S.S. Godara, Judicial Member - This assessee's appeal for A.Y. 2010-11, arises from order of the CIT(A)-IV, Baroda dated 24-10-2013 in appeal no. CAB/IV-A- 35/13-14, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. The instant appeal raises the following substantive grounds:—
"(1) |
The Learned Commissioner of Income Tax (Appeals) has erred in rejecting and denying exemption claimed u/s. 11(1)(a) of the Income Tax Act and has taxed the entire surplus of the appellant trust of Rs. 3,36,06,368/- as income of the appellant. It is submitted that the rejection of exemption u/s. 11(1)(a) is incorrect on facts and illegal on law and the same be allowed now. |
(2) |
Without prejudice to the above the Ld. CIT(A) has erred in holding that the activities of the appellant is not in the nature of charitable purpose in view of the definition of Section 2(15) of the Income Tax Act. It is submitted that the appellant trust is not at all collecting or receiving any CESS or fee for carrying on any activities in the nature of trade, commerce or business. In view of this, the invocation of section 2(15) and holding that the appellant trust is not entitled to exemption u/s. 11(1)(a) is erroneous and the same be reversed. |
(3) |
The Ld. CIT (A) has erred in taxing the gross income of the appellant of Rs. 3,36,06,368/- at 30% considering the status of the appellant as A.O.P. without granting the proper deductions available under the Income Tax Act. It is submitted that the same be allowed now. |
(4) |
Without prejudice to the appellant's right to get the exemption u/s. 11(1)(a), it is submitted that the Ld. CIT (A) erred in not giving the set off of earlier years' carried forward losses of Rs. 4,02,28,751/- as per section 72 of the Income Tax Act. It is submitted that the appellant is entitled to set off of losses of earlier years duly computed and quantified and the same be allowed in view of the specific treatment given by the Assessing Officer to the appellant trust. |
(5) |
The Ld. CIT (A) erred in not appreciating the facts and allowing alternate plea and ground that the appellant charitable trust is mainly doing the activity of medical relief to the animals and therefore, proviso to section 2(15) is not applicable to the appellant. It is submitted that the same be held now." |
3. This assessee is an AOP (trust) established to carry research, development and extension work conducive to economic development of agriculturist. Its object clauses mainly clause no. 3.6 provides for research, establishment and running of veterinary hospitals, laboratory services, artificial insemination centre/services and further to provide medicines and veterinary help to cattle for improving livestock health and hygiene to control and eradicate animal diseases to name a few. There is no dispute about the assessee being engaged in all these activities.
4. The assessee filed its return on 05-10-2010 stating nil income. The Assessing Officer took up scrutiny. He came across assessee's gross receipts of Rs. 9,61,61,612/- including inter alia Sangh contributions of Rs. 3.5 crores, cess of Rs. 6,03,71,593/-, membership fee of Rs. 1,15,800/-, interest of Rs. 17,092/- and other receipts of Rs. 6,57,127/-; respectively. All this gave rise to net surplus of Rs. 3,19,96,057/-. The instant case pertains to the above stated cess sum only. The assessee collected the same from milk producers members depositing milk with the primary milk cooperative society @ 12 paisa per liter in lieu of providing them research, animal nursery, fertility, vaccination and breed improvement facilities etc. The Assessing Officer sought to invoke proviso to section 2(15) introduced in the act by the Finance Act, 2010 with retrospective effect from 01-04-2009 providing that the advancement of any other object of general public utility would not be charitable purpose, if it involves the carrying owt of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to such trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activities.
5. The assessee pleaded that the cess in question was not in the nature of any trade, commerce or business including any profit motive. The Assessing Officer declined the same in assessment order dated 13-03-2013 thereby reiterating above stated contents of the show cause notice to add the excess cess sum in question of Rs. 3,36,6,368/- as assessee's business income thereby declining exemption claim u/s. 11(1)(a) of the act.
