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TMI Blog2009 (8) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing with matters relating to prevention of air pollution. 3. On 11th Oct., 2007, the assessee was granted registration under s. 12AA of the IT Act, 1961, w.e.f. 5th Dec., 1974. It is an admitted position that "in (so) granting the registration, it was noted that the Board is concerned with the prevention and control of pollution, and, therefore, could be said to be engaged in the advanced of an object of general public utility", and that "having regard to the functions of the Board, as laid down in s. 17 of the Water (Prevention and Control of Pollution) Act, 1974, and the definition of charitable objects as it then stood in s. 2(15) of the IT Act, the objects of the Board were considered to be charitable in nature". 4. On 27th Oct., 2008, however, learned CIT served a notice on the assessee requiring him to show cause as to why, in view of the fact that the assessee was earning income from various kinds of fees and charges and in view of restricting the scope of 'an object of general public utility' by amending s. 2(15), the registration granted to the assessee should not be withdrawn. It was pointed out that, with effect from the asst. yr. 2009-10 and by the virtue of am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. In the light of this finding of his supervisory authority, i.e., the Chief CIT, learned CIT further required the assessee to show cause as to why the registration under s. 12AA not be withdrawn even for years prior to the asst. yr. 2009-10. It was submitted by the assessee that the findings of the learned Chief CIT, while dealing with assessee's application for exemption under s. 10(23C)(iv), should not influence learned CIT's decision regarding registration under s. 12AA of the Act, as these are two independent provisions which should be considered on standalone basis. The assessee also made submissions on merits and submitted that the facts and circumstances of the case did not warrant or justify withdrawal of registration under s. 12AA, as the assessee was always engaged in, and continued to engage in, a charitable activity within meanings assigned to that expression under s. 2(15) of the Act. It was also pointed out the powers of withdrawing registration under s. 12AA(3) could only be exercised when it is found that the activities of the assessee are not genuine or when the same are not being carried out in accordance with the objects of the institution. It was asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s towards the objects of the Board". M There is no substance in the plea that registration cannot be withdrawn retrospectively. Since the expression used in s. 12AA(3) is 'cancelling' the registration, it would imply that the registration once cancelled would be deemed to have never been given. (VI) In view of the above, "it is held that that the H.P. Pollution Control Board is not carrying out the activities for which the registration under s. 12AA was granted" and that "the Board has been functioning only as a regulatory authority and its actual activities carried out are essentially in the nature of monitoring and supervision of pollution control mechanism installed in various industrial units and projects". "The Board, therefore, cannot be said to be engaged in the pursuit of charitable purposes". Accordingly, registration granted under s. 12AA(3) is cancelled. (VII) Without prejudice to the above, "the Board is actually carrying out activities in a commercial manner with a view to earn profits". "By inspecting and monitoring the pollution control systems installed at various units and projects, and by giving proper guidance and directions for modification to such syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vocate Act, is primarily and predominantly for the purposes of 'advancement of an object of general public utility within meanings of s. 2(15)'. It is not appropriate to proceed on the basis, as the learned CIT has chosen to proceed, that regulatory functions are not activities for charitable purposes, for the elementary reason that the expression 'charitable purposes', under s. 2(15), includes 'any other objects of general public utility' which, as we have noted above, is an expression of wide import. In the scheme of things which operate in the contemporary society, many of these regulatory functions are entrusted to the bodies independent of the Government and the object of the bodies so entrusted with the regulatory functions are, in our humble understanding, clearly pursuing objects of general public utility. We must emphasize once again that the connotations of 'charitable purposes', in view of specific provisions of the Act, are significantly wider than connotations of this expression in common parlance. 10. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion thus normally excludes the operation of general provision, and the said principle will have application here as well. The assessee being covered by the specific clause set out above, and the residuary clause no longer being applicable, the proviso to s. 2(15) does not come into play at all. 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 learned CIT is wholly irrelevant. 13. It is also important to bear in mind that the insertion of proviso to s. 2(15) does not mean that in case an assessee is to receive any payment for anything done for trade, commerce or business, the assessee will be hit by the said proviso. It may be recalled that elaborating the scope of this amendment. CBDT, vide Circular No. 11, dt. 19th Dec., 2008 [(2009) 221 CTR (St) 1], has observed as follows: "3. The newly amended s. 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' i.e., the fourth limb of definition of 'charitable purpose' contained in s. 2(15). H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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) of the Act. 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). 15. As CBDT rightly puts it, sweeping 'generalizations are not possible' and 'each case will have to decided on its facts'. The question then arises whether on the present set of facts it can be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt pursued by the Board involves the carrying on of such activities and the earning of such income', but then we are unable to approve this stand of the CIT. Let us not lose sight of the fact that the assessee is a regulatory body, with statutory funding of the State Government and Central Government, and its activities, under s. 17 of the Act. are as follows: "(1) Subject to the provisions of this Act, the functions of a State Board shall be- (a) to plan a comprehensive programme for the prevention, control or abatement of pollution of streams and wells in the State and to secure the execution thereof; (b) to advise the State Government on any matter concerning the prevention, control or abatement of water pollution; (c) to collect and disseminate information relating to water pollution and the prevention, control or abatement thereof; (d) to encourage, conduct and participate in investigations and research relating to problems of water pollution and prevention, control or abatement of water pollution; (e) to collaborate with the Central Board in organising the training of persons engaged or to be engaged in programmes relating to prevention, control or abatement of wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he carrying on of which is likely to pollute a stream or well; (0) to perform such other functions as may be prescribed or as may, from time to time, be entrusted to it by the Central Board or the State Government. (2) The Board may establish or recognise a laboratory or laboratories to enable the Boards to perform its functions under this section efficiently, including the analysis of samples of water from any stream or well or of samples of any sewage or trade effluents." 17. On a perusal of these 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 learned 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., permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no substance in the stand of the learned CIT. 19. In any event, as a plain reading of s. 12AA(3) would indicate that a registration granted under s. 12AA can only be withdrawn when the CIT is satisfied that (a) the activities of the trust or the institution are not 'genuine'; or (b) the activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. There cannot be any other legally sustainable reasons for canceling or withdrawing the registration granted under s. 12AA. By no stretch of logic, the activities of the assessee can be said to be not genuine and the assessee is admittedly pursing the objects for which it was established. 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. Learned 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 under s. 12AA cannot be sustained in law. Learned CIT has extensivel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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