Naroda Enviro Projects Ltd.,, ... vs Department Of Income Tax

अपीलाथȸ कȧ ओर से /By Appellant : Shri Dinesh Singh, Sr. D.R. ू×यथȸ कȧ ओर से/By Respondent : Shri S. N. Soparkar, A.R. सुनवाई कȧ तारȣख/Date of Hearing : 09.01.2015 घोषणा कȧ तारȣख/Date of Pronouncement : 29.01.2015 I.T.A. No. 546/Ahd/2013 A.Y. 2009-10 (DDIT vs. Naroda Enviro Proje cts Ltd.) Page 2

ORDER

PER SHAILENDRA KUMAR YADAV, J.M:

This appeal has been filed by the Revenue against the order of Commissioner of Income Tax (Appeals)-XXI, Ahmedabad, dated 13.12.2012 for A.Y. 2009-10 on the following grounds:

"i). The Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in directing the Assessing Officer to treat the activities of the Assessee as charitable, and thereby deleting the addition of Rs.2,53,21,438/-.

ii. The Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in holding that the Assessee is doing charitable activity as per Section 2(15) of the I.T. Act, and therefore, the benefit of Section 11 & 12 of the I.T. Act should be available to it."

2. Assessee company is engaged in the activity of providing pollution control treatment for disposal of liquid and solid industrial waste. Assessee company operates in GIDC, Naroda for various industrial undertakings operational in that area. Assessee company is running a Common Effluent Treatment Plant at Naroda. It has treatment storage and disposal facility at Odhav, Ahmedabad. Assessee company works for controlling pollution.

2.1 Assessing Officer concluded that assessee company is not being charitable activity as per modified Section 2(15) of I.T.A. No. 546/Ahd/2013 A.Y. 2009-10 (DDIT vs. Naroda Enviro Proje cts Ltd.) Page 3

Income-tax Act. According to Assessing Officer, since assessee company is not doing charitable activity, it is not entitled for exemption u/s. 11 & 12 of Income-tax Act. Assessing Officer observed that main object of company, when it was incorporated, is 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 cooperative section acting as consultants for environmental and pollution problems, carrying on all activities, relating to above including plantation for the purpose of pollution treatment".

2.2 Assessing Officer further pointed out that the main object of the company on its conversion as a Company u/s. 25 of the Companies Act is as 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 (CEPT), 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, and, to carry out research and development and, activities incidental and ancillary thereto and, to make available benefits of its a vivifies and facilities to the public at large without any distinction of race, religion or caste."

I.T.A. No. 546/Ahd/2013 A.Y. 2009-10 (DDIT vs. Naroda Enviro Proje cts Ltd.) Page 4

2.3 According to Assessing Officer, assessee has failed to bring on record necessary facts and figures that after its incorporation as under Section 25 of Company Act, it has started charitable activities. Apart from this, Assessing Officer found certain discrepancies as discussed in para 4 and concluded that assessee is carrying out business activity under pretext of charitable activity. Assessing Officer pointed out that the object specified in Memorandum of Association is important, but the same was evaluated with reference to real practice adopted for running activity which is not charitable. Assessing Officer also pointed out that activity of assessee company was carried out for the benefit of members to discharge their onus of treatment of chemicals, etc. with substantial charges with a sole intention to earn profit under Section 25 of Companies Act. Assessing Officer concluded that assessee company is rendering services of pollution control as per the norms laid down by the GPCB or any other authority responsible for regulation of pollution control. Since assessee company is rendering services and its aggregate value of surplus are more than Rs.10 lacs, the proviso to Section2[15) are applicable and thus according to Assessing Officer, exemption u/s. 11 & 12 are not available to assessee company. With these remarks, Assessing Officer brought to tax the profit of Rs.2,53,21,438/- disclosed by assessee as the total income of assessee.

I.T.A. No. 546/Ahd/2013 A.Y. 2009-10 (DDIT vs. Naroda Enviro Proje cts Ltd.) Page 5

3. Matter was carried before the First Appellate Authority, wherein various contentions were raised and having considered the same CIT(A) granted relief to assessee on the issue. Same has been opposed before us on behalf of Revenue inter alia submitted that CIT(A) was not justified in directing the Assessing Officer to treat activity of assessee as charitable and whether by deleting addition of Rs.2,53,21,428/-. CIT(A) erred in law and fact in holding that assessee is doing charitable activity as per Section 2(15) of Income Tax Act and therefore, benefit of Section 11 & 12 of the Act should be available to it. Accordingly, order of CIT(A) be set aside and that of Assessing Officer issue be restored. On other hand learned Authorized Representative supported the order of CIT(A).

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 I.T.A. No. 546/Ahd/2013 A.Y. 2009-10 (DDIT vs. Naroda Enviro Proje cts Ltd.) Page 6

private profit of the settler or any other person. In this situation, Assessing Officer was not justified in holding that assessee was generating surplus or profit making was the predominant object of assessee. Assessee company was incorporated with a sole object to comply with directions of Hon'ble High Court of Gujarat in a PIL for industries of Naroda GIDC for establishment in running of Common Effluent Treatment Plant and its storage and disposal facility at Odhav, Ahmedabad. The project was setup under the directions and guidelines of Hon'ble High Court of Gujarat and various local and state level agencies viz. Collector, GIDC, AMC, GPCB, etc. As per directions of Hon'ble High Court of Gujarat, it was sine- qua-non for industrial units to become member of assessee company for meeting the pollution control parameters laid down by GPCB. The amount collected from the members varied depending upon the quantum of effluent, nature of effluent to be treated as well as other factors pertaining to pollutant of different kind coming from the industrial units. Thus, assessee is engaged in the activity of preservation of environment by abetment and controlling pollution of environment i.e. land, water and air. For this objective, assessee is providing pollution control treatment for disposal of liquid and solid industrial waste. It is undisputed that assessee was incorporated u/s. 25 of the Companies Act. Assessee was duly registered u/s. 12AA and also u/s. 80G(5) of the Income-tax Act. The said certificates were issued after I.T.A. No. 546/Ahd/2013 A.Y. 2009-10 (DDIT vs. Naroda Enviro Proje cts Ltd.) Page 7

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 I.T.A. No. 546/Ahd/2013 A.Y. 2009-10 (DDIT vs. Naroda Enviro Proje cts Ltd.) Page 8

Rs.2,53,21,438/-. This reasoned finding of CIT(A) needs no interference from our side. We uphold the same.

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

Pronounced in the open Court on this the 29th day of January, 2015.

Sd/- Sd/- (N. S. SAINI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER True Copy S.K.SINHA

आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-

1. राजःव / Revenue

2. आवेदक / Assessee

3. संबंिधत आयकर आयुƠ / Concerned CIT

4. आयकर आयुƠ- अपील / CIT (A)

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड[ फाइल / Guard file.

By order/आदे श से,

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद ।