IT Appeal Nos. 1198 (Mum.) of 2012
& 4018 (Mum.) of 2013
[ASSESSMENT YEAR 2009-10]

VIJAY PAL RAO, JUDICIAL MEMBER AND N.K. BILLAIYA, ACCOUNTANT MEMBER

Arvind Sonde for the Appellant.
A. Ramchandran and S.D. Srivastava for the Respondent.

ORDER

ITA No. 1198/Mum/2012 - A.Y. 2009-10

N.K. Billaiya, Accountant Member - With this appeal the assessee has challenged the order of the DIT (Exem), Mumbai dt.12.12.2011 by which the DIT (Exem) has cancelled the registration allowed to the Trust holding the Trust as non-charitable trust/institution.

2. The grievances of the assessee read as under:

"1 The DIT (Exemption) erred in cancelling the registration of the trust u/s.I2AA (3) of the IT. Act 1961 on the ground that the trust has ceased to be for charitable purpose under proviso to sec. 2(15) as it is carrying on the commercial activities for achieving its objects.
II. The DIT (E) failed to appreciate that:

III. The DIT(E) erred in cancelling the registration u/s. 12AA(3) from Asst Year 2009-10 although registration under section 12A was withdrawn in Asst year 2011-12. The section doesn't authorize the DIT (E) from withdrawing / cancelling the registration in Asst.year 2011-12 retrospectively from Asst. Year 2009-10 ".

3. The DIT(Exemption) issued a show-cause notice dt. 3.11.2011 proposing to withdraw the registration granted u/s. 12AA of the Act. The show-cause notice issued and served upon the assessee reads as under:

"A proposal has been received from ADIT(E)-ll(2), Mumbai, regarding the cancellation of registration granted u/s. 12A of the I.T.Act in your case. The following reasons have been accorded for drawing the above conclusion

The details of the Object of the assessee-trust and the activities in the nature of trade, commerce or business (including 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 from such activity) are as under:
Details of Objects of the Assessee Trust:

Details of Activities in the nature of commerce or trade durincgA.Y.2009-10

Income sale milk is at Rs. 1,57,53,960/-. Besides, it has income from interest and dividend to the tune of Rs. 58,34,623/-.

Your kind attention is drawn to proviso to Sec. 2(15) of the Income Tax Act, 1961 and alter taking into account the activities as referred to in earlier paras, it is considered that your Trust/ Institution is engaged in non-charitable activities and as such the registration as granted u/s. 12A of the I.T.Act, needs to be cancelled /withdrawn. In view of the aforesaid reasons, you are hereby given show cause as to why registration as granted to you should not be withdrawn by invoking the provisions of section 12AA(3). "

4. The assessee in response to the show-cause notice furnished a detailed submission vide letter dt. 29.11.2011. It was contended that the assessee-trust is not hit by the amendment of definition of charitable purpose stating that the assessee trust is engaged in activities which do not involve in the carrying on of any activity in the nature of trade, commerce or business or rendering of any services in relation to trade, commerce and business. It was explained that the trust is 130 years old and carries on Panjrapole activities consistently since its inception. It was strongly submitted that the main object of the assessee-trust is that of running Panjrapole activity which means cow breeding and protection of cows and oxen which do not involve in any trade, commerce or business. After considering the submissions of the assessee-trust, in the light of the amended provisions of Sec. 2(15) the DIT (Exem) was of the firm belief that in the assessee's case there are clear-cut earnings by it which is shown as income by way of sale of milk and interest and dividend which are clearly in far excess of Rs. 10 lakh as mentioned in proviso to Sec. 2(15) of the Act. The DIT (Exem) was of the opinion that the assessee is doing regular activities which are in the nature of business by way of sale of milk and as such directly hit by the proviso to Sec. 2(15) of the Act. The DIT (Exem.) finally concluded that once it is held that the assessee is not for charitable purpose, then the trust itself become non-genuine as it loses its public charitable status and accordingly the provisions of Sec. 12AA(3) of the Act get attracted. The DIT(Exem.) went on to withdraw the exemption allowed to the trust in earlier years u/s. 12AA w.e.f. A.Y. 2009-10 holding the trust as non-charitable trust.

5. Aggrieved by this, the assessee is before us. The ld. Counsel for the assessee strongly contended that the action of the DIT(Exem) is ultra vires to the provisions of Sec. 12AA(3) of the Act. It is the say of the ld. Counsel that the DIT (Exem) while cancelling the registration already granted to the assessee-trust has exceeded the powers vested on him by virtue of provisions of Sec,. 12AA(3) of the Act. The ld. Counsel strongly submitted that Sec. 12AA(3) envisages two conditions which allow the Commissioner to cancel the registration. The conditions are viz (i) the Commissioner is satisfied that the activities of such trust or institution are not genuine and-(ii) the activities of such trust has not been carried out in accordance with the objects of the trust or institution.

