2019 (7) TMI 1865 - AT - Income Tax

Exemption u/s 11 - claim under the head objects of general public utility OR under the head preservation of environment - HELD THAT - As following the judicial precedent in the case of the assessee itself 2019 (3) TMI 1920 - ITAT LUCKNOW the activities being undertaken by the assessee are held to be charitable in nature. As regards the arguments of Learned D. R. that in earlier years the assessee had claimed exemption under the head objects of general public utility whereas in the years under consideration the assessee had claimed exemption under the head preservation of environment (including watersheds, forest and wildlife) we find that the specific clause would always prevail over the general clause. The amendment to section 2(15) was made with effect from 01/04/2009 whereby preservation of environment was included as a specific object u/s 2(15) of the Act and since the activities of the assessee fell in the specific category therefore, learned CIT(A) has rightly considered the same - Decided in favour of assessee.

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Classification of activities under "preservation of environment" versus "objects of general public utility."
3. Addition of prior period expenses.

Issue-wise Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:
The Revenue challenged the CIT(A)'s decision to allow the assessee's appeal, asserting that the assessee's activities fall under "preservation of environment (including watersheds, forest and wildlife)." The Revenue argued that the assessee previously claimed exemption under "objects of general public utility" until the assessment year 2008-09 and changed the claim to "preservation of environment" from 2009-10 to avoid the proviso in Section 2(15) of the Act, which excludes activities involving trade or business from being considered charitable. The Tribunal had previously granted registration under Section 12A, recognizing the assessee as a charitable institution. This decision was upheld by the Allahabad High Court and the Supreme Court. The CIT(A) upheld this view, stating that the specific category of "preservation of environment" takes precedence over the general category of "objects of general public utility."

2. Classification of Activities:
The Tribunal found that the assessee's activities, which involve the removal and disposal of trees, fall under "preservation of environment." This classification was supported by previous orders from the Tribunal, the Allahabad High Court, and the Supreme Court. The CIT(A) emphasized that specific provisions in Section 2(15) related to "preservation of environment" take precedence over general provisions. The Tribunal also noted that the assessee's activities remained consistent over the years and were deemed charitable. The CIT(A) and Tribunal both concluded that the specific clause "preservation of environment" should prevail over the general clause "objects of general public utility," especially after the 2009 amendment to Section 2(15).

3. Addition of Prior Period Expenses:
The Revenue also contested the deletion of additions made by the Assessing Officer on account of prior period expenses. The CIT(A) found that these expenses were determined and crystallized during the relevant assessment years, thus justifying their inclusion. The Tribunal upheld this view, referencing multiple case laws that support the principle that expenses can only be booked when they are determined and crystallized. The Tribunal cited judgments from various High Courts, including the Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd. v. CIT and the Allahabad High Court in Commissioner of Income-tax v. Amrit Banaspati Co. Ltd., which held that expenses should be allowed in the year they are crystallized. The Tribunal also noted that the tax rates for the assessee remained constant, and therefore, the timing of the expense recognition did not affect the overall tax liability.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to grant exemption under Section 11, classify the assessee's activities under "preservation of environment," and allow the prior period expenses. The Tribunal emphasized the precedence of specific provisions over general ones and the principle of expense crystallization, aligning with established judicial precedents.