2020 (11) TMI 140 - AT - Income Tax

Tribunal Affirms Charitable Status, Grants Tax Exemption u/s 11; Dismisses Revenue's Appeal, Citing SC Precedent.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to grant the assessee exemption under Section 11 of the Income Tax Act. The ... Exemption u/s 11 - proof of charitable activities - receipts from the business of upgrading the local indigenous low milk yielding cattle by cross breeding them with the use of frozen semen of high pedigree exotic bull through technique of artificial insemination to get resulting better milk yielder exceeded the limit provided in proviso to section 2(15) - HELD THAT:- We find that similar issue arose in assessee’s own case for AY 2009-10 as held that objects of the Trust clearly establish that the same was for general public utility and where for charitable purposes. The main objectives of the trust are - to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country; to produce and sale the cow milk; to hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Bharwads; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc.; to establish other allied institutions like leather work and to recognize and help them in order to make the cow keeping economically viable; to publish study materials, books, periodicals, monthlies etc., in order to publicize the objects of the trust as also to open schools and hostels for imparting education in cow keeping and agriculture having regard to the trust objects. All these were the objects of the general public utility and would squarely fall under section 2 (15) of the Act. Profit making was neither the aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility'. Delhi High Court in case of Institute of Chartered Accountants of India v. DGIT [2011 (9) TMI 77 - DELHI HIGH COURT] considered these very provisions in the context of activities of the Institute of Chartered Accountants holding that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled chartered accountants and merely because the Institute was holding coaching classes which also generate income, the Court held that proviso to Section 2 (15) of the Act would not be applicable. Appeal filed by the Revenue is dismissed. Issues Involved:1. Exemption under Section 11 of the Income Tax Act.2. Applicability of the proviso to Section 2(15) of the Income Tax Act.3. Nature of activities carried out by the assessee and whether they constitute trade, commerce, or business.4. Reliance on previous judicial decisions, including those of the Tribunal and High Courts.Detailed Analysis:1. Exemption under Section 11 of the Income Tax Act:The core issue is whether the assessee is entitled to exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) denied the exemption, arguing that the activities of the assessee trust were in the nature of trade, commerce, or business, thus falling under the proviso to Section 2(15) of the Act. The AO calculated the total taxable income of the assessee as Rs. 112,986,740 after disallowing the exemption.2. Applicability of the proviso to Section 2(15) of the Income Tax Act:The AO contended that the activities of the assessee trust, which involved upgrading local cattle through cross-breeding and charging fees for services, were commercial in nature. Therefore, the trust's activities were hit by the amendment to Section 2(15) of the Act, which came into effect on 01.04.2009. Consequently, the AO held that the trust lost its charitable character for the assessment year in question and was not entitled to exemption under Section 11 in view of the provision of Section 13(8) of the Act.3. Nature of activities carried out by the assessee and whether they constitute trade, commerce, or business:The CIT(A) reversed the AO's decision, holding that the activities of the assessee were not in the nature of carrying out business or trade. The CIT(A) relied on previous judicial decisions, including CIT v. Sri Balaji Samaj Vikas Samiti, DIT (Exemption) v. Sabarmati Ashram Gaushala Trust, and the Tribunal's order in the assessee's own case for AY 2012-13. The CIT(A) concluded that the assessee's activities were for general public utility and thus charitable in nature, making the assessee eligible for exemption under Sections 11 and 12 of the Act.4. Reliance on previous judicial decisions, including those of the Tribunal and High Courts:The Tribunal upheld the CIT(A)'s decision, noting that similar issues had been addressed in the assessee's own case for AY 2009-10 and 2012-13. The Tribunal referred to the decision in Sabarmati Ashram Gaushala Trust, where it was held that activities generating surplus incidental to the principal charitable activities do not constitute trade, commerce, or business. The Tribunal emphasized that the objects of the trust were charitable and for general public utility, with profit-making being neither the aim nor the principal activity.The Tribunal also highlighted that the Special Leave Petition filed by the Revenue against the decision in Sabarmati Ashram Gaushala Trust was dismissed by the Supreme Court, reinforcing the view that the proviso to Section 2(15) does not apply to the assessee's activities.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that allowed the assessee's exemption under Section 11 of the Income Tax Act. The Tribunal's decision was based on the consistent judicial interpretation that the assessee's activities were charitable and not in the nature of trade, commerce, or business, thus not attracting the proviso to Section 2(15) of the Act. The order was pronounced in the open Court on 04/11/2020.