M/s. Bangalore Urban and Rural District Co-operative Milk producers Socities Members and Employees Welfare Trust, Bangalore V. DIT, Bangalore

ITA 302/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9431 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 09-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PREETHI GARG
• Keywords: Charitable institution; Benefit of exemption
• Section: 80G; 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI K.P.T. THANGAL, VICE PRESIDENT AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS.301 & 302/BANG/2009 ASSESSMENT YEARS : N.A. M/S. BANGALORE URBAN & RURAL DISTRICT CO-OPERATIVE MILK PRODUCERS SOCIETIES MEMBERS AND EMPLOYEES WELFARE TRUST, BANGALORE MILK UNION LTD., DR. M.H. MARIGOWDA ROAD, D.R. COLLEGE POST, BANGALORE 560 029. : APPELLANT VS. THE DIRECTOR OF INCOME TAX (EXEMPTIONS), BANGALORE. : RESPONDENT APPELLANT BY : MS. SHEETAL RESPONDENT BY : SMT. PREETHI GARG O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THESE TWO APPEALS ARE DIRECTED AGAINST THE ORDERS O F THE DIT (EXEMPTION) - (I) IN REJECTING THE APPLICATION FOR REGISTRATION U/S 12A OF THE ACT; AND (II) THE APPLICATION FOR RECOGNITION U/S 8 0G OF THE ACT. ITA NO.301 & 302/B/09 PAGE 2 OF 17 2. THE ASSESSEE HAS RAISED FIVE GROUNDS [IN ITA NO: 301], OUT OF WHICH, GROUND NOS: 1 AND 5 ARE GENERAL AND NOT SPECIFIC AN D, THEREFORE, DO NOT SURVIVE FOR ADJUDICATION. THE REMAINING THREE GROU NDS ARE REFORMULATED AS (1) THE DIT(E) ERRED IN HOLDING THAT THE ASSESSEE TRUST DOES NOT EXISTS FOR THE BENEFIT OF GENERAL PUBLIC OR A SECTION OF GENER AL PUBLIC; (2) FOLLOWING THE HONBLE SUPREME COURTS JUDGMENT, THE DIT(E) OUGHT TO HAVE HELD THE ASSESSEE AS A CHARITABLE TRUST AND CONSEQUENTLY ALLOWED THE REGISTRATION U/S 12A OF THE ACT; & (3) THE DIT(E) OUGHT TO HAVE ALLOWED RECOGNITION U/S 80 G(5)(VI) OF THE ACT. 3. SIMILARLY, [IN ITA NO: 302], THE ASSESSEE HAS RA ISED THREE GROUNDS. HOWEVER, ON A PERUSAL, IT IS EMERGED THAT THE ESSEN CE AND CRUX OF THE GRIEVANCE OF THE ASSESSEE IS REVOLVED AROUND THE DIT (E)S REFUSAL TO GRANT REGISTRATION U/S 12A OF THE ACT AND RECOGNITI ON FOR EXEMPTION U/S 80G OF THE ACT. 4. AS THE ISSUES RAISED ARE INTER-LINKED, FOR THE S AKE OF CONVENIENCE, BOTH OF THESE APPEALS ARE CONSIDERED TOGETHER AND A DJUDICATED IN THIS COMMON ORDER. 5. ON RECEIPT OF APPLICATION FOR REGISTRATION U/S 1 2A OF THE ACT, THE LD. DIT (E) HAD EXAMINED THE ACTIVITIES OF THE ASSESSEE WITH REFERENCE TO OBJECTS AND MADE THE FOLLOWING OBSERVATIONS: IT IS EVIDENT FROM THE ACTIVITIES AND ACCOUNTS OF THE TRUST THAT THE TRUST WORKS FOR THE WELFARE OF MEMBERS WHO SUBSCRIB E TO THE TRUST. ANY TRUST WHEREIN THE BENEFITS DO NOT ENURE (SIC) E NSURE FOR THE GENERAL PUBLIC CANNOT BE CONSIDERED AS A PUBLIC CH ARITABLE TRUST. ITA NO.301 & 302/B/09 PAGE 3 OF 17 THE TRUST EXISTS NOT FOR THE BENEFIT OF THE GENERAL PUBLIC OR A SECTION OF THE GENERAL PUBLIC BUT FOR THE BENEFIT OF ITS ME MBERS. THERE IS NO ELEMENT OF ALTRUISM OR PHILANTHROPY BUT BENEFIT TO THE CONTRIBUTOR- MEMBERS. THE APPLICANT IS THUS INELIGIBLE FOR REGI STRATION U/S 12A OF THE I.T. ACT. 5.1. WITH REGARD TO REJECTION OF ASSESSEES APP LICATION U/S 80G OF THE ACT, THE DIT(E) HAD OBSERVED, PRECISELY, IN A NUT -SHELL, THUS IN THIS CASE THE APPELLANT HAD APPLIED FOR GRANT O F RECOGNITION U/S 80G OF THE INCOME-TAX ACT OF 1961 ON 5/8/2008. THE TRUST WAS REGISTERED ON 25.01.2007. THE APPLICANTS APPLICATI ON FOR REGISTRATION U/S 12A WAS REJECTED VIDE ORDER DATED: 13.02.2009. 