M/s.Peoples Dairy Development Projects Central Society, Ernakulam V. ACIT(Exemption), Cochin

ITA 246/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96829 (ITAT-COCHIN)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ISAC T PAUL
• Keywords: Search and seizure; Charitable institution
• Section: 143(3); 263; 12

Judgement Text

ITA NO. 246/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 246/COCH/2015 (ASST YEAR 2010 - 11 ) PEOPLES DIARY DEVELOPMENT PROJECT CENTRAL SOCIETY KUTTILAKKARA PIRAROOR PO ERNAKULA,M DIST PIN 683 57 4 VS THE ASST DIRECTOR OF INCOME TAX (EXEMPTION) RANGE 4 KOCHI 682 018 ( APPELLANT) (RESPONDENT) PAN NO. AAATP 2406M ASSESSEE BY SH ISAC T PAUL REVENUE BY SH KPGOPAKUMAR, SR DR/ SMT TRIP THI BISWAS,CIT - DR DATE OF HEARING 10 TH DEC 2015 DATE OF PRO NOUNCEMENT 16 TH , DEC 2015 OR D ER PER GEORGE GEORGE. K. J M: THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS DIRECTED AGAINST THE CITS ORDER DATED 17.03.2015 PASSED U/S 263 OF THE ACT. THE RELEVANT ASSESSMENT YEAR IS 2010 - 2011. 2. THOUGH EIGHTEE N GROUNDS ARE RAISED IN THIS APPEAL, ALL THE GROUNDS RELATE TO A SOLITARY ISSUE WHICH IS, NAMELY: WHETHER THE CIT (EXEMPTIONS), KOCHI WAS JUSTIFIED IN INVOKING HER REVISIONARY JURISDICTION U/S 263 OF THE ACT THEREBY ITA NO. 246/C/2015 2 DIRECTING THE AO TO RE - DO THE ASSESSMENT TO DENY THE BENEFIT OF THE PROVISIONS OF SECTIONS 11 & 12 OF THE ACT TO THE ASSESSEE? 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS AN APEX CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF RUNNING DAIRY DEVELOPMENT SOCIETY. F OR THE RELEVANT ASSESSMENT YEAR UNDER DISPUTE, THE RETURN OF INCOME WAS FILED ON 22.9.2010, DECLARING A TOTAL INCOME AT RS. NIL. THE ASSESSMENT WAS CONCLUDED U/S 143(3) OF THE ACT BY DETERMINING THE INCOME AT RS. NIL . SUBSEQUENTLY, THE CIT BY INVOKING REVISIONARY POWERS U/S 263 OF THE ACT [ORDER DT. 17.3.2015] SET - ASIDE THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE CIT WAS OF THE VIEW THAT THE ASSESSEES ACTIVITY OF SALE OF MILK AND MILK PRODUCTS COMES WITHIN THE PUR VIEW OF THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY MENTIONED IN S. 2(15) OF THE ACT AND IN VIEW OF THE AMENDMENT TO SECTION W.E.F. 1.4.2009 , SINCE THE ACTIVITIES OF THE ASSESSEE SOCIETY WAS TAINTED WITH COMMERCIALITY, IT WAS NOT ENTITLED TO THE BENEFIT OF THE PROVISIONS OF SECTIONS 11 AND 12 OF THE ACT. THE RELEVANT FINDINGS OF THE CIT READ AS FOLLOWS: 7. AS PER SECTION 2(15) OF THE INCOME - TAX ACT, CHARITABLE PURPOSE INCLUDES THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UT ILITY PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CARRY ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELAT ION TO ANY TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATION IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION OR RETENTION OF THE INCOME FOR SUCH ACTIVITY. PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT APPLY IF THE AGGREGATE VAL UE OF THE RECEIPTS ITA NO. 246/C/2015 3 FROM THE ACTIVITIES REFERRED TO THEREIN 10 LAKHS RUPEES OR LESS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. SINCE THE ACTIVITY OF THE SOCIETY IS MAINLY SALE OF MILK AND MILK PRODUCTS AND THE AGGREGATE VALUE OF RECEIPTS FROM SUCH ACTIVITY WAS MORE THAN RS. 10 LAKHS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION PROVISIONS OF SECTIONS 11 AND 12 ARE NOT APPLICABLE IN THE ASSESSEES CASE. 4. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT AND RELIED ON THE GROUNDS RAISED HEREIN. 