TaxTMI 
TaxTMI 
2020 (9) TMI 858
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....al income at Rs. 3,60,18,483/- by making various additions / disallowances. 3. In the course of assessment, the A.O. treated the receipt of Rs. 5,60,05,920/- from milk trade activity as commercial activity and further estimated Rs. 56,00,592/- being 10% of total receipts as income of the assessee as against Rs. 15,66,425/-shown by the assessee. 4. By the impugned order, the ld. CIT(A) allowed the assessee's claim and held that receipt from milk trade was not a commercial activity. The precise observation of the ld. CIT(A) was as under: "5.3 I have considered the facts of the case and submissions of the appellant I find that the AO held that milk collection and disbursement activity carried out by the assessee was a business activity, which attracted proviso to section 2(15) consequently held that provisions of sec. 13(8) also attracted in assessee's case. As per the AO this business activity was carried out other than the activity of charitable nature, therefore, he held that the assessee was required to maintain separate books of accounts for this business as per sec. 11(4A). The AO while denying the exemption u/s. 11 & 12, in the absence of documentary evidence....
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....not be a charitable purpose if it involves the carrying on 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. Thus the above proviso stipulates that the aspect of commerciality will be confined to the last limb of section 2(15) i.e. advancement of any other object of general public utility and not to any other limb namely relief of the poor, education or medical relief, preservation of environment and preservation of monuments or place or object of artistic or historical interest. Circular No.11 of 2008 dated 19.12.2008 further amplifies the above position whereby it has been provided that the insertion of proviso to section 2(15) of the Act by Finance Act 2010 will not apply to the first three limbs i.e. relief of the poor, education or medical relief even if it independently involves carrying on commercial activity. It has been stated in the said circular as under:- "The newly inserted proviso to section 2(15) will apply to entities whos....
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....a source of income for-their economic upliftment. 5.4. As discussed above, the last limb of the definition of charitable purpose under section 2(15) talks about the advancement of any other object of general public utility. The predominant objects and the vision make it clear that the objects of the assessee are to provide 'medical relief 'impart education' to the women and girls and its making serious efforts for women empowerment, hence the proviso to section 2(15) does not apply in the case of the assessee. Thus to know the mission and reason of the assessee trust one has to read its objectives in totality. Various other objectives provided in the trust deed are merely independent/ancillary to the main object which is to provide medical relief and impart education and; empower them to survive in society and do not in any way constitute objectives of general public utility as contended by the AO. Thus the case of the assessee does not fall within the last limb of the definition of charitable purpose given under section. Here I may refer to few judgment of various Courts which supports the contention of the appellant. 5.4.1. The Hon'ble ITAT Delhi....
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....tivities in the nature of trade, commerce or business have essentially an underlying objective of earning profit by assuming risk. There is also a necessity of introducing capital into business. As far as the present case is concerned, the assessee trust contemplates to help rural poor women to set up milk societies and factories for giving fruitful employment to such rural women-folk. In these cases, huge capital investments are not contemplated; profits and gains are not expected. The contribution of rural poor women will be in the nature of their labour. Instead of working as labour for others, the women-folk are prompted to join themselves as groups and societies so that they can work for their betterment by avoiding middlemen and agents. When the assessee trust contemplates to organize milk societies for facilitating sale of milk, the underlying intention is to get good price for the milk sold by the villagers and also to encourage them to rear their own milk animals. The villagers can earn a decent livelihood by engaging themselves in rearing of milk animals and selling of milk without middlemen and exploitation, through the societies formed under the guidance of the assessee....
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....nd oxen - It had also sold semen, fodder, milk, etc., and in process, earned some profit - It was denied benefit of exemption on ground that it was earning profit over years and activities were commercial in nature - It was found that trust was granted registration by Charity Commissioner as well as by Commissioner (Exemption) under section 12A - Further, no material was produced to show that assessee was conducting its affairs on commercial lines with motive to earn profit or it had deviated from its objects - Whether since aims and objects of assessee-trust were charitable and profit earned from said activities was incidental in nature, it was not hit by section 2(15) - Held, yes - Whether, consequently, assessee was entitled to exemption under section 11 - Held, yes [Para 7] [In favour of assessee]" 5.5.1. Moreover, the Hon'ble Delhi High Court in the case of Mool Chand Khairati Ram Trust vs. Director of Income-tax (Exemptions) [2015] 59 taxmann.com 398 (Delhi) held that assessee would not be entitled to exemption under section 11 if its activities are outside scope of its objects, even if its activities are charitable in nature. The relevant observation as extracte....
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....9;Such purposes' as occurring in section 11(1)(a) of the Income-tax Act, 1961" 5.6. Considering the facts of the case and legal precedents cited above, it is clear that the activity of milk collection and disbursement carried out by the appellant trust was only to provide a platform to needy poor women, particularly in rural area and therefore, undoubtedly to be treated as charitable purposes, which cannot be seen in isolation with regard to objects of the appellant trust. Thus, it is held that the AO erroneously held the appellant's case is hit by proviso to sec. 2(15) of the Act and hence, was not justified in denying exemption u/s. 11 & 12 of the Act. Since it is held that the appellant milk trade activity was not with any profit motive or with intent of carry out any business, therefore, there was no need to maintain separate books of accounts for this activity as alleged by the AO. 5.6.1. Further, the appellant has provided various details viz. bank account, books of accounts and various other details, from which the genuineness of the total receipts of Rs. 5,60,05,920/- from Milk Distribution and expenses of Rs. 5,44,39,495/- for milk collection, dul....
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.... on a business which is incidental to the attainment of the objectives of the trust thereby requiring it to specifically maintain separate set of books of account. However, in the instant case, the AO demanded project-wise books of accounts in respect of Foreign contribution received by the appellant, which is not as per law. The AO while computing the surplus of Rs. 3,92,79,110/- failed to appreciate the fact that such remaining amount was also utilized for distributing aid under Nav-Prabhat projects mentioned above and in acquiring the capital assets for the purposes of setting up milk collecting and disbursement facility. Further there is no requirement under sub-section (4) or (4A) of section 11 of the Act to maintain project-wise books of account by the assessee. The appellant submitted that the books of account of the assessee society were duly audited and all the relevant details including amount spent on various projects were submitted during the course of assessment even. More importantly, this section applies in case, a trust carries out business for profit motive. However, in the instant case, no such motive is established. Considering the appellant'....
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....sessee. The AO noted that, in the Receipt and Payment account for the year under consideration, a sum of Rs. 60,95,870/- was parked in corpus fund (fixed assets). The AO observed that out of the total FCRA receipts of Rs. 5,90,74,7871-, there was no other receipt with a specific direction or clear mandate that it would form part of the corpus fund. In absence of any specific direction in respect of any contribution to form part of corpus fund, the AO held that the sum of Rs. 60,95,870/- could not be treated as contribution towards corpus fund: Accordingly the sum so parked in the corpus fund in the books of accounts was treated, out of general contribution received by the Sansthan during the year and application as per law, out of these receipts was not done by the Sansthan. Accordingly, the AO treated Rs. 60,95,870/- as general fund instead of corpus fund. 8.1. The appellant has contested this action of the AO by submitting as under:- In reference to the above ground we may be permitted to submit that the donations received by the assessee totaling to Rs. 5,90,74,787 as accepted by learned AO in his assessment order were received from Ms. Hans Foundation and M....
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....cumulation @ 15% 88,61,218 79,46,838 Learned AO mentioned allowable accumulation at Rs. 88,61,218/- in his assessment order. Balance Amount 3,04,17,892 4,50,32,079 Less: Aid/Assistance distributed under Nav-Prabhat Project 0 2,50,00,000 Ld AO did not permit the deduction of aid/assistance distributed amongst women beneficiaries Application of Income 1,97,95,677 the assessee claims that application of income as per Income& Expenditure a/c should be reduced post providing 15% free accumulation benefit. -Add: Net Income from Milk Trade 56,00,592 0 Less: Deemed Application of Seed money distribution Total Income 3,60,18,484 2,36,402 Your honor we may be permitted to submit at end that the type of assessment completed by learned AO in present case is certainly a huge set-hack to welfare effort taken up by assessee society for the benefit of women empowerment. It's surely an attack on the women empowerment projects where on one side institutions are promoted by the government to take up women empowerment init....
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....arate books of accounts were not maintained by the assessee for milk trading as required u/s 11(4A) of the Income Tax Act, 1961. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing Rs. 2,50,00,000 as application of fund on account of aid loans/advances ignoring the fact that neither any assurance was given nor any affidavit was filed by the assessee society that these loans/advances given by it were not to be re-paid by these beneficiaries whereas a sum of Rs. 7,75,329/- was appeared as "Recovery from beneficiaries" in receipts and payment account for the year under consideration. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing Rs. 60,95,870/- as corpus fund ignoring the fact that no specific directions were made by the donors that it shall form part of the corpus of the trust or institution as required under section 11(1)(d) of the Income Tax Act, 1961. 5. Any other question of law as deemed fit on the facts and in the circumstances of the case may also be framed before the Hon'ble Tribunal in the interest of justice." 10. We have considered the rival c....
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....ion awareness amongst girls and helping in admission into schools. c. Providing of medical facilities, education facilities and providing of employment to unemployed women particularly in rural areas. d. Finding out and promoting different types of environment protection modes. e. Removal / Eradication of Social Problems like child marriage, dowery system etc. f. Providing of shelter and employment to senior citizens, physically handicapped persons and deprived of women. g. Providing of hostel facilities to SC/ST students. h. Execution of various rural development projects in rural areas of Rajasthan through the help of various government, non-government, national and international organisations. In its effort to achieve such objectives in addition to various activities taken up by the society from time to time it also took up the following specific projects / initiatives: a. Snehalaya (The Shelter Home): A selfless and compassionate to all shelter home specially for socially ignored elderly, orphans and destitute at Virat Nagar, Jaipur providing shelter to more than 30 children and 4 senior citizens. b. Han....
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..... c. Establishing a building called 'Snehalaya' for providing shelter to orphans and old age persons. During the course of assessment the relevant documents in support of such activities were produced before AO as and when required. 14. From reading of page No. 3 of the assessment order, the A.O. raised following questions: a. Whether milk collection and disbursement activity carried out by the assessee was a business. b. If such activity forms part of business whether the provisions of proviso to section 2(15) of the Act are applicable. c. Whether the milk collection activity required compliance under sub-section (4A) of section 11 of the Act. d. Whether milk collection activity required to comply with tax audit provisions as per section 44AB of the Act. e. Whether the applicability of the provisions of section 13(8) of the Act envisage by AO is correct in the facts and circumstances of the case or not. f. Whether addition of income to the extent of 10% of gross receipts of milk activity being Rs. 56,00,592/- therefore being legitimate or not. 15. Now the question which requires our considering as to whether m....
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....chilling plant till handed over to the relevant diary. The activity so conducted was as per the understanding between the assessee and donors. 17. It is pertinent to mention here that the commercial milk diaries would have not done milk collecting etc. on its own as it could have been a costly and non-profitable affair for them and therefore the whole scheme of upliftment of rural women beneficiaries would have come to an end without fetching any fruits at all. Such circumstances only have posed and prompted the assessee society to even provide such services in form of collection, storage and disbursal of milk. Not even that it would have been inconvenient for commercial milk processing buyers to pay proceeds of milk obtained to different milk producer women directly therefore to provide such service the assessee society worked simply as a nodal agency to collect, test, store, chill and disburse the milk as well as to collect sale proceeds of such milk and pay back the same to various women beneficiaries only. The bank account of assessee society was used just to collect and disburse the milk collection proceeds amongst various women beneficiaries. We also invite kind attention ....
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.... 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 receipts from the activities referred to therein is ten lakh rupees or less in the previous year." The 'charitable purpose' carried out and ensured by the assessee trust may it be running an orphanage cum old age home in the name of 'Snehalaya', distributing aid amongst various rural women beneficiaries for livelihood programme, helping rural women beneficiaries in form of collecting and disbursing milk produced, establishing community centers to provide toilet to women beneficiaries, helping in settin....
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....us, it is held that the AO erroneously held the appellant case is hit by proviso to Section 2(15) of the act and hence, was not justified in denying exemption under section 11 and 12 of the Act. Since it is held that the appellant milk trade activities was not with any profit motive with intent of carry out any business, therefore, there were no need to maintain separate books of accounts for this activity as alleged by the AO. 5.6.1 Further the appellant has provided various details viz. bank account, books of accounts and various other details, from which the genuineness of the total receipt of rupees 5,60,05,920/- for milk distribution and expenses of rupees 5,44,39,495/- for milk collection duly establishes. Accordingly, it is held that the AO, without any bases established income at rupees note 56,00,592 Being 10% of total receipts as income of the appellant against rupees 15,66,425 shown by the appellant." The detailed finding so recorded by the ld. CIT(A) are as per material on record, therefore, do not require our interference. Accordingly, we dismiss ground No.1 of the revenue's appeal. 25. Ground No. 2 of the revenue's appeal reads as under: "On th....
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....No.3 of the revenue's appeal reads as under: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing Rs. 2,50,00,000 as application of fund on account of aid loans/advances ignoring the fact that neither any assurance was given nor any affidavit was filed by the assessee society that these loans/advances given by it were not to be re-paid by these beneficiaries whereas a sum of Rs. 7,75,329/- was appeared as 'Recovery from beneficiaries" in receipts and payment account for the year under consideration." In this regard, observation of the A.O. are at page No. 5 of the assessment order under the heading C:FRCA RECEIPTS AND ITS APPLICATION." 29. With regard to this ground, the assessee filed petition for acceptance of additional evidence in the office of the ld. CIT(A) in consequence of the application so moved by the assessee, the AO i.e. DCIT (Exemptions), Income Tax Department, Jaipur issued summon under section 131 of the Act to around 11 beneficiary women asking for providing the confirmation regarding the return or refund of aid received back to the assessee society. The report dated 18.10.2017 submitted by DCIT (Exemptions)....
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....nces of the case and in law, the Ld. CIT(A) erred in allowing Rs. 60,95,870/- as corpus fund ignoring the fact that no specific directions were made by the donors that it shall form part of the corpus of the trust or institution as required under section 11(1)(d) of the Income Tax Act, 1961." In this regard, we have considered the rival contentions and found that the corpus donations claimed by the assessee were Rs. 60,95,870/- which are duly reflecting in the Balance Sheet of the assessee dated 31.03.2012. The use of such corpus funds was acquisition of various capital assets only for the purposes of milk collection and distribution activity stipulated by the donor institutions only. The details of such corpus fund were duly provided phase-wise only during the course of assessment for the information of the AO only which is reiterated below: Projectwise Corpus Fund Amount Navprabhat Phase 1 Rs. 36,09,063/- Navprabhat Phase 2 Rs. 18,18,962/- Navprabhat Phase 3 Rs. 6,67,845/- Total Corpus Fund Rs. 60,95,870/- However, the AO neither has considered them as corpus fund nor has allowed the same as application of income in his assessment order dated 3....