2. IN THE CIRCUMSTANCES, THERE IS NO OPTION BUT TO REJECT THE APPLICANTS APPLICATION U/S 80G (5) (VI) OF THE INC OME-TAX ACT, 1961, AS NOT ELIGIBLE . 6. AGGRIEVED BY THE TREATMENT OF THE LD. DIT (E), T HE ASSESSEE HAS COME UP WITH PRESENT APPEALS. THE LD. A R REITERAT ED MORE OR LESS WHAT HAS BEEN URGED BEFORE THE LD. DIT (E). DURING THE COURSE OF HEARING, THE LD. A R HAD FURNISHED A PAPER-BOOK CONTAINING 1 3 1 PAGES WHICH CONSISTS OF, INTER-ALIA, COPY OF TRUST DEED, COPIES OF BALAN CE-SHEET, INCOME AND EXPENDITURE STATEMENT ETC. TO BUTTRESS HER ARGUME NT, THE LD. A R HAD PLACED STRONG RELIANCE ON THE JURISDICTIONAL HIGH C OURTS FINDING IN THE CASE OF DIT V. M/S. GARDEN CITY EDUCATIONAL TRUST [IN ITA N O: 57 OF 2004 DATED: 15/7/2009] . HOWEVER, IN THE JUDGMENT OF HONBLE APEX COURT, NO CITATION WAS GIVEN ON WHICH THE ASSESSEE HAS PLACED ITS RELI ANCE. 6.1. ON THE OTHER HAND, THE LD. D R WAS VERY SPECI FIC IN HER URGE THAT THE DIT (E) HAD MADE OUT A CASE THAT THE ASSES SEE WAS INELIGIBLE FOR REGISTRATION U/S 12A OF THE ACT AND, CONSEQUENTLY, REJECTED THE APPLICATION ITA NO.301 & 302/B/09 PAGE 4 OF 17 FOR RECOGNITION U/S 80G OF THE ACT TOO IN A JUDICIO US MANNER WHICH REQUIRES NO INTERFERENCE AT THIS STAGE. 7. WE HAVE CAREFULLY CONSIDERED THE THOUGHTFUL ARG UMENTS OF THE RIVAL PARTIES. WE HAVE CAUTIOUSLY PERUSED THE RELE VANT RECORDS AND ALSO THE PAPER-BOOK FURNISHED BY THE LD.A.R. 7.1. THE MAIN OBJECTIVES OF THE TRUST AS ENUMERATE D IN THE TRUST DEED OF THE ASSESSEE ARE THAT I) THE BENEFIT OF THE PROJECT OR SCHEME SHALL FLOW TO THE PUBLIC IN GENERAL OR TO INDIVIDUALS BELONG TO THE ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY ; II) THE APPLICANT HAS THE NECESSARY EXPERTISE, PER SONNEL AND OTHER FACILITIES FOR EFFICIENT IMPLEMENTATION OF THE PROJ ECT OR SCHEME; A) CONSTRUCTION AND MAINTENANCE OF DRINKING WATER PROJECTS IN RURAL AREAS AND IN URBAN SLUMS, INCLUDING INSTALLATION OF PUMP-SETS, DIGGING OF WELLS, TUBE-WELLS AND LAYING OF PIPES FOR SUPPLY OF DRINKING WATER; B) CONSTRUCTION OF DWELLING UNITS FOR THE ECONOMICA LLY WEAKER SECTIONS; C) CONSTRUCTION OF SCHOOL BUILDINGS PRIMARILY FOR CHILDREN BELONGING TO THE ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY; D) ESTABLISHMENT AND RUNNING OF NON-CONVENTIONAL AN D RENEWAL SOURCES OF ENERGY SYSTEMS; E) ANY OTHER PROGRAMME FOR UPLIFT OF THE RURAL POOR OR THE URBAN SLUM DWELLERS, AS THE NATIONAL COMMITTEE MAY CONSIDER FI T FOR SUPPORT; F) PROMOTION OF SPORTS; G) ESTABLISHMENT AND RUNNING OF EDUCATIONAL INSTITU TIONS IN RURAL AREAS, EXCLUSIVELY FOR AND CHILDREN UP TO 12 YEARS OF AGE; H) ESTABLISHMENT AND RUNNING OF HOSPITALS AND MEDIC AL FACILITIES IN RURAL AREAS, EXCLUSIVES WOMEN AND CHILDREN UP TO 12 YEAR S OF AGE; I) ENCOURAGING THE PRODUCTION OF BACTERIA INDUCED F ERTILIZERS; J) CONSTRUCTION OF HOSTEL ACCOMMODATION FOR WOMAN O R HANDICAPPED INDIVIDUALS OR INDIVIDUAL WHO ARE OF THE AGE OF 65 YEARS OR MORE; K) ESTABLISHMENT AND RUNNING OF INSTITUTIONS IMPART ING EDUCATION IN THE FIELD OF ENGINEERING, MEDICINE IN RURAL AREAS OR TO WNS WHICH CONSISTS OF POPULATION