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2009 (8) TMI 119

..... lled into question correctness of learned CIT s decision dt. 26th Dec., 2008, withdrawing registration granted under s. 12AA of the IT Act, 1961. Grievance of the assessee is that the learned CIT erred in so withdrawing or cancelling the registration. 2. To adjudicate upon assessee s grievance, it is necessary to take note of some material facts and developments leading to this litigation before us. The assessee before us is a State Board, constituted under law, for playing a key role in the prevention, control or abatement of pollution of streams and wells in the State and other allied activities. The assessee is also engaged in 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) .....

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..... osts incurred for supervising and monitoring the pollution emissions by the enlisted units. It was pointed out that there was no understanding, express or implied, that the assessee will render any specific services to the enlisted units and, as such, the consent fees could not be said to be in consideration for any services to be rendered by the assessee. Learned CIT noted that the assessee had also moved an application for exemption under s. 10 (23C)(iv) before the Chief CIT and that the learned Chief CIT had rejected the same by holding that the assessee was carrying out a regulatory activity and not a charitable 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the Chief CIT, learned CIT further required the assessee to show cause as to why the registration under s. 12AA not be withdrawn even for years prior to the asst.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 standal .....

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..... II) The functions of the assessee Board do indicate that the Board is engaged in advancement of objects of general public utility and that precisely was the reason of registration under s. 12AA having been granted. However, it is now found that the assessee is an inspecting and regulatory agency, and, therefore, it cannot be treated as engaged in a charitable activity. (III) The assessee is like a regulatory arm of the Government through which the Government seeks to execute its policies. (IV) The existence of surplus every year shows that no efforts are made by the Board to apply the accumulated profits 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 .....

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..... (15) of the Act. 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. Hon ble Courts have taken a very broad view of the connotations of objects of general public utility . In the case of CIT vs. Bar Council of Maharashtra (1981) 22 CTR (SC) 106 : (1981) 130 ITR 28 (SC), Hon ble Supreme Court has held that a State Bar Council, which is clearly a regulatory body under the Advocate 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 t .....

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..... gory set out under 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 . In the case of South India Corpn. (P) Ltd. vs. Secretary, Board of Revenue AIR 1964 SC 205 @ 215, Hon ble Supreme Court has observed that, a special provision should be given effect to the extent of its scope, leaving general provisions to cover the cases where specific provisions do not apply . A special provision 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(1 .....

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..... to trade, commerce or business. Each case would, therefore, have to be decided on its own facts, and generalizations are not possible. An assessee who claims that their object is charitable purpose within the meaning of s. 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade, commerce or business. 14. As the above CBDT circular, which is binding on the CIT under s. 119(1)(a) of the Act, 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) 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 re .....

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..... ore, in a situation in which services are rendered without a profit motive, such rendering of service will not have anything in common with trade, business or commerce. The application of the principle of noscitor a sociis, therefore, will require that in order to invoke second limb of Explanation to s. 2(15), rendering of service to trade, commerce or business must be such that it has a profit motive. As a matter of fact, learned CIT has taken a stand that 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 , 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, co .....

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..... osal of sewage and trade effluents or to modify, alter or extend any such existing system or to adopt such remedial measures as are necessary to prevent, control or abate water pollution; (m) to lay down effluent standards to be complied with by persons while causing discharge of sewage or sullage or both and to lay down, modify or annual effluent standards for the sewage and trade effluents; (n) to advise the State Government with respect to the location of any industry the 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 dischargi .....

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..... income over the years in the nature of licence fees, consent fees, testing charges etc. and 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 . However, as we have held earlier it was not an object, though it may have been incidental or subservient to the objects of the assessee trust, to earn money by regulatory functions set out above. We, therefore, see 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 activi .....

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