6. The CIT(A) upholds Assessing Officer's action as follows:—
"3.3. I have considered the order of the AO as well as the submissions made by the appellant. From the order of the Assessing Officer, it is seen that AO has denied exemption u/s. 11 to the appellant by holding that the objects of the appellant involved activities/services rendered for advancements of other object of general public utilities for which the appellant is receiving cess. He has also relied upon the fact that the appellant has been denied approval u/s. 35(1)(ii) of the IT Act, 1961 stating that the appellant is not carrying our any research activities. Accordingly, the AO has held that during the F.Y. 2009-10 relevant to A.Y. 2010-11, the activities of the trust are no longer charitable in view of the revised provisions of clause (15) of section 2 of the Act which defines the charitable purposes and hence the appellant Is no more eligible u/s. 11 of the Act for the A.Y. 2010-11.
3.3.1 So far as appellant's submissions are concerned, it has given details of the activities/services being carried out by it and has claimed that there is no trade, commerce or any business within the meaning of section 16 is carried 2(15) which is carried out by the appellant. In this regard it is seen that the appellant has itself stated that it has incurred huge expenditure on research on maternity, animal nursery, infertility, vaccination, etc which are the activities for advancements of the objects of general public utilities which includes the benefit or expenditure incurred or activities carried out by the appellant Which goes to the farmers at 'large. These farmers are the members of the primary co-operative societies i.e. Dudh Utpadak Mandalis situated at every small village of state of Gujarat. Also the contribution of Rs. 3.5 crores has been received from Amul for this purpose. The appellant has also received cess at the rate of 0.12 paise per litre of milk deposited by the farmers with the Dudh Utpadak Mandalis amounting to Rs. 6.03 crores for this year. The appellant has also claimed that its activities do not involve any profit motive and hence it is not carrying on any trade or business. Accordingly, it has claimed that it is not hit by the amended provisions of section 2(15). An alternative plea has also been taken that its activities are in the nature of medical relief to animals and hence are not covered by the amended provisions of section 2(15).
3.3.2 The provisions of section 2(15) as applicable to A.Y. 2009-10 have already been reproduced above as part of the AO's order. A perusal of the same shows that the advancements of any other object of general public utility shall not be a charitable purpose if it involves any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income of such activities. It is an admitted fact that the appellant is rendering services in relation to business of milk production and sale of the same which brings profit to large numbers of farmers as well as the Dudh Utpadak Mandalis. In lieu of rendering such services, the appellant is receiving cess from the farmers who are selling their milks. There is 3 tier cooperative structure for production and sale of milk in Gujarat. This structure consists of a Dairy Cooperative Society at the village level affiliated to a Milk Union at the district level, which in turn is federated into a Milk Federation at the state level. Milk collection is done at the Village Dairy Society, milk procurement and processing at the District Milk Union and Milk & Milk products marketing at the said Milk Federation. Thus all these 3 tiers are involved in the production of milk, manufacture of different milk products and sale of the same. These activities are in the nature of trade, commerce or business because of the fact that the activities of these 3 tiers along with the activities of milk producers, who form the root level of this structure, are profit oriented. The appellant is providing services to such milk producers and their cattle. As against this the appellant is charging a cess of 12 paisa per litre of milk deposited by the milk producers with Village Dairy Cooperative Society. Thus the appellant's claim that the cess being received by it is not for rendering any service in relation to any trade or business is not correct. This is also supported by the fact that the appellant has also received substantial contribution from Kaira District Co-operative Milk Producer Union Ltd., Anand (KDCMPUL) which is the District Level Cooperative Milk Producers Union for the Kaira District. Thus, the appellant is services in relation to trade or business for a cess. It has also received other consideration in the form of contribution from KDCMPUL. Accordingly, the action of the AO of holding that the appellant's activities are not for charitable purpose is correct.
