TMI Blog2020 (9) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... and disbursement activity as business carried out by the assessee. The milk collection and disbursement was only a support activity to achieve the purpose of women empowerment particularly that belonging to the backward rural area of the state of Rajasthan. Perusal of the list of various women beneficiaries further demonstrate that women beneficiaries under the project were including SC/ST/OBC/BPL, Widows as well as other needed section of the society - We can safely conclude that the milk collecting and disbursement activity by no means could be treated as business carried out by the assessee. 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 - Activity of milk collection and disbursement carried out by trust was only to provide a platform to disadvantaged women beneficiaries from rural background particularly being economically highly weaker areas therefore undoubtedly to be treated as charitable purposes promoting relief to poor . Accordingly, the A.O. was not justified in invoking proviso to Section 2(15) of the Act and denial of exemption under section 11 12 of the Act to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of income and surplus. Corpus fund allowance - HELD THAT:- Assessee society has not claimed value of such assets in computation of application of income of the assessee trust which substantiates the assessee s claim that the treatment of corpus fund as general fund is incorrect and unlawful. Even if the capital assets acquired were treated as general fund than corpus fund, the AO while computing the total income of the assessee society in his assessment order dated 30.03.2015 did not reduce such amount therefore again adopted an unlawful action on his part. A detailed finding has been recorded at page No. 26 of his appellate order at para 8.2 and after considering the various judicial pronouncements, directed the A.O. to treat sum of ₹ 60,95,870/- as corpus fund. Detailed finding so recorded by the ld. CIT(A) are as per the material on record and do not require any interference on our part. CIT(A) has dealt with each and every objection of the A.O. threadbare and after giving detailed findings, deleted the addition so made by the A.O. - Appeal of revenue dismissed. - ITA No. 962/JP/2018 - - - Dated:- 9-9-2020 - Shri Ramesh C Sharma, AM And Shri Vijay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be seen as a whole, and not in isolation, to each other as the activities of milk collecting and disbursement was only in the nature to support the women welfare which is a main object of the assessee society. The appellant also tried to prove that there was no element of business involved in this activity. To support its case, the appellant furnished details /name of various women, who got benefited by this activities / projects. The appellant strongly argued that the welfare approach implemented by the assessee society with the help of donors, under no stretch of interpretation can be treated as a business commercial activity. After considering the various contentions and submissions of the appellant, I tend to agree with the same. To appreciate the above we consider it appropriate to read the provisions contained in section 2(15) of the Act which are reproduced as under: - 2(15) '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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. In view of the above I find force in the contention of the ld counsel for the appellant that commerciality is not a test to determine the genuineness of the charitable nature of education activities of a trust or institution under the amended provision of section 2(15) of the Act. 5.3.2 The objects and activities of the appellant are stated in the Memorandum and Rules Regulations of the Society: - a. Establishing of schools for promotion of education. b. Creating education 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, dowry system etc. f. Providing of shelter and employment to senior citizens, ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety and at same time, it was providing free education to needy students and free medical aid to needy patients, it could not change its nature from charitable society to profit making society and, thus, impugned order passed by Commissioner was to be set aside. 5.4.2. The Hon'ble ITAT Chennai Bench `A' in the case of Thamizh Thai Seva Trust vs. Director of Income-tax (Exemptions), Chennai [2015] 53 taxmann.com 215 (Chennai - Trib.) held that activities carried out by Trust for providing employment to rural poor couldn't be held as commercial activities. The relevant findings as contained in this order are reproduced as under:- It is true that the proviso to section 2(15), restricts the scope of charitable purpose in a case where the activities carried on by an assessee involves activities 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 activities. In the present case, the object of the assessee trust is not to organize milk societies and run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness as contemplated in proviso to section 2(15). Therefore, the Director of Income-tax (Exemptions) has characterized the activities of the assessee-trust as commercial in nature without going into the circumstances in which the activities are contemplated to be carried on by the assessee trust. [Para 10] 5.4.3. The Hon'ble Bombay High Court in the case of D IT vs. Women's India Trust [2015] 60 taxmann.com 55 (Bombay) held that where motive of assessee is not generation of profit but to provide training to needy women in order to equip or train them and make them self-confident and self-reliant and occasional sales or trust's own fund generation was for furthering objects of trust, proviso to section 2(15) would not apply. Similarly, in the instant case also, collecting the milk from the needy women and profit earned thereon, is nothing but making these women self-confident and self-reliant, which is ultimate object of the appellant trust. Earning profit out of this activity is not the of the appellant, profit is ancillary. 5.5. Even otherwise also, from the activities of the appellant trust duly proved that profit from milk trade business was incidental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itable purpose for which properties are held in trust - Held, yes - Whether if assessee's activities are outside scope of its objects, it would not be entitled to exemption even if such activities are charitable in nature - Held, yes - Whether conditions imposed under section 12A are in addition to conditions or exemptions as specified under sections 11 and 12 and, thus, notwithstanding that an assessee has been granted a registration under section 12A, it would be necessary for assessee to comply with conditions of section 11 in order to claim any benefit under provisions of that section and it is necessary for Assessing Officer to examine whether income derived from property held in trust has been applied for object of trust - Held, yes [Paras 26 to 29] [In favour of assessee] Section 2(15), read with section 11, of the Income-tax Act, 1961 - Charitable purpose (Medical relief) - Assessment year 2006-07 - Assessee-trust was set up with object of improving auyrvedic system of medicine - In furtherance of its objects, it set up a hospital which provided allopathic as well as ayurvedic treatment and included investigation techniques of modern medicine - It was denied exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO noted that during the year under consideration, the assessee had received the sum of ₹ 5,90,74,787/- as foreign contributions for various projects undertaken by it. Out of this, a sum of ₹ 1,87,74,130/- was received from Hans foundation and ₹ 4,03,00,657/- was received from Rural India Supporting Trust. Since the assessee failed to furnish project-wise books of accounts, therefore, the surplus from projects in the hands of assessee society was worked out as under: - i. Total receipts during the year ₹ 5,90,74,787/- Less: ii. Application of funds as per Audit Report in form 10B ₹ 1,97,95,677/- Surplus ₹ 3,92,79,110/- 6. By the impugned order, the ld CIT(A) deleted the addition so made after having a following observation: 6.2. I have considered the facts of the case and appellant's submissions and I find that the AO made the addition of ₹ 3,92,79,110/- being surplus out of the FCRA receipts holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus, working out/ addition of surplus of ₹ 3,92,79,100/- held as erroneous. The ground of appeal is allowed. 