THE issues before the Bench are - Whether the activities of the assessee engaged in certifying standards for seeds are to be construed as in relation to any trade, commerce or business and thus not a body for charitable purpose - Whether the proviso to the section 2(15) would come into operation in such a case and Whether, therefore, the CIT is justified in rejecting the application of the petitioner for approval u/s 10 (23C) (iv) of the Act. And the verdict goes against the assessee.
Facts of the case
The petitioner is the Andhra Pradesh State Seed Certification Agency, a society registered in 1976 under the AP
The petitioner is the Andhra Pradesh State Seed Certification Agency, a society registered in 1976 under the AP
(Telangana Areas) Public Societies Registration Act, 1350 Fasli with registration No.334 of 1976 as per Certificate of Registration dated 22-04-1976. The petitioner is established to act as a certification agency u/s 8 of the Seeds Act, 1966 and it certifies seeds which meet the minimum seed certification standards as per the Indian Minimum Seeds Certification Standards, 1988. It is asserted by the petitioner that its basic duty is to see that quality seeds are supplied to agriculturists; that it is a non profit, self sustaining organization created by the Government and is surviving on the certification charges levied for the technical and scientific services rendered by it to the seed producers/growers and agriculturists.
The petitioner filed application in Form No.56 dated 08-03-2010 along with all necessary enclosures on 22-03-2010 before the Director of Income Tax (Exemptions) seeking renewal of approval u/s 10 (23C) (iv) of the Act for the AY 2010-11; that the Deputy Commissioner of Income Tax (H.Qrts), Office of Chief Commissioner of Income Tax, Hyderabad-III issued a notice dated 13-01-2011 seeking some clarification and also the details of accumulated amount during the previous five years; that the petitioner furnished the details sought, by replies dated 07-02-2011 and 11-02-2011; that another notice dated 08-03-2011 was issued by the Income Tax Officer (H.Qrs.) asking the petitioner to furnish audited accounts for the financial year 2009-10 relevant for the AY 2010- 11; the petitioner furnished the details by replies dated 24-03-2011 and 28-03-2011; and by order dated 31-03-2011, the Chief Commissioner of Income Tax- III rejected the petitioner's application on the following grounds:
(i) that the activities of the agency were/are not in the nature of advancement of any objects of general public utility.
(ii) that the objects of the agency do not indicate any charitable activity or involve the advancement of any other objects of general public utility.
(iii) that the words or phrase 'charitable purpose' or 'public utility' do not find place in the objects of the agency.
(iv) that the agency is not carrying out its activities for any charitable purposes which is the basic requirement to be satisfied in terms of section 10 (23C) (iv) of the Act.
(v) that the agency is not registered under the provisions of the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987.
Challenging the said order, the petitioner has filed the present writ petition.
Having heard the matter, the Court held that,
++ a reading of the provisions of Section 10 (23C) (iv) of the Act and Section 2 (15) of the Act shows that income received by any person on behalf of an institution established for "charitable purpose" (as defined in Section 2 (15) of the Act) which may be approved by the prescribed authority alone would be excluded from the total income of a previous year of such person u/s 10 (23C) (iv) of the Act. While under the main part of Section 2 (15) activities which involve relief of the poor, education, medical relief, preservation of environment (including water sheds, forests and wild life) and preservation of monuments or places or objects of artistic or historic interests, would automatically come within the purview of "charitable purpose", activities which advance "any other object of general public utility" would qualify only if such activity does not involve: i) carrying on of any activity in the nature of trade, commerce or business; ii) any activity of rendering any service in relation to any trade, commerce or business;
++ Section 8 of the Seeds Act, 1966 empowers the State Government or the Central Government in consultation with the State Government to establish, by notification in the official gazette, a certification agency for the State to carry out the functions entrusted to the certification agency by or under the Seeds Act. The petitioner was registered under the Andhra Pradesh (Telangana Area) Public Societies Registration Act, 1350 Fasli with registration No. 334/76. By G.O.Ms.No.435 Food and Agriculture (EP-II) Department dated 01-06- 1977, the State Government approved the proposal of the Director of Agriculture and directed that the petitioner shall carry on the functions of the certification agency under the Seeds Act, 1966 in the Andhra Pradesh State with effect from 01-06-1977. The objects of the petitioner have already been set out. The petitioner thus certifies the Seeds which meet the minimum seeds certification standards as per Indian Minimum Seed Certification Standards, 1988. Seed growers