96

C/TAXAP/627/2015 JUDGMENT assessee is liable to tax by virtue of proviso to Section 2(15) of the Act and on account of operation of Section 13(8) of the Act. None of the aforesaid provisions apply in case of the Respondent Assessee that is directly engaged in the activity of preservation of environment. The provisos do not apply in respect of the first six limbs of section 2(15) of the Act. The Respondent relies on Circular No.11 of 2008 dated 19.12.2008. A copy of the said circular is enclosed. (vi) Two lower Appellate Authorities i.e. CIT (Appeals) (para 4.4.4, page 39 of Tax Appeal No. 627 of 2015) and ITAT (para 4 ,page 45 of Tax Appeal No. 627 of 2015), have both held that the activity undertaken by the assessee is that of preservation of environment. Even the Assessing Officer does not dispute that the Assessee is carrying out the activity of running a CETP for the secondary treatment of polluted industrial waste. If so, the Assessee qualifies for the exemption. In any case, what is the nature of activity of an assessee, whether it is engaged in charitable activity or not is even otherwise a question of fact. No question of law arises in these appeals. (vii) The Appellant, while asserting that the respondent is not engaged in the activity of preservation of environment, has failed to name the activity which would fall in the residuary category of ‘advancement of any other object of general public utility’ that is undertaken by the Respondent trust. The objects with which the Respondent assessee is incorporated, and its activity lead to only one conclusion that the Respondent assessee is engaged in the activity of preservation of environment and in nothing else.” 31. In such circumstances, referred to above, Mr. Soparkar, the learned senior counsel, prays that there being no merit in the tax appeals, those be dismissed, the order passed by the ITAT be affirmed and the substantial questions of law framed by this Court may be answered against the Revenue and in favour of the assessee. Page 34 of 96

C/TAXAP/627/2015 JUDGMENT ANALYSIS 32. Section 2(15) of the Act defines the term “Charitable Purpose”. The definition reads as under: 'Section 2(15):-"charitable purpose" includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) 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 the carrying on of 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, 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, unless— (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;” 33. S.2(15) of the 1961 Act::- Charitable purpose, defined (upto 31-3-2009).- According to section 2(15), the expression “charitable purpose” has been defined by way of an inclusive definition so as to include- -relief to the poor, -education, -medical relief, and -the advancement of any other object of general public utility Page 35 of 96

C/TAXAP/627/2015 JUDGMENT [(upto 31-3-1984) not involving the carrying on of any activity for profit]. 34. The subject-matter of this definition has been dealt with under section 11, post. 35. Charitable purpose, defined (operative from 1-4- 2009).-As per section 2(15), newly substituted (w.e.f. 1-4- 2009) by the Finance Act, 2008, the expression “charitable purpose” has been defined by way of an inclusive definition so as to include; -relief to the poor, -education, medical relief, -(w.e.f. 1-4-2009) preservation of environment (including watersheds, forests and Wildlife) and Preservation of monuments or places or objects of artistic of historic interest and, -the advancement of any other object of general public utility. 36. The first proviso to section 2(15) provides that 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 -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. 37. The second proviso to section 2(15) as newly inserted (w..e.f. 1-4-2009) by the Finance Act, 2010, further provides Page 36 of 96

C/TAXAP/627/2015 JUDGMENT that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is -(between 1-4-2009 and 31-3-2012) Rs. 10 lakhs -(w.e.f. 1-4-2012) Rs. 25 lakhs or less in the previous year. 38. Legislative amendments.- I. The Finance Act, 1983-By section 3(a) of Act 11 of 1983, section 2(15) has been amended (w.e.f. 1-4-1984). II The Finance Act, 2008.-The scope and effect of the substitution (w.e.f. 1-4-2009) of section 2(15) by Act 18 of 2008, have been elaborated in the following portion of the departmental circular No. 1/2009, dated 27-3-2009, as under:- 'Streamlining the definition of “charitable purpose”.- 5.1 Sub-section (15) of section 2 of the Act defines “charitable purpose” to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under sub- section (23C) of section 10 or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the “advancement of an object of general public utility” as is included in the fourth limb of the current definition of “charitable purpose” Such as claim, when made in respect of an activity carried out on commercial lines, is is contrary to the intention of the provision. 5.2 With a view to limiting the scope of the phrase “advancement of any other object of general public utility”, sub-section (15) of section 2 has been amended to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if Page 37 of 96

C/TAXAP/627/2015 JUDGMENT it involves the carrying on of 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, 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. Scope of this amendment has further been explained by the CBDT vide its Circular 11/2008 dated December 19, 2008. 5.3 Applicability: This amendment has been made applicable with effect from 1st April, 2009, and shall accordingly apply for the assessment year 2009-10 and subsequent assessment years.’. III The Finance (No.2) Act, 2009-The scope and effect of the substitution (w..e.f. 1-4-2009) of section 2(15) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No.5/2010, dated 3-6-2010, as under:- “Amendment to include certain activities within the ambit of provisions relating to “charitable purpose” in the Income-tax Act. 4.1 For the purposes of the Income-tax Act, “charitable purpose” has been defined in section 2(15) of the Income-tax Act and it includes (a) relief to the poor, (b) education, (c) medical relief and, (d) the advancement of any other object of general public utility.

However, as per proviso to the section, 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 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. 4.2 Clause (15) of section 2 has been amended so as to Page 38 of 96

C/TAXAP/627/2015 JUDGMENT provide that the preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest would be excluded from the applicability of the aforesaid proviso which is applicable to the “advancement of any other object of general public utility”.

4.3 Applicability:-These amendments have been made applicable with effect from 1st April, 2009 and will accordingly apply for assessment year 2009-10 and subsequent assessment years..” IV The Finance Act, 2010:--The scope and effect of the insertion (w.e.f. 1-4-2009) of a new second proviso in section 2(15) have been elaborated in the following portion of the departmental circular No.1/2011, dated 6-4~2011, as under: ‘Change in the definition of “charitable purpose”.- 4.1 For the purposes of the Income-tax Act, “charitable purpose” has been defined in section 2(15) which, among others, includes “the advancement of any other object of general public utility”. 4.2 However, “the advancement of any other object of general public utility” is not 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 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.

4.3 The absolute restriction on any receipt of commercial nature may create hardship to the organizations which receive sundry considerations from such activities. Therefore, section 2(15) has been amended to provide that “the advancement of any other object of general public utility” shall continue to be a “charitable purpose” if the total receipts from 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 do not exceed Rs.10 lakhs in the Page 39 of 96

C/TAXAP/627/2015 JUDGMENT previous year. 4.4 Applicability: This amendment has been made effective retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent years.’. V. The Finance Act, 2011.-The second proviso to section 2(15) has been amended (w.e.f. 1-4-2012) by section 3 of Act 8 of 2011. The scope and effect of the amendment made in section 2(15) by the Finance Act, 2011 have been elaborated in the following portion of the departmental circular No.2 of of 2012 dated 22-05-012. as follows: Definition of “charitable purpose":- 4.1 For the purpose of the 1961 Act, “charitable purpose“ has been determined in section 2(15) which, among others, include "the advancement of any other object of general public utility”. 4.2 However. “the advancement of any other object of general public utility” is not considered as 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 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. if receipts from such activities is above the specified limit in the previous year. 4.3 Second proviso to section 2(15) of the 1961 Act has been amended to provide that the specified monetary limit in respect of receipts from such activities shall be 25 lakh rupees instead of 10 lakh rupees. 4.4 Applicability.--This amendment has been made effective from [1st April. 20l2, and will, accordingly, apply in relation to the assessment year 2012-13 and Page 40 of 96

C/TAXAP/627/2015 JUDGMENT subsequent years.” Departmental circular.-1. Definition of “Charitable purpose” under section 2(15) of the Income-tax Act, 1961-reg- Section 2(15) of the Income-tax Act, 1961 (“the Act”), defines “charitable purpose” to include the following: (i) relief to the poor (ii) education (iii) medical relief, and (iv) the advancement of any other object of general public utility.

An entity with a charitable object of the above nature was eligible for exemption from tax under section Section 11 or alternatively under section 10(23C) of the Act. However. it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of “charitable purpose". Therefore. section 2(15) was amended, vide Finance Act. 2008, by adding a proviso which states that the “advancement of any other object of general public utility” shall not be a charitable purpose if it involves the carrying on of - (a) any activity in the nature of trade, commerce or business: or (b) 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. Page 41 of 96

C/TAXAP/627/2015 JUDGMENT 39. In the course of the hearing of these appeals, our attention was drawn to the following extract from the speech of the Minister of Finance on 29th February, 2008. “ 180. Charitable purpose' includes relief of the poor, ―

education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade commerce or business and earning income have sought to claim that their purpose would also fall under 'charitable purpose'. Obviously, this way not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.” 40. Our attention was also drawn to the following extract from the reply of the Finance Minister to the Debate in the Lok Sabha on the Finance Bill, 2008:- “ 6. Clause 3 of the Finance Bill, 2008 seeks to amend ―

the definition of charitable purpose' so as to exclude 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, for a cess or fee or any other consideration, irrespective of the nature or use of application, or retention, of the income from such activity. The intention is to limit the benefit to entities which are engaged in activities such as relief of the poor, education, medical relief and any other genuine charitable purpose, and to deny it to purely commercial and business entities which wear the mask of a charity. A number of Honourable Members have written to me expressing their concern on the possible impact of the proposal on Agricultural Produce Market Committees (APMC) or State Agricultural Marketing Boards (SAMB). Since there is no intention to tax such committees or boards, and in order to remove any doubts, I propose to insert a new clause (26AAB) in section 10 of the Income tax Act to provide exemption to any income of an APMC or SAMB constituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce. I once again assure the House that genuine charitable Page 42 of 96

C/TAXAP/627/2015 JUDGMENT organisations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether an 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. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organisations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as advancement of any other object of ―

general public utility. (underlining added) “ 41. Thus, prima facie, it appears from the above that the object of the introduction of the Proviso to clause (15) of Section 2 of the said Act was to deny the benefit of the Income Tax Act exemption to purely commercial and business entities which wear the mask of a charity. The genuine charitable organizations were not affected in any way. 42. At this stage, it would be appropriate to look into the Memorandum of Association of the assessee-company. The main objects of the company, to be persuaded by the company on its incorporation, are as follows; “To promote, aid, foster and engage in the area of Environment Protection, abatement of pollution of various kinds such as water, air, solid, noise, vehicular etc. without limiting its scope to run and develop Common Effluent Treatment Plant (CEPT), Total Suspended Disposal Facility (TSDF), conserve the natural resources, utilization of other selective resources to reduce pollut9ion, to make adopt the industries and familiarize the concept of 'Cleaner Production', Cleaner Technologies' such as incineration, hydrogenation, process for recovery and re-use of waster, to reduce/eliminate pollution at source instead at the end of pipe and, to carry out research and development and, activities incidental and ancillary thereto and, to make available benefits of its activities and facilities to the Page 43 of 96