3.3.4. Besides from the copy of order of prescribed authority rejecting the appellant's application for grant of approval u/s. 35(1)(ii) of the Act, it is seen that the authority has clearly mentioned in his order that the appellant is carrying on trade activity. The relevant paragraphs are as follows:
"2.3 So far as the nature of research activity is concerned, it is seen that you have entered into confidentiality agreement dated 27.11.2007 with M/s. DSM New Business Development B.V. a private limited company incorporated under the Laws of Netherlands for undertaking business activities related to cattle feed additives. The salient features of this agreement are as under:
| A. |
DSM is a company engaged, inter-alia, in the business of feed additives on a worldwide basis. |
B. |
The Recipient ARDA, is engaged inter-alia in the business of dairy farming in Gujarat in India. |
C. |
DSM and the Recipient have executed a Memorandum of Undertaking (MOU) for collaboration for the development of a feed program in India designed to increase fertility and the overall health condition of dairy animals, which in turn provides economic help to the farmers and knowledge sharing. |
D. |
For the purpose set out above, DSM has agreed to supply to the Recipient, know-how for the development of the above mentioned feed program. DSM exclusive products (cattle feed premix) and also equipment (namely, I-Check and I-Ex) and vials for the implementation of the above referred feed program according to said MOU. |
E. |
For the purpose set out above in C and D, DSM shall provide the Recipient with certain confidential information as defined in Clause l(c) herein below: |
A |
perusal of the aforesaid agreement reveals that you are engaged in the business of dairy farming and it is seen that in pursuance of this agreement, you have conducted only trials of the premix (rovimix-VM) containing different proportion of vitamins and minerals on crossbred Indian animals. This activity being a contractual trial of various premixed feeds done on Indian cows for overseas client cannot be termed as scientific research of empirical nature for the purposes of section 35(1)(ii) of the IT Act, 1961. |
2.4 You have also entered into agreement with M/s. BIOMIX, Mumbai, a company specializing in the field of pharmaceuticals and diagnostic industries and developing patented diagnostic and therapeutic products and clinical trials, to allow them your cheese plant for production of RECEPTOL and colostrums products for exclusive use by BIOMIC, for the purpose of which Biomix would build a pilot plant at Amul Cheese Factory and Amul shall only source and procure colostrums for Biomix as per agreed price. This again is a pure business activity providing facility to the company M/s. BIOMIX, and has nothing to do with conducting research by you.
Thus, the appellant has also been found to be engaged in the business activities directly.
3.3.5. The other contention of the appellant is that since it was granted registration u/s. 12, 12A, 12AA, hence, it continued to be a charitable trust and could not be denied the legitimate benefit provided u/s. 11 of the IT Act 1961. In this regard it is seen that the registration u/s. 12A & 12AA are pre-requisite for claiming benefit of exemption u/s 11. But even after registration u/s. 12A and 12AA, an assessee has to fulfill the conditions laid down in section 11 & 13 in order to get the exemption u/s. 11. As per section 11(1)(a), income derived from property held under trust fully or charitable purposes is not to be included in the total income of the previous year. Whether the income has been derived from charitable purposes or not is to be decided for every assessment year as per the provisions of section 2(15). If on examination it is found that a trust, whose activities involves advancements of any other objects of general public utility, has carried out any activity in the nature of trade commerce or business, or has rendered any service in relation to any trade, commerce or business for a cess or fee or any other consideration, then its purpose will not remain charitable purpose. Another condition is that for the purpose being not held as charitable purpose, the aggregate value of receipts from activity referred in first proviso to section 2(15) should be more than Rs. 25 lakhs in the previous year. Thus for determining that whether the trust has derived income from charitable purposes or not in order to grant exemption u/s. 11, the activities of the trust are to be examined in every assessment year. The same trust which has been denied exemption in one assessment year on account of the fact that the aggregate value of the receipts from the activity referred to in first proviso was more than Rs. 25 lakhs, can again be granted exemption if such receipt becomes Rs. 25 lakhs or less in the next previous year. If the appellant's contention that once the registration is granted u/s. 12A, then the AO is barred from examining the nature of income of the appellant is accepted, then the provisions of clause (15) of section 2 will be of no relevance. It is a settled principle of interpretation of statute that the interpretation of provisions of an act cannot be made in such a way that a particular provision becomes redundant. The harmonious construction of the previous of the Act are required to be made so that affect can be given to all such provisions of the Act. Hence, the appellant's contention are rejected. Reliance is also placed upon the decision of Jaipur Bench of Tribunal in the case of Rajasthan Housing Board, 21 taxmann.com 77(JP) in which the Bench has held that in view of amended provisions of provisions of section 2(15), if in any year, gross receipts of a charitable institution exceed prescribed limit, then in that year, the AO is empowered to examine allowability of exemption under Section 11, but same has not effect on registration granted to said institution under Section 12AA.
