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2016 (10) TMI 363 - ITAT AHMEDABAD

2016 (10) TMI 363 - ITAT AHMEDABAD - TMI - 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 obser .....

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t 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 con .....

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t 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. - ITA No. 469/Ahd/2014 - Dated:- 23-5-2016 - Shri Kul Bharat, JM And Shri Manish Borad, AM. Appellant by Shri Sunil Talati, AR Respondent by Shri R. N. Parbat, CIT/DR ORDER Per Manish Borad, Accountant Member Assessee is in appeal against the order of ld. CIT-III .....

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ld. CIT-III an appeal was preferred before the Tribunal and the Tribunal in ITA No.1656/Ahd/2009 vide order dated 6/7/2012 restored the matter back to the file of ld. CIT with a specific direction to verify the object and the statements of the facts as that of Nandesari Water and Utilities Ltd. as the matter is covered matter by the decision of the Tribunal in ITA N.2506/Ahd/2008 dated 12.12.2008. Thereafter ld. CIT vide his order dated 16.12.2013 rejected the application u/s 12A of the Act onc .....

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inage scheme, Gas Utility Services, Power Utility, Road Network, Rain Water Harvesting, Artificial Recharging and other utilities of Panoli G.I.D.C. Industrial Estate & Surrounding village for the benefit of member industries, and the doing of all such other lawful things as are incidental or conducive to the attainment of the above objects. It may be appreciated that, section 2(15) defines "Charitable Purpose" includes inter alia the advancement of any other object of general publ .....

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blic Utility as envisaged in section 2(15) of the Income Tax Act. Ld. AR further submitted that, it should be construed that if a benefit is obtained by a section of public even though it amounts to benefit to General Public in order to serve a charitable purpose. It is not necessary that the object should be to benefit the whole mankind or even all persons living in a particular country or province. It is sufficient if the intention is to benefit a section of the public as distinguished from sp .....

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273. Ld. AR further to substantiate the expression 'Object of general public utility' in section 2(15) would include only those objects which promote welfare of the general public and not the personal and individual interest of someone. ACIT vs. Ahmedabad Mill owner association [1977] 106 ITR 725 [Guj] Moreover this is a covered matter by the Honorable members of IT AT by IT AT no. 2506/Ahd/2008 dated 12.12.2008 in case of Nandesari Water & Utilities Ltd., a company registered u/s 25 .....

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material on record. By way of this appeal assessee is in second round being aggrieved by the order of ld. CIT for rejecting the application u/s 12A of the Act for registration as a charitable company. More precisely the question before us is whether the activities carried out by the assessee company is charitable in nature as per the provisions of section 2(15) of the Act or not. In the first round when the issue came up before the Tribunal, the same was set aside to the file of ld. CIT for fre .....

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art (B) running from clause 2 to clause 38 many of which do not restrict the activity to the members only. He also referred particularly clause 5,6,7,8,10 to clauses 16,17,18,19 and 20 and submitted that these do not speak of the members of the company but vastly extend to benefit the man kind and therefore satisfies the condition of General Public Utility as envisaged in sec.2(15) of the I.T. Act. The learned counsel for the assessee further submitted that it should not be construed that if a b .....

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public as distinct from any section was approved by the Hon. Supreme Court. Public is meant not a humanity as a whole but some indefinite class of persons, a cross section of the community. In support, he relied on the decision of the Allahabad High Court in the case of CIT vs. Radha Swami Satsang Sabha (1964) 25 ITR 472 (All). Further to substantiate the expression object of general public utility in section 2(15) would include only those objects which promote welfare of the general public and .....

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dual or group of individual would be a charitable purpose. In support, he relied on the decision of the Bombay High Court in the case of Bar Council of Maharashtra vs. CIT (1980) 126 ITR 27 (Bom). The ld. counsel for the assessee accordingly submitted that the objects for which the company is established read together with other objects followed the benefit of which does not ensure to any section of the community but ensures to the public as distinguished from the individuals and hence satisfies .....

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nature and the object of the trust is to help the other member industries i.e. public at large. We therefore, quash the order of the CIT and direct the revenue authority to consider the application for registration u/s 12AA of the Act. 7. Thereafter, when the matter came up before ld. CIT for fresh decision whereby the factual position of the case of assessee was to be compared with that of Nandeswari Water and Utilities Ltd. (supra). The CIT again refused to register the assessee u/s 12A of th .....

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e within the purview of section 2(15) of IT Act. Accordingly, registration u/s 12AA of the Act cannot be granted and is refused. 8. Now as far as comparison of the objects of the assessee and that of Nandeswari Water & Utilities Ltd. (supra) let us examine the main objects of both the companies registered u/s 25 of the companies Act as non-profit making organization. Main Object of the assessee company are as under :- 1. To build, construct, operate and maintain water supply scheme, drainage .....

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heme, Gas Utility Services, Power Utility, Road Network, Rain water harvesting, artificial recharging, installing water treatment plant and other utilities of Nandesari GIDC Industrial Estate for the benefit of member industries. 9. From going through the objects of both the organizations we find that they are similar to a great extent except the last two lines mentioned in the case of assessee i.e. and the doing of all such other lawful things as are incidental or conducive to the attainment of .....

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bserving as under :- 4. Before us the learned counsel for the assessee submitted that section 2(15) defines Charitable Purpose include inter alia the advancement of any other object of public utility. He submitted that the CIT has only referred to clause -I of Part (A) of the object clause of the MOU of the company. But there are Umpteen Objects. These are enumerated in Part (B) running from clause 2 to clause 38 many of which do not restrict the activity to the members only. He also referred pa .....

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urpose. It is not necessary that the object should be to benefit the whole mankind or even all persons leaving in a particular country or province. It is sufficient if the intention is to benefit a section of the public as distinguished from specified individual. According to hi, an object of general public utility meant that public utility which available to the general public as distinct from any section was approved by the Hon. Supreme Court. Public is meant not a humanity as a whole but some .....

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e case of ACIT vs. Ahmedabad Mill Owners Association (1977) 106 ITR 725 (Guj). He also contended that general means pertaining to a whole class public means the body of people at large including any class of the public and utility means usefulness. Therefore, the advancements of any object beneficial to the public or a section of the public as distinguished from an individual or group of individual would be a charitable purpose. In support, he relied on the decision of the Bombay High Court in t .....

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2A is entitled for the company. 5. We have heard the rival contentions of both the parties and perused the material on record along with the orders of the authorities below. We have also gone through the decisions as relied on by the assessee before us. We find force in the submissions of the ld. AR that the activities carried on by the assessee company were charitable in nature and the object of the trust is to help the other member industries i.e. public at large. We therefore, quash the order .....

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ecause main object of the assessee company is to work specifically for the member industries of GIDC Industrial Estate. We find that Hon. High Court has held as under :- 15. We now proceed to consider whether an object which serves personal interest would fall within the scope of s. 2(15) of the Act. There is no dispute that the charitable purposes of relief to poor and educational and medical relief have no relevance to the facts of the present case. It is, therefore, the fourth category of the .....

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d by the Supreme Court in the case of Andhra Chamber of Commerce (1965) 55 ITR 722 (SC), that personal welfare of specified individuals would be incidental or consequential to the main purpose of general public utility, but a converse of this proposition is not always true. Now, if we examine the objects contained in els. (a), (b) and (e) from this point of view, it will be at once noticed that these objects seek to protect the interests of "millowers and users of motive power" and als .....

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concept of promoting the personal mud sellserving interests of individuals who are considered "millowners and users of motive power" even when their interests are in conflict with the interests of their own trade or industry. If and when this happens, how can it be said that the respondent-association has carried out an object of general public utility ? General public is undoubtedly interested in trade, commerce or industry conducted by individuals, but it is surely not interested in .....

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vity, which is of general public utility, goes to the root of the whole problem, and, hence, the Supreme Court has pointedly referred to this problem in CIT vs. Andhra Chamber of Commerce (supra) of the report by observing as under : "It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion and protection of activities and interests merely of persons engaged in trade, commerce and industry." 17. In this case, the Supreme Court .....

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; is conerned, the Supreme Court has been particular in identifying it in the following terms (page 729) : "The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature: where there was no common quality uniting the potential beneficiaries into a class, it might not be regarded as valid." (Emphasis italicised in print added). 18. These observations are repeated by the Supreme Court .....

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a charitable one should have a common quality of either a "public" nature or an "impersonal" nature. Can it be said that "millowners and users of motive power" have a common quality of a "public nature" ? If they have any common quality the same is obviously of a "private" nature, as each one of them is concerned with his own interest and shares nothing in common with the public. It was contended that their common quality is the fact that each o .....

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associations would be charitable trusts earning exemption under s. 11. Absurdity of such a situation cannot be overemphasised. 19. What is the exact nature of "section of the public" which can legitimately become an object of a charity, is considered by Lord Greene M. R. in Powell vs. Compton (1945) 1 Ch 123, (CA). In that case a bequest was made for the education of a small number of individual relatives of a testatrix. The question which arose was whether these individuals formed a & .....

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e class from which the beneficiaries are to be selected. This circumstance does not, however, deprive the gift of its public character. Thus, if there is a gift to relieve the poor inhabitants of a parish the class to benefit is readily ascertainable. But they do not enjoy the benefit, when they receive it, by virtue of their character as individuals but by virtue of their membership of the specified class. In such a case the common quality which unites the potential beneficiaries into a class i .....

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millowners and users of motive power, and, hence, none of the objects mentioned in els. (a), (b) and (c) can be treated as objects of public utility. We have already dealt with the object found in el. (d). So far as the object contained in cl. (e) is concerned it consists of two parts. This first part contemplates establishment or the creation of funds to benefit employees of the association or the dependants of such persons while the second part contemplates subscriptions, donations or guarant .....

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oyees or "former employees" of a British limited company or any of its subsidiary on ailied companies. The House of Lords held in this case by majority that though the group of persons indicated was numerous, the nexus between them was employment by particular employers and, accordingly, the trust did not satisfy the test of a public benefit requisite to establish; it as charitable. This principle has been approved by our Supreme Court and, therefore, the first part of the object cl. ( .....

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matter is concluded by the decision of the Supreme Court in the above referred case of CIT vs. Indian Sugar Mills Association (supra), wherein the relevant clause which the Court considered was "to promote good relations between the employers and the employees". This clause was exactly similar to cl. (f) with which we are concerned in this reference. With regard to such a clause, the Supreme Court has observed that even assuming that in some remote and indirect manner such an object c .....

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f these objects arc also those who are non-members but who happen to be millowners or users of motive power. But that aspect of the matter docs not detract from the fact that all the members, and their employees, and "those who are connected" with members, form the substantial part of the recipients of the benefits contemplated by the objects. In IRC vs. City of Glasgow Police Athletic Association (1953) 34 TC 76 (HL) Lord Cohen has summarised the legal Position in such cases as under .....

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idental to the charitable purposes, the body of persons is not a body of persons formed for charitable purposes only, within the meaning of the IT Acts Oxford Group vs. IRC (1949) 2 All ER 537 : 31 TC 221 (CA) (3) If a substantial part of the objects of the body of persons is to benefit its own members, the body of persons is not established for charitable purposes only-IRC vs. Yorkshire Agricultural Society (1928) 1 KB 611 (CA)." In our opinion, the present case falls within the second and .....

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he head of a community under deeds of trust, but the trust property is applicable to purposes, many of which are neither religious nor charitable, and it is not suggested that any part of the property is set aside for any charitable or religious purposes, so that it can be identified as appropriated exclusively for such purposes, then the income of the whole of the property is assessable to income-tax. This principle is approved by the Supreme Court in East India Industries (Madras) (P) Ltd. vs. .....

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not the property of the trust, s. 11 has no application so far as profit from coal business is concerned. But here we find that, according to s. 11(4), a property held under trust includes even a business undertaking so held. Now, if it is found from the facts of the case that the coal business which the respondent-association held undertaken during the accounting period, was an undertaking held by the respondent-association in trust for others, then the said business can be legitimately consid .....

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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 , t .....

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