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2009 (8) TMI 119 - AT - Income TaxRegistration granted u/s.12AA withdrawn - earning income from various kinds of fees and charges - scope and connotations of 'regulatory function' and 'charitable purposes - The assessee before us is a State Board as engaged in dealing with matters relating to prevention of air pollution - since the assessee was earning income over the years in the nature of licence fees, consent fees, testing charges, etc. - Scope of amendment of definition of charitable activities under s. 2(15) w.e.f. 1st April, 2009 - CIT proceeded to withdraw the registration u/s.12AA with effect from the date from which the same was granted and held that, in any event, due to amendment of definition of charitable activities u/s. 2(15) w.e.f. 1st April, 2009, the registration is to be withdrawn w.e.f. 1st April, 2009. Accordingly, registration granted u/s.12AA(3) is cancelled. CIT has proceeded on the assumption that the scope and connotations of 'regulatory function' and 'charitable purposes under the IT Act' are mutually exclusive. While holding that the assessee was not engaged in an activity for charitable purposes, ld CIT has held that since the assessee was engaged in a regulatory function, it could not be said that the assessee was engaged in an activity which could be said to be for charitable purposes. HELD THAT - We are unable to see any conflict in an assessee being a regulatory body and its pursuing an 'object of general public utility' which qualifies to be a charitable activity u/s. 2(15). The scope of expression 'any other object of general public utility' is indeed very wide, though it would indeed exclude the object of private gain such as an undertaking for commercial profit even as the undertaking may sub-serve general public utility. Viewed in this perspective, and bearing in mind the fact that assessee is admittedly engaged in the activities for the purposes of prevention, control or abatement of pollution , we are of the considered view that the objects of the assessee trust are of general public utility. We have already noted that the objections taken by the learned CIT that since assessee is performing regulatory functions, the assessee cannot be treated as pursing objects of general public utility are devoid of any legally sustainable basis. In the light of these discussions, we hold that the assessee was indeed pursuing objects of general public utility. No doubt until the asst. yr. 2009-10, the assessee Board was covered only by this residuary clause of definition of 'charitable purposes', but, as a result of the retrospective amendment introduced by the Finance Act, 2009, a new category of activity entitled to be treated as charitable activity under s. 2(15) has been introduced which extends the definition of charitable purposes to preservation of environment (including watershed, forest and wildlife) and preservation of monuments or places of artistic or historic interest . In our considered view, the assessee is now covered by this specific category set out u/s. 2(15), and, therefore, residuary clause does not come into play. It is only elementary that a general provision has to give way to the specific provision, as aptly summed up in the maxim 'generalia speialbus non derogant'. Therefore, it is wholly immaterial as to whether or not the assessee was rendering a service to the trade commerce or business. Given the present legal position, and on the facts of the present case, even this objection taken by the ld CIT is wholly irrelevant. As the CBDT circular, which is binding on the CIT u/s.119(1)(a), aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question of to be decided on the facts of the assessee's own case and where object of general public activity is only a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in a charitable activity within meanings of s. 2(15). As a corollary to this approach adopted by tax administration, in our considered view, it cannot be open to learned CIT to contend that where an object of general public utility is not merely a mask to hide true purpose or rendering of any service in relation thereto, and where such services are being rendered as purely incidental to or as subservient to the main objective of 'general public utility', the carrying on of bona fide activities in furtherance of such objectives of 'general public utility' will also be hit by the proviso to s. 2(15). Whether the ld CIT is justified in taking a stand that the assessee earning income over the years in the nature of licence fees, consent fees, testing charges, etc. and since the basic objective of the protection of environment pursued by the Board involves the carrying on of such activities and the earning of such income ? - HELD THAT - On a perusal of the objectives, as sanctioned by the statue, it is obvious that the activities performed by the assessee trust are regulatory functions for the public good, and any collection for fees or charges, in the course of discharging these regulatory functions, cannot be