1990 (8) TMI 203 - AT - Income Tax

Summary

Issues Involved:
1. Charitable status of the Andhra Pradesh State Civil Supplies Corporation Ltd. under section 2(15) of the Income-tax Act.
2. Effective date of the amendment to clause 28 of the Memorandum of Association.
3. Overlapping between the objects and powers in the Memorandum and Articles of Association.
4. Deductibility of Rs. 38,32,099 contributed to the Price Stabilisation/Equalisation Fund.
5. Compliance with section 11(4A)(b) of the Income-tax Act.
6. Distribution of assets on winding up as per Article 132 of the Articles of Association.
7. Registration under section 12A of the Income-tax Act.

Detailed Analysis:

1. Charitable Status under Section 2(15) of the Income-tax Act:
The Tribunal examined whether the Andhra Pradesh State Civil Supplies Corporation Ltd. (the Corporation) qualifies as a charitable institution under section 2(15) of the Income-tax Act. The main objects of the Corporation include engaging in the purchase, storage, processing, movement, transport, distribution, and sale of foodgrains and other essential commodities. The Corporation's activities aim to ensure the supply of essential commodities at fair prices, which aligns with the purpose of public utility. Despite generating profits, the predominant object is to carry out a charitable purpose, not to earn profit. The Tribunal concluded that the Corporation is a charitable institution within the meaning of section 2(15) of the Income-tax Act.

2. Effective Date of Amendment to Clause 28 of the Memorandum of Association:
The amendment to clause 28 of the Memorandum of Association, which dealt with the provision for special dividends on preference shares or equalising dividends, was passed by a special resolution on 16-11-1981. However, the amendment was registered with the Registrar of Companies only on 2-1-1989. The Tribunal held that the amendment came into effect only from 2-1-1989, the date of registration, in accordance with section 18(2) of the Companies Act. The clause remained effective in its original form during the relevant assessment year.

3. Overlapping Between Objects and Powers:
The Tribunal considered whether the question of overlapping between the objects and powers in the Memorandum and Articles of Association could be examined. The Commissioner (Appeals) had dealt with this issue, and the Tribunal found it necessary to address it as it was raised during the proceedings. The Tribunal concluded that it could examine the overlapping between objects and powers, particularly when it was dealt with by the first appellate authority and argued before the Tribunal.

4. Deductibility of Rs. 38,32,099 Contributed to the Price Stabilisation/Equalisation Fund:
The Tribunal upheld the deductibility of Rs. 38,32,099 contributed to the Price Stabilisation/Equalisation Fund. The contribution was made in compliance with a Government directive, and the liability accrued to the Corporation in accordance with the mercantile system of accounting. The Tribunal agreed with the Commissioner (Appeals) that the contribution was a deductible expense.

5. Compliance with Section 11(4A)(b) of the Income-tax Act:
The Tribunal examined whether the Corporation complied with section 11(4A)(b) of the Income-tax Act, which requires that the work in connection with the business be mainly carried on by the beneficiaries of the institution. The Corporation, being a Government entity, operates under the directives of the Government, and its activities benefit the public. The Tribunal concluded that the Corporation substantially complied with the provisions of section 11(4A)(b).

6. Distribution of Assets on Winding Up as per Article 132:
Article 132 of the Articles of Association provided for the distribution of assets among shareholders in the event of winding up. The Tribunal held that this provision did not detract from the Corporation's charitable status during its lifetime. The assets would revert to the Government, which is the sole shareholder, ensuring that the public remains the ultimate beneficiary.

7. Registration under Section 12A:
The Tribunal noted that the Commissioner of Income-tax had subsequently granted registration to the Corporation under section 12A of the Income-tax Act. Therefore, the issue of exemption being denied due to the absence of registration no longer subsisted.

Conclusion:
The Tribunal concluded that the Andhra Pradesh State Civil Supplies Corporation Ltd. is a charitable institution under section 2(15) of the Income-tax Act. The amendment to clause 28 of the Memorandum of Association took effect from 2-1-1989. The Corporation's contribution to the Price Stabilisation/Equalisation Fund was deductible, and it substantially complied with section 11(4A)(b) of the Income-tax Act. The provision for distribution of assets on winding up did not affect its charitable status, and the issue of registration under section 12A was resolved with the subsequent grant of registration.