5. ON THE OTHER HAND, THE LEARNED DR STRONGLY SUPPORTED THE ORDER OF THE CIT. IT WAS SUBMITTED THAT THE AO HA D NOT TAKEN INTO ACCOUNT THE AMENDMENT TO S. 2 (15) AND EXAMINED AS TO WHETHER THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF SECTIONS 11 AND 12 OF THE ACT AND, THEREFORE, THE CIT WAS JUSTIFIED IN INVOKING HER POWERS VESTED U/S 263 OF THE ACT. 6. WE HAVE HE ARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAD RELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD V. CIT REPORTED IN 243 ITR 83 (SC) TO SUPPORT HIS CONTENTION THAT THE ORDER PASSED U/S 263 OF THE ACT WAS WITHOUT JURISDICTION. WE ITA NO. 246/C/2015 4 ARE AFRAID THAT THE CONTENTION RAISED AND THE RELIANCE PLACED ON THIS COUNT IS MISPLACED , SINCE IN THE INSTANT CASE, THE AO WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) OF THE ACT HAD FAILED TO EXAMINE THE IMPACT OF THE AMENDMENT TO S. 2 (15) OF THE ACT AND WHETHER THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF SECTIONS 11 AND 12 OF THE ACT. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE AO HAD APPLIED HIS MIND IN THIS REGARD AND TOOK A CONSCIOUS DECISION THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF SECTIONS 11 AND 12 OF THE ACT DESPITE THE AMENDMENT TO S. 2(15) OF THE ACT W.E.F. 1.4.2009. THE AO HAD FAILED TO APPLY HIS MIND IN THE CORRECT PE RSPECTIVE AND, THEREFORE, THE CIT WAS JUSTIFIED IN INVOKING HER REVISIONARY POWER U/S 263 OF THE ACT. 6.1. THE CIT HAD, IN HER IMPUGNED ORDER [REFER: PARA 7], HELD THAT THE ASSESSEE WAS NOT ENTITLED TO THE BENEFIT OF SECTIONS 11 & 12 OF THE ACT. THIS FI NDING OF THE CIT, ACCORDING TO US, IS UNWARRANTED FOR THE FOLLOWING REASONING: 6.2 SECTION 2 (15) OF THE ACT DEFINES CHARITABLE PURPOSE TO INCLUDING THE FOLLOWING: (A) RELIEF OF THE POOR; (B) EDUCATION; (C) MEDICAL RELIEF; AND (D) THE ADVANCE MENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. AN ENTITY WITH A CHARITABLE OBJECT OF THE ABOVE NATURE WAS ELIGIBLE FOR EXEMPTION FROM TAX U/S 11 OF THE ACT. SECTION 2(15) WAS AMENDED VIDE ITA NO. 246/C/2015 5 FINANCE ACT, 2008 W.E.F 1.4.2009 BY ADDING A PROVISO WHICH STATES THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CARRYING ON OF (A) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS; OR ( B ) ANY ACTIVITY OF RENDERING ANY SERVIC E IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS; FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION OF THE INCOME FROM SUCH ACTIVITY 6.3 THE NEWLY INSERTED PROVISO TO SECTION 2(15) WILL NOT APPLY IN RESPECT OF THE FIRST THREE LIMBS OF SECTION 2(15) I.E., RELIEF OF THE POOR, EDUCATIONOR MEDICAL RELIEF. CONSEQUENTLY, WHERE THE PURPOSE OF A TRUST OR INSTITUTION IS RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF, IT WILL CONSTITUTE CHARITABLE PUR POSE EVEN IF IT INCIDENTALLY INVOLVES THE CARRYING ON OF COMMERCIAL ACTIVITIES. THIS HAS BEEN CLARIFIED BY THE CBDT VIDE ITS CIRCULAR NO.11/2008 DATED: 19.12.2008. THE ASSESSEE HAD ALL ALONG BEEN CONTENDING BEFORE THE CIT THAT IT IS A CHARITABLE SOCIET Y FUNCTIONING FROM THE YEAR 1983 AND THE MAIN OBJECT OF THE ASSESSEE SOCIETY WAS RELIEF OF THE POOR FALLING U/S 2 (15)OF THE ACT. IT WAS CONTENDED BEFORE THE CIT THAT THE ASSESSEES ACTIVITIES IN THE DAIRY SECTOR WAS FOR THE ECONOMIC UP - LIFTMENT OF SM ALL AND MARGINAL FARMERS. THE CIRCULAR NO.11/2008 ISSUED BY THE CBDT STATES THAT RELIEF OF THE POOR ENCOMPASSES A WIDE RANGE OF OBJECTS FOR THE WELFARE OF THE ECONOMICALLY AND SOCIALLY DISADVANTAGED OR NEEDY. THE SAID CIRCULAR ALSO INDICATES THAT ENTI TIES ENGAGED IN PROVIDING RELIEF TO SMALL AND MARGINAL FARMERS CAN ENGAGE IN BUSINESS ACTIVITY INCIDENTAL TO THE ITA NO. 246/C/2015 6 ATTAINMENT OF SUCH MAIN OBJECTIVE. THE RELEVANT PORTION BOARDS CIRCULAR READS AS FOLLOWS: 2.2. RELIEF OF THE POOR ENCOMPASSES A WIDE RAGE OF OBJECTS FOR THE WELFARE OF THE ECONOMICALLY AND SOCIALLY DISADVANTAGED OR NEEDY. IT WILL, THEREFORE, INCLUDE WITHIN ITS AMBIT PURPOSES SUCH AS RELIEF TO DESTITUTE, ORPHANS OR THE HANDICAPPED, DISADVANTAGED WOMEN OR CHILDREN, SMALL AND MARGINAL FARMERS, INDIGENT ARTISANS OR SENIOR CITIZENS IN NEED OF AID. ENTITIES WHO HAVE THESE OBJECTS WILL CONTINUE TO BE ELIGIBLE FOR EXEMPTION EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACTIVITY, SUBJECT, HOWEVER, TO THE CONDITIONS STIPULATED UNDER SECTION 11(4A) OR THE SEVENTH PROVISO TO SECTION 10(23C) WHICH ARE THAT ( I ) THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE ENTITY, AND ( II ) SEPARATE BOOKS OF ACCOUNT SHOULD BE MAINTAINED IN RESPECT OF SUCH BUSINESS. SIMILARLY, ENTITIES WHOSE OBJ ECT IS EDUCATION OR MEDICAL RELIEF WOULD ALSO CONTINUE TO BE ELIGIBLE FOR EXEMPTION AS CHARITABLE INSTITUTIONS EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACTIVITY SUBJECT TO THE CONDITIONS MENTIONED ABOVE. 6. 4 . THE CIT HAD NOT CONSIDERED WHET HER THE ASSESSEES ACTIVITIES FALLS WITHIN THE SCOPE OF THE PHRASE RELIEF OF THE POOR IN S. 2 (15) OF THE ACT. THE ORDER WAS PASSED BY THE CIT AS IF THE BUSINESS ACTIVITY CRITERIA ALONE MATTERED WHILE EXAMINING WHETHER THE ASSESSEE WAS AN ENTITY WHOSE P ROPERTY WAS USED FOR CHARITABLE PURPOSE. IN THE JUDGMENT REPORTED IN 1990 (1) SCC 532, IT HAS BEEN LAID DOWN THAT CLASSIFICATION UNDER THE RESIDUARY CATEGORY WAS POSSIBLE ONLY IF THE CLASSIFICATION UNDER THE SPECIFIC CATEGORY WAS NOT POSSIBLE CONCEIVABLE P ROCESS OF REASONING. THE CIT HAD NOT MADE ANY ATTEMPT TO ANALYZE WHY THE ASSESSEES OBJECTS DID NOT FALL WITHIN THE SPECIFIC CATEGORY OF RELIEF OF POOR. THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY IS ACTIVITY THAT TAKES WITHIN ITS FOLD ONLY THOSE ACTIVITIES WHICH FALL OUTSIDE THE PURVIEW OF RELIEF OF ITA NO. 246/C/2015 7 POOR, EDUCATION, MEDICAL RELIEF, PRESERVATION OF ENVIRONMENT AND PRESERVATION OF MONUMENTS. THE SAID POSITION IS CLEAR FROM THE USAGE OF THE PHRASE ANY OTHER OBJECT AND GENERAL IN CONTRAST TO THE VARIOUS SPECIFIC OBJECTS CITED IN SECTION 2 (15) OF THE ACT AND THIS WAS ALSO MADE CLEAR IN BOARDS CIRCULAR (SUPRA). THE ACTIVITY OF PROMOTION OF DAIRY FARMING AND SALE OF MILK, ACCORDING TO US, WAS AN ACTIVITY THAT HAD BEARING UPON THE ECONOMIC SITUATION OF SMALL AND MARGINAL DAIRY FARMERS AND SUCH AN ACTIVITY, PRIMA FACIE, CANNOT BE TERMED AS AN ACTIVITY THAT IS OF GENERAL PUBLIC UTILITY . 6. 5 . HOWEVER, SINCE THE ASSESSMENT ORDER HAS ALREADY BEEN SET - ASIDE, THESE ARE THE ASPECTS F OR THE AO TO CONSIDER. FOR THE AFORESAID REASONING, WE DELETE THE OBSERVATION OF THE CIT THAT THE ASSESSEE WAS NOT ENTITLED TO THE BENEFIT OF SEC. 11 OF THE ACT. THE AO, WHILE RE - DOING THE ASSESSMENT, WILL BE AT LIBERTY TO CONSIDER THE ENTIRE ASPECTS OF THE CASE AND SHALL TAKE A DECISION IN ACCORDANCE WITH LAW. IT IS ORDERED ACCORDINGLY. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16TH, DAY OF DEC 2015 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 16 TH , DEC 2015 RAJ* ITA NO. 246/C/2015 8 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN