By K. B. Bhujle, Advocate
20. Charitable
purpose – Registration and cancellation – Sections 2(15) and 12AA – A. Y.
2009-10 – Exclusion of advancement of any other object of general public
utility, if it involved carrying out activities in nature of trade, commerce or
business with receipts in excess of Rs. 10 lakh – Dominant function of assessee
to provide asylum to old, maimed, sick or stray cows – Selling milk incidental
to its primary activity – No bar on selling its products at market price –
Assessee not hit by proviso to section 2(15) – No need to cancel registration
of assessee
DIT
(Exemption) vs. Shree Nashik Panchvati Panjrapole; 397 ITR 501 (Bom)
The
assessee trust was registered with the Charity Commissioner since 1953. The
assessee was granted a certificate
of registration u/s. 12A of the
Act, on 04/08/1975. By Finance (No. 2) Act, 2009, the definition of “charitable
purpose” u/s. 2(15) of the Act, was amended w.e.f. April 12, 2009. According to
the newly added proviso, charitable purpose would not include advancement of
any other object of general public utility, if it involved carrying out
activities in the nature of trade, commerce or business, with receipts in
excess of Rs. 10 lakh. The Director of Income-tax (Exemption) issued a show
cause notice upon the assessee and held that the activities carried out by the
assessee of selling milk were in the nature of trade, commerce or business and
thus, the assessee was not entitled to registration u/s. 12A of the Act. In
response to the show-cause notice, the assessee pointed out that it was running
a panjrapole i.e., for protection of cows and oxen for over 130 years. The
activity of selling milk was incidental to its panjrapole activity and in any
case did not involve any trade, commerce or business, so as to be hit by the newly
added proviso to section 2(15) of the Act. But the Director of Income-tax
(Exemption) cancelled the assessee’s registration under the Act invoking
section 12AA(3) of the Act, in view of the newly added proviso to section 2(15)
of the Act. The Tribunal held that the activity of selling milk would be
incidental to running a panjrapole and the proviso to section 2(15) of the Act
was not applicable. The Tribunal set aside the order of the Director of
Income-tax (Exemption) cancelling the registration.
On appeal by the Revenue,
the Bombay High Court upheld the decision of the Tribunal and held as under:
i) The
appeal should be decided only on the grounds mentioned in the order for
cancellation of registration and no other evidence not considered by the Director
of Income-tax (Exemption) could be looked into, while deciding the validity of
the order. The Tribunal recorded a finding of fact that the dominant function
of the assessee was to provide asylum to old, maimed, sick and stray cows.
Further, only 25% of the cows being looked after yielded milk and if the milk
was not procured, it would be detrimental to the health of the cows. Therefore,
the milk which was obtained and sold by the assessee was an activity incidental
to its primary activity of providing asylum to old, maimed, sick and disabled
cows.
ii) The
activity of milking the cows and selling the milk was necessary in the process
of giving asylum to the cows. An incidental activity of selling milk which
might be resulting in receipt of money, by itself would not make it trade,
commerce or business nor an activity in the nature of trade, commerce or
business to be hit by proviso to section 2(15) of the Act.
iii) Further,
the fact that the milk was sold at market price would make no difference as
there was no bar in law on a trust selling its produce at market price.
Therefore there was no need to cancel the registration. The appeal is
dismissed.”
