TMI Blog2002 (11) TMI 776X X X X Extracts X X X X X X X X Extracts X X X X ..... , set aside this order on the ground that the appellant was not a local authority. The appellant challenged these orders by filing writ petition in the High Court. The High Court allowed the writ petition on 19-5-1988 on two grounds - firstly, that the appellant is a local authority and secondly, it was entitled to exemption under section 11(1)(a) of the Act. The respondents preferred appeals before the Apex Court. The appeals were allowed holding that the appellant is not a local authority within the meaning of section 10(20) of the Act. As regards the exemption claimed under the provisions of section 11(1)(a) of the Act the Assessing Authority was directed to consider such claim of the respondent. The Assessing Officer took the view that the predominant object of the appellant is commercial and, therefore, its income cannot be treated as for charitable purpose within the meaning of section 2(15) of the Act. The view taken by the Assessing Officer has been affirmed by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. These appeals are directed against these orders. 3. Section 11(1)(a ) of the Act reads as under :- (a)income derived from propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry. Similarly Article 51A(g) of the Constitution says : It shall be duty of every citizen of India to protect and improve the natural environment including the forest lakes, rivers and wild life and to have compassion for living creatures. The importance and benefit of forest to mankind has been emphasized by various decisions of the Supreme Court in T.N. Godavarman Thirumulkpad v. Union of India [1997] 2 SCC 267, the Supreme Court, considering the significance of protection of conservation of forest throughout the country, gave directions to Central Government and the State Governments, referring to the provisions of Forest Conservation Act, 1980. It was observed that the Act was enacted with a view to check deforestation which ultimately results in ecological balance and the provisions were made for the conservation of forests and for matters connected therewith and the direction was that they must be applied to all forests irrespective of the nature of ownership and classification thereof. In M.C. Mehta v. Kamal Nath [1997] 1 SCC 388, the Apex Court applied doctrine of public trust in relation to protection of natural resources. 9. The preservation, supervision and deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the State Government; (e) to perform such functions as the State Government may, from time to time, required. 12. Section 17 provides for utilization of fund of the Corporation. Sub-section (2) of section 17 provides that the fund shall be applied towards meeting expenses incurred by the Corporation in the discharge of its function under this Act and for no other purpose. 13. The meaning and scope of words advancement of any other object of general public utility came up for consideration before the Privy Council, Supreme Court and High Courts. In CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722, the question was whether the rent received from the property by the Andhra Chamber of Commerce was exempt from income-tax under section 4(3)(i) of Indian Income Tax Act, 1922. The Supreme Court held that the object of the Chamber of Commerce was advancement of promotion of trade, commerce and industries leading to economic prosperity ensures for the benefit of entire community and such an object shall be treated of general public utility. The definition of charitable purpose was inclusive and not exhaustive. It observed : . . . Advancement or promotion of trade, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 11(1)(a) of the Act was further clarified in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 11 (SC). The facts were that Surat Art Silk Cloth Manufacturers Association was incorporated under the Companies Act, 1913. It was formed with an object to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth, cotton cloth and activities connected therewith. It claimed exemption under section 11(1)(a) of the Act of its income on the ground that its object was for advancement of general public utility and not for profit. The Supreme Court laid down certain important principles in this case - (1) that the dominant purpose is to be examined, and (2) the mere fact that it involves an activity of profit does not deprive it from claiming the exemption under section 11(1)(a) of the Act. The observations were as under :- . . . The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non-charitable and trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en statutory Corporation shall be entitled to exemption under section 11(1)(a) of the Act came for consideration in CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 11 (SC), where the Road Transport Corporation which was established by a notification issued under section 3 of the Road Transport Corporation Act, 1950 by the State of Andhra Pradesh claimed exemption for income tax under section 11(1)(a) of the Act. Section 3 of the said Act enumerated the objects for which the Road Transport Corporation was established, namely (a) offering advantages to the public, trade and industry by the development of road transport; (b) co-ordinating any form of road transport with any other form of transport; and (c) extending and improving the facilities for road transport in any area and of providing an efficient and economical system of road transport service therein, it was held that activity of the Transport Corporation was not carried on with the object of making profit. The Court relied upon section 30 of the said Act which provided that the balance income left after utilization for the purpose set out therein was to be made over to the State Government for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case. The objects with which the assessee was incorporated as a company may appear to be of general public utility for development of forestry, but then there were other objects as well which make the assessee a commercial organisation with no restriction as to how its income would be utilised. Thus, considering the principles set out in the aforesaid decision of the Supreme Court we find no difficulty in answering the first question in the affirmative, in favour of the revenue and against the assessee. (p. 765) 20. Sri S.P. Gupta, learned Senior Counsel for the appellant, has drawn distinction between the object of a Corporation and its functions and powers and has placed reliance upon the decision in Thiagarajar Charities v. Addl. CIT [1997] 225 ITR 10102 (SC). The contention of the assessee in this case was that though it carries on business of purchase and sale of cotton yarn and cloth and other fabrics both wholesale and retail and if income derived is spent on the objects of the trust, namely, to establish, maintain schools, colleges, workshops, industrial, technical and other institutes and rural constructions and the income spent on it should be exempt under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguished from specified individuals. (c)The expression of object of general public utility would prima facie include all objects which promote the welfare of general public. (d)If the main predominant object is of public utility the mere fact that income is also generated by that activity will not nullify or neglect the charitable purpose. (e)For application of income for the purpose of charity the person or institution can engage itself in commercial activity but with a predominant object of applying it for charitable purpose. Applying the above principles we find that the income derived from exploitation of forest is commercial activity. The income, however, spent on preservation, supervision and development of forest will be treated for the general public utility and shall be exempt under section 11(1)(a) of the Act provided other conditions provided under the said provision are satisfied. The income which is not spent for such activities will not be exempt under this provision. The view of the Income-tax Appellate Tribunal that as the income is derived form the exploitation of forest by the appellant and, therefore, its income shall not be exempt under section 11(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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