C/TAXAP/627/2015 JUDGMENT public at large without any distinction of race, region or cast. THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS ARE 2. To promote and endeavour to educate public at large and adopt the techniques to re-use and re-cycle waste water, industrial waste into by-products to adopt Cleaner Production Techniques to minimize waste generation and thereby to reduce/ abate pollution. 3. To undertake activities, enter into treaties for substituting hazardous substances like Chioro Floura Carbon (CFC), Green House Gas (GHC) Reduction,Carbon Trading activities, Ozone Depleting substances or any other such future developments coming up to abate pollution of various kinds. 4. To stimulate amongst the members of the Company and public at large, thought and efforts towards the promotion and development of the efficient pollution control and to educate them in theory and practice and to exchange knowledge, experience and ideas on sound environment management principles and practices. 5. To formulate and implement demonstration projects aimed at providing total eco management planning by harnessing alternative sources, techniques of Cleaner Technologies with a objects to evolve long term plans based on the same and otter consultancy for the same. 6. To maintain for the members of the company liaison with organization/s interested in Pollution Control and Environment Management and such activities in furtherance of the objects of the Company such as Chamber of Commerce, Government departments, Management Associations Trade Associations etc. in the State Country and abroad. 7. To collaborate and co-operate with other professional institutions and with educational and research institutions having similar objects. 8. To identify and formulate proposals for the setting up of demonstration of Environment Management Page 44 of 96

C/TAXAP/627/2015 JUDGMENT Projects. 9. To receive and accept subscription, fees, gifts, donations, grants, scholarships in cash or in kind; and contribution relating to organizations/product link sponsorships for any of the activities of the Company. 10. To institute and establish scholarships, grants, awards and prizes to encourage the study of the art and science of Environment Management or to recognize high standard of performance and excellence in the field of Management. 11. To sponsor, co-ordinate or promote research programmes or projects of a developmental nature involving development of proto-types, pilot plant, investigations etc. in the area of Environment Management. 12. To advise the State Government, Central Government, Panchayats, Municipalities, Municipal Corporations and other local Bodies and other semi- government agencies and development agencies in the State and elsewhere in all such matters pertaining to Environment Management, as may be referred to it from time to time and to undertake on its own or in collaboration, or other arrangements with national and international agencies, programmes of research, application extension and development of Pollution Control and’ Environment Management techniques and/or methods, 13. To undertake or sponsor studies of Environmental effects of various Cleaner Techniques, generation, distribution and utilization; 14. To sponsor or undertake techno-economic and/or socio-economic feasibility studies or cost benefits analysis with respect to new methods of Cleaner Technologies. 15. To provide technical or other assistance for the formulation of programmes, designs and projects meant for extension of alternate Cleaner Technologies, programmes in India or any part of the world; Page 45 of 96

C/TAXAP/627/2015 JUDGMENT 16. To take special steps to develop a group of young Scientists and Technologists working in the field of Environment Protection and Pollution Control and Cleaner Technologies and to identity and to encourage research; 17. To establish and to maintain a technical library and/or Information center and to collect and collate information regarding alternate Technology or Pollution Control and use of Resources; 18. To develop and support Centers of documentation. service. maintenance and supply of data including patent, literature, current status report etc. in the area of environment management; 19. To accept. purchase. receive. take on lease or hire or otherwise. acquire any movable or immovable property rights or privileges: and to borrow, raise or secure the payment of any money on such terms and conditions and on such security as may be deemed fit and proper provided they are not inconsistent with the objects of the Company; 20. To compile and maintain a register of qualified Consultants in the area of environment protection and to provide to the members of the Company and public at large, expert advice and service on specialized management problems; 21. To prepare, edit, print, publish, issue, and circulate books. magazines, papers, periodicals. circulars. news letters and other literary undertakings dealing with or bearing upon energy conservation and to establish form and maintain libraries, collection of literature, statistics and scientific data and other information relating thereto to translate, compile, collect, publish, lend or sale and to disseminate the results of the activities; 22. To appoint investigators to study in India and/or abroad financial, constitutional, administrative, scientific, industrial or other problems in regard to scientific and industrial research undertaken by the company; . 23. To retain and/or employ skill, professional or technical advisors and other staff and workers in connection with the objects of the company. Page 46 of 96

C/TAXAP/627/2015 JUDGMENT 24. To become member or be associated with other institutions, organizations, foundations etc which have object or objects similar to those of the company or which are otherwise, conducive to carrying out the object of the company; 25. To establish, maintain, control and manage other Environment Protection Association; 26. To borrow or raise any money that may be required by the company upon such terms as may be deem proper and in particular by issue of shares of the company or by mortgage or charge of all or any part of the property of the company; 27. To draw, make, accept, endorse, discount, execute and issue promissory note, bills of exchange and other negotiable or transferable instruments; 28. To invest funds of the company not immediately required in or upon any investment or property of whatsoever nature and wheresoever situate including shares. stocks. securities, flats, lands, and buildings and calling, vary, exchange or transfer any investments or properties of the company; 29. To establish, settle. promote, form, undertake or to execute any public charitable or welfare trust for the benefit of employees, ex-employees, directors, their dependents and general public or for the development and advancement of any activity in the field of education, healthcare, public welfare, science etc. for their benefit 30. To form, constitute, float. lend money to assist and control similar associations or undertakings whatsoever; 31. To subscribe for, take or otherwise acquire and hold shares, stocks, debentures or other securities of any other Company having objects altogether or in part similar to those of the Company or carrying on any business capable of being conducted so as to directly to benefit the Company. 32. To subscribe or contribute or otherwise to assist or to guarantee money to charitable, benevolent, scientific, Page 47 of 96

C/TAXAP/627/2015 JUDGMENT national, public, or any other useful institutions in their objects or purposes or for any exhibitions; 33. To appoint any Directors or Managers of any subsidiary company or of any other Company in which this Company is or may be Interested. 34. To establish, provide, maintain and conduct or otherwise subsidise, research, laboratories and experimental workshop for scientific and technical research and experiments and undertake and carry on with all scientific and technical research experiments and tests undertake and to promote studies and research both scientific and technical investigation and invention by providing subsidy or assisting laboratories, workshops, libraries, lectures. meetings and conferences and by providing the scientific or technical professor or teachers and by providing for the awards or exhibition, scholarship, prizes and grants to students or otherwise and generally to encourage, promote and reward studies, researches. Investigation, experiment, tests and invention of any kind that may be considered likely to assist any of the activities which the Company is authorized to carry on. 35. To take part in the management, supervision and control of the business or operation of any company or undertaking having similar objects and for that purpose to appoint any directors or other experts. 36. To amalgamate, enter into partnership or into any arrangement, union of interest, cooperation, reciprocal concession or otherwise with any person, firm or company carrying on or engaged in or about to carry on any activities which may seem capable of being carried on or conducted so as, directly or indirectly to benefit the Company. 37. To search for and to purchase, protect, prolong, renew or otherwise acquire from any Government, state or authority any patents, protections, permissions, authorization, consents, licenses, concessions, grants. decrees. rights, powers and privileges whatsoever which may seem to the Company capable of being turned into account to work, develop, carry out exercise and turn to account the same. Page 48 of 96

C/TAXAP/627/2015 JUDGMENT 38. To furtherance of the aforesaid objects of the Company, to enter into negotiations with and enter into arrangements and contracts and conclude the same with foreign and/or Indian parties and other persons for obtaining by grant, license and/or on other terms formulate and other rights and benefits, and to obtain technical information assistance and service know-how and expert advice. 39. To indemnify members, officers, directors, agents and employees of the Company against proceedings, cost. Damages, claims and demands in respect of anything done or ordered to be done by them and in the interest of the Company or any loss, damage or misfortune whatsoever which shall happen in the execution of the duties of their offices or in relation thereto. 40. To use the funds in any of the assets of the company in the employment of persons of learning or skill, the provisions and use of buildings and purchase and maintenance of instruments, materials and appliances to carry out its activities; 41. To establish and support or aid in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex- employees of the company or the dependants of such persons, and to grant pension and allowances to make payment towards insurance of such persons and generally to provide for superannuation benefits; 42. To procure the company to be registered or recognized in any part of India in the field of environment management; 43. To purchase or take by way of lease, sub-lease, gift, exchange, hire or otherwise acquire movable or immovable property and in particular any land, building, workshop, factories, laboratories, machinery, equipment, furniture, scientific records, experimental data. library etc. 44. To acquire real or leasehold estate and to purchase. or otherwise acquire or provide in any place in which any Page 49 of 96

C/TAXAP/627/2015 JUDGMENT part of activities of the Company may from time to time be carried on, all such offices, warehouses, workshops, buildings. machineries, engines. plants and appliances as may be considered requisite tor the purpose of carrying on the activities of the' Company. 45. Provided that the Company shall not support with its funds or endeavour to impose on or procedure to be observed by its members, or others, any regulation or restriction which, if an object of the Company, would make it a Trade Union. (C ) Other Objects : Nil IV. The objects of the Company extend to the whole of India.

V 1.. The Income and property of the Company whensoever and howsoever derived shalt be applied solely towards the promotion of the objects of the Company as set forth in this Memorandum of Association. ’ 2. No portion thereof shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise howsoever by way of profits to the persons who at any time are or have been members of the Company or to any person claiming through any of them. 3. Except with the previous approval of the Central Government, no remuneration or other benefit in money’s worth shall be given by the Company to any of Its members, whether officers or servants of the Company or not. except payment of out of pocket expenses, reasonable and proper interest on money lent or reasonable and proper rent on premises leased or let to the Company, or reasonable and proper remuneration for the actual services rendered by him (not being services of a kind which are required to be rendered by a member). 4. Except with the previous approval of the Central Government, no member shall be appointed to any office under the Company who is remunerated by salary, fees or in any other manner not excepted by sub-clause 3. Page 50 of 96

C/TAXAP/627/2015 JUDGMENT 5. Nothing in this clause shall prevent the Company for payment in good faith of reasonable remuneration to any of its officers or servants (not being members) or to any other persons (not being a member) in return for any services actually rendered to the Company. VI. No alteration shall be made to this Memorandum of Association or to the Articles of Association of the company which are for the time being enforced unless the alteration has been previously submitted to and approved by the Regional Director, Western Region, Department of Company Affairs, Mumbai. VII. The Liability of the members is limited. VIII. The Authorized Share Capital of the company will consist of Rs.1.00.00.000/-(Rupees One Crore only) divided into 10,00,000 (Ten Lacs.) Equity shares of Rs. 10/-(Rupees Ten only) each. IX. True accounts shall be kept of all sums of money received and expended by the Company and the matters in respect of which such receipts and expenditure take place and of the property, credits and liabilities of the Company; and, subject to any reasonable restrictions as to the time and manner of inspecting the same that may be imposed in accordance with the regulations of the Company for the time being in force, the accounts shall be open to the inspection of the members. Once at least in every year, the accounts of the Company shall be examined and the correctness of the Balance-sheet and the Income and Expenditure Account ascertained by one or

more

property

qualified

Auditor/s.

X. If upon a winding up or the dissolution of the Company, there are remains after the satisfaction of all the debts and liabilities, any property whatsoever, the same shall not be distributed amongst the members of the Company but, shall be given or transferred to such other Company having objects similar to the objects of this Company to be determined by the members of the company at or before the time or dissolution or in default thereof, by the High Court of Judicature that has or may acquire jurisdiction in the matter.” 43. The first and the foremost question, therefore, we need Page 51 of 96

C/TAXAP/627/2015 JUDGMENT to consider is whether having regard to the activities undertaken by the Company, could it be said that the Company is into “preservation of environment”. The assertion on the part of the assessee company is that it takes care of the liquid and solid industrial waste generated by the polluting industries by treating the same in the Common Effluent Treatment Plant, situated at Naroda and also the Total Suspended Disposal Facility at Odhav, Ahmedabad (TSDF) and other anciliary activities for the purpose of curbing the menace of pollution thereby preserving the environment. Whether by establishment or running of the Common Effluent Treatment Plant at Naroda (CETP) and at Odhav TSDF and other anciliary activities, could it be said that the assessee-company undertakes the activity of preservation of environment for the purpose of Section 2(15) of the Act?. 44. We are dealing with a taxing statute. The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a Taxing Act, it is not possible to assume any intention or the governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. (See Mathuram Agrawal vs. State of Madhya Pradesh, reported in (1999) 8 SCC 667) Page 52 of 96

C/TAXAP/627/2015 JUDGMENT 45. The first and the foremost thing we want to clarify is that the registration of the assessee as a Charitable Institution and the license granted to the assessee as a company under Section 25 of the Companies Act would, prima facie, clothe the assesseee with the character of a charitable institution. However, neither of the above two events is conclusive and the question whether the assessee is established for a charitable purpose or not must be examined independently with reference to the provisions of the Act. The registration of the assessee as a charitable institution under Section 12A of the Act, 1961 and the license granted to the assessee under s. 25 of the Companies Act are only relevant factors in reaching an appropriate conclusion. Unless the positive requirements of law are satisfied, the assessee, only by virtue of the above two events, cannot be regarded as a Charitable Institution. The objects, for which, the assessee is established either as a Society or as a Company should spell out any charitable purpose. 46. In the aforesaid context, it may be pertinent to refer to the decision of this High Court in the case of Hiralal Bhagwati v. Commissioner of Income Tax, [2000] 161 CTR (Guj) 401, wherein the Court has held as under: “The registration of a charitable trust under section 12A is not an empty formality. This is apparent from the tenor of the provisions of section 12A. It requires that not only an application should be filed in the prescribed form, setting the details of the origin of the trust, but also names and addresses of the trustees and/or managers should be furnished. The CIT has to examine the objects of creation as well as an empirical study of the past activities of the applicant. The CIT has to examine that it is really a charitable trust or institution eligible for Page 53 of 96

C/TAXAP/627/2015 JUDGMENT registration. The Court further held that once the registration under section 12A(a) of the Act is granted, the Income Tax Officer is not justified in refusing the benefit which would, otherwise, accrue under the registration.” 47. In the case of Assistant Commissioner of Income Tax v. Surat City Gymkhana, (2008) 300 ITR 214 (SC), the Supreme Court was called upon to deal with the question as to whether on the facts and circumstances of the said case, Income Tax Appellate Tribunal was justified in law in holding that registration under section 12A was a fiat accompli to hold the Assessing Officer back from further probe into the objects of the trust. On a perusal of the judgment of the Gujarat High Court in the case of Hiralal Bhagwati, the Supreme Court held that the question stood concluded by the said judgment, which had attained finality since the revenue did not challenge the decision in the said case. The relevant observations made by the Supreme Court are as follows; “The respondent assessee claimed exemption under Section 10(23) of the Income Tax Act, 1961 for Assessment Years 1991-1992 and 1992-1993. The said exemption was claimed on the basis that the objects of the respondent assessee are exclusively charitable. The assessing officer rejected the claim. The appeals filed before the Commissioner of Income Tax (Appeals) were also dismissed. Aggrieved thereby, the assessee filed further appeals before the Income Tax Appellate Tribunal (the Tribunal). The Tribunal, by order dated 20-1-2000, allowed the appeals filed by the respondent assessee. The appellant filed appeals before the High Court of Gujarat. The Revenue claimed that the following two substantial questions of law arise from the order of the Tribunal: “(A) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the objects of the trust restricting Page 54 of 96

C/TAXAP/627/2015 JUDGMENT benefit to the members of the club would fall within the purview of the act of ‘general public utility’ under Section 2(15) of the Income Tax Act constituting as a section of public and not a body of individuals? (B) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that registration under Section 12-A was a fait accompli to hold the assessing officer back from further probe into the objects of the trust?” 2. By the impugned order, the High Court dismissed the appeals, in limine, relying on a decision of the same Court in Hiralal Bhagwati v. CIT 2000 246 ITR 188, holding that the questions raised in the appeals are covered by the aforesaid decision. 3. Being dissatisfied by the order of the High Court, the Revenue has filed these appeals. 4. This Court, on 22-7-2002, granted leave in respect of Question ‘B’ only. The appeals were not entertained in respect of Question ‘A’ and it was noted that the appeals were rightly dismissed by the High Court insofar as Question ‘A’ is concerned as the appellant did not challenge the correctness of the judgment in Hiralal Bhagwati. 5. On a perusal of the judgment of the Gujarat High Court in Hiralal Bhagwati we now find that Question ‘B’ is also concluded by the said judgment (refer to the 1st paragraph of ITR p. 196). Since the Revenue did not challenge the decision in the said case, the same has attained finality. Question ‘B’, therefore, is to meet the same fate as Question ‘A’ as this Court had declined to grant leave in respect of Question ‘A’ on the ground that the Revenue did not challenge the correctness of the decision in Hiralal Bhagwati. It appears that the fact, that Question ‘B’ was also covered by the aforementioned judgment, was not brought to the notice of Their Lordships and, therefore, leave granted was restricted to Question ‘B’.” 48. This High Court in the case of Ahmedabad Urban Development Authority v. Deputy Director of Income Tax (Exemption), (supra), has held thus: Page 55 of 96

C/TAXAP/627/2015 JUDGMENT “9. Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of sections 11 & 12 as provided in section 12A of the Act. Therefore, once the procedure is complete as provided in sub-section (1) of section 12AA of the Act and a Certificate is issued granting registration to the Trust or Institution it is apparent that the same is a document evidencing satisfaction about : (1) genuineness of the activities of the Trust or institution, (2) about the objects of the Trust or Institution. Section 12A of the Act stipulates that provisions of sections 11 & 12 shall not apply in relation to income of a Trust or an Institution unless conditions stipulated therein are fulfilled. Thus granting of registration under section 12AA of the Act denotes, as per legislative scheme, that conditions laid down in section 12A of the Act stand fulfilled.” 49. This High Court, in the case of Agricultural Produce Market Committee vs. Income Tax Officer, reported in (2013) 355 ITR 384, held as under; “A perusal of the reasons recorded shows that the assessment is sought to be reopened on the ground that even if the petitioner has obtained registration under section 12AA of the Act as an institution carrying on charitable activities, the petitioner is not entitled to the status of trust carrying out charitable activities since the petitioner is conducting the business as an “Association of Persons” and not as a “Trust”. Thus, though the petitioner has been granted registration under section 12AA of the Act by the Commissioner of Income-tax, the assessment is sought to be reopened on the basis of revenue audit objection that the petitioner is not eligible for exemption for the aforesaid reasons. The grounds for reopening the assessment are clearly contrary to the settled legal position as laid down by this Court in the case of Hiralal Bhagwati v. Commissioner of Income Tax, (supra) as well as in the case of Ahmedabad Urban Development Authority v. Deputy Director of Income Tax (Exemption), wherein the Court has held that section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of sections 11 and 12 as provided in section 12A of the Act. Page 56 of 96

C/TAXAP/627/2015 JUDGMENT Therefore, once the procedure is complete as provided under sub-section (1) of section 12AA of the Act and a certificate is issued granting registration to the Trust or Institution, it is apparent that the same is a document evidencing satisfaction about: (1) genuineness of the activities of the trust or Institution, and (2) about the objects of the Trust or Institution. While framing the assessment order, it is not open to the Assessing Officer to ignore the certificate of registration granted under section 12AA of the Act by the Director of Income Tax (Exemption). In the facts of the present case, the Assessing Officer while framing the original assessment under section 143(3) of the Act, has, taken into consideration the certificate granted by the Commissioner of Income Tax under section 12AA of the Act, and has found that the petitioner carries on charitable activities. In the return of income filed by it, the petitioner had specifically claimed deduction of Rs.32,40,212/- and Rs.45,00,000/- totalling to Rs.77,40,212/- as a Charitable Trust registered under section 12AA of the Act by the Commissioner of Income Tax. During the course of assessment proceedings the Assessing Officer had issued notice pursuant to which the petitioner had given its reply explaining as to why it was entitled to the said deductions. The Assessing Officer after considering the explanation given by the petitioner had passed a scrutiny assessment order under section 143(3) of the Act specifically allowing the above deductions. From the reasons recorded, it is evident that the Assessing Officer has not recorded any independent opinion regarding income having escaped assessment for the reasons stated therein. The sole ground for reopening the assessment appears to be the observations of the Revenue Audit Party that the assessee is not eligible for exemption to the tune of Rs.77,40,212/- for the year under reference since, the Assessing Officer has not disallowed the exemption while finalizing the assessment under section 143(3) of the Act. Thus, it appears that the belief that income chargeable to tax escaped assessment is that of the Revenue Audit Party and not of the Assessing Officer. In the circumstances, the condition precedent for exercise of powers under section 147 of the Act, namely, that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment, does not appear to be fulfilled in Page 57 of 96

C/TAXAP/627/2015 JUDGMENT the present case. Besides, in the light of the above referred decisions of this Court, it is not permissible for the Assessing Officer to go behind the registration obtained by the assessee under section 12AA of the Act. The Assessing Officer while framing original assessment having taking into consideration the registration under section 12AA of the Act as well as having examined the admissibility of the claims made by the petitioner, has allowed the deduction under section 11 of the Act. Under the circumstances, the reopening of assessment appears to be based on a mere change of opinion, that too, the opinion of the Revenue Audit Party and not that of the Assessing Officer.” 50. The ratio discernible from the aforesaid decision is that once the procedure is completed as provided under sub- section (1) of Section 12AA of the Act and a certificate is issued granting registration to the trust or institution, it is apparent that the same is a document evidencing satisfaction about (i) the genuineness of the activities of the trust or institution and (ii) about the objects of the trust or institution. While framing the assessment order, it is not open to the Assessing Officer to ignore the certificate of registration granted under Section 12AA of the Act by the Director of Income Tax (Exemption). It is not permissible for the Assessing Officer to go behind the registration obtained by the assessee under Section 12AA of the Act. 51. The legislature has consciously used the word “preservation”. Preserve means, to keep something in its original form or keep it in good condition. To put it in other words, to preserve is like keeping things the way they are. The only question is whether preservation would include protection?. To protect means, to keep away from harm or danger. As noted above, to preserve is like keeping things the Page 58 of 96

C/TAXAP/627/2015 JUDGMENT way they are, same as protect, but this one is more like you are keeping it safe from a potential threat. One simple example of preservation could be “the fossil was perfectly preserve for hundreds of years”. If the trade effluent or the liquid or solid,waste generated by the polluting industries is treated in a central treatment effluent plant, the same could be said to be in the direction of protecting the environment. Would this be synonymous to “preservation of environment”. Section 2(15) for the purpose of preservation of environment has included watersheds, forests and wildlife, and at the same time, it also talks about preservation of monuments or places or objects of artistic and historic interest. One thing is for sure that while preserving anything, indirectly or directly, that thing is also protected. 52. It is apposite to state that the definition of the term “charitable purpose” remains an inclusive one and is not an exhaustive or exclusive one. In other words, the purposes similar to those mentioned in the aforesaid definition could also constitute ‘charitable purpose' under the Act. The expression ‘charitable purpose’ is sufficiently wide in scope to include a variety of activities. For instance, promotion of sports and games is a charitable purpose, as is promotion of trade and commerce, even when the beneficiaries are confined only to a particular line of trade or commodity. However, at the same time, the fact that remote and indirect benefits are derived by the members of the public will not be sufficient to make the purpose a “charitable purpose” under the Act. 53. The word ‘Charity’ connotes altruism in thought and action. It involves an idea of benefiting others rather than oneself. Page 59 of 96

C/TAXAP/627/2015 JUDGMENT 54. For a trust to be accepted as a charitable trust for the purposes of exemption, it is necessary that the objects should be specific so as to confirm to the requirement of the income tax law in this regard. Where they are too wide, the trust may not qualify for exemption. However, a pragmatic view is required to be taken while examining the data. The material on record should be analysed objectively. 55. The onus to prove that the objects are of charitable nature is on the assessee. 56. In our considered opinion, the principle of purposive interpretation of the provision has to be adopted and when such a construction is placed, it serves the legislative intent. 57. In this context we may refer to the decision in State of T.N. v. Kodaikanal Motor Union (P) Ltd., (1986) 62 STC 272 (SC): (1989) 3 SCC 91, wherein the Supreme Court, after referring to K.P. Varghese vs. Income Tax Officer and and Luke v. Inland Revenue Commissioner, (1964) 54 ITR 692 (HL); (1963) AC 557 (HL), observed thus:- “The courts must always seek to find out the intention of the legislature. Though the courts must find out the intention of the statute from the language used, but language more often than not is an imperfect instrument of expression of human thought. As Lord Denning said it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As Judge Learned Hand said, we must not make a fortress out of dictionary but remember that statutes must have some purpose or object, whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeavour to avoid an unjust or absurd result. We should not make a mockery of legislation. To make sense out of an unhappily worded provision, where the purpose is apparent to the judicial eye ‘some’ violence to language is permissible.” Page 60 of 96

C/TAXAP/627/2015 JUDGMENT 58. In Keshavji Ravji and Co. v. CIT, (1990) 183 ITR 1 (SC); (1990) 2 SCC 231, it has been held by the Supreme Court that when in a taxation statute where literal interpretation leads to a result that does not sub-serve the object of the legislation another construction in consonance with the object can be adopted. 59. We now propose to examine the matter, keeping in mind the fourth limb of Section 2(15) of the Act, i.e., “the advancement of any other object of general public utility”. 60. The provision as it existed under the Act of 1922 was that once the purpose of the trust was relief of the poor, education, medical relief or advancement of any other object of general public utility, the trust was considered to be for a charitable purpose. As a result of the addition of the words "not involving the carrying on of any activity for profit" at the end of the definition in section 2(15) of the Act even if the purpose of the trust is "advancement of any other object of general public utility", it would not be considered to be "charitable purpose" unless it is shown that the above purpose does not involve the carrying of any activity for profit. The result, thus, of the change in the definition is that in order to bring a case within the fourth category of charitable purpose, it would be necessary to show that : (i) the purpose of the trust is advancement of any other object 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 the Page 61 of 96

C/TAXAP/627/2015 JUDGMENT purpose 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 for education; (ii) providing medical relief; and (iv) to advance any other object of general public utility are included within the definition of ‘charitable purposes’. With effect from 01.04.2009, a new definition has been substituted, in that, if the advancement of object of general public utility involves 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 for cess or fee or any other consideration, such activity shall not be a charitable purpose. Except the addition of the proviso, restricting the purport of the ‘advancement of any other object of general public utility’, there is not much difference in section 2(15) as it existed prior to 01.04.2009, and thereafter. After the amendment the preservation of environment including the watersheds, forest and wild life, and preservation of monuments or places/objects of artistic or historic interest are also included in the definition ‘charitable purpose’. Be that as it is, what is important is any institution or organization or entity for the advancement of object of general public utility is also considered as an institution or trust for charitable purpose. Section 11 exempts various categories of incomes as enumerated under section 11(1)(a) to (d) from the total income of the previous year. Section 12 exempts the voluntary contributions received by a trust created for charitable purposes from the total income. The benefit of Section 11 and/or 12 can be claimed only when the conditions as stipulated under Section 12A are satisfied. One such condition is that a person in receipt of the income Page 62 of 96

C/TAXAP/627/2015 JUDGMENT has to apply for the registration of the trust or institution in the prescribed form on or before the expiry of a period of one year from the date of creation of the trust or establishment of institution. The proviso to Section 12A(1) confers the power on the Commissioner to entertain an application under Section 12A (1) even after the expiry of period of one year if he is satisfied that the person was prevented from making an application before the expiry of period of one year for sufficient reasons. 63. Section 11(5) requires every trust or institution for a charitable purpose to invest or deposit the money only in the manner provided therein inter alia investment in Savings Certificates as defined in Government Savings Certificates Act, 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 any scheduled bank under Section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 or any other bank being a bank included in Second Schedule to Reserve Bank of India Act, 1934 and the like. The breach of Section 11(5) would attract Section 13(1)(d) of the IT Act and the benefit under Sections 11 and 12 would not be available if funds are deposited or invested contrary to Section 11(5) or in breach of Section 13(1) generally and Section 13(1)(d) specifically. 64. In CIT vs. Andhra Chamber of Commerce, (1965) 55 ITR 722 (SC), the Supreme Court considered the question as to whether the income of Andhra Chamber of Commerce is exempt under Section 4(3)(i) of the Income tax Act, 1922. While observing that the legislature had used language of Page 63 of 96

C/TAXAP/627/2015 JUDGMENT great amplitude in defining ‘charitable purpose’ and referring to the Trustees of Tribune, the Court held that the Chamber of Commerce is a charitable institution although it was promoting the interest of trade and commerce, which were only ancillary and subsidiary objects. While observing that the primary object being, “to promote and protect trade, commerce and industries, to aid, stimulate and promote the development of trade, commerce and industries, and to watch over and protect the general commercial interests of India”, the Court held as under. “The expression “object of general public utility” in Section 4(3) would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served thereby if it includes the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture. If the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, is contemplated. “ 65. In Addl. Commissioner of Income Tax vs. Surat Art Silk, (1980) 121 ITR 1 (SC), a Constitution Bench of the Supreme Court interpreting the words ‘not involving the carrying on of any activity for profit’ occurring in section 2(15) (as it existed), held that the test of predominant object has to be applied while deciding whether an entity is a charitable trust/institution and that profit making by such institution is not excluded. The relevant observations are as follows. “Therefore, for a purpose to fall under the fourth head of “charitable purpose”, it must constitute the advancement of an object of general public utility in which the activity of advancement must not involve a profit making Page 64 of 96

C/TAXAP/627/2015 JUDGMENT activity. The word “involving” in the restrictive clause is not without significance. An activity is involved in the advancement of an object when it is enwrapped or enveloped in the activity of advancement. In another case, it may be interwoven into the activity of advancement, so that the resulting activity has a dual nature or is twin faceted. Since we are concerned with the definition of “charitable purpose”, and the definition defines in its entirety a “purpose” only, it will be more appropriate to speak of the purpose of profit making being enwrapped or enveloped in the purpose of the advancement of an object of general public utility or, in the other kind of case, the purpose of profit making being interwoven into the purpose of the advancement of that object giving rise to a purpose possessing a dual nature or twin facets. Now, section 2(15) clearly says that to constitute a “charitable purpose” the purpose of profit making must be excluded. In my opinion, the requirement is satisfied where there is either a total absence of the purpose of profit making or it is so insignificant compared to the purpose of advancement of the object of general public utility that the dominating role of the latter rendersthe former unworthy of account. If the profit making purpose holds a dominating role or even constitutes an equal component with the purpose of advancement of the object of general public utility, then clearly the definition in section 2(15) is not satisfied. When applying Section 11, it is open to the tax authority in an appropriate case to pierce the veil of what is proclaimed on the surface by the document constituting the trust or establishing the institution, and enter into an ascertainment of the true purpose of the trust or institution. The true purpose must be genuinely and essentially charitable. “ 66. In CIT vs. Andhra Pradesh State Road Transport Corporation, (1986) 159 ITR 1 (SC), the question was whether the income of the APSRTC was exempt from income tax under section 4(3)(i). On a reference by the Income Tax Appellate Tribunal, the High Court answered the question in the affirmative in favour of the assessee. Following Trustees of the Tribune, the Supreme Court affirmed the High Court’s view Page 65 of 96