3.3.6. The alternative plea of the appellant is that it is doing activity of medical relief. The objects of the appellant have been reproduced by the AO in his assessment order. From this it can be seen that the objects of the appellant are multi faceted. The first object of the appellant is to carry research, development and extension work conductive to the economic development of agriculturist and to provide an organization for the benefit and service to the farmers and further to implement programs to improve the productive efficiency of live stock, husbandry and agriculture. Other objects include to provide or give and/or loan to village co-operative to build milk collection centre and/or equipment with a view to improve the standards of hygiene and quality of milk. Another object is relating to augmenting water supply resources, building warehouse for storage of cattle feed or agriculture produce, to establish laboratory, research institutions and may organize works and training camps and undertake all such activities for the benefits of the farmers. The object to undertake research and run veterinary hospitals, laboratory services, medicines and veterinary help to cattle etc. are only one of the 17 objects of the appellant trust. Hence, the objects of the appellant can be called only as advancements of any other objects of general public utility and not as providing medical relief. Hence, this contention of the appellant is also rejected."
7. We have heard both the parties reiterating their respective stands. We first come to sec. 2(15) 1st proviso in the Act inserted w.e.f. 01-04-2009. The same applies in case an entity advances any other object of general public carries any activity in the nature of trade, commerce or business or any activity rendering any service in relation thereto for a cess or fee or any other consideration. It is an admitted fact that the assessee is not in any way involved in a trade, commerce or business. Nor does it carry out any activity in relation thereto since providing medical, maternity, nursery, fertility and vaccination facilities to bovine milch animals belonging to milk producers in lieu of collecting cess @ 12 paisa per liter of the milk produced. Both the ld. lower authorities are fair enough in not disputing genuineness of all these research and development activities. Its objects forming part of the lower appellate order pages 7 to 9 along with the receipts in question do not indicate any trading, commercial or business activity element. The assessee is already a registered body within the meaning of a charitable trust u/s. 12A of the act. We are only dealing with impugned exemption proceedings. The Assessing Officer takes note of the fact that the appropriate authority has denied assessee's status of a research association u/s. 35(1)(2) of the act. We fail to concur with this line of reasoning as section 35 rejection order denying deduction of expenditure on scientific research stands on a totally different footing as against the impugned exemption proceedings. We make it clear that we are dealing with section 2(15) r.w.s. 11 of the Act wherein the only issue is that of the assessee being engaged in charitable activities in furtherance to its charitable objects followed by application of income in furtherance thereto. We accordingly are of the opinion that both the lower authorities have wrongly rejected assessee's exemption claim by invoking section 2(15) proviso of the act, since it neither carries out any activity in the nature of trade, commerce business nor any activities or renders any service in relation to the same whilst collecting the impugned cess @ 12 paisa per liter from milk producers in lieu of making them avail the above stated facilities. A co-ordinate bench of this tribunal in Dy. CIT v. Andhra Pradesh State Civil Supplies Corpn. [2016] 70 taxmann.com 48 (Hyd.) also interprets the above stated proviso to conclude that an Assessing Officer has to satisfy the relevant conditions u/s. 2(15) 1st proviso in question before denying such an exemption. We accordingly accept assessee's arguments on the main issue.
8. We now proceed to adjudicate an equally important question as to whether the assessee's action in making available its medical facilities admittedly in the nature of providing maternity, animal nursery, fertility, vaccination to milch animals belonging to milk producers in lieu of cess collection @ 12 paisa per liter deserves to be treated under the specific category of 'medical relief' or it has to be held as an association advancing any other objects of general public utility. Section 2(15) 1st proviso applies in latter category only being specific in nature. The Legislature allows exemption to assessees performing various charitable activities in various categories u/s. 2(15) of the act. One of them is 'medical relief'. The Revenue's endeavour seeks to exclude this category in case of animals from getting exemption by adopting a restrictive meaning in claiming its application in case of humans only.
9. We have applied our thoughtful consideration to rival contentions. There can hardly be any second thought that the legislature intends to promote all charitable purposes enumerated u/s. 2(15) of the Act. We put up a very specific query as to whether it has ever issued any memorandum of expression on this interpretation issue. Learned representatives reply in negative. We deem it appropriate in this backdrop of facts to proceed on adjudication of the issue on the basis of its ordinary meaning by drawing inference from the Constitution of India and its interpretation from time to time; wherever necessary.
10. We come to the corresponding provisions and their interpretation contained in the Constitution of India. Article 265 stipulates non-imposition of taxes except by authority of law. Chapter IV contains Directives Principles of State Policy with a clear stipulation in Article 37 that provisions in this chapter would not be enforceable by the court, but the principles therein are nevertheless fundamental in the governance of the country and it shall be duty of the State to apply these principles while making laws. This is followed by Articles 48 and 48A. Former one enjoins an obligation on the State for making endeavour to organize agricultural and animal husbandry on modern and scientific lines and shall, in particular, take steps for preserving and improving the breeds and prohibiting the slaughter of cows and calves and other milch and drought cattle. Latter article further specifies State's efforts to protect and improve the environment and safeguard the forest and wild life of the country. We revert back to the assessee's activities at this stage. There is no dispute that it makes available maternity, animal nursery, fertility and vaccination facilities to milching animals belonging to milk producers in lieu of collecting cess @ 12 paisa per liter deposited with the primary milk cooperative bodies. The same in our view squarely comes within the four corners of the article 48 of the act amounting to taking steps for preserving and improving the breeds of cows and calves and other milching animals. This Act gives rise to a safe inference that the State makes all its laws keeping in mind these Directive Principles contained in Chapter IV hereinabove including those under Article 265. We further notice that similar provisions are also there in chapter IV(A) incorporating fundamental duties of every Indian citizen Article 51(g) inter alia prescribes to have compassion for living creatures. We deem it appropriate to opine in view of all these constitutional provisions that the same hold good for interpretation of the Income Tax as well since neither the Constitution nor the Act contains any specific distinction between living beings for the purpose of providing medical relief to humans or animals. Hon'ble apex court also deals with the issue of fundamental rights; more particularly right to life of animals in India in a recent judgment Animal Welfare Board of India v. A. Nagaraja [Civil Appeal No. 5387 of 2014, dated 7-5-2014] known as the famous 'Jalli Kattu' ban case. Their lordships take into account all corresponding provisions in the Constitution of India, Prevention of Cruelty on Animals Act, various guidelines of World Health Organization of animal health (of which India is a member) recognizing five freedoms for animals such as freedom for hunger, thrust and mal-nutrition, freedom from fear and distress, freedom from physical and thermal discomfort, freedom from pain injury and disease and freedom to express normal pattern of behaviours. Hon'ble apex court recognizes right to life to animals under article 21 of constitution of India r.w. corresponding provisions of Prevention of Cruelty on Animals Act as under:—
"62. Every species has a right to life and security, subject to the law of the land, which includes depriving its life, out of human necessity. Article 21 of the Constitution, while safeguarding the rights of humans, protects life and the word "life" has been given an expanded definition and any disturbance from the basic environment which includes all forms of life, including animal life, which are necessary for human life, fall within the meaning of Article 21 of the Constitution. So far as animals are concerned, in our view, "life" means something more than mere survival or existence or instrumental value for human-beings, but to lead a life with some intrinsic worth, honour and dignity. Animals' well-being and welfare have been statutorily recognised under Sections 3 and 11 of the Act and the rights framed under the Act. Right to live in a healthy and clean atmosphere and right to get protection from human beings against inflicting unnecessary pain or suffering is a right guaranteed to the animals under Sections 3 and 11 of the PCA Act read with Article 51A(g) of the Constitution. Right to get food, shelter is also a guaranteed right under Sections 3 and 11 of the PCA Act and the Rules framed thereunder, especially when they are domesticated. Right to dignity and fair treatment is, therefore, not confined to human beings alone, but to animals as well."
The picture therefore is very much clear. The assessee's activities hereinabove in making available the facilities in question to milching animals are to ensure that they are free from diseases, their breed improvement and overall well being. We apply all the above stated constitutional provisions and case law to conclude that 'medical relief' in section 2(15) of the act very much includes the above referred relief made available by the assessee to the milch animals in lieu of a nominal cess @ 12 paise per litre. We reiterate that we are dealing with a charitable purpose definition clause in a tax statute to be given a broader interpretation in order to give its full effect. We hold that assessee's activities deserve to be treated under the former specific category of 'medical relief' not covered by sec. 2(15) proviso inserted w.e.f. 01-04-2009 in question. It is accordingly held to be not an entity advancing any other object or general public utility without prejudice to our findings hereinabove. We reverse findings of both the lower authorities on this count as well.
11. This assessee's appeal is accordingly allowed.