7. While framing the assessment, the A.O. did not accept the assessee s contention with regard to revolving funds of ₹ 2.50 crores as application of funds towards objectives of sansthan. 8. By the impugned order, the ld. CIT(A) after considering the remand report, allowed the assessee s claim after having the following observation: 7.3. I have considered the assessment order remand report, the appellant's submissions and additional evidences furnished by the appellant. It is observed that in the remand report, the AO has not disputed this amount to the tune of ₹ 2.50 crores were disbursed to these women. The only issue of dispute was regarding the fact that whether the money was loan or appropriation. 7.3.1. During the remand proceedings, statements of certain beneficiaries have been recorded, copies of which were furnished by the appellant along with receipts. Upon perusal of the same, it is seen that in certain cases, it is stated to be loan and in other cases, not as such. Even if these are loan, same cannot be added to the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which resulted in the treatment of such fund as corpus funds in the hands of the assessee. The corpus donations claimed by the assessee were ₹ 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 find were duly provided phase-wise only during the course of assessment for the information of learned AO only which is reiterated below: Projectwise Corpus Fund Amount Navprabhat Phase 1 ₹ 36,09,063/- Navprabhat Phase 2 ₹ 18,18,962/- Navprabhat Phase 3 ₹ 6,67,845/- Total Corpus Fund ₹ 60,95,870/- However, learned AO neither has considered them as corpus fund nor has allowed the same as application of income in his assessment order dated 30.03.2015. It is worthwhile to mention that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure 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 initiatives but on the other side government agencies only are troubling the institutions which promote the welfare to a large chunk of women beneficiaries for ensuring their livelihood particularly from weaker and rural sections. We pray with bided handed that a justice in the current case will give a right massage in the society even. Your honor we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 ₹ 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 ₹ 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 contentions and carefully gone through the orders of the authorities below. We have considered and taken note of all the material placed before us and also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld. AR and ld. DR during the course of hearing before us in the context of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem 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. Hans Karuna Swastya Pariyojna: A health initiative to educate and spread health awareness among rural women through activities like medical camps, free medical check-ups and free distribution of medicines. c. Tara-Akshar Project: Empowering rural women by enabling them with reading and writing abilities of Hindi language and alongside train them on basic mathematics calculations used in their day to day life ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 56,00,592/- therefore being legitimate or not. 15. Now the question which requires our considering as to whether milk collection and distribution activity of assessee Trust was a business? We had carefully gone through the objects of the assessee society and found that it aims to provide medical facilities, education facilities and providing of employment to unemployed women particularly in rural areas which prompted the assessee to reach out to its donors for granting donations in form of a scheme of enabling acquisition of cattle (buffalo) by women beneficiaries and using them a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances 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 on the fact that the co-operative and pious movement so began gradually became mature and in due course of time i.e. on 28.10.2014 the assessee society handed over the possession of chilling plant, milk testing laboratory, canes, milk collection vans to a FPO created with the vision and help of assessee society only. The assessee society was not at all indulged or involved in any kind of milk business. The activities of milk collecting and disbursement were only in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration, 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 setting up self-help groups, providing free health check-ups and other medical services for rural women beneficiaries and all allied activities by no stretch of meaning can be looked or found as general public utility these activities are undoubtedly fall into the ambit of relief to poor only. The carrying out of charitable activities in the nature of relief to poor are nowhere covered under the ambit of proviso to section 2(15) of the Act mentioned above. 22. From the record, we fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank 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 the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing exemption u/s 11 of the I.T. Act, 1961 ignoring the finding of the AO that the separate books of accounts were not maintained by the assessee for milk trading as required u/s 11(4A) of the Income Tax Act, 1961. If, milk collection and disbursement whether covered under sub-section (4A) of section 11 of the Act and therefore whether separate set of books were required to be maintained. In this regard, we observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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), Income Tax Department, Jaipur wherein at page 3 of his report he mentioned that: During the course of assessment proceedings, the AO found that the assessee trust advanced ₹ 2.50 crore during the relevant financial year 2011-12 to various women beneficiaries belonging to the poor families for purchasing buffaloes under a scheme name as Nav Prabhat . The payments were made to 250 beneficiaries amount to ₹ 1,00,0000 each for purchasing of cattle/buffaloes. The assessee claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 ₹ 36,09,063/- Navprabhat Phase 2 ₹ 18,18,962/- Navprabhat Phase 3 ₹ 6,67,845/- Total Corpus Fund ₹ 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 30.03.2015. 33. From the record, we found that the assessee society has not claimed value of such assets in computation of application of income of the assessee trust which substantiates the assessee s claim that the treatment of corpus fund as general fund is incorrect and unlawful. Even if the capita ..... 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