C/TAXAP/627/2015 JUDGMENT observing as under. “It is admitted position, as pointed out by the High Court in its judgment under appeal, that no share capital has been raised under Section 23(2) and the entire capital has been provided by the government under Section 23(1) and the Government is only paid interest thereon under Section 28(1) just as interest would be paid on any money due as a debt. That the activity of the respondent Corporation is not carried on with the object of making profit is made abundantly clear by the provisions of section 30 under which, prior to the amendment of that section by the Amendment Act of 1959, the balance of income left, after utilization of the net profits for the purpose set out in section 30, was to be made over to the State Government for the purpose of road development and after the Amendment Act of 1959 is to be utilized for financing the expansion programmes of the respondent corporation and the remainder, if any, is to be made over to the State Government for the purpose of road development. As pointed out by this Court in Andhra Pradesh Road Transport Corporation v ITO (1964) 52 ITR 524 (SC), the amount handed over to the State Government does not become a part of the general revenues of the State but is impressed with an obligation that it should be utilized only for the purpose for which it is entrusted, namely, road development. It is not, and cannot be, disputed that road development is an object of general public utility.” 67. CIT vs. Agricultural Produce and Market Committee, (2007) 291 ITR 419 (Bom) is a case wherein the Bombay High Court considered the question whether the market committees constituted under the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963 are established for charitable purposes and whether they can be registered under section 12A/12AA of the Act. After referring to the various provisions of the Maharashtra Act – the preamble, the powers and duties of market committees, the power to levy and collect fees and regulate the markets, the Page 66 of 96

C/TAXAP/627/2015 JUDGMENT Court relied on Surat Art Silk (supra) and held as under. (paras 22 and 24) “Applying the tests laid down by the apex court in the aforesaid cases to the facts of the present case, there can be no doubt that the object of the market committees (assessees) established under the 1963 Act is to regulate the entire marketing of agricultural and some other produce from the stage of procuring till it reaches the ultimate consumer, which is squarely covered within the meaning of the expression "advancement of any object of general public utility" contained in section 2(15) of the Act. It is pertinent to note that prior to April 1,1984, the words used in section 2(15) of the Act were "advancement of any other object of general public utility not involving the carrying on of any activity for profit". By the Finance Act, 1983 with effect from April 1, 1984, Legislature has omitted the words "not involving the carrying on of any activity for profit" from section 2(15) of the Act. Thus, after April 1, 1984, even if there is some profit in the activity carried on by the trust/institution, so long as the dominant object is of general public utility, it cannot be said that the said trust/institution is not established for charitable purposes. “ 68. In CIT vs. Market Committee, (2007) 294 ITR 563 (P&H), the Punjab and Haryana High Court, after considering the provisions of the Punjab Agricultural Produce Markets Act, 1961 held that the market committee incorporated in terms of Section 18 of the Punjab Act is a body corporate and that its activities can be included within the definition of the term charitable purposes. It was also held that the exemptions under sections 10, 11 and 12 of the Act are independent of one another and merely because an assessee is not entitled to claim exemption under one of the aforesaid provisions that cannot ipso facto lead to the conclusion that the claim of the assessee cannot be considered for the grant of tax exemption Page 67 of 96

C/TAXAP/627/2015 JUDGMENT in some other provisions of the IT Act. The relevant observations are as follows. “It is apparent from the duties and responsibilities of the market committees, delineated in the foregoing two paragraphs, that a market committee, in the background of the provisions of the Markets Act, should be treated as a body, discharging "legal obligation"(s) within the meaning of Section 13(7) of the Income Tax Act. The duties and responsibilities discharged by a market committee, envisaged under the provisions of the Markets Act, referred to above, also lead us to conclude, that the activities of a market committee can be included within the definition of the term "charitable purpose", defined by Section 2(15) of the Income Tax Act. The instant conclusion is inevitable from a cumulative reading and interpretation of Sections 13, 26 and 28 of the Markets Act (analysed in paragraphs 3, 4 and 5 hereinabove). Briefly stated, it may be noticed, that the obligations discharged by a market committee include the regulation of purchase, sale, storage and processing of agricultural produce with the intention of benefiting the producers, as well as, the consumers of agricultural products. A market committee is also obliged to provide for conveniences for the activities of a market area like construction of buildings, sheds, plinths, etc. A market committee is also obliged to provide conveniences for persons visiting a market area, like providing for shelter, shade and parking facilities. A market committee is also obliged to look after the safety, health and convenience of persons visiting the market area. A market committee is also obliged to construct and repair link roads, approach roads, culverts, and bridges, etc. One of the many specified activities of a market committee is to extend loans to financially weak communities as well as in the repayment of such loans and the interest thereon. The market committee under reference, in the discharge of its obligations, besides carrying out all the aforesaid activities, is stated to have spent a huge sum of money for the construction, development and repair of link roads, culverts, bridges, etc “ 69. In CIT vs. Gujarat Maritime Board, (2007) 295 ITR 561 (SC), the question before the Supreme Court was whether Page 68 of 96

C/TAXAP/627/2015 JUDGMENT Maritime Board is entitled to the status of charitable institution under Section 11 of the Act. Maritime Board was constituted under the Gujarat Maritime Board Act for the purpose of development of minor ports in Gujarat. Under the statute, the Board also renders stevedoring, transport and shipping services besides maintaining the jetties, wharfs, roads, lights etc. The management and control of the Board was with the State Government. There was no profit motive and the income earned by the Board has to be deployed for the development of minor ports in Gujarat. It was registered as ‘local authority’ under Section 3(31) of the General Clauses Act, 1897. Prior to 2002, it was availing exemption as local authority under Section 10(20) of the IT Act and, therefore, was not exigible to the income tax. After insertion of the explanation in Section 10(20), the expression ‘local authority’ was confined to Panchayats, Municipality, Municipal Committee, District Board and Cantonment Board. Maritime Board did not come within the definition of local authority. They, therefore, made an application to the Commissioner for being registered as a charitable institution as defined under section 2(15). The Commissioner rejected the application. The Tribunal as well as the High Court of Gujarat held that the Maritime Board is a charitable institution. The Supreme Court, while construing Section 2(15) and Section 11(1), relied on the Andhra Chamber of Commerce (supra), Surat Art Silk (supra) and APSRTC (supra) and held that the Maritime Board is entitled to be registered as a ‘charitable trust’ under Section 12A of the Act. The relevant observations are as follows. ; “For the purposes of this section ‘property held under trust’ includes a business undertaking so held, and where a claim is made that the income of any such undertaking Page 69 of 96

C/TAXAP/627/2015 JUDGMENT shall not be included in the total income of the persons in receipt thereof, the assessing officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. According to section 2(15), the expression “charitable purpose” has been defined by way of an inclusive definition so as to include relief to the poor, education, medical relief and advancement of any other object of general public utility. In this case we are concerned with the interpretation of the expression “advancement of any other object of general public utility. Under Section 11(1), income from property held for charitable purposes is not includible and does not form part of total income. Section 11(1) has three sub-sections, (a), (b) and (c). In all the three sub-sections the words used are “income derived from property held under trust wholly for charitable purposes”. Under Section 11(4) the expression “property held under trust” includes a business undertaking so held. In other words, income from business undertaking held for charitable purposes can fall under Section 11 subject to such income fulfilling the requisite conditions of that section ... .. At the outset, we may point out that Section 10(20) and Section 11 of the 1961 Act operate in totally different spheres. Even if the Board has ceased to be a “local authority”, it is not precluded from claiming exemption under Section 11(1) of the 1961 Act. Therefore we have to read Section 11(1) in the light of the definition of the words “charitable purposes” as defined under Section 2(15) of the 1961 Act. We have perused number of decisions of this Court which have interpreted the words in section 2(15), namely, “any other object of general public utility”. From the said decisions it emerges that the said expression is of the widest connotation. The word “general” in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable Page 70 of 96

C/TAXAP/627/2015 JUDGMENT purpose (CIT v. Ahmedabad Rana Caste Assn (1983) 140 ITR 1 (SC)). The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so if it seeks to promote the interest of those who conduct the said trade or industry (CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity (CIT v. Surat Art Silk Cloth Manufacturers’ Assn (1980) 121 ITR 1 (SC). “ 70. Ms. Bhatt, the learned senior standing counsel appearing for the department vehemently submitted that in the instant case, the benefit cannot be extended to the assessee in view of the decision of the Supreme Court in CIT vs. Kamla Town Trust,. (1996) 217 ITR 699 (SC), as the constitution of the assessee company makes it clear that it is only for the benefit of its members. To put it in other words, the vociferous submission of Ms. Bhatt is that the persons who are running the polluting industries and have got themselves enrolled as the members of the Society, are being benefited. It is submitted that all those persons who are not the members of the assessee company may still continue to cause the pollution. 71. The apex Court in the case of Surat Art Silk Cloth Manufacturers Association (supra) has pointed out that the restriction must be read with "the advancement of any other Page 71 of 96

C/TAXAP/627/2015 JUDGMENT object of general public utility" and not "object of general public utility". The Supreme Court, considering the English decisions and the Indian law, has pointed out in the aforesaid decision that : "......... There is no such limitation so far as Indian law is concerned even if a purpose is not within the spirit and intendment of the preamble to the statute of Elizabeth, it would be charitable if it falls within the definition of "charitable purpose" given in the statute Every object of general public utility would, therefore, be charitable under the Indian law, subject only to the condition imposed by the carrying on of any activity for profit" added in the present Act. ......" 72. The apex Court in the case of CIT vs. Federation of Indian Chambers of Commerce & Industry (1981) 130 ITR 186 (SC), after applying the principle laid down in the case of Surat Art Silk Cloth Manufacturers Association (supra), held as under : ".......... the income derived by the respondent from the activities, such as holding the Indian Trade Fair and sponsoring the conference of the Afro-Asian Organisation, were for the advancement of the dominant object and purpose of the Federation, viz. promotion, protection and development of trade, commerce and industry in India, and were exempt from tax under s. 11(1)(a) r/w s. 2(15) ......" 73. The Apex Court in Ahmedabad Rana Caste Association vs. CIT, (1971) 82 ITR 704 (SC) and CIT vs. Ahmedabad Rana Caste Association (1983) 140 ITR 1 (SC) pointed out that the law recognises no purpose as charitable unless it is for a public charity. That is to say, a purpose must, in order to be charitable, be directed to the benefit of the community or a section of the community. The expression "object of general public utility", however, is not restricted to the objects Page 72 of 96

C/TAXAP/627/2015 JUDGMENT beneficial to the whole mankind. An object beneficial to a section of the public is an object of general public utility. The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable ........ quality of a public or impersonal nature. 74. The apex Court in the case of Kamla Town Trust (supra), after considering the facts of that case, viz., the trust deed and the rectification agreement, expressed an opinion as under : "............. On the contrary it becomes clear on a close reading of relevant provisions of this clause that the objects are specific and charitable in nature. The beneficiaries are also clearly indicated. There is also no ambiguity about the trustees or the trust properties. Thus all the basic requirements for creation of a public charitable trust do exist on the express language of the relevant clauses of rectified deed. ....." 75. In context with the submission of Ms. Bhatt, referred to above, we may also refer to and rely upon the decision of this Court in the case of Additional Commissioner of Income Tax, Gujarat vs. Ahmedabad, Millowners Association, reported in 1977 (106) ITR 725, wherein this Court held as under; “22. We now proceed to consider whether an object which serves personal interest would fall within the scope of section 2(15) of the Act. There is no dispute that the charitable purposes of relief to poor and educational and medical relief have no relevance to the facts of the present case. It is, therefore, the fourth category of the charitable purpose, namely, the object of general public utility, with which we are concerned in this case. The expression "object of general public utility " appearing in section 2(15) would include only those objects which promote the welfare of general public and not the personal and individual interests of some persons. It is not uncommon to find the objects of general public utility Page 73 of 96