enter into contract with a society/agent, who approaches the petitioner for certification of the seeds and after securing certification, they sell the certified seeds to the farmers at a market price determined by them. The petitioner collects a fee for providing certification as the process of certification involves technical and scientific evaluation of the seeds although the fee collected by it would be enough to enable it to sustain its activities and may not result in much profit. The term "advancement of any other object of general public utility" used in Section 2 (15) of the Act includes all objects to promote the welfare of the public particularly when the object is to promote or protect the interest of a particular trade or industry. The activity of the petitioner which facilitates sale of certified seeds to farmers therefore falls within "advancement of any other object of general public utility" included in the definition of the term "charitable purpose" as defined in Section 2 (15) of the Act but in view of the fact that certification of seeds by the petitioner facilitates trade, commerce or business in the certified seeds by the client of the petitioner, the proviso to the said section would come into operation. Thus the petitioner's activity assists the sale of certified seeds and is "in relation to any trade, commerce or business" and therefore its activity cannot be held to be a "charitable purpose". In this view of the matter, the 1st respondent rightly rejected the application of the petitioner for approval u/s 10 (23C) (iv) of the Act;
++ the petitioner submits that the petitioner is itself not engaging in any activity which is in the nature of trade, commerce or business and therefore it has to be held to be an agency whose activities are for "charitable purpose" u/s 2 (15) of the Act and therefore entitled to the benefit u/s 10 (23C) (iv) of the Act. The contention of the petitioner's counsel if accepted would mean that the words "any activity of rendering any service in relation to any trade, commerce or business" in the first proviso to Section 2 (15) of the Act have to be ignored. This is not permissible because the High Court cannot substitute or ignore the wording in a provision in a statute. In Aswini Kumar Bose v. Arabinda Ghose AIR 1952 SC 368, the Supreme Court held that it is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute. In Mahindra and Mahindra's case, the Supreme Court held that the High Court cannot substitute the language in a statute or subordinate legislation;
++ the Memorandum explaining the provisions in the Finance Bill, 2008 and the budget speech of the Minister of Finance for 2008-2009 delivered on 29-02-2008 clearly indicate that the first proviso to Section 2 (15) was introduced by the Finance (Nos.2) Act, 2009 with effect from 01-04-2009 to exclude entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes from claiming to be engaged in activities for "charitable purpose";
++ for the above reasons, the 1st respondent had rightly rejected the application of the petitioner for approval u/s 10 (23C) (iv) of the Act on the ground that the petitioner has not rendered its services directly to the farmers but is rendering its services directly to its clients/agents who are engaged in trading of the certified seeds with profit motive and therefore its activities are not for the "advancement of any other object of general public utility" and hence not for "charitable purpose" in view of second limb of the first proviso to Section 2 (15) of the Act.
The petitioner filed application in Form No.56 dated 08-03-2010 along with all necessary enclosures on 22-03-2010 before the Director of Income Tax (Exemptions) seeking renewal of approval u/s 10 (23C) (iv) of the Act for the AY 2010-11; that the Deputy Commissioner of Income Tax (H.Qrts), Office of Chief Commissioner of Income Tax, Hyderabad-III issued a notice dated 13-01-2011 seeking some clarification and also the details of accumulated amount during the previous five years; that the petitioner furnished the details sought, by replies dated 07-02-2011 and 11-02-2011; that another notice dated 08-03-2011 was issued by the Income Tax Officer (H.Qrs.) asking the petitioner to furnish audited accounts for the financial year 2009-10 relevant for the AY 2010- 11; the petitioner furnished the details by replies dated 24-03-2011 and 28-03-2011; and by order dated 31-03-2011, the Chief Commissioner of Income Tax- III rejected the petitioner's application on the following grounds:
(i) that the activities of the agency were/are not in the nature of advancement of any objects of general public utility.
(ii) that the objects of the agency do not indicate any charitable activity or involve the advancement of any other objects of general public utility.
(iii) that the words or phrase 'charitable purpose' or 'public utility' do not find place in the objects of the agency.
(iv) that the agency is not carrying out its activities for any charitable purposes which is the basic requirement to be satisfied in terms of section 10 (23C) (iv) of the Act.
(v) that the agency is not registered under the provisions of the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987.
Challenging the said order, the petitioner has filed the present writ petition.
Having heard the matter, the Court held that,
++ a reading of the provisions of Section 10 (23C) (iv) of the Act and Section 2 (15) of the Act shows that income received by any person on behalf of an institution established for "charitable purpose" (as defined in Section 2 (15) of the Act) which may be approved by the prescribed authority alone would be excluded from the total income of a previous year of such person u/s 10 (23C) (iv) of the Act. While under the main part of Section 2 (15) activities which involve relief of the poor, education, medical relief, preservation of environment (including water sheds, forests and wild life) and preservation of monuments or places or objects of artistic or historic interests, would automatically come within the purview of "charitable purpose", activities which advance "any other object of general public utility" would qualify only if such activity does not involve: i) carrying on of any activity in the nature of trade, commerce or business; ii) any activity of rendering any service in relation to any trade, commerce or business;
++ Section 8 of the Seeds Act, 1966 empowers the State Government or the Central Government in consultation with the State Government to establish, by notification in the official gazette, a certification agency for the State to carry out the functions entrusted to the certification agency by or under the Seeds Act. The petitioner was registered under the Andhra Pradesh (Telangana Area) Public Societies Registration Act, 1350 Fasli with registration No. 334/76. By G.O.Ms.No.435 Food and Agriculture (EP-II) Department dated 01-06- 1977, the State Government approved the proposal of the Director of Agriculture and directed that the petitioner shall carry on the functions of the certification agency under the Seeds Act, 1966 in the Andhra Pradesh State with effect from 01-06-1977. The objects of the petitioner have already been set out. The petitioner thus certifies the Seeds which meet the minimum seeds certification standards as per Indian Minimum Seed Certification Standards, 1988. Seed growers enter into contract with a society/agent, who approaches the petitioner for certification of the seeds and after securing certification, they sell the certified seeds to the farmers at a market price determined by them. The petitioner collects a fee for providing certification as the process of certification involves technical and scientific evaluation of the seeds although the fee collected by it would be enough to enable it to sustain its activities and may not result in much profit. The term "advancement of any other object of general public utility" used in Section 2 (15) of the Act includes all objects to promote the welfare of the public particularly when the object is to promote or protect the interest of a particular trade or industry. The activity of the petitioner which facilitates sale of certified seeds to farmers therefore falls within "advancement of any other object of general public utility" included in the definition of the term "charitable purpose" as defined in Section 2 (15) of the Act but in view of the fact that certification of seeds by the petitioner facilitates trade, commerce or business in the certified seeds by the client of the petitioner, the proviso to the said section would come into operation. Thus the petitioner's activity assists the sale of certified seeds and is "in relation to any trade, commerce or business" and therefore its activity cannot be held to be a "charitable purpose". In this view of the matter, the 1st respondent rightly rejected the application of the petitioner for approval u/s 10 (23C) (iv) of the Act;
++ the petitioner submits that the petitioner is itself not engaging in any activity which is in the nature of trade, commerce or business and therefore it has to be held to be an agency whose activities are for "charitable purpose" u/s 2 (15) of the Act and therefore entitled to the benefit u/s 10 (23C) (iv) of the Act. The contention of the petitioner's counsel if accepted would mean that the words "any activity of rendering any service in relation to any trade, commerce or business" in the first proviso to Section 2 (15) of the Act have to be ignored. This is not permissible because the High Court cannot substitute or ignore the wording in a provision in a statute. In Aswini Kumar Bose v. Arabinda Ghose AIR 1952 SC 368, the Supreme Court held that it is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute. In Mahindra and Mahindra's case, the Supreme Court held that the High Court cannot substitute the language in a statute or subordinate legislation;
++ the Memorandum explaining the provisions in the Finance Bill, 2008 and the budget speech of the Minister of Finance for 2008-2009 delivered on 29-02-2008 clearly indicate that the first proviso to Section 2 (15) was introduced by the Finance (Nos.2) Act, 2009 with effect from 01-04-2009 to exclude entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes from claiming to be engaged in activities for "charitable purpose";
++ for the above reasons, the 1st respondent had rightly rejected the application of the petitioner for approval u/s 10 (23C) (iv) of the Act on the ground that the petitioner has not rendered its services directly to the farmers but is rendering its services directly to its clients/agents who are engaged in trading of the certified seeds with profit motive and therefore its activities are not for the "advancement of any other object of general public utility" and hence not for "charitable purpose" in view of second limb of the first proviso to Section 2 (15) of the Act.
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