OF LESS THAN 5 LAKHS; ETC. ITA NO.301 & 302/B/09 PAGE 5 OF 17 L) PLANTATION OF SOFTWOOD ON DEGRADED NON-FOREST LA ND; M) ANY PROGRAMME OF CONSERVATION OF NATURAL RESOURC ES OR OF AFFORESTATION; N) RELIEF AND REHABILITATION OF HANDICAPPED INDIVID UALS. III. THE OTHER OBJECTIVES OF THE TRUST: TO PROVIDE EDUCATIONAL FACILITIES AND MEDICAL SERVI CES (PREVENTION DECEASE INCLUDING IMMUNIZATION) TO THE MEMBERS OF THE MILK PRODUCERS SOCIETIES AND THEIR FAMILY MEMBERS AS ALSO TO THE EMPLOYEES OF TH E SOCIETIES. (3) TO ESTABLISH EDUCATIONAL INSTITUTIONS AND HOSP ITALS, TO PROMOTE EDUCATION AND SAFEGUARD THE HEALTH OF THE MILK PROD UCERS AND THEIR FAMILIES AND ALSO THE EMPLOYEES OF THE SOCIETIES. (4) TO OPEN SHOPS TO SELL STATIONARY ITEMS AND FROM THE INCOME DERIVED OUT OF THE BUSINESS WILL BE UTILIZED FOR THE ACTIVITIES OF THE TRUST. (5) TO TAKE UP THE WORK FOR THE BENEFIT OF THE PROD UCERS AND THEIR FAMILIES AND ALSO THE EMPLOYEES OF THE SOCIETIES THROUGH THE TRUST AND TO DECIDE THE OTHER MATTERS RELATING TO THE MUTUAL INTEREST O F THE MEMBERS. (6) TO RUN THE HOSPITALS HAVING INPATIENT, OUT-PATI ENT, PHARMACY, LABORATORY AND MEDICAL STORE FACILITIES; (7) TO ORGANIZE RURAL DEVELOPMENT PROGRAMMES APART FROM ALL OTHER ACTIVITIES SUPPORTING THE AFORESAID OBJECTIVES. (8) TO RENDER FINANCIAL ASSISTANCE FROM THE TRUST TO THE FAMILY (HUSBAND/WIFE) OF THE DECEASED IN THE EVENT OF DEAT H OF ANY MILK PRODUCER/MEMBER. (9) IN THE EVENT OF DEATH OF THE CATTLE OF THE MIL K PRODUCERS/MEMBERS BY CONSUMING POISON/ACCIDENT/THUNDER/FIRE TO PROVIDE A PPROPRIATE FINANCIAL COMPENSATION THROUGH TRUST BY TREATING TH E SAME AS A SPECIAL CIRCUMSTANCE. 7.2. FOR CLAIMING EXEMPTION UNDER SECTION 11, IN CA SE OF ASSESSEE CLAIMING BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANIZATIONS, SECTION 2(15) OF THE INCOME TAX ACT, 1961 (ACT) DEF INES CHARITABLE PURPOSE TO INCLUDE (I) RELIEF OF THE POOR, (II) EDUCATION (III) MEDICAL ITA NO.301 & 302/B/09 PAGE 6 OF 17 RELIEF, AND (IV) THE ADVANCEMENT OF ANY OTHER OBJEC T OF GENERAL PUBLIC UTILITY . AN ENTITY WITH A CHARITABLE OBJECT OF THE ABOVE NATURE IS ELIGIBLE FOR EXEMPTION FROM TAX UNDER SECTION 11 OR ALTERNATIVEL Y UNDER SECTION 10(23C) OF THE ACT. HOWEVER, SECTION 2(15) WAS AMENDED VIDE FINANCE ACT, 2008 BY ADDING A PROVISO WHICH STATES THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PU RPOSE IF IT INVOLVES THE CARRYING ON OF (A) ANY ACTIVITY IN THE NATURE OF TR ADE, COMMERCE OR BUSINESS; OR (B) ANY ACTIVITY OF RENDERING ANY SERVICE IN REL ATION TO ANY TRADE, COMMERCE OR BUSINESS. 7.2.1. 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, EDUCATION OR MEDICAL RELIEF. THE NEWLY INSERTED PR OVISO TO SECTION 2(15) WILL APPLY ONLY TO ENTITIES WHOSE PURPOSE IS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY I.E. THE FOURTH LIMB OF THE DEFINITION OF CHARITABLE PURPOSE CONTAINED IN SECTION 2(15). HENCE, SUCH ENT ITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OR UNDER SECTION 10( 23C) OF THE ACT IF THEY CARRY ON COMMERCIAL ACTIVITIES. 