5.1 It was explained that the assessee-trust was established in the year 1879 for the purpose of protection and preservation of infirm animals more particularly the cows. The ld. Counsel took us to the main objects of the trust and explained that the main objects of the trust are to provide asylum for old, maimed, sick, dry, weak, disabled and stray animals and birds more particularly cows and other milk cattle. The assessee trust is engaged in the improvement in breeding cattle, upkeep, maintenance and propagation of cows.

5.2 The ld. Counsel explained that non-procurement of milk from cows lead to the death of the cows which would be against the main object of the institution. The milk so procured is given daily free of charge with snacks to the children who visit the premises of the organization. Thereafter the milk is distributed to poor patients in hospital freely and also distributed to hospitals/schools/balmandirs etc and the balance milk is sold at the subsidized rates to general public who come and stand in long queue for it so that the poor and needy who stand in the queue with a container get the milk at subsidized rates.

5.3 The ld. Counsel further stated that the DIT (Exem.) has grossly erred in applying the proviso to Sec. 2(15) of the Act. To substantiate his submission, the ld. Counsel relied upon the decision of Delhi High Court in the case of Institute of Chartered Accountants of India v. DGIT(Exemptions) [2012] 347 ITR 99/[2011] 202 Taxman 1/13 taxmann.com 175 comparing the activity of selling milk at a price with the activities of the ICAI. The ld. Counsel submitted that in the case of the Institute of Chartered Accountants of India, the Hon'ble Delhi High Court held that a very narrow view had been taken that the institute runs coaching classes and this amounted to business. There was a clear distinction between coaching classes conducted by profit making coaching institutions and the courses and classes which were held by the institute. The Hon'ble Court held that the order denying exemption was not valid.

5.4 The ld. Counsel further relied upon the decision of the Tribunal Ahmedabad Bench in the case of Sabarmati Ashram Gaushala Trust v Asstt. DIT(Exemption) [2013] 144 ITD 280/35 taxmann.com 552 (Ahd.-Trib). The ld. Counsel pointed out that this decision of the Tribunal squarely apply on the facts of the case as the impugned trust is also running Gaushala.

5.5 It was pointed out that the main object of Sabarmati Ashram Gaushala Trust (supra) are identical to the object of the impugned trust inasmuch as in the case of the said trust, the object is to breed the cattle and endeavour to improve the quality of cows and oxen, to produce and sell the cow's milk and its various preparations so as to popularize the use of cow milk and do all other works for the same and on consideration of these objects, the Tribunal held that the proviso to Sec. 2(15) is not applicable and the assessee-trust was entitled to exemption provided u/s. 11 of the Act.
5.6 The ld. Counsel also placed reliance on the decision of the Delhi Tribunal in the case of Aggarwal Mitra Mandal Trust v. DIT (Exemption) [2007] 106 ITD 531 ITAT Amritsar Bench in the case of Saint Kabir Educational Trust v CIT [2010] 41 DTR 267 and ITAT Chandigarh Bench in the case of H.P. Government Energy Development Agency v. CIT [2010] 46 DTR 126.

5.7 The ld. Counsel concluded that the DIT(Exemption) has grossly failed in appreciating the facts of the case vis-a-vis objects of the trust and erred in applying the proviso to Sec. 2(15) of the Act and thereby exceeded the powers vested on him by virtue of the provisions of Sec. 12AA(3) of the Act. The ld. Counsel prayed that the order of the DIT(Exemption) deserves to be set aside.

6. In his rebuttal, the ld. Departmental Representative argued that with the insertion of the proviso to Sec. 2(15) of the Act, the Legislature has made its intention very clear that in the garb of advancement of any other object of general public utility, the trust/institutions will loose their exemption if they are involved in carrying on of any activity in the nature of trade, commerce or business for a cess or fee or any other consideration. The ld. DR further submitted that the application of the income or the usage of the income is not relevant. In support of his contention that proviso to Sec. 2(15) is very much applicable to the facts of the case, the ld. DR relied upon the decision of the Tribunal Panaji Bench in the case of Belgaum Urban Development Authority v. CIT in [IT Appeal NO.214/PNJ/2011].