C/TAXAP/627/2015 JUDGMENT being in conflict with the object of personal welfare of some specified individuals. It is true, as held by the Supreme Court in the case of Andhra Chamber of Commerce [1965] 55 ITR 722 (SC), that personal welfare of specified individuals would be incidental or consequential to the main purpose of general public utility, but a converse of this proposition is not always true. Now, if we examine the objects contained in clauses (a), (b) and (c) from this point of view, it will be at once noticed that these objects seek to protect the interest of "millowners and users of motive power" and also of those concerned with them. Clause (b) contemplates the promotion of good relations between the persons and bodies using such powers and clause (c), which is consequential to clause (a) and (b), contemplates doing of those acts and things by which the objects covered by clause (a) and (b) may be attained. Thus, all these three clause aim at protecting personal interest and not public interests. If this is so, the respondent-association is bound to carry on its activity keeping in mind the narrower concept of promoting the personal and self- serving interests of individuals who are consider "millowners and users of motive power" even when their interest are in conflict with the interests of their own trade or industry. If and when this happens, how can it be said that the respondent-association has carried out an object of general public utility ? General public is undoubtedly interested in trade, commerce or industry conducted by individuals, but it is surely not interested in protecting the personal interests of these individuals if they are in conflict with the interests of trade, commerce and industry. Therefore, when an object seeks to promote or protect the interests of a particular trade or industry, that object becomes an object of public utility, but not so, if it seeks to promote the interests of those who conduct the said trade or industry. 23. This distinction between the protection of the interests of individuals and the protection of interests of an activity, which is of general public utility, goes to the root of the whole problem, and, hence, the Supreme Court has pointedly referred to this problem in Commissioner of Income-tax v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) at page 727 of the report by observing as under : Page 74 of 96

C/TAXAP/627/2015 JUDGMENT "It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion and protection of activities and interests merely of persons engaged in trade, commerce and industry." 24. In this case, the Supreme Court has pointed out that even an object beneficial to a section of the public is an object of public utility and that to serve a charitable purpose, it is not necessary that the object should be to benefit the whole mankind or person living in a particular country or province. But, while making these observations, the Supreme Court has been careful in pointing out the distinction between " a section of the public " and specified individuals. Even so far as "a section of the public" is concerned, the Supreme Court has been particular in identifying it in the following terms (page 729) : "The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature : where there was no common quality uniting the potential beneficiaries into a class, it might not be regarded as valid." 25. These observations are repeated by the Supreme Court in the subsequent decision in Ahmedabad Rana Caste Association v. Commissioner of Income-tax [1971] 82 ITR 704 (SC). 26. These observations supply a complete answer to the contention of the learned Advocate-General that the category of persons covered by the expression "millowners and users of motive power" constitutes a section of the public, which can legitimately form the object of a charitable purpose. The observations make it clear that the section of the public which is to be benefited to make the purpose a charitable one should have a common quality of either a "public" nature or an "impersonal" nature. Can it be said that "millowners and users of motive power" have a common quality of a "public nature" ? If they have any common quality the same is obviously of a "private" nature, as each one of them is concerned with his own interest and shares nothing in common with the public. It was contended that their common quality is the fact that each one of them is either a millowner or a user of motive power. Granting Page 75 of 96

C/TAXAP/627/2015 JUDGMENT that this is their common quality, it cannot be said that the said common quality possesses the attributes of a public or impersonal nature. If individuals, whose only common quality is their profession or vocation, can legitimately be invested with the attributes of a public nature, then every partnership, company or an association of persons can be an object of charity, and the trusts created for the benefit of such partnerships, companies and associations would be charitable trusts earning exemption under section 11. Absurdity of such a situation cannot be over-emphasised. 27. What is the exact nature of "section of the public" which can legitimately become an object of a charity, is considered by Lord Greene M.R. in Powell v. Compton [1945] 1 Ch 123, 129 (CA). In that case a bequest was made for the education of a small number of individual relatives of a testatrix. The question which arose was whether these individuals formed a "section of the public" so as to make the trust a charitable trust. Lord Greene M. R. held that the trust was not a valid trust, making the following observations : "No definition of what is meant by a section of the public has, so far as I am aware, been laid down, and I certainly do not propose to be the first to make the attempt to define it. In the case of many charitable gifts it is possible to identify the individuals who are to benefit, or who at any given moment constitute the class from which the beneficiaries are to be selected. This circumstance does not, however, deprive the gift of its public character. Thus, if there is a gift to relieve the poor inhabitants of a parish the class to benefit is readily ascertainable. But they do not enjoy the benefit, when they receive it, by virtue of their character as individuals but by virtue of their membership of the specified class. In such case the common quality which unites the potential beneficiaries into a class is essentially an impersonal one. It is definable by reference to what each has in common with the others, and that is something into which their status as individuals does not enter." 28. Our Supreme Court has approved of this principle in Ahmedabad Rana Caste Association's case [1971] 82 ITR 704 (SC) and has held that members of Rana caste has a relationship which was an impersonal one dependent upon their status a members of that caste. No such Page 76 of 96

C/TAXAP/627/2015 JUDGMENT relationship of impersonal nature can be found amongst the millowners and users of motive power, and, hence, none of the objects mentioned in clause (a), (b) and (c) can be treated as objects of public utility. 29. We have already dealt with the object found in clause (d). So far as the object contained in clause (e) is concerned it consists of two parts. This first part contemplates establishment or the creation of funds to benefit employees of the association or the dependents of such persons while the second part contemplates subscriptions, donations or guarantees or "charitable or benevolent" purposes at the discretion of the association. Now, so far as the first part is concerned, it is covered by the decision in Oppenheim v. Tobacco Securities Trust Co. Ltd. [1951] AC 297 (HL), to which reference is made by the Supreme Court in Ahmedabad Rana Caste Association's case [1971] 82 ITR 704 (SC) at page 710 of the report. The facts of that English decision were that the trustees were directed to apply certain income in providing for the education of children of employees or "former employees" of a British limited company or any of its subsidiary or allied companies. The House of Lords held in this case by majority that though the group of persons indicated was numerous, the nexus between them was employment by particular employers and, accordingly, the trust did not satisfy the test of a public benefit requisite to establish it as charitable. This principle has been approved by our Supreme Court and, therefore, the first part of the object clause (e) is also not found to be for general public utility within the meaning of section of section 2(15) of the Act. So far as the second part is concerned, Shri Kaji's contention was that a benevolent purpose is not necessarily a charitable purpose but if this clause is constructed liberally, it may be said that it embodies within it the object of public utility. Now, proceeding to clause (f) it contemplates promotion of good relation between the employers and the employees. So far as this object is concerned, the matter is concluded by the decision of the Supreme Court in the above referred case of Commissioner of Income- tax v. Indian Sugar Mills Association [1974] 97 ITR 486 (SC), wherein the relevant clause which the court considered was "to promote good relations between the employers and the employees". This clause was exactly similar to clause (f) with which we are concerned in this Page 77 of 96

C/TAXAP/627/2015 JUDGMENT reference. With regard to such a clause, the Supreme Court has observed that even assuming that in some remote and indirect manner such an object might be some public utility, it cannot be called a charitable purpose within the meaning of section 4(3)(i) of the Indian Income-tax Act, 1922. In view of this decision, even the object mentioned in clause (f) cannot be considered as the object serving any public utility. 30. If we closely scrutinise the objects contained in rule 3, we find that a substantial part of these objects benefit the association's own members, those connected with them, and their employees. It is no doubt true that the beneficiaries of these objects are also who are non- members but who happen to be millowners or users of motive power. But that aspect of the matter does not detract from the fact all the members, and their employees, and "those who are connected" with members, from the substantial part of the recipients of the benefits contemplated by the objects. In Commissioner of Inland Revenue v. City of Glasgow Police Athletic Association [1953] 34 TC 76 (HL) Lord Cohen has summarised the legal position in such cases as under at page 105 of the report : "(1) If the main purpose of the body of persons is charitable and the only elements in its constitution and operations which are non-charitable are merely incidental to that main purpose, that body of persons is a charity notwithstanding the presence of those elements - Royal College of Surgeons of England v. National Provincial Bank [1952] AC 631 (HL). (2) If, however, a non-charitable object is itself one of the purposes of the body of persons and is not merely incidental to the charitable purposes, the body of persons is not a body of persons formed for charitable purposes only, within the meaning of the Income Tax Acts - Oxford Group v. Inland Revenue Commissioner [1949] 2 All ER 537; 31 TC 221 (CA). (3) If a substantial part of the objects of the body of person is to benefit its own members, the body of persons is not established for charitable purposes only - Inland Revenue Commissioner v. Yorkshire Agricultural Society [1928] 1 KB 611 (CA)." 76. In our opinion, the case on hand falls within the first Page 78 of 96

C/TAXAP/627/2015 JUDGMENT category mentioned by Lord Cohent.” 77. It is important to note that prior to the introduction of the Proviso to Section 2(15) of the Act, the assessee company was granted registration under Section 12A of the Act. From this, it is clear that prior to the introduction of the Proviso to Section 2(15) of the Act, the authority, upon due consideration of all the relevant aspects, arrived at the satisfaction that the assessee company was established for charitable purposes.. The company continues to be recognised as a charitable institution. The certificate issued under Section 12A, after due inquiry, is still in force. If the Proviso had not been introduced by virtue of the Finance Act, 2008 w.e.f 1st April, 2009, the assessee company would have been recognized as a charity and would have been recognized as an institution established for the purpose of advancement of an object of general public utility. The argument of the learned senior counsel on behalf of the Revenue is that in view of the introduction of the Proviso to Section 2(15), the assessee company is not entitled to seek exemption. The said proviso has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service in relation to any trade, ―

commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. In other words, if, by virtue of a cess' or fee' or any other consideration, income is generated by any of the two sets of activities referred to above, the nature of use of such income or application or retention of such income is irrelevant Page 79 of 96

C/TAXAP/627/2015 JUDGMENT for the purposes of construing the activities as charitable or not. 78. To be clear, if an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. We have seen that by virtue of Section 25 of the Companies Act, the petitioner is enjoined to plough back its income in furtherance of its object and the declaration of dividends is prohibited. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, we feel that in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important. 79. Ms. Bhatt may be right in her own way to contend that the benefit accrues to the members of the company. The members are none other than the owners of the polluting industries. These members are obliged in law to maintain the parameters as prescribed by the GPCB and in law for the purpose of discharge of their trade effluent. To put it in other words, discharge of solid and liquid waste. If they do not do so, then they would be liable to be prosecuted and their units would also be liable to be closed. However, this, by itself, is not Page 80 of 96

