ITAT: Milk activity of charitable institution not business, but empowerment.

The ITAT upheld the CIT(A)'s decision, ruling that the milk collection and disbursement activity by the charitable institution was not a business but part of empowering women. The proviso to Section 2(15) was deemed inapplicable as the institution's activities focused on education and medical relief. Separate books of accounts were not mandated as the activity was charitable, surplus from FCRA receipts was utilized properly, revolving funds were considered as application of income, and corpus funds were correctly classified. The revenue's appeal was dismissed.

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Issues Involved:
1. Whether the milk collection and disbursement activity carried out by the assessee was a business.
2. Applicability of the proviso to Section 2(15) of the Income Tax Act.
3. Requirement of maintaining separate books of accounts under Section 11(4A) of the Act.
4. Treatment of surplus from Foreign Contribution Regulation Act (FCRA) receipts.
5. Treatment of revolving funds as application of funds towards the objectives of the Sansthan.
6. Classification of corpus funds.

Detailed Analysis:

1. Whether the Milk Collection and Disbursement Activity was a Business:
The assessee, a charitable institution, engaged in milk trade activity to support women welfare. The Assessing Officer (AO) considered this as a commercial activity and estimated income from this activity at Rs. 56,00,592/-. However, the CIT(A) held that the milk trade was not a commercial activity but a part of the charitable purpose of empowering women. The CIT(A) observed that the milk collection and disbursement were integral to the women's welfare activities and not aimed at profit generation. The ITAT upheld the CIT(A)'s decision, emphasizing that the activity was meant to support rural women and not to conduct business.

2. Applicability of the Proviso to Section 2(15) of the Act:
The AO invoked the proviso to Section 2(15), arguing that the milk trade activity exceeded the threshold of Rs. 25 lakhs, thus disqualifying the assessee from exemption under Sections 11 and 12. The CIT(A) disagreed, stating that the predominant objective of the assessee was to empower women through education and medical relief, which are not covered by the proviso. The ITAT agreed, noting that the assessee's activities fell under "relief to the poor" and were not general public utility activities subject to the proviso.

3. Requirement of Maintaining Separate Books of Accounts under Section 11(4A):
The AO contended that the assessee failed to maintain separate books for the milk trade activity as required under Section 11(4A). The CIT(A) found no requirement for separate books since the activity was not a business but incidental to the charitable objectives. The ITAT upheld this view, noting that the assessee's books were audited, and the milk trade activity was conducted as per donor-sanctioned schemes, distinguishing it from a business.

4. Treatment of Surplus from FCRA Receipts:
The AO calculated a surplus of Rs. 3,92,79,110/- from FCRA receipts, arguing that the assessee did not maintain project-wise books. The CIT(A) held that there was no legal requirement for project-wise books and that the surplus was utilized for charitable purposes. The ITAT agreed, noting that the assessee provided sufficient documentation to substantiate the utilization of funds for charitable activities.

5. Treatment of Revolving Funds as Application of Funds:
The AO did not accept Rs. 2.50 crores disbursed as revolving funds as application of income. The CIT(A), after considering additional evidence and remand reports, concluded that these funds were not loans but appropriations for charitable purposes. The ITAT upheld this finding, noting that the funds were meant to help women beneficiaries and were not repaid, thus qualifying as application of income.

6. Classification of Corpus Funds:
The AO treated Rs. 60,95,870/- parked in the corpus fund as general funds, arguing there were no specific directions from donors. The CIT(A) found that the donations were intended for capital asset acquisition and correctly classified as corpus funds. The ITAT agreed, noting that the assessee did not claim these funds as application of income, supporting their classification as corpus funds.

Conclusion:
The ITAT upheld the CIT(A)'s decision on all grounds, confirming that the milk trade activity was not a business, the proviso to Section 2(15) was not applicable, separate books of accounts were not required, the surplus from FCRA receipts was correctly utilized, the revolving funds were appropriately treated as application of income, and the corpus funds were correctly classified. The revenue's appeal was dismissed.

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