8. ON A CAREFUL READING OF THE MAIN OBJECTIVES OF THE ASSESSEE, WE FIND THAT NO THRUST WAS GIVEN FOR THE RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF TO THE GENERAL PUBLIC. THE SOLE PUR POSE OF THE TRUST WAS INTENDED TO FOR MUTUAL INTERESTS OF ITS MEMBERS [MI LK PRODUCERS SOCIETIES] WHO ARE THE SUBSCRIBERS OF THE ASSESSEE AND THEIR F AMILY MEMBERS UNDER THE GUISE OF PRETENDING TO SERVE THE GENERAL PUBLIC . EVEN THE PROPOSED ESTABLISHMENT AND RUNNING OF EDUCATIONAL INSTITUTIO NS AND HOSPITALS HAVE ITA NO.301 & 302/B/09 PAGE 7 OF 17 BEEN RELEGATED TO THE BACKWARD WHILE FORMULATING TH E MAIN OBJECTS OF THE TRUST. 8.1. EVEN THE OTHER OBJECTIVES OF THE TRUST, AS CUL LED OUT FROM THE TRUST DEED, CLEARLY EMPHASIS THE MODUS OPERANDI OF THE TRUST WHICH READ AS UNDER: TO PROVIDE EDUCATIONAL FACILITIES AND MEDICAL SERVICES (PREVENTION DECEASE INCLUDING IMMUNIZATION) TO THE MEMBERS OF THE MILK PRODUCERS SOCIETIES AND THEIR FAMILY MEMBERS AS ALSO TO THE EMPLOYEES O F THE SOCIETIES; (3) TO ESTABLISH EDUCATIONAL INSTITUTIONS AND HOSPITALS, T O PROMOTE EDUCATION AND SAFEGUARD THE HEALTH OF THE MILK PRO DUCERS AND THEIR FAMILIES AND ALSO THE EMPLOYEES OF THE SOCIETIES; (5) TO TAKE UP THE WORK FOR THE BENEFIT OF THE PRODUCERS AND THEIR FAM ILIES AND ALSO THE EMPLOYEES OF THE SOCIETIES THROUGH THE TRUST AND TO DECIDE THE OTHER MATTERS RELATING TO THE MUTUAL INTEREST OF THE MEMBERS. (6) TO RUN THE HOSPITALS HAVING INPATIENT, OUT-PATI ENT, PHARMACY, LABORATORY AND MEDICAL STORE FACILITIES; (7) TO ORGANIZE RURAL DEVELOPMENT PROGRAMMES APART FROM ALL OTHER ACTIVITIES SUPPORTING THE AFORESAID OBJECTIVES. (8) TO RENDER FINANCIAL ASSISTANCE FROM THE TRUST TO THE FAMILY (HUSBAND/WIFE) OF THE DECEASED IN THE EVENT OF DEAT H OF ANY MILK PRODUCER/ MEMBER. (9) IN THE EVENT OF DEATH OF THE CATTLE OF THE MILK PRODUCERS/MEMBERS BY CONSUMING POISON/ACCIDENT/THUNDER/FIRE TO PROVIDE APPROPRIATE FINANCIAL COMPENSATION THROUGH TRUST BY TREATING THE SAME AS A SPECIAL CIRCUMSTANCE. 8.2. THUS, THE MODUS OPERANDI OF THE ASSESSEE WAS TO SEEK REGISTRATION UNDER SECTION 12AA OF THE ACT IN THE GUISE OF RELIEF TO THE POOR, EDUCATION OR MEDICAL RELIEF TO THE GENERAL PUBLIC , BUT, IN REALITY THE ULTIMATE ITA NO.301 & 302/B/09 PAGE 8 OF 17 BENEFICIARIES ARE ITS (ASSESSEES) MEMBERS [MILK PR ODUCERS SOCIETIES] WHO ARE THE SUBSCRIBERS OF THE ASSESSEE AND THEIR FAMIL Y MEMBERS. 8.2.1 THE INTENTION OF THE SETTLOR/EXECUTOR POINTS OUT TO THE FACT THAT THE TRUST IS CREATED PREDOMINANTLY FOR THE BENEFIT OF THE MILK PRODUCERS AND EMPLOYEES OF THE MILK PRODUCERS CO-OPERATIVE SOCIET Y OF THE DISTRICT. THE FIRST FOUR PARAS OF THE TRUST DEED ARE REPRODUCED H EREBELOW FOR REFERENCE: WITNESSETH AS FOLLOWS: WHEREAS, THE SETTLOR / EXECUTOR WITH AN INTENTION TO SAFEGUARD THE INTERESTS OF THE MILK PR ODUCERS AND THE EMPLOYEES OF THE MILK PRODUCERS CO-OPERATIVE SOCIET IES OF THE DISTRICT AND TO HELP THE MILK PRODUCERS, HAS COME F ORWARD TO CONSTITUTE THIS TRUST TO SAFEGUARD, THE INTERESTS A ND TO PROMOTE THE HEALTH AND EDUCATION OF THE MEMBER MILK PRODUCERS, THEIR FAMILIES/DEPENDANT CHILDREN AND THE EMPLOYEES WORKI NG IN THE MILK PRODUCERS CO-OPERATIVE AND THEIR FAMILIES/DEPE NDANT CHILDREN. SOCIETIES WITHIN THE LIMITS OF BANGALORE URBAN AND RURAL DISTRICTS; AND WHEREAS, IN THE MEETING OF THE EXECUTIVE COMMITTEE OF THE BANGALORE URBAN AND RURAL DISTRICT S CO- OPERATIVE MILK PRODUCERS UNION HELD ON 8.12.2006, I T HAS BEEN UNANIMOUSLY RESOLVED TO FORM A TRUST FOR THE UPLIFT MENT AND PROSPERITY AND TO SAFE GUARD THE INTERESTS OF THE M EMBERS OF THE MILK PRODUCERS SOCIETIES AND THEIR FAMILY MEMBERS A S ALSO, THE EMPLOYEES OF THE SOCIETIES OF BOTH THE DISTRICTS OF THE UNION; AND WHEREAS, THE EXECUTOR HAS DECIDED TO DONATE THE TRUST RS.1,001/- AS PER THE FUNDS AVAILABLE UND ER LAW AND THIS AMOUNT WOULD CONTINUE TO BE THE CORPUS OF TRUST FUN D AND THE TRUSTEES HAVE AGREED AND JOINED THEIR HANDS WITH TH E EXECUTOR TO FORMULATE THE FOLLOWING REGULATIONS FOR THE BETTER ADMINISTRATION OF THE TRUST. THE LETTER FILED BY THE ASSESSEE DATED 7.7.2008 ADD RESSED TO THE ASSISTANT COMMISSIONER OF INCOME TAX (TRUST), ALSO FALL IN TH E SAME LINE. THE ITA NO.301 & 302/B/09 PAGE 9 OF 17 SECOND PARA OF THE LETTER (PAGE 22 OF THE PAPER BOO K) IS REPRODUCED HEREBELOW : OUR TRUST IS A CHARITABLE TRUST REGISTERED IN KARN ATAKA. TO ESTABLISH, MAINTAIN, RUN, DEVELOP, IMPROVE, EXTENT, GRANT DONATE FOR AND TO AID AND ASSIST IN THE ESTABLISHMENT, MAI NTENANCE, RUNNING, DEVELOPMENT, IMPROVEMENT AND EXTENSION TO SAFEGUARD THE INTERESTS OF THE MILK PRODUCERS AND THE EMPLOYE ES OF THE MILK PRODUCERS CO-OPERATIVE SOCIETIES OF THE DISTRICT AN D TO HELP THE MILK PRODUCERS, HAS COME FORWARD TO CONSTITUTE THIS TRUST TO SAFEGUARD THE INTEREST AND TO PROMOTE THE HEALTH AN D EDUCATION OF THE MEMBER MILK PRODUCERS, THEIR FAMILIES/DEPENDANT CHILDREN. AN EXTRACT OF THE LETTER DATED 10.12.2008 FOUND IN PAPER BOOK PAGE NO.28 ALSO LEAD TO THE FACT OF THE ASSESSEE TRUSTS MAIN INTENTION IS TO PROMOTE THE WELFARE OF THE MEMBERS OF THE PRIMARY MILK PRODUCER S, THEIR FAMILIES/DEPENDANTS AND THE EMPLOYEES OF THE PRIMAR Y MILK CO-OPERATIVE SOCIETIES. THE RELEVANT PORTIONS ARE EXTRACTED HER EBELOW : THE ASSESSEE ACKNOWLEDGES THE RECEIPT OF THE ABOVE LETTER, RECEIVED ON 16-10-2008 THE CASE WAS POSTED FOR 3-11 -2008. HOWEVER DUE TO PRE OCCUPANCY OF THE ASSESSEE REPRES ENTATIVE WE COULD NOT ATTEND THE CASE. THE BURDMPS MEMBERS AND EMPLOYEES WELFARE TRUST W AS INCORPORATED TO PROMOTE HEALTH AND EDUCATION OF THE MEMBERS OF THE PRIMARY MILK PRODUCERS, THEIR FAMILIES/DEPENDEN TS AND THE EMPLOYEES OF THE PRIMARY MILK CO-OPERATIVE SOCIETIE S, AS A PUBLIC CHARITABLE TRUST. THE TRUST IS MANAGED BY T HE TRUSTEES WHO ARE ELECTED REPRESENTATIVES OF THE BANGALORE MI LK UNION LTD., AND THE EXECUTIVES OF THE BANGALORE MILK UNIO N LTD., AND ACTIVITIES OF THE TRUST IS RESTRICTED TO BANGALORE UNION AND RURAL DISTRICT TO UNDERTAKE THE OBJECTS OF THE TRUST. WE ARE SUBMITTING THE DETAILS SOUGHT FOR. 1. 2. . ITA NO.301 & 302/B/09 PAGE 10 OF 17 6. THE BURDMPS MEMBERS AND EMPLOYEES WELFARE TRUS T WAS INCORPORATED AS A PUBLIC CHARITABLE TRUST. THE TRUST IS PRESENTLY ENGAGED IN ACTIVITIES LIKE A. PROVIDING SCHOLARSHIP FOR STUDENTS OF THE PRIMAR Y MILK CO-OPERATIVE SOCIETY MEMBERS FOR UNDERTAKING GRADUA TES AND POST GRADUATES EDUCATION. B. PROVIDING DEATH COMPENSATION FOR PRIMARY MILK CO - OPERATIVE SOCIETY MEMBERS. C. PROVIDING SCHOLARSHIP TO PHYSICALLY HANDICAP STU DENTS OF THE MEMBERS OF THE PRIMARY MILK CO-OPERATIVE SOCIET IES. D. PROVIDING COMPENSATION TO THE MEMBERS OF THE PR IMARY MILK CO-OPERATIVE SOCIETY ON ACCIDENTAL DEATH OF LO CAL COWS AND BUFFALOS, WHICH IS THEIR SOLE BREAD EARNER APART FR OM THIS TRUST IS ALSO PLANNING TO SET UP MEDICAL RELIEF CENTERS. WE SHALL BE GLAD TO FURNISH ANY FURTHER DETAILS SOU GHT FOR. 8.2.2. MOREOVER THE FUNDS (APPLIED) UTILIZED BY TH E ASSESSEE HITHERTO WILL ALSO GIVE CREDENCE TO THE ABOVE VIEW AS THE AS SESSEE HAS NOT GIVEN ANY SUBSTANTIAL EVIDENCE FOR SPENDING THE TRUSTS F UNDS FOR GENERAL PUBLIC CAUSE: (I) MEMBERS DEATH RELIEF R S.3,75,000 (II) CATTLE DEATH RELIEF RS.2, 20,000 8.3. IT IS ALSO WORTH-MENTIONING THE HONBLE FINAN CE MINISTERS BUDGET SPEECH WHICH WAS DELIVERED ON 29.02.2008 DUR ING THE COURSE OF BUDGET 2008-2009 PRESENTATION WHICH IS EXTRACTED HE RE-BELOW: CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, ED UCATION, MEDICAL RELIEF AND ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY. THESE ACTIVITIES ARE TAX EXEMPT, AS THEY SHOULD BE. HOWE VER, SOME ENTITIES CARRYING ON REGULAR TRADE, COMMERCE OR BUS INESS AND EARNING INCOMES HAVE SOUGHT TO CLAIM THAT THEIR PUR POSES WOULD ALSO FALL UNDER CHARITABLE PURPOSE. OBVIOUSLY, T HIS WAS NOT THE ITA NO.301 & 302/B/09 PAGE 11 OF 17 INTENTION OF PARLIAMENT AND, HENCE, I PROPOSE TO AM END THE LAW TO EXCLUDE THE AFORESAID CASES. GENUINE CHARITABLE OR GANIZATIONS WILL NOT IN ANY WAY BE AFFECTED. 8.4. WITH DUE RESPECTS, WE HAVE PERUSED THE FINDING OF THE JURISDICTIONAL HONBLE HIGH COURT REFERRED SUPRA ON WHICH THE ASSE SSEE HAS PLACED A STRONG RELIANCE. THE PRIME ISSUE BEFORE THE HONBL E COURT WAS THAT, WHETHER THE HONBLE TRIBUNAL WAS RIGHT TO OPINE THA T, NOTWITHSTANDING THE VARIOUS DISCREPANCIES AND MISAPPLICATION OF THE FUN DS OF THE TRUST AS NOTICED BY THE COMMISSIONER, THE TRUST NEVERTHELESS HAVING THE OBJECT OF RUNNING EDUCATIONAL INSTITUTIONS , WOULD QUALIFY AS A TRUST HAVING A CHARITABLE PURPOS E AS ONE OF ITS OBJECTS AND AFTER REFERRING TO THE VA RIOUS AUTHORITIES ON THE SUBJECT, FOLLOWING THE DECISION OF ALLAHABAD HIGH C OURT IN THE CASE OF CIT V. RED ROSE SCHOOL REPORTED IN (2007) 212 CTR (ALL) 39 4 AND WHICH IN TURN HAD FOLLOWED SEVERAL OTHER LIKE DECISIONS OF OTHER HIGH COURTS, ALLOWED THE APPEAL BEING OF THE VIEW THAT THE SCRUTINY AS TO TH E APPLICATION OF FUNDS IS AN EXERCISE REQUIRED TO BE UNDERTAKEN BY THE ASSESSING OFFICER AND NOT NECESSARILY BY THE COMMISSIONER WHILE GRANTING REGI STRATION UNDER SECTION 12A IN AN APPLICATION FILED UNDER SECTION 12AA AND ACCORDINGLY ALLOWED THE APPEAL.. . 8.4.1. AFTER CONSIDERING THE ISSUE IN DEPTH, TH E HONBLE HIGH COURT WAS PLEASED TO OBSERVE THUS - 17. IT IS NOT THE FINDING OF THE COMMISSIONER THAT THE APPLICANT- ASSESSEE HAD NOT COMPLIED WITH ANY OF THE PROCEDURA L REQUIREMENTS. THE TRIBUNAL IS FULLY JUSTIFIED IN O BSERVING THAT THE MANNER OF APPLICATION OF FUNDS AND AS TO WHETHER TH E APPLICANT- ASSESSEE CAN CLAIM THE BENEFIT OF EXEMPTION IN TERM S OF SECTIONS 11 ITA NO.301 & 302/B/09 PAGE 12 OF 17 AND 12 IS A QUESTION WHICH HAS TO BE EXAMINED BY TH E ASSESSING OFFICER AT THE STAGE WHEN SUCH QUESTION IS NOT BEFO RE THE COMMISSIONER. IT IS HEREBY CLARIFIED AND EMPHASIZE D THAT WHILE REGISTRATION IN ACCORDANCE WITH THE PROVISIONS OF S ECTION 12-A OF THE ACT IS A CONDITION PRECEDENT FOR CLAIMING THE B ENEFITS UNDER SECTIONS 11 AND 12 OF THE ACT A REGISTRATION AS PER SECTION 12-A BY ITSELF , WILL NOT AUTOMATICALLY CONFER THE BENEFITS OF SECTIONS 11 AND 12 ON A TRUST, BUT THE TRUST WILL GET THE BENEFIT O NLY COMPLYING WITH THE REQUIREMENTS OF SECTIONS 11 AND 12 OF THE ACT, WHICH COMPLIANCE CAN BE EXAMINED BY THE ASSESSING AUTHORI TY, WHILE PROCESSING THE RETURN FILED BY THE TRUST 8.4.2. WITH DUE REGARDS, WE WOULD LIKE TO ENL IGHTEN FURTHER THAT THE ISSUE BEFORE THE HONBLE HIGH COURT WAS THAT THE MANNER OF APPLICATION OF FUNDS AND AS TO WHETHER THE APPLICANT-ASSESSEE CAN CLAIM THE BENEFIT OF EXEMPTION IN TERMS OF S.11 AND 12 IS A QUESTION WHI CH HAS TO BE EXAMINED BY THE ASSESSING OFFICER AND NOT BY THE COMMISSIONER AND THAT THE CASE (M/S. GARDEN CITY EDUCATIONAL TRUST) BEFORE THE HONBLE H IGH COURT WAS RUNNING EDUCATIONAL INSTITUTIONS WHEREAS THE PRESENT ASSESSEE - CO-OPERATIVE MILK PRODUCERS SOCIETIES IS NOT RUNNING ANY EDUCATIONA L INSTITUTION AS SUCH. 8.4.3. IN THE CASE OF SANJEEVAMMA HANUMANTHE GOWDA CHARITABLE TRUST V. DIT (E) REPORTED IN (2006) 285 ITR 327, TH E HONBLE HIGH COURT OF KARNATAKA HAD AN OCCASION TO DEAL WITH A SIMILAR IS SUE. AFTER DELIBERATING THE ISSUE AT LENGTH, THE HONBLE COURT WAS PLEASED TO OBSERVE THUS SECTION 11 OF THE ACT DEAL WITH EXEMPTIONS AVAILAB LE TO INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES. EXEMPTION FROM TAX WILL BE ALLOWED ONLY IN RESPECT OF THE INCOME ACTUA LLY APPLIED TO THE PURPOSES OF THE TRUST. INCOME DERIVED FOR TRUST PR OPERTY MUST BE DETERMINED ON COMMERCIAL PRINCIPLES. IN ORDER TO B E ELIGIBLE FOR THE AFORESAID EXEMPTION THE ASSESSEE HAS TO GET THE TRU ST REGISTERED UNDER SECTION 12A OF THE ACT. THE ASSESSEE HAS TO MAKE A N APPLICATION IN THE PRESCRIBED FORM AND COMPLY WITH THE OTHER LEGAL REQ UIREMENTS MENTIONED ITA NO.301 & 302/B/09 PAGE 13 OF 17 IN THE AFORESAID SECTION. ON RECEIPT OF SUCH APPLI CATION FOR REGISTRATION THE COMMISSIONER IS UNDER AN OBLIGATION TO FOLLOW T HE PROCEDURE PRESCRIBED UNDER SECTION 12AA BEFORE HE GRANTS OR R EFUSES REGISTRATION . WHAT HE IS EXPECTED TO DO ON RECEIPT OF SUCH AN APP LICATION IS, HE SHALL CALL FOR SUCH DOCUMENTS OR INFORMATION FROM THE TRU ST IN ORDER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIV ITIES OF THE TRUST OR INSTITUTION . IN ADDITION TO SECURING INFORMATION IN THE AFORE SAID MANNER, IT IS OPEN TO THE COMMISSIONER TO MAKE SUCH ENQUIRI ES AS HE DEEMS NECESSARY IN THIS BEHALF. HAVING REGARD TO THE SCHEME OF SECTIONS 11,12 AND 13 ULTIMATELY WHAT THE COMMISSIONER HAS TO LOOK INTO IS NOT THE SOURCE OF INCOME TO THE TRUST BUT WHETHER SUCH INCO ME IS APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES. THE SATISFACTION OF THE COMMISSIONER SHOULD BE REGARDING THE APPLICATION OF THE INCOME O F THE TRUST FOR THE AFORESAID PURPOSES WHICH ONLY ENTITLE THE ASSESSEE TO CLAIM EXEMPTION. FOR ARRIVING AT SUCH SATISFACTION PRIMARILY HE HAS TO LOOK AT THE OBJECT OF THE TRUST, WHEN THE GAME IS REDUCED INTO WRITING IN FORM OF THE TRUST DEED. IF ON THE DATE OF APPLICATION THE TRUST HAS RECEIVE D INCOME FROM ITS PROPERTY, THEN FIND OUT HOW THE SAID INCOME HAS BEE N EXPENDED, AND WHETHER IT CAN BE SAID THAT THE INCOME IS UTILIZED TOWARDS CHARITABLE AND RELIGIOUS PURPOSES, I.E., TOWARDS THE OBJECT OF THE TRUST. THEREFORE , FOR THE PURPOSE OF REGISTRATION UNDER SECTION 12AA OF T HE ACT, WHAT THE AUTHORITIES HAVE TO SATISFY IS THE GENUINENESS OF T HE ACTIVITIES OF THE TRUST OR INSTITUTION AND HOW THE INCOME DERIVED FRO M THE TRUST PROPERTY IS APPLIED TO CHARITABLE OR RELIGIOUS PURPOSE AND N OT THE