C/TAXAP/627/2015 JUDGMENT sufficient to take the view that the company has not been set up for the charitable purpose. The genesis of the birth of this company also needs to be looked into closely. The fact that the members of the assessee company are benefited is merely incidental to the carrying out of the main or primary purpose and if the primary purpose was charitable, the fact that the members of the assessed benefited or the subsidiary objects would not militate against its charitable character nor would it make the purpose any less charitable. 80. In the aforesaid context,, we could lay our hands on a very interesting decision of the Delhi High Court in the case of Addl. Commissioner of Income Tax, Delhi vs. Delhi Brick Kiln Owners Association, reported in 1981 (130) ITR 55. In the said case, M/s. Delhi Brick Kiln Owners Association was the respondent assessee. The association had obtained a license from the Central Government for its registration under Section 26 of the Indian Companies Act, 1913. The following were the objects of the company; “(a) To promote, develop and protect the brick kiln trade, commerce and industries. (b) To watch and protect the interest of brick kiln owners, contractors, customers and brick dealers, members of the association and the interest of persons engaged in brick trade, commerce or industries legally, morally and socially. (c) To consider all questions connected with brick trade, commerce and industries and to initiate or support necessary action in connection therewith. (d) To protect the trade, with the co-operation of the Government through legislative representation to get the grievances and difficulties of Brick Kiln Association redressed.” Page 81 of 96

C/TAXAP/627/2015 JUDGMENT 81. The High Court took notice of the fact that the other objects appeared to be incidental to the paramount objects and were in the nature of powers to carry out the primary purpose. The association derived its income from the admission fee, membership subscription and rent realized by it from the building belonging to it. The association asserted that its income was entitled to exemption from tax under Section 11(1)(a) of the I.T. Act, 1961 as it was formed for a charitable purpose, it objects being the advancement of general public utility. The ITO, however, disallowed the claim. The ITO took the view that as the assessment was confined to brick kiln owners, it could not be said to have been formed for the benefit of the general public and, therefore, was not entitled to exemption. On appeal, the AAC, relying on the main objects of the association, as laid down in the Memorandum of Association, held that the association was entitled to exemption. The AAC, relied on the decision of the Supreme Court in CIT vs. Andhra Chamber of Commerce (supra) and the decision of the Kerala High Court in CIT vs. Indian Chamber of Commerce, 1971 80 ITR 645. The AAC came to the conclusion that the association fulfilled the conditions as required under Section 11(1)(a) of the Act. The department went up in appeal to the Income Tax Appellate Tribunal. It contended, on the basis of the decision of the Mysore High Court in CIT vs. Sole Trustee Loka Shikshana Trust, 1970 77 ITR 61 and the decision of the Calcutta High Court in CIT vs. Indian Chamber of Commerce, 1971 81 ITR 147 that the conclusions of the AAC were erroneous. On the other hand, the respondent association relied on the decision of the Keral High Court in CIT vs. Cochin Chamber of Commerce & Industry, 1973 87 ITR 83. It also contended that the Page 82 of 96

C/TAXAP/627/2015 JUDGMENT decision of the Supreme Court in Andhra Chamber of Commerce, 1965 55 ITR 722, despite the fact that it pertained to the provisions of the Indian I.T. Act, 1922, was still good law as there was no change in the substantive provisions relating to the exemption of income from a trust in the I.T. Act, 1961. The Tribunal dismissed the appeal of the department. The department, being dissatisfied, preferred an appeal before the High Court. The High Court took notice of the fact that the Tribunal did not consider the matter relating to the dominant intention but construed the words “not involving the carrying on of any activity for profit” which had been added by the 1961, Act to the definition of the term “charitable purpose”. The High Court also took notice of the fact that the Tribunal held that an activity for profit would imply that there should be a profit motive in the activities of the assessed. In other words, the activities should be commercial in nature. Further, the motive to make profit should be in the integrated activity of the buying and disposal. The High Court of Delhi, while dismissing the appeal of the department, held as under; “12. The question referred for our opinion is dependent on the construction and interpretation of "charitable purpose" as defined in s. 2(15) of the I. T. Act, 1961. Section 2(15) reads : "'Charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit." 13. It is well settled that the words "not involving the carrying on of any activity for profit" pertain only to the fourth limb of charitable purpose, i.e., the advancement of any other object of general public utility. 14. However, there has been a conflict of opinion with regard to the meaning of these words. This conflict appears to have been set at rest in view of a recent decision of the Supreme Court in Addl. CIT v. Surat Art Page 83 of 96

C/TAXAP/627/2015 JUDGMENT Silk Cloth Manufacturing Association [1980] 121 ITR 1. The assessed therein was a company incorporated under the Indian Companies Act, 1913, and registered under s. 25 of the Companies Act, 1956; its objects were, inter alia, to promote commerce and trade, in art silk, raw silk, cotton yarn, art silk cloth, silk cloth and cotton and to carry on all and any business of art silk, etc., belonging to and on behalf of its members. The court held, inter alia, that where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust or institution be upheld as a valid charity. But if the primary or dominant purpose of a trust or institution is charitable, another object, which by itself may not be charitable, but is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or institution from being or valid charity. 15. The fact that the members of the assessed benefited was merely incidental to the carrying out of the main or primary purpose and if the primary purpose was charitable, the subsidiary objects would not militate against its charitable character not would it make the purpose any the less charitable. 16. The Supreme Court referring to its earlier decision in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722, observed that the court had held that the dominant or primary object of the Andhra Chamber of Commerce, which was to promote and protect trade, commerce and industry and to aid, stimulate and promote the development of trade, commerce and industry and to watch over and protect the general commercial interests of India or any part thereof was clearly an object of general public utility. This was despite the fact that one of the objects included in the memorandum was the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture, which by itself, might be considered non-charitable. However, as it was merely incidental to the dominant or primary object, it did not prevent the Andhra Chamber of Commerce from being a valid charity. Therefore, if the primary purpose was the advancement of an object of general public utility, it would remain charitable, even if an incidental entry into the political domain for achieving that purpose, such as promotion of or opposition to legislation concerning that purpose, was contemplated. Applying that very test, the Supreme Court held that the Surat Art Silk Cloth Page 84 of 96

C/TAXAP/627/2015 JUDGMENT Manufacturers Association was also a valid charity. 17. The true meaning of the ten words "not involving the carrying on of any activity for profit" was held to be, that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility, and not its accomplishment or carrying out, which must not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not. The decision of the Supreme Court in Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 was overruled. It was observed that the decisions of the Kerala High Court in CIT v. Cochin Chamber of Commerce and Industry [1973] 87 ITR 83 and the Andhra Pradesh High Court in Andhra Pradesh State Road Transport Corporation v. CIT [1975] 100 ITR 392 laid down the correct interpretation. 18. Applying these principles, it is clear that the dominant intention of the assessed was to promote the brick kiln trade. This purpose did not involve the carrying on of any activity for profit, though its advancement might have. It is thus a valid charity. For the relevant years, however, it appears that even the advancement of the purpose did not involve the carrying on of any activity for profit. The assessed is clearly entitled to the exemption under s. 11(1)(a) of the Act. “ 82. Thus, just because the members of the assessee company, in the case on hand, are being benefited and their statutory liability is being discharged by the assessee company, by itself, would not be sufficient to hold that the company could not be said to have been set up for charitable purpose. 83. The Delhi High Court, in the case of India Trade Promotion Organization vs. Director General of Income Page 85 of 96

C/TAXAP/627/2015 JUDGMENT Tax (Exemptions) & Ors., Writ Petition (C) No.1872 of 2013,, decided on 22nd January, 2015, in context with Section 10(23C)(iv) of the Act vis-a-vis Section 2(15) of the Act, had observed as under; “At this juncture, we may point out that we are in agreement with the argument advanced by Mr Syali that the proviso to Section 2(15) does not make any distinction between entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business on the one hand and genuine charitable organizations on the other. It must be remembered that we are construing the expression "charitable purpose" not in a vacuum, but in the specific context of Section 10(23C)(iv) of the said Act. As pointed out above, Section 10 deals with the incomes not included in total income. And, Section 10(23C)(iv) specifically deals with the income received by any person on behalf of, inter alia, an institution established for charitable purposes. We have to, therefore, examine the meaning of the expression "charitable purposes" in the context of Section 10(23C)(iv). Looking at the said expression from this stand point, it becomes clear that it has a reference to income. Because, it is only when such an institution has an income that the question of not including that income in its total income would arise. Therefore, merely because an institution, which otherwise is established for a charitable purpose, receives income would not make it any less a charitable institution. Whether that institution, which is established for charitable purposes, will get the exemption under Section 10(23C)(iv) would have to be determined by the prescribed authority having regard to the objects of the institution and its importance throughout India or throughout any State or States. There is no denying that having regard to the objects of the petitioner and its importance throughout India in the field of advancement of promotion of trade and commerce, the petitioner would be entitled to be regarded as an institution which would qualify for that exemption. The only thing that we have to examine is - whether the petitioner had been established for charitable purposes? The fact that it derives income does not, in any way, detract from the position that it is an institution established for charitable Page 86 of 96

C/TAXAP/627/2015 JUDGMENT purposes. Therefore, in our view, merely because the petitioner derives rental income, income out of sale of tickets and sale of publications or income out of leasing out food and beverages outlets in the exhibition grounds, does not, in any way, affect the nature of the petitioner as a charitable institution if it otherwise qualifies for such a character. We have already noted that prior to the amendment being introduced with effect from 01.04.2009, the petitioner had been recognized as an institution established for charitable purpose and this had been done having regard to the objects of the institution and its importance throughout India. It is only because of this that the petitioner had been granted the exemption by the respondent for the period prior to assessment year 2009-10. Therefore, insofar as the receiving of income is concerned, that cannot be taken as an instance to deny the petitioner its status as an institution established for charitable purposes. Because, if that were to be so, then there would be no necessity to take recourse to Section 10(23C)(iv) for the benefit of an exemption. To put it plainly, if an institution established for charitable purposes did not receive an income at all, then what would be the need for taking any benefit under Section 10(23C)(iv) of the said Act. Therefore, if a meaning is given to the expression charitable purpose so as to ―

suggest that in case an institution, having an objective of advancement of general public utility, derives an income, it would be falling within the exception carved out in the first proviso to Section 2(15) of the said Act, then there would be no institution whatsoever which would qualify for the exemption under Section 10(23C)(iv) of the said Act. And, the said provision would be rendered redundant. This is so, because, if the institution had no income, recourse to Section 10(23C)(iv) would not be necessary. And, if such an institution had an income, it would not, on the interpretation sought to be given by the revenue, be qualified for being considered as an institution established for charitable purposes. So, either way, the provisions of Section 10(23C)(iv) would not be available, either because it is not necessary or because it is blocked. The intention behind introducing the proviso to Section 2(15) of the said Act could certainly not have been to render the provisions of Section 10(23C)(iv) Page 87 of 96

