Income Tax Appellate Tribunal - Hyderabad
Income-Tax Officer vs A.P. Industrial Infrastructure Corpn. ... on 19 April, 1990
Equivalent citations: [1990]34ITD381(HYD)
ORDER
R.D. Agrawala, Judicial Member
1. These are six appeals preferred by the revenue in respect of the assessment years 1974-75 to 1977-78,1979-80 and 1981-82 with identical grounds and, therefore, taken for disposal by a common order.
2. In all these appeals, the only substantial grievance of the revenue is that in the facts and circumstances of the case, the assessee company, did not fall within the definition of Section 2(15) of the Income-tax Act, 1961 (referred as Act for brief hereinafter) dealing with the definition of 'charitable purpose' and, therefore, not entitled to the exemption as envisaged by Section 11 of the Act.
3. Explaining the revenue's stand, the learned departmental representative advanced two reasons before us viz., (f) that Article 100 of Memorandum and Articles of Association of the Company granted power to declare dividend and (ii) that the activities of the respondent company do not cover the entire population but restricted to a chosen few. This is seriously opposed by the learned counsel for the assessee company.
4. On facts, the respondent company is incorporated under the Companies Act with a share capital of Rs. 10 lakhs as on 31-3-1974, increased to Rs. 4,93,31,000 on 31-3-1981, entire amount contributed by the State Government of Andhra Pradesh. The objects of the respondent company are in three parts viz., main objects (2) objects ancillary or incidental to the attainment of the main objects and (3) other objects, 6, 34 and 1 in numbers respectively, they could be seen at pages 1 to 8 of the Memorandum of Association on file. The crux of the main objects referred to before us reads as under:
To formulate, promote, finance, aid, assist, establish, manage and control schemes, projects or programmers, to provide and develop infrastructure facilities, including factory sites, factory sheds, work sheds, god owns, marketing facilities, warehouses, facilities of communications, power, water, drainage, housing, hospitals and other medical and health and educational institutions and other services of any description in order to promote and assist the rapid and orderly establishment, growth and development of industries and commerce in the State of Andhra Pradesh.
5. Taking up the first objection raised by the learned Departmental Representative, we extract below Article 100 of the Memorandum dealing with dividend:
Dividends - The profits of the Company available for payment of dividend subject to any special rights relating thereto created or authorized to be created by these presents and subject to the provisions of these presents as to the reserve fund and amortization of capital shall, with the approval of the Government, be divisible among the members in proportion to the amount of capital held by them respectively.
In dealing with this issue, we are fully convinced that the submission made by the learned counsel for the Company that the enabling clause for declaration of dividend by itself cannot be said to be determinative of the character of the company's activities. Whether an institution is run for the purpose of profit or not depends upon the facts of each case. In this case reliance was placed on a decision of the jurisdictional High Court in Viridian Co-operative Corpn. Ltd. v. CIT [1989] 178 ITR 359/44 Taxman 60 (AP) and a decision of the House of Lords in Ereaut v. Girls' Public Day School Trust Ltd. 15 TC 529. In Viridian Co-operative Corpn. Ltd.'s case (supra) which is a direct authority on the controversy before us, the Hon'ble High Court of Andhra Pradesh held as under:
In order to satisfy the requirement of being an "object of general public utility" within the meaning of Section 2(15) of the Income-tax Act, 1961, it is not necessary that the benefit should reach each and every poor person in the State or the country. It is sufficient if it reaches a sizable number of members of the public. Further, the words "not involving the carrying on of any activity for profit", occurring in the said clause, qualify only the words "the advancement of any other object of general public utility", and not the words preceding them. .The test to be applied in such cases is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve a charitable purpose or to earn profits. Once it is held that the predominant object is to subserve a charitable purpose, the mere fact that the activity of the assessee results in some profit is of no consequence.
In this case the assessee was a Finance and Marketing Corporation established under an order of the A.P. Govt. for providing the members of the Scheduled Tribes of the State with credit facilities to procure and supply them their, domestic requirements and other necessities of life and to arrange for the marketing of their agricultural produce. It was registered as a co-operative society. The High Court held that the improvement in the conditions of the members of Scheduled Tribes was an object of general public utility. The primary or predominant object of the activity of the assessee was not earning of profits, but the advancement of members of Scheduled Tribes. The assessee was registered as a co-operative society but in reality it was an agency set up for the purposes stated in the relevant government order and it was the substance which mattered and not the form. That there was a provision for declaration of dividends but the dividends were paid to member societies which served the Scheduled Tribes. There was also a ceiling on dividends. The balance of the profits went into a reserve fund and the reserve fund was also meant to advance the cause of the Scheduled Tribes as a whole. In the circumstances, the assessee was held to be a public charitable institution entitled to get exemption of its income under Section 11 of the Act.
