DIT(Exemption) vs. Sabarmati Ashram Gaushala Trust; 362 ITR 539 (Guj):
The assessee-trust was engaged in the activity of breeding milk cattle to improve the quality of cows and oxen and other related activities. For the A. Y. 2009- 10, the Assessing Officer found that the assessee had considerable income from the milk production and sale. He applied proviso to section 2(15) of the Income-tax Act, 1961 and held that the trust could not be considered as one created for charitable purposes. He therefore denied exemption u/s. 11 of the Act. The Tribunal noted that the objects were admittedly charitable in nature. The surplus generated was wholly secondary. Therefore, it held that the proviso to section 2(15) of the Act, would not apply and the assessee was entitled to the exemption.
On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:
i) M any activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products, After settingoff of cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect a trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating “surplus” is wholly incidental to the principle activities of the trust; which is otherwise for general public utility, and, therefore, of charitable nature.
ii) T he main objectives of the trust were to breed cattle and endeavour to improve the quality of cows and oxen in view of the need for good oxen as India is prominently an agricultural country. All these were objects of general public utility and would squarely fall u/s. 2(15) of the Act.
iii) Profit making was neither the aim nor object of the trust. It was not the principle activity. Merely because while carrying out the activities for the purpose of achieving the object of the trust, certain incidental surpluses were generated, that would not render the activity in the nature of trade, commerce or business. The assessee was entitled to exemption u/s. 11.”
