Wednesday, 8 November 2017

Preservation of environment is ‘charitable activity’ eligible for tax exemption

In Order dated: October 25, 2017, Income Tax Appellate Tribunal (ITAT) Ahmedabad in the case of “ITO (Exemptions) Vs. Gujarat Environment Service Society (ITAT Ahmedabad)” (Appeal Number: ITA. No. 1233 and 2520/Ahd/2015) has held that preservation of environment is a ‘charitable activity’ and eligible for tax exemption.

Facts of the case
Gujarat Environment Service Society is registered under Society Registration Act, 1860 and it was granted registration under section 12(A)(a) of the Income Tax Act in June 1984. The Society’s objects include, providing clean environment to society, maintenance of gardens, plantations, horticulture etc., which were in the nature of charitable purpose, and as such accepted by the ITO in the past. 

Exemption under section 11(1)(a) of the Act had been granted to the Society in the past, and there was no change in the objects or nature of activities. Registration granted under section 12A had not been cancelled. 

The activity of the Society did not fall under the expression “advancement of any other object of general public utility”. In fact, it specifically fell within the ambit of “preservation of environment”.

Tax exemption denied
The Assessing Officer (AO) denied tax exemption to the Society simply on account of amendment carried out in section 2(15) of the Income Tax Act which provides definition of “charitable purpose”. According to the AO, a proviso was inserted in section 2(15) by way of Finance Act (2) 2009. The AO was of the opinion that activities of the Society was in the nature of business, and therefore, it was not entitled for exemption under section 11(1)(a) of the Act. He assessed taxable income of the Society in the Assessment Year 2010-11 at Rs. 43,07,960/- and Rs. 41,32,020/- in the Assessment Year 2011-12.

Nature of activities
To fulfill the main object of preservation of environment, the society carried out various activities including increase facilities for a better environment, services for testing of water, air, sewage, tree plantation, sanitation, horticulture, training and educational services for the study of the environmental and its protection, maintain nurseries and orchards etc.

However, the Assessing Officer denied tax deduction by observing that the Society’s objects do not involve relief to the poor, education, medical relief and preservation of environment including water sheds, forests and wild life. The AO took the view that the Society’s activities/services are rendered for the advancement of other objects of general public for which the Society was charging fees.

Society was perceived as ‘contractor’
The AO further took a view on the basis of the directions issued by the Joint Commissioner of Income Tax (JCIT), Anand Range that the Society was simply a ‘contractor’ carrying out work as specified by companies and institutions such as GCMMF, IRMA, Mother Dairy etc. who pay the society for preservation of gardens etc.

ITAT’s observations
  •       ITAT observed that the AO had not brought out any difference between the activities of the appellant in the years preceding the assessment year in which tax exemption was sought to be denied.
  •     The main objects of the Society are for the purposes of preservation of environment and under such circumstances, the amended provisions of the Section 2(15) relating to the receipt of fees etc. for carrying out the activities of the trust are not applicable in this case and under such circumstances, the AO has to demonstrate that the appellant’s activities are no longer charitable in nature.
  •      The only observation made by the AO in this regard was that the companies who are making the payments for maintenance of garden etc., are doing the job of preservation of environment and the Society is simply a contractor for this purpose.

It may be mentioned here that the ITAT, Mumbai Bench, in its decision in the case of New Saibaba Nagar Welfare Society 25 226 (Mum) had earlier held that activity of maintenance and development of park could fall within the meaning of, ‘preservation of environment’ u/s 2(15).

Activity held as ‘charitable’
ITAT held that the Society is engaged in preservation of environment including watersheds, forests and wildlife etc., and this activity in itself is for charitable purposes and it stands apart from “advancement of any other object of general public utility”.
As a result, the appeals of Revenue (ITO) was dismissed.

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