6.1 It is the say of the ld. DR that in this case, the Tribunal has held that non-application of the proviso to Sec. 2(15) of the Act amounts to mistake of law after coming into force of the proviso to Sec. 2(15) of the Act. The ld. DR also relied on the decision of the Amritsar Bench in the case of Improvement Trust v. CIT [2014] 41 Taxman.com 403 and also on the decision of the High Court of Jammu and Kashmir in the case of Jammu Development Authority in [IT Appeal No. 164 of 2012].

6.2 The ld. DR continued to argue that the assessee-Trust is selling milk at market price and very less part is distributed free of charge therefore the intention of the Trust is very clear. It is carrying out a commercial activity in the form of sale of milk and therefore the DIT(Exem.) has very rightly held that the assessee-trust is not for charitable purpose and once it-is held that the trust is not for charitable purpose it becomes a non-genuine trust which is one of the preconditions of Sec. 12AA(3) for cancelling the registration of such trust as the activities of the impugned trust once found to be non-genuine, the DIT(Exem.) was well within his powers of cancelling the registration.

7. We have considered the rival submissions and carefully perused the order of the DIT (Exem.) and also the decisions relied upon by the rival parties and the material evidences brought on record.

8. The undisputed fact emerging from the records are that the Trust is 130 years old was granted certificate of registration of societies on 5.5.1943. The Trust was also granted Certificate of Registration u/s. 12A on 4.8.1975, Certificate of Registration by Charity Commissioner, Bombay on 29.5.1953. The Trust is also an approved Trust u/s. 10(23C)(iv) vide order dt. 22.2.2008. Renewal of certificate u/s. 80G was granted on 5.11.2008 by DIT(Exem.), Bombay.

9. The only reason for withdrawing the registration allowed earlier u/s. 12AA of the Act is that in the opinion of the DIT (Exem), since the receipts from the sale of milk during the year under consideration exceeded the threshold limit as prescribed under the proviso to Sec. 2(15) of the Act, prompted the DIT (Exem.) to come to the conclusion that the assessee-trust is doing regular activities which are in the nature of business by way of sale of milk and therefore such activity of the assessee-trust has made the trust non-genuine thereby loosing the status of being public charitable trust.

10. The objects of the Trust can be summarized into the following categories:—

11. It is not in dispute that the trust is pursuing these objects since its inception. The bone of contention is the 7th object under the head "General Public Utility" which inter alia provides (a) to give milk free of charge or on payment to children charitable institutions (b) to provide at reasonable rates, milk and milk products to public in general with a view to promote, maintain or improve the health of public. In pursuance of these object, the Trust is selling milk at subsidized rates which in the opinion of the DIT (Exem.) amounts to carrying on of a business activity.

12. It is not in dispute that the assessee trust is carrying on these activities since its inception and was allowed exemption/registration u/s. 12AA of the Act and is also a notified trust u/s. 10(23C)(iv) of the Act. The activities have not changed but the relevant provisions of the Act has seen amendments from time to time.

13. Section 2(15) as it stood in the statute after the repeal of the 1922 Act read as under:

'Section 2(15) - "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity of profit.

This provision remained unchanged till its amendment by the Finance Act, 1983 and with effect from 1.4.1984 "not involving the carrying on of any activity of profit" was omitted.

The Section remained unchanged till it was amended by the Finance Act, 2008 w.e.f 1.4.2009. This means that till the amendment brought by the Finance Act, 2008 the Revenue was convinced that the assessee-trust was not carrying out any commercial activity in the garb of charitable purpose. The activities of the trust were genuine and were for the charitable purpose.'

14. Now let us consider the provisions of Sec. 2(15) as they stand now.

'"charitable purpose" includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest]and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or 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 from such activity:

[Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is (twenty five lakh rupees) or less in the previous year].'

This proviso was added only in respect of the last limb of the provisions of Sec. 2(15) which relates to the advancement of any other object of general public utility shall not be a charitable purpose if it involves carrying on of an activity in the nature of trade, commerce or business for a cess or fee. The second limb is not relevant to the fact under consideration. A close perusal of the aforementioned proviso show that the spirit of the section is same as per the section 2(15) as it stood prior to the amendment brought by Finance Act, 1983 as mentioned hereinabove.

15. All that has to be decided now is whether the activity of the sale of milk constitutes carrying on of any activity in the nature of trade, commerce or business, which activities the trust is carrying on prior to the amendment brought by Finance Act, 1983.

'"General" means pertaining to whole class,
"Public" means the body of people at large including any class of the public,
"Public" means the body of people at large including any class of the public,
"Utility" means usefulness.

Therefore, the advancement of any object of benefit to the public or a section of the public as distinguished from individual and group of individuals would be a charitable purpose. An object of public utility need not be an object in which the whole of the public is interested. It is sufficient if well-defined section of the public benefits by the objects which means that the expression "object of general public utility" is not restricted to objects beneficial to the whole mankind. An object beneficial to a section of the public is an object of general public utility. In the case of CIT v. Swastik Textile Trading Co. (P.) Ltd. [1978] 113 ITR 852, the Hon'ble Gujarat High Court has held that establishing and maintaining Gaushalas and Panjrapole constitutes charitable purpose.'

16. The Hon'ble Finance Minister while presenting the Finance Act 2008 in his budget speech stated as follows:

'"Charitable purpose includes relief of the poor, education, medical relief and any other objects of general public utility. These activities are tax exempt as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purpose would also fall under "charitable purpose". Obviously, this was not the intention of the Parliament and hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.'

17. Thus the intention of the Hon'ble Finance Minister was only to exclude from exemption, entities carrying on business and earning incomes for which exemption was claimed on the basis that the purpose would fall under charitable purpose.

18. The CBDT Circular No. 11/2008 dt. 19.12.2008 has explained the implications arising from the amendment brought to the provisions of Sec 2(15) of the Act. The CBDT clarifies that the newly inserted proviso to Sec. 2(15) will not apply in respect of the first three limbs of Sec. 2(15) i.e. relief of the poor, education or medical relief. Consequently where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose, even if it is incidentally involves the carrying on of commercial activity. The Board further clarified that" the newly inserted proviso to Sec. 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. 4th limb of the definition of the charitable purpose contained in Sec. 2(15). The Circular further clarified "in the final analysis, whether the assessee has for its objects the advancement of any other object or general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or device to hide the true purpose which is trade commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would therefore be decided on its own facts and no generalization is possible.

19. Thus, even the CBDT does not lay down any guidelines for determining whether the entity is carrying on any commercial activity. Each case would therefore to be decided on its own facts and as the CBDT has clarified generalization is not possible.

20. Coming back to the objects of the impugned trust, the fundamental or dominant function of the Trust is to provide asylum for old, maimed, sick, dry, weak, disabled and stray animals and birds, more particularly cows and other such milk cattle and to bring about improvement in breeding cattle for the beneficial promotion, upkeep, maintenance and propagation of cows. Thus the dominant object is to run Panjrapole and the activities related to it.

21.Facts on record show that only 25% of the cows yield milk for the support of the remaining 75% cows. It cannot be denied that milk need to be procured from cows otherwise it will be detrimental/fatal if the milk is not procured regularly from time to time. The milk so procured is distributed free of charge to children, hospitals, schools, Balmandir, Mahila Anathashram etc. Thereafter, the remaining milk is distributed to general public at large at a very nominal rate.

22. This cannot be an activity by itself amounting to carrying on of any business, trade or commerce. The impugned trust is engaged in multi series activities of diverse nature but the primary and the dominant activity is Panjrapole. This predominant object of Panjrapole activity has been held to be a charitable purpose by the Hon'ble Gujarat High Court in the case of Swastik Trading Co. Ltd. (supra). The impugned trust would not loose its character of charitable purpose merely because some profits arises from the activity of the sale of milk. Such activity cannot be carried on in such a manner that it does not result in any profit. It be indeed be difficult for persons in-charge of a trust or institution to carry on the activity such that the expenditure balances the income and there is no resulting profit. That would not only be difficult on practical realization but would also reflect unsound principle of management.

23. In the case of Sole Trustee, Loka Shikshana Trust v. CIT [1978] 101 ITR 234 (SC), the Hon'ble Justice J. Baig speaking for the Apex Court thus said that:

"If the profits must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity".

24. The test for carrying on of any activity in the nature of trade, commerce or business as mentioned in the first proviso to Sec. 2(15) would be satisfied if profit making is not the real object. The Hon'ble Delhi High Court in the case of Institute of Chartered Accountant of India (supra) had the occasion to consider the grievance of the ICAI which was denied exemption u/s. 10(23C)(iv) of the Act because in the opinion of the DGIT (Exem.) the institute was holding coaching classes and therefore was not an educational institution, consequently the institute was covered under the last limb of charitable purpose i.e. advance of any other object of general public utility in the light of the amendment brought o Sec.-2(15) of the Act as the institute was charging fees for conducting coaching clauses and making huge money in a systematic and organized manner. Considering the facts in the light of the amended provisions of Sec. 2(15), the Hon'ble Delhi High Court held that the order denying the exemption was not valid.

25. The Tribunal in the case of Sabarmati Ashram Gaushala Trust (supra), on identical facts has held that the assessee was not conducting its affairs on commercial lines with a motive to earn profits or has deviated from its objects as detailed in the trust deed of the assessee. The proviso to Sec. 2(15) was not applicable.

26. The reliance by the Ld. DR. on the decision of the Tribunal in the case of Amritsar Bench in the case of Improvement Trust (supra) by the Ld. DR is misplaced inasmuch as in that case the dominant activity of the trust was to purchase land at nominal cost, then level and clear it, cut into plots and sell at much higher prices. On this, the Tribunal has held that the activities of the assessee are aimed at earning profits. Similar were the facts before the Hon'ble High Court of Jammu and Kashmir in the case of Jammu Development Authority (supra).

27. The DR has also relied upon the decision of the Tribunal Panaji Bench in the case of Belgaum Urban Development Authority (supra). However, we find that in that case the Tribunal was referring to the registration certificate issued u/s. 12A to Belgaum Urban Development Authority (supra) by the DIT (Exem) Bangalore and while referring to the said certificate, the Tribunal observed that while granting registration, the CIT had no chance to examine the newly inserted proviso to Sec. 2(15) of the Act and the Tribunal was not aware what happened subsequently in that case after the coming into force the proviso to Sec. 2(15) and whether any rectification order has been passed by the department or not as there being mistake of law after coming into force the first proviso to Sec. 2915) of the Act. The facts of the case in hand are not even remotely connected with the facts of the case relied upon by the Ld. DR.

28. After considering the entire facts in totality, in the light of the decisions discussed hereinabove and also drawing support from the speech of the Hon'ble Finance Minister and subsequent clarifications issued by the CBDT within the framework of the amended provisions of Sec. 2(15) of the Act, in our considered view, there was no material which may suggest that the assessee-trust was conducting its affairs solely on commercial lines with a motive to earn profit. There is also no material brought on record which could suggest that the assessee trust has deviated from its objects which it has been pursuing since last 130 years, in our humble opinion and understanding of law, the proviso to Sec. 2(15) of the Act is not applicable on the facts of the case and the assessee deserves continuance of registration u/s. 12AA of the Act. We, accordingly set aside ther order of the DIT(Exem.) and direct the DIT(Exem) for the continuance of the registration.

29. As we have directed the DIT(Exem) for the continuance of the registration u/s. 12AA, we do not find it necessary to deliberate on the grievance raised vide ground III.

30. In the result, the appeal filed by the assessee is allowed.

ITA No. 4018/Mum/2013 - A.Y. 2009-10
31. This appeal by the assessee is directed against the order of the Ld. CIT(A)-1, Mumbai dt. 1.3.2013 pertaining to A.Y. 2009-10. The grievance of the assessee reads as under:

32. During the course of the scrutiny assessment proceedings, the AO noticed that as per the income and expenditure account activities of the Trust are totally different from the objects of the trust. The AO observed that the assessee has shown sale of milk at Rs. 1,57,53,960/- interest and dividend income at Rs. 58,34,623/-. According to the AO, the assessee was doing the regular activities which are in the nature of business by way of sale of milk and the assessee trust is directly hit by the proviso to Sec 2(15) of the Act. The AO went on to treat the income of the assessee as business income earned from the sale of milk and interest and dividend and denied the exemption u/s. 11 of the Act.

33. Aggrieved, the assessee carried the matter before the Ld. CIT(A) but without any success.

34. Aggrieved, assessee is before us. We have discussed at length the objects of the trust in the light of the amended provisions of Sec 2(15) of the Act in assessee's appeal in ITA No. 1198/M/12 wherein after a detailed discussion, we have held that the assessee is eligible for the continuance of registration u/s. 12A of the Act and is not hit by the proviso to Sec 2(15) of the Act. In the light of the detailed discussion in ITA No. 1198/M/12, we hold that the activity of sale of milk does not amount to carrying on of any business activity and is not in contravention to the proviso to Sec. 2(15) of the Act. Following our decision in ITA No. 1198/M//12, the assessee will continue to avail exemption u/s. 11 of the Act.

35. In the result, the appeal filed by the assessee is allowed.

36. To complete the adjudication since we have held that proviso to Sec 2(15) of the Act is not applicable on the facts of the case and the assessee is also an approved Trust u/s. 10(23C)(iv) of the Act.

37. To sum up, both the appeals filed by the assessee are allowed.