9911796707
TMI Blog2023 (2) TMI 1386X X X X Extracts X X X X X X X X Extracts X X X X ..... 2A of the Act. It is engaged in trading in agricultural produce procured from, as stated, small and marginal farmers located in Wayanad district of Kerala, selling the same in both the domestic and international markets. During the relevant years, it's turnover was at Rs. 59.03 cr. and Rs. 66 cr. The purpose, as explained to us by Ms. Krishna, the ld. counsel for the assessee, is to fetch a good price for the same and, thus, uplift of the farmers, thereby undertaking 'relief to the poor', a charitable purpose u/s. 2(15) of the Act. The assessing authority found the assessee's claim untenable. There was nothing to show, firstly, that the farmers from whom the agricultural produce stands sourced qualify to be 'poor' which, a term of indefinite import, could, in the Indian context, only be regarded as those below the poverty line, and who are therefore entitled to various schemes of the State, be it the Central or the State Government. Nothing toward the same has been brought on record. The assessee carried the matter in appeal, whereat the first appellate authority held the assessee's activities of purchase and sale of agricultural produce as a commercial activity, which could at bes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultural produce, viz. coffee, spices, fruits, etc. is claimed to have been made during the relevant years. She was, however, unable to answer as to how do they qualify as 'poor', and how have they been, i.e., apart from making purchases therefrom, benefited by the appellant-company which, as explained, using it's marketing skills and reach, been able to, after meeting operational expenditure, generate profit (at Rs. 375.67 lacs & Rs. 322.23 lacs for the two years respectively), exemption from tax on which is the bone of contention between the parties. This is as a purchase cannot be regarded as anything more than a normal commercial transaction, undertaken at the ruling market price, without thus any element of charity, or otherwise construed as bestowing any benefit to the supplier, with goods for equal value having been procured from him. The question assumes further relevance as the assessee, whose membership cannot exceed 50 on account of it being a private limited company, cannot, by virtue of being a charitable company, declare dividend. As such, neither can the supplier-farmers be co-opted as members, nor distributed profit, so as to be regarded as being helped thus. There i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attainment of the said object, itself not shown. As clarified in Thanthi Trust (supra), as indeed per the explicit law in the matter (sec. 11(4A)), it is only where the carrying on the business is incidental to the attainment of the object, that it can validly be regarded as a property held under trust, income from which, on being so applied, would stand to be exempt u/s. 11, i.e., to the extent specified therein and in terms thereof. As clarified once again in New Noble Education Society v. Chief CIT [2022] 448 ITR 594 (SC), the word 'incidental' occurring in s. 11(4A), means something connected with the principal activity/object, i.e., providing relief to the poor, in the instant case. The said business could at best be regarded as incidental to providing relief to the farmers from whom the agricultural produce is procured, which could be regarded as a charitable object where they are shown to be poor. In fact, here, again, the exemption would only be upon application of profits, and subject to being allowed to be accumulated for the purpose, to the extent applied, toward which there is no finding by the Revenue authorities, nor indeed even any claim. 3.4 Whichever way one may t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication, consider as not incorrectly so, the same would be to no consequence. Why, the said Circular itself clarifies of the need for inclusion of the same as one of it's objects to qualify as eligible for exemption, absent in the instant case. There is no mention of procurement, for the purpose of the assessee's trading business, to be sourced from small and marginal farmers, as defined per the extant Government policy. Further, purchase being a value-exchange, there is neither provision of any relief nor application of profit. Rather, the profit earned by the company, exemption on which is sought, is equally liable to be regarded as earned at the expense of the farmers. 3.5 We are conscious, we clarify, that any other class of beneficiaries, i.e., apart from farmers, who are poor, would equally satisfy the object of 'relief to the poor'. However, the agri-trading business, exemption in respect of income of which is sought, could, as afore-explained with reference to sec. 11(4A) and Thanthi Trust (supra), only be regarded as an eligible business and, thus, a property held under trust, income from which on application could be exempt u/s. 11, where the said class is drawn from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the agri-trading business, income of which is claimed exempt u/s. 11, cannot be regarded as incidental to the attainment of the said object, it is not a property held under trust, the basic requirement for invocation of s. 11(1). The assessee has, further, not shown to have applied it's income for Objects 1 & 2, which surely are objects of general public utility inasmuch as they promote production of quality human food/food products, as well as knowledge and skill-set required for the same. In fact, even if it had, of which there is even no claim, the objects are themselves not liable to be regarded as a charitable purpose in view of the amended law (s. 2(15)). Object 3, i.e., the agri-trading business, cannot itself be regarded as a charitable object. In fact, there is nothing therein which obliges the assessee to source it's trading stock only from small & marginal farmers, the bed-rock of it's case. Sourcing per se cannot be regarded as providing relief thereto and, thus, to a section of the public deemed poor. It is a part of the trading business, profit whereof, which cannot be distributed to the farmers, is to be applied. There is per se no application of income on purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X
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