THE issue before the bench is - Whether proviso to Sec 2(15)
will hit assessee-trust for mere selling of some products for profit and
assessee cannot avail exemption u/s 11. And the verdict favours the
assessee.
The assessee is a trust. Its objects were 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 and the cow milk as food is both conducive to and requisite for good health and longevity of human life, and likewise, other objects.
The Revenue authorities denied the exemption u/s 11 by holding that the object of the assessee trust was 'any other object of general public utility' and accordingly covered by proviso to Section 2(15) of the Act since the activities of the assessee trust were commercial in nature.
On appeal by the assessee, ITAT held that,
++ the proviso to section 2(15) of the Act was inserted by the Finance Act, 2008 w.e.f 1.4.2009, and therefore is applicable to the relevant AY 2009-2010 in appeal. The only issue for adjudication is that whether the proviso to section 2(15) is applicable to the facts of the case of the assessee for the relevant AY 2009-2010;
++ reading of the proviso to section 2(15) along with speech of the Finance Minister and CBDT Circular No.11/2008 dated 19.12.2008 make it clear that only the institutions carrying on commercial activities are intended to be covered by the proviso, not the genuine charitable institutions. The activity will be deemed to be in the nature of trade, commerce or business, only if same is carried on with the intention to earn profit. The Courts in series of decisions have held that it is an activity carried on in a systematic manner with a view to earn profit, which will be termed as "business". Accordingly, in order to hold that the activity is in the nature of trade, commerce or business, there should be profit motive. If during the course of carrying out any activity on non-commercial lines, some profit is received by the Trust, which is incidental to the activities of the trust, the same shall not be construed to be activity in the nature of trade, commerce or business of the assessee;
++ the present trust was in a way founded by the Father of the Nation, late Mahatma Gandhi. On page no.1 of the trust-deed, it is mentioned that after returning from South Africa to India in the year 1915, Mahatma Gandhi acquired some land in Ranip, Wadaj villages of Daskroi, District Ahmedabad and have established an institution named "Satyagrah Ashram" and started Gaushala as one of the part of the constructive activities. However, its administration and property were kept separately as a separate department i.e. Trust from the beginning. Some eminent personalities of the country were its trustees;
++ the assessee trust was registered with Charity Commissioner and the copy of the certificate issued by the Charity Commissioner has been filed in the compilation before us. The CIT, Gujarat has registered the assessee-trust u/s 12A. The Joint Commissioner of Sales-Tax (Legal) vide its order dated 2.9.2006 has noted that the activities of the assessee-trust are also not business like, but are allied activities to meet the objectives of the trust, and hence as per the exception in notification (notification section 2(10)), the applicant cannot be considered as trader;
++ for the applicability of proviso to section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15) of the Act. The aims and objects of the assessee-trust are admittedly charitable in nature, and was granted registration by the Charity Commissioner as well as by the CIT (Exemption) u/s 12A of the Act. The assessee has carried out its activities for the fulfillment of its object of breeding the cattle and to improve the quality of the cows and oxen and had sold semen, fodder, milk etc. and in the process some profit was earned by the assessee-trust, which is incidental in nature. The activities undertaken by the assessee-trust for the fulfillment of its charitable objects on non-commercial lines are not hit by the proviso to section 2(15) of the Act;
++ for the applicability of newly inserted proviso to section 2(15) of the Act, the objects of the trust, the purpose and manner of activities of the Trust, whether to make profit or whether the profit earned was incidental to the activities of the trust, overall facts and circumstances in its entirety, the volume of the profit received by the trust, and whether the activities of the trust were conducted in a way to fulfill its object of the trust, which have essentially to be charitable in nature, and the intention of the trustees, all have to be considered to arrive at a just and fair conclusion. In fact the cases where profit making is the object should be distinguished from the cases, where, although the objects of the trust are wholly charitable, but some profit was made out of the activities undertaken by the Trust for the purpose of achieving the objects of the general public utility. The objective of the proviso to section 2(15) is to deny exemption to such assessee who are engaged in business activities in the garb of charitable purpose. It shall however not effect the cases of charitable institutions, which are carrying on charitable activities genuinely and the facts of the each case has to be seen to decide whether the proviso to section 2(15) is applicable to the facts of the case of the assessee. Mere selling some product at a profit will not ipso facto hit the assessee by applying the proviso to section 2(15) and deny the exemption available u/s 11 of the Act. The intention of the trustees and the manner in which the activities of the charitable trust/institution are undertaken are highly relevant to decide the issue of applicability of proviso to section 2(15) of the Act;
++ to decide the applicability of the said proviso, the entirety of the facts and circumstances of the case, and in particular the fact that the activities of the trust/institution whether are carried out with a motive to earn profit or profit earned was merely incidental while conducting the charitable objects of the trust, have to be considered. In this case, if the interest on investment received by the assessee during the year amounting to Rs.26,15,060/- is taken away from the income side of the assessee, there is a net excess of expenditure over the income during the relevant period, and it cannot be said that the assessee has carried out its activities in the advancement of its charitable objects in a way to earn profit on commercial line. Even if at the end of the accounting year, there is some profit received by the assessee while conducting the charitable objects of the Trust, the same shall be merely incidental in nature and shall not attract the applicability of proviso to section 2(15) of the Act. There is no material/evidence brought on record by the Revenue which may suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit or has deviated from its objects as detailed in the Trust Deed of the assessee. In these facts and circumstances of the case, the proviso to section 2(15) is not applicable to the facts and circumstances of the case, and the assessee was entitled to exemption provided u/s 11 of the Act for the relevant AY.
