2016 (10) TMI 363 - AT - Income Tax

Application u/s 12A for registration as a charitable company rejected - Held that - We find that the objects of the assessee company speaks about to build, construct, operate and maintain water supply scheme, drainage scheme, storm water drainage scheme, gas Utility Services, Power Utility, Road Network, Rainwater harvesting, artificial recharging and other utilities of Panoli GIDC Industrial Estate for the benefit of member industries. We further observe that during the course of hearing when a question was posed to the ld. AR regarding as to who will bear the cost of accomplishing all these objects , then ld. AR replied that assessee company shall charge the cost of services to the member industries only. This indicates that the objects for which the assessee company is seeking registration u/s 12A, they generally come in the area of work of local authorities or the Government Department which has established the industrial estate but for the better and improved quality of services that too within the control of member industries the concept of formation of such nonprofit making company gets its origination. We further observe that the working of assessee company is for the member industries of GIDC Industrial Estate and the public at large is not coming in the picture nor is there any indication in the objects which says that any specific activity for the objects to general public utility will be carried out rather the contention of assessee is indicating about remote and dim effect on the general public will be there with the attainment of main objects but we do not find it so. Therefore, respectfully following the decision of Hon. High Court in the case of Ahmedabad Mill Owners Association (1975 (11) TMI 27 - GUJARAT High Court) and looking to the facts and objects of the case before us, we are of the view that main objects of the assessee company are not covered under the provisions of section 2(15) of the Act and are not charitable in nature as they are confined to a special class of member industries of GIDC Industrial Estate, Panoli. Accordingly, we find no reason to interfere with the order of ld. CIT and dismiss the appeal of assessee.

Summary

Issues Involved:
1. Whether the activities carried out by the assessee company are charitable in nature as per the provisions of section 2(15) of the Income Tax Act, 1961.
2. Whether the assessee company is entitled to registration under section 12A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Charitable Nature of Activities under Section 2(15) of the Income Tax Act, 1961:

The primary issue was whether the activities of the assessee company qualify as charitable under section 2(15) of the Income Tax Act, 1961. The assessee company, registered under section 25 of the Companies Act, 1956, aimed to build, construct, operate, and maintain various utility services for the benefit of member industries in the Panoli GIDC Industrial Estate.

The assessee argued that its activities fell under the definition of "charitable purpose," which includes the advancement of any other object of general public utility. The assessee cited several clauses from its Memorandum of Understanding (MOU) that extended benefits beyond its members to the general public, thus satisfying the condition of general public utility.

The Tribunal had previously directed the CIT to reconsider the application for registration in light of the decision in the case of Nandesari Water & Utilities Ltd., which had similar objects and was granted registration under section 12A. However, the CIT rejected the application, stating that the main objects of the assessee could not be considered charitable under section 2(15) of the Act.

2. Entitlement to Registration under Section 12A of the Income Tax Act, 1961:

The Tribunal examined whether the assessee company was entitled to registration under section 12A, which is granted to entities engaged in charitable activities. The assessee's main objects were compared with those of Nandesari Water & Utilities Ltd., and it was found that they were largely similar, except for minor differences in wording.

The Tribunal noted that the assessee's activities were primarily for the benefit of member industries in the GIDC Industrial Estate, and the costs of these services would be borne by the member industries. This indicated that the activities were not for the public at large but for a specific group of industries.

The Tribunal referenced several judicial decisions, including those of the Supreme Court and High Courts, to determine whether the assessee's objects could be considered charitable. It was concluded that the objects of the assessee company did not serve the general public utility but were confined to a specific class of member industries. Therefore, the activities could not be deemed charitable under section 2(15) of the Act.

Conclusion:

The Tribunal upheld the CIT's decision to reject the application for registration under section 12A, concluding that the assessee's activities were not charitable in nature as they were confined to a specific group of member industries in the GIDC Industrial Estate. The appeal of the assessee was dismissed, and the order was pronounced in the open Court on 23rd May, 2016.