CIT (Exemptions) v. Naroda Enviro Projects Ltd. – [2020] 120 taxmann.com 126 (Gujarat) has held that Trust engaged in management of liquid and solid wastes in Industrial area is eligible for exemption under Section 11.

Assessee-trust filed its return declaring nil income. During assessment proceedings Assessing Officer (AO) concluded that assessee was a company registered under section 25 of the Companies Act and was inter alia engaged in the activity of management of liquid and solid. AO concluded that assessee was engaged in the activities which were not in the nature of charity but were in the nature if business as per proviso to section 2(15).

Thus, he denied sections 11 and 12 exemption.

Aggrieved by the order of AO, assessee preferred an appeal before the CIT(A). The CIT(A) held that the assessee was engaged in the preservation of environment and therefore, it was engaged in carrying out charitable activities and consequently additions made by the AO were deleted.

On revenue’s appeal, ITAT confirmed the order of the CIT(A).

On further appeal, the Gujrat HC held that in case of DIT (Exemption) v. Sabarmati Ashram Gaushala Trust – 362 ITR 539 (Guj), it was held that carrying on an ‘activity in the nature of trade, commerce, or business’ or rendering of any service in relation to trade etc. is sine qua non for taking away the character of charitable purpose.

An activity in the nature of trade, commerce or business is always carried on with the prior object of earning income. What is relevant is the intention of the person before undertaking such activity.

Consequently, HC held that as the dominant objects of the assessee were charitable in nature and dominant object was not only preservation of environment but one of general public utility and, therefore, the assessee was entitled to seek exemption under section 11.