Facts of the
case
The assessee is a trust. Its objects were 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 and the cow milk as food is both conducive to and requisite for good health and longevity of human life, and likewise, other objects.
The Revenue authorities denied the exemption u/s 11 by holding that the object of the assessee trust was 'any other object of general public utility' and accordingly covered by proviso to Section 2(15) of the Act since the activities of the assessee trust were commercial in nature.
On appeal by the assessee, ITAT held that,
++ the proviso to section 2(15) of the Act was inserted by the Finance Act, 2008 w.e.f 1.4.2009, and therefore is applicable to the relevant AY 2009-2010 in appeal. The only issue for adjudication is that whether the proviso to section 2(15) is applicable to the facts of the case of the assessee for the relevant AY 2009-2010;
++ reading of the proviso to section 2(15) along with speech of the Finance Minister and CBDT Circular No.11/2008 dated 19.12.2008 make it clear that only the institutions carrying on commercial activities are intended to be covered by the proviso, not the genuine charitable institutions. The activity will be deemed to be in the nature of trade, commerce or business, only if same is carried on with the intention to earn profit. The Courts in series of decisions have held that it is an activity carried on in a systematic manner with a view to earn profit, which will be termed as "business". Accordingly, in order to hold that the activity is in the nature of trade, commerce or business, there should be profit motive. If during the course of carrying out any activity on non-commercial lines, some profit is received by the Trust, which is incidental to the activities of the trust, the same shall not be construed to be activity in the nature of trade, commerce or business of the assessee;
++ the present trust was in a way founded by the Father of the Nation, late Mahatma Gandhi. On page no.1 of the trust-deed, it is mentioned that after returning from South Africa to India in the year 1915, Mahatma Gandhi acquired some land in Ranip, Wadaj villages of Daskroi, District Ahmedabad and have established an institution named "Satyagrah Ashram" and started Gaushala as one of the part of the constructive activities. However, its administration and property were kept separately as a separate department i.e. Trust from the beginning. Some eminent personalities of the country were its trustees;
++ the assessee trust was registered with Charity Commissioner and the copy of the certificate issued by the Charity Commissioner has been filed in the compilation before us. The CIT, Gujarat has registered the assessee-trust u/s 12A. The Joint Commissioner of Sales-Tax (Legal) vide its order dated 2.9.2006 has noted that the activities of the assessee-trust are also not business like, but are allied activities to meet the objectives of the trust, and hence as per the exception in notification (notification section 2(10)), the applicant cannot be considered as trader;
++ for the applicability of proviso to section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15) of the Act. The aims and objects of the assessee-trust are admittedly charitable in nature, and was granted registration by the Charity Commissioner as well as by the CIT (Exemption) u/s 12A of the Act. The assessee has carried out its activities for the fulfillment of its object of breeding the cattle and to improve the quality of the cows and oxen and had sold semen, fodder, milk etc. and in the process some profit was earned by the assessee-trust, which is incidental in nature. The activities undertaken by the assessee-trust for the fulfillment of its charitable objects on non-commercial lines are not hit by the proviso to section 2(15) of the Act;
++ for the applicability of newly inserted proviso to section 2(15) of the Act, the objects of the trust, the purpose and manner of activities of the Trust, whether to make profit or whether the profit earned was incidental to the activities of the trust, overall facts and circumstances in its entirety, the volume of the profit received by the trust, and whether the activities of the trust were conducted in a way to fulfill its object of the trust, which have essentially to be charitable in nature, and the intention of the trustees, all have to be considered to arrive at a just and fair conclusion. In fact the cases where profit making is the object should be distinguished from the cases, where, although the objects of the trust are wholly charitable, but some profit was made out of the activities undertaken by the Trust for the purpose of achieving the objects of the general public utility. The objective of the proviso to section 2(15) is to deny exemption to such assessee who are engaged in business activities in the garb of charitable purpose. It shall however not effect the cases of charitable institutions, which are carrying on charitable activities genuinely and the facts of the each case has to be seen to decide whether the proviso to section 2(15) is applicable to the facts of the case of the assessee. Mere selling some product at a profit will not ipso facto hit the assessee by applying the proviso to section 2(15) and deny the exemption available u/s 11 of the Act. The intention of the trustees and the manner in which the activities of the charitable trust/institution are undertaken are highly relevant to decide the issue of applicability of proviso to section 2(15) of the Act;
++ to decide the applicability of the said proviso, the entirety of the facts and circumstances of the case, and in particular the fact that the activities of the trust/institution whether are carried out with a motive to earn profit or profit earned was merely incidental while conducting the charitable objects of the trust, have to be considered. In this case, if the interest on investment received by the assessee during the year amounting to Rs.26,15,060/- is taken away from the income side of the assessee, there is a net excess of expenditure over the income during the relevant period, and it cannot be said that the assessee has carried out its activities in the advancement of its charitable objects in a way to earn profit on commercial line. Even if at the end of the accounting year, there is some profit received by the assessee while conducting the charitable objects of the Trust, the same shall be merely incidental in nature and shall not attract the applicability of proviso to section 2(15) of the Act. There is no material/evidence brought on record by the Revenue which may suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit or has deviated from its objects as detailed in the Trust Deed of the assessee. In these facts and circumstances of the case, the proviso to section 2(15) is not applicable to the facts and circumstances of the case, and the assessee was entitled to exemption provided u/s 11 of the Act for the relevant AY.
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