C/TAXAP/627/2015 JUDGMENT redundant. With this in mind, it is to be seen as to what is meant by the expressions "trade", "commerce" or "business". The word "trade" was considered by the Supreme Court in its decision in the case of Khoday Distilleries Ltd and Others v. State of Karnataka and Others: 1995 (1) SCC 574, whereby the Supreme Court held that "the primary meaning of the word 'trade' is the exchange of goods for goods or goods for money". Furthermore, in State of Andhra Pradesh v. H. Abdul Bakhi and Bros: 1964 (5) STC 644 (SC), the Supreme Court held that the word ―

"business" was of indefinite import and in a taxing statute, it is used in the sense of an occupation, or profession which occupies time, attention or labour of a person, and is clearly associated with the object of making profit". This court, in ICAI (I) (supra) held that, while construing the term "business" as appearing in the proviso to Section 2(15), the object and purpose of the Section has to be kept in mind. It was observed therein that a very broad and extended definition of the term "business" was not intended for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act so as to include any transaction for a cess, fee or consideration. The Court specifically held that:- An activity would be considered 'business' if it is ―

undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when profit motive cannot be established / proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business.” 84. From the aforesaid decisions, it is apparent that merely because a fee or some other consideration is collected or received by an Institution, it would not lose its character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the Page 88 of 96

C/TAXAP/627/2015 JUDGMENT dominant activity of the institution in question. If the dominant activity of the institution was not business or trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of the trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profit, but the object is to promote, aid, foster and engage in the area of Environment Protection, abatement of pollution of various kinds such as water, air, solid, noise, vehicular etc. without limiting its scope. In short, the main object appears to be preservation and protection of environment. 85. The Latin word utilis means ‘useful, beneficial, equitable, available’. Chambers Dictionary of English defines ‘utility’ as useful: power to satisfy the wants of people in general: a useful thing, public utility: public service or a company providing such public service. According to ‘New Oxford Dictionary of English’ (1998), as a Noun, utility is the status of being useful, profitable or beneficial. 86. The Corpus Juris Secundum Volume 73 page 990 elucidates the following legal position. “A public utility” has been described as a business organization which regularly supplies the public with some commodity or service, such as electricity, gas, water, transportation or telephone or telegraph service. While the term has not been exactly defined, and, as has been said, it would be difficult to construct a definition that would fit every conceivable case, the distinguishing characteristic of a public utility is the devotion of private property by the owner or person in control thereof to such a use that the public generally, or that part of the public which has been served and has accepted the service, has the right to demand that the use or service, s Page 89 of 96

C/TAXAP/627/2015 JUDGMENT long as it is continued shall be conducted with reasonable efficiency and under proper charges. The term is sometimes used in an extended sense to include a great many matters of general welfare to the State and its communities. “ 87. The words ‘public utility’ or ‘general public utility’ are not capable of a precise meaning. The question whether service is public utility or not has to be discharged in the context of different situations but it is, as considered infra, well settled that public utility means public purpose depending upon the context in which it is used in the statute or the Rules. Indeed, in some decisions, public utility is considered very similar to one for public purpose (Hunter v A.G. 1909 AC 323, Babu Bankya Thakur v State of Bombay AIR 1960 SC 1203 and Jhandu Lal v State of Punjab AIR 1961 SC 343). 88. In cases arising under the Income Tax Act, 1922 as well as 1961 Act, it is held that the expression ‘object of general public utility’ must be construed by applying the standard of customary law and common knowledge amongst the community to which the parties interested belong. This test, applied in the Trustees of the Tribune, seems to have influenced judicial thinking in the subsequent decisions as well. The object of general public utility would include all objects which promote the welfare of the general public even it includes taking up steps effecting trade, commerce or manufacture if the primary purpose is for advancement of objects of general public utility [Andhra Chamber of Commerce(supra)], even if in an insignificant manner the person makes some profit in carrying out the objects [Surat Art Silk (supra)]. In other words, any activity for the benefit of the public or a section of the public, as distinguished from the Page 90 of 96

C/TAXAP/627/2015 JUDGMENT benefit to an individual or a group of individuals, would be charitable purpose as the object is for advancement of general public utility. The expression includes all objects to promote the welfare of the public, and when an object is to promote or protect the interest of particular trade or industry that object becomes an object of public utility and would be charitable purpose (Gujarat Maritime Board (2007) 295 ITR 561 (SC) [see Commissioner of Income Tax vs. Agricultural Market Committee, (2011) 336 ITR 641 (AP)] 89. In our opinion, this could be termed as a charitable purpose which has as its motive advancement of an object of general public utility to which the exception carved out in the first proviso to Section 2(15) of the Act would not apply. 90. We may refer to and rely upon the decision of this Court in the case of Director of Income Tax (Exemption) vs. Sabarmati Ashram Gaushala Trust, reported in (2014) 44 taxmann.com 141 (Gujarat), wherein this Court was called upon to consider whether the activities of the respondent assessee-Sabarmati Ashram Gaushala Trust could be termed as charitable having regard to the object with which the trust was constituted. We may quote the relevant observations; “What thus emerges from the statutory provisions, as explained in the speech of Finance Minister and the CBDT Circular, is that the activity of a trust would be excluded from the term ‘charitable purpose’ if it is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are Page 91 of 96

C/TAXAP/627/2015 JUDGMENT masked as ‘charitable purpose’. Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the Trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating ‘surplus’ is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature. We are wholly in agreement with the view of the Tribunal. The objects of the Trust clearly establish that the same was for general public utility and where for charitable purposes. The main objectives of the trust are to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country; to produce and sale the cow milk; to hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Bharwads; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc.; to establish other allied institutions like leather work and to recognize and help them in order to make the cow keeping economically viable; to publish study materials, books, periodicals, monthlies etc., in order to publicize the objects of the trust as also to open schools and hostels for imparting eduction in cow keeping and agriculture having regard to the trust objects. All these were the objects of the general public utility and would squarely fall under section 2 (15) of the Act. Profit making was neither the aim nor object of the Trust. It was not the principal activity. Merely because Page 92 of 96

C/TAXAP/627/2015 JUDGMENT while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19 th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of ‘public utility’. ” 91. Carrying on an 'activity in the nature of trade, commerce, or business' or rendering of any service in relation to trade etc. is sine qua non for taking away the character of charitable purpose. An activity in the nature of trade, commerce or business is always carried on with the prior object of earning income. What is relevant is the intention of the person before undertaking such activity. A line of distinction needs to be drawn between the activities undertaken by a society, otherwise satisfying the prescription .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 the activities which are aimed at the attainment of the objects for which It was set up por otra parte. Whereas the former fall within the mandate of the proviso to section 2(15), the latter do not. The obvious reason is that the latter activities are in furtherance of the charitable objects of such society and income, if any, resulting from such activities and does not convert the otherwise charitable activity [within the definition of section 2(15)] into carrying on of a business, trade or commerce. It can be understood with the help of a simple illustration. Supposing an association set up for the promotion of a particular trade, has its own premises‘ from which it carries out the activities for the promotion of such trade. If the association lets out its premises from time to time for Page 93 of 96

C/TAXAP/627/2015 JUDGMENT enhancing its income, which letting out has no relation with the objects for which it was set up as a charitable institution, namely, the promotion of that particular trade, the resultant activity will amount to carrying on trade, commerce or business so as to fall within proviso to section 2(15). 0n the other hand, if it uses its premises for undertaking activities for which it was set up and is a charitable institution, and while doing so, there results some income, such income will not amount to carrying on any trade, commerce or business. The crux of the matter is to understand the object of carrying on the activity which resulted into income. If the object is to simply earn income de hors the promotion of objects for which it was set up, it will fall within the ambit of proviso to section 2(15) and if the object of the activity is to promote the objects for which it was set up, then it will not be caught within the sweep of the proviso notwithstanding the fact that there results some income from carrying out such activity. The core of the matter is to see whether the activity which resulted into some income or loss was carried on with the object of doing some trade, commerce or business, etc., or it was in furtherance of the objects (non-business) etc., for which the assessee was set up. In other words, the predominant object of the activities should be seen as to whether it is aimed at carrying on some business, trade or commerce or the furtherance of the object for which it was set up. If it falls in the first category, then, the case would be covered within the proviso to section 2(15) and, in the otherwise scenario, the assessee will be construed to have carried on its activities of general public utility. (see Society of Indian Automobile Manufactures vs. ITO, Delhi) Page 94 of 96

C/TAXAP/627/2015 JUDGMENT 92. The Delhi High Court in the Institute of Chartered Accounts of India v. Director General of Income-tax (Exemptions), 2013 358 lTR 91/217 Taxman 152/35 taxmann.com 140 (Delhi) , observed, while disposing of a writ petition, that holding interviews for fees for the purpose of campus placements of its students does not amount to carrying on a business so as to deny exemption u/s 11 of the Act. It further observed that if the object or purpose of an institution is charitable, the fact that the institution collects certain charges does not alter the character of the institution. The Delhi High Court further observed in para 67 that “the purport of the first proviso to section 2(15) of the Act is not to exclude the entities which are essentially for charitable purpose, but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude the organizations which are carrying on regular business from the scope of "charitable purpose'". The High Court also noticed the purpose of introducing the proviso to section 2(15) of the Act from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008 and reproduced the relevant extract to the Speech as under:' "….....Charitable purpose" includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.” The expressions "business", "trade“ or “commerce" as Page 95 of 96

C/TAXAP/627/2015 JUDGMENT used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organization is charitable any incidental activity for furtherance of the object would not fall within the expressions " business". "trade" or "commerce". 93. In view of the aforesaid discussion, we have reached to the conclusion that the CIT (A) and the Income Tax Appellate Tribunal are right in their view and could not be said to have committed any error in passing the impugned order. 94. The CIT (A) and the Income Tax Appellate Tribunal have concurrently held that taking an overall view, the dominant objects of the assessee are charitable as the dominant object is not only preservation of environment, but one of general public utility and, therefore, the assessee is entitled to seek exemption under Section 11 of the Act. The Tribunal is the last fact finding body. As a principle, this Court should not disturb the findings of fact in an appeal under Section 260A of the Act unless the findings of fact are perverse. 95. In the result, all the appeals fail and are hereby dismissed. The substantial questions of law, as framed by this Court, are answered in favour of the assessee and against the revenue. (J. B. PARDIWALA, J)

(A. C. RAO, J) Vahid Page 96 of 96