viewed as a consideration of rendering these services of pollution control measures. We are unable to see any substance in ld CIT's stand that the income earned by assessee as licence fees, consent fees and testing charges are receipts in consideration of rendering the services to trade, commerce or business. What is termed as consent fees is in fact fees accompanying the application for obtaining consent (i.e., permission) of the assessee Board to set up a new unit. It cannot be anybody's case that the processing of applications by itself has a commercial motive, or that fees for processing of application is a fees collected for rendering of service of pollution control which is undisputed sole object of the assessee trust. Similarly, fees for testing charges and licence fees are not also towards rendering of any services of pollution control either. When the assessee is engaged in bona fide activities, within the framework of law, to pursue its objectives. it cannot be said that the activities of the assessee are not genuine. Ld CIT has also not brought on record any material to demonstrate activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. Under these circumstances, the withdrawal of registration granted u/s. 12AA cannot be sustained in law. Ld CIT has extensively referred to as to why the assessee is not eligible for exemption u/s. 11 as the activities of the assessee cannot be said to be for 'charitable purposes' defined u/s. 2(15), but then this aspect of the matter is relevant for the assessment proceedings and not in the context of exercise of CIT's powers u/s. 12AA(3). The impugned order passed by the ld CIT is thus vitiated in law on this count as well. Hence, we quash the order of the ld CIT and hold that the ld CIT did not have any good reasons, sustainable in law, to withdraw the registration. The impugned order is accordingly set aside.
Issues Involved:
1. Withdrawal of registration under section 12AA of the IT Act, 1961. 2. Interpretation of 'charitable purposes' under section 2(15) of the IT Act, 1961. 3. Applicability of proviso to section 2(15) post-amendment by Finance Act, 2008. 4. Legality of retrospective withdrawal of registration. 5. Examination of the activities of the assessee as 'genuine' and in accordance with its objects. Issue-wise Detailed Analysis: 1. Withdrawal of Registration under Section 12AA of the IT Act, 1961: The appeal questioned the correctness of the CIT's decision to withdraw the registration granted under section 12AA. The CIT's reasoning for withdrawal included the assessment that the assessee was earning income from various fees and charges and that the activities involved were in the nature of trade, commerce, or business, thus not qualifying as 'charitable purposes' under the amended section 2(15). 2. Interpretation of 'Charitable Purposes' under Section 2(15) of the IT Act, 1961: The Tribunal examined whether the assessee's regulatory functions could be considered 'charitable purposes'. It was noted that the Supreme Court in CIT vs. Bar Council of Maharashtra held that regulatory bodies could be engaged in 'advancement of an object of general public utility'. The Tribunal concluded that the assessee's activities in preventing, controlling, or abating pollution were indeed for 'general public utility' and thus charitable in nature. 3. Applicability of Proviso to Section 2(15) Post-Amendment by Finance Act, 2008: The Tribunal addressed the impact of the amendment to section 2(15), which excluded activities involving trade, commerce, or business from being considered charitable if they involved any cess or fees. However, it was noted that a new category was introduced by the Finance Act, 2009, which included "preservation of environment" as a charitable purpose. The Tribunal held that the assessee fell under this specific category, making the proviso to section 2(15) inapplicable. 4. Legality of Retrospective Withdrawal of Registration: The Tribunal rejected the CIT's view that registration could be withdrawn retrospectively. It emphasized that section 12AA(3) only allows for cancellation if the activities are not genuine or not carried out in accordance with the objects of the institution. The Tribunal found no evidence to support such claims against the assessee. 5. Examination of the Activities of the Assessee as 'Genuine' and in Accordance with its Objects: The Tribunal found that the assessee's activities were genuine and aligned with its stated objectives of pollution control. The CIT's argument that the assessee was engaging in trade, commerce, or business was not substantiated. The Tribunal highlighted that the fees collected were for regulatory purposes and not for profit, thus not violating the charitable status. Conclusion: The Tribunal quashed the CIT's order withdrawing the registration under section 12AA, holding that the assessee was indeed engaged in charitable activities as defined under section 2(15) and that the CIT did not have valid grounds for the withdrawal. The appeal was allowed.
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