6. In the case before us, the assessee Corporation was formed in terms of a Government order G.O. Ms. No. 831 dated 10th September, 73 available at page 1 of the paper book. Unlike in Girijan Co-operative Corpn. Ltd.'s cast (supra) despite the enabling provision about declaration of dividends, as submitted before us, never any dividend was declared by the assessee Corporation from its inception till date.
7. Similarly in Ereaut's case (supra), the assessee was a Company incoporated under the Companies Act to run a public school. It issued preference shares to raise the requisite funds for the purpose of establishing their school. Dividend was payable and in fact paid on the preference shares out of the profits earned by the Company. Their Lordships held that the payment of dividend was no doubt a factor pointing to the private character of the institution, but other factors outweighed any inference that could be drawn from the solitary circumstance of the payment of dividend to the preference shareholders.
8. Charitable purpose is defined in Section 2(15) of the Act in the following words:
'Charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.
The main object of the establishment of the Corporation has also been extracted by us herein before which revolves round the government's intention to promote and assist rapid and orderly establishment, growth and development of industries and Commerce in the State of Andhra Pradesh rather than any profit moto. It is certainly a purpose of general public utility within the meaning of Section 2(15) of the Act. We are, therefore, of the view that following the aforesaid ratio of the jurisdictional High Court and the House of Lords, merely because the articles of association of the Company made a provision for declaration of dividend such provision does not detract from the predominant objective of the State Government in forming the Corporation finances fully subscribed by the State, for the rapid and orderly industrial development of the State.
9. Taking up the other objection raised by the learned departmental representative that the objectives of the Corporation do not cover the entire population also, we do not find any legal substance in the submission. Even in Viridian Co-operative Corpn. Ltd.'s case (supra), the Corporation was established for providing only the members of the Scheduled Tribes in the State with certain facilities. In the case before us, the activities of the Corporation certainly serve a cross section, as is evident from its objectives which are at least as wide as obtainable in Viridian Cooperative Corpn. Ltd.'s case (supra), namely, the rapid and orderly establishment of industries and commerce in the state of Andhra Pradesh. In this connection, we refer here to the three authorities relied on by the learned counsel for the assessee.
10. The first one is the decision of the Supreme Court in Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704, wherein assessee, an association of persons, in which the beneficiaries were only members of the Rana Caste or Community and that too natives of city of Ahmedabad, the beneficiaries were held to be constituting a section of the public within the meaning of Section 11(1)(a) of the Act. Their Lordships of the Apex Court held that it was well-settled that an object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or all persons in a country or a state. It was further held that it is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. The section of the community sought to be benefited must be sufficiently definite and identifiable by some common quality of a public or impersonel nature.
11. Needless to say that the facts of the case in hand fully answer to the requirements and the tests laid by the Summit Court. The beneficiaries in the present case would be anybody and everybody who is interested or concerned in the rapid industrial development of the State, without any distinction of caste, creed etc. This view also finds support from a decision of the jurisdictional High Court in CIT v. Andhra Pradesh Police Welfare Society [1984] 148 ITR 287 (AP) wherein the Trust was created only to benefit the personnel of the Police Department and their families.
12. We now make a reference to the last authority relied on on behalf of the respondent assessee which is a decision of the jurisdictional High Court in CIT v. Andhra Pradesh Riding Club[1987] 168 ITR 393 (AP) wherein also their Lordships taking a similar view held that "public" need not be the general public. It is sufficient if a section of the public is benefited.
13. We do not find any substance in the present appeals. The learned Commissioner has also elaborately dealt with the issue while accepting the assessee's stand. Adopting those very reasons and in view of the elaborate discussions made by us herein before, we are of the considered view that the assessee is a charitable institution within the meaning of Section 2(15) of the Act and, therefore, entitled to exemption of its income Under Section 11 of the Act
14. In the result, all the appeals are dismissed.