NATURE OF THE ACTIVITY BY WHICH THE INCOME WAS DERIVED TO THE TRU ST. 8.4.4. THE ESSENCE OF THE HONBLE HIGH COURTS OBS ERVATION, IN OUR CONSIDERED VIEW, IS THAT FOR THE PURPOSE OF REGISTRATION UNDER SECTION 12AA OF THE ACT, WHAT THE AUTHORITIES HAVE TO SATISFY IS TH E GENUINENESS OF THE ACTIVITIES OF THE TRUST OR INSTITUTION AND HOW THE INCOME DERIVED FROM THE TRUST PROPERTY IS APPLIED TO CHARITABLE OR RELIGIOUS PURPOSE AND NOT THE NATURE OF THE ACTIVITY BY WHICH THE INCOME WAS DERIVED TO THE TRUST. 8.4.5. IN CONFORMITY WITH THE FINDINGS OF THE HON BLE HIGH COURT REFERRED SUPRA, THE LD. DIT(E) HAD INDEED VERIFIED TO GET HIMSELF SATISFIED AS TO THE GENUINENESS OF THE ACTIVITIES OF THE TRUST AND HOW THE INCOME DERIVED FROM THE TRUST PROPERTY WAS APPLIED TO CHAR ITABLE OR RELIGIOUS ITA NO.301 & 302/B/09 PAGE 14 OF 17 PURPOSE AND NOT THE NATURE OF THE ACTIVITY BY WHICH THE INCOME WAS DERIVED TO THE TRUST AND FOUND THAT THE PRESENT TRUST WAS FORMED WITH A N INTENTION FOR THE UP-LIFTMENT AND TO SAFEGUARD THE INTERESTS OF THE MEMBERS OF THE MILK PRODUCERS SOCIETIES AND THEIR FAMILY ME MBERS AND ALSO THE EMPLOYEES OF THE SOCIETIES. THUS, HE HAD COME TO A CONCLUSION THAT THE TRUST HAD WORKED FOR THE WELFARE OF ITS MEMBERS BY WAY OF UTILIZING THE FUNDS FOR MEMBERS DEATH RELIEF, CATTLE DEATH RELIEF ETC. WHICH DO NOT FALL WITHIN THE AMBIT OF RELIEF TO THE POOR, EDUCATION OR MEDICAL RELIEF TO THE GENERAL PUBLIC . 8.4.6. ON A CAREFUL READING OF THE MAIN OBJECTIVES OF THE TRUST DEED OF THE ASSESSEE, IT EMERGES THAT THIS TRUST WAS FOR MED FOR THE UP-LIFTMENT AND TO SAFEGUARD THE INTERESTS OF THE MEMBERS OF TH E MILK PRODUCERS SOCIETIES AND THEIR FAMILY MEMBERS, BESIDES THE EMP LOYEES OF THE SOCIETIES/UNION. THE SOLE OBJECT OF THE ASSESSEE W AS THAT THE WELFARE OF MEMBERS OF MILK PRODUCERS SOCIETY AND EMPLOYEES OF BANGALORE MILK UNION LIMITED. 8.4.7. IN THE CASE OF GARDEN CITY EDUCATIONAL TRUST , CONSIDERED BY THE HONBLE HIGH COURT REFERRED SUPRA, THE MAIN OBJECT OF THE TRUST WAS RUNNING EDUCATIONAL INSTITUTIONS WHEREAS IN THE PRESENT ASSESSEES CASE IT IS NOT AS SUCH. AS RIGHTLY POINTED OUT BY THE L D. DIT (E), THE ASSESSEE HAD NOT BROUGHT ON RECORD ANY COHESIVE EVIDENCE TO PROVE THAT THE TRUST WAS FORMED WITH AN INTENTION TO SERVE THE GENERAL P UBLIC IN A CHARITABLE WAY IN THE FIELD OF EDUCATION, INSTEAD, IT IS EVIDENT F ROM ITS ACTIVITIES THAT ITS VERY EXISTENCE IS FOR THE BENEFIT OF ITS MEMBERS ONLY AND NOT TO SERVICE THE GENERAL PUBLIC. THE ASSESSEE HAD SHOWN AN EXPENDIT URE OF RS.16.12 LAKHS ITA NO.301 & 302/B/09 PAGE 15 OF 17 [PAGE 21 OF PB] TOWARDS MERIT SCHOLARSHIPS WITH NO DETAILS TO SUBSTANTIATE ITS CLAIM THAT WHETHER THESE AMOUNTS HAVE BEEN CONT RIBUTED TO GENERAL PUBLIC [STUDENTS] OR OTHERWISE. 8.4.8. WITH DUE RESPECTS TO THE FINDINGS OF THE HO NBLE HIGH COURT REFERRED SUPRA WHEREIN IT HAS LAID DOWN THE PROCEDU RES/GUIDELINES TO BE ADOPTED IN PROCESSING THE APPLICATIONS FOR REGISTRA TION U/S 12A OF THE ACT AND ALSO ULTIMATELY WHAT THE COMMISSIONER HAS TO LOOK INTO IS NOT THE SOURCE OF INCOME TO THE TRUST BUT WHETHER SUCH INCOME IS APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES , WE ARE OF THE CONSIDERED VIEW THAT THE ACTIVITIES O F THE ASSESSEE- TRUST WAS FOR THE BENEFIT AND WELFARE OF ITS MEMBERS WHO SUBSCRIBE TