Sabarmati Ashram Gaushala Trust v. Addl. DIT

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The Tax Publishers2013 TaxPub(DT) 2160 (Ahd-Trib) : (2013) 144 ITD 0280 : (2014) 159 TTJ 0553 : (2013) 095 DTR 0409 : (2013) 025 ITR (Trib) 0701 Income Tax Act, 1961 --Charitable trust--Exemption under section 11Applicability of first proviso to section 2(15)--Assessee-trust was founded by Mahatma Gandhi, who after returning from South Africa to India in the year 1915 acquired some land in District Ahmedabad and established an institution, namely Satyagraha Ashram and started a 'Gaushala' as one of part of constructive activities. Objects of trusts were, inter alia, to breed cattle and endeavour to improve quality of cows and ox, to produce and sell milk, etc. Assessee-trust claimed exemption under section 11 which was denied by assessing officer on the ground that first proviso to section 2(15) inserted by Finance Act, 2008 with effect from 1-4-2009, was clearly applicable to assessee-trust. *Held:* Not justified. Incidental profit earned from sale of milk, fodder, and other items does not attract first proviso to section 2(15) and if interest income was excluded from income, the expenditure was much more than income, as such assessee was entitled to exemption under section 11. 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 (Exemptions) under section 12A. 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). For the applicability of newly inserted proviso to section 2(15), 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 under section 11. 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 the proviso to section 2(15). [Para 8] Scope of applicability of the proviso to section 2(15) is clear that 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 the proviso to section 2(15). 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, This Tribunal has no hesitation in holding that 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 under section 11 for the relevant assessment year, and directs accordingly. [Para 12] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 2160 (Ahd-Trib) : (2013) 144 ITD 0280 : (2014) 159 TTJ 0553 : (2013) 095 DTR 0409 : (2013) 025 ITR (Trib) 0701

Income Tax Act, 1961

--Charitable trust--Exemption under section 11Applicability of first proviso to section 2(15)--Assessee-trust was founded by Mahatma Gandhi, who after returning from South Africa to India in the year 1915 acquired some land in District Ahmedabad and established an institution, namely Satyagraha Ashram and started a 'Gaushala' as one of part of constructive activities. Objects of trusts were, inter alia, to breed cattle and endeavour to improve quality of cows and ox, to produce and sell milk, etc. Assessee-trust claimed exemption under section 11 which was denied by assessing officer on the ground that first proviso to section 2(15) inserted by Finance Act, 2008 with effect from 1-4-2009, was clearly applicable to assessee-trust. Held: Not justified. Incidental profit earned from sale of milk, fodder, and other items does not attract first proviso to section 2(15) and if interest income was excluded from income, the expenditure was much more than income, as such assessee was entitled to exemption under section 11.

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 (Exemptions) under section 12A. 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). For the applicability of newly inserted proviso to section 2(15), 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 under section 11. 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 the proviso to section 2(15). [Para 8] Scope of applicability of the proviso to section 2(15) is clear that 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 the proviso to section 2(15). 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, This Tribunal has no hesitation in holding that 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 under section 11 for the relevant assessment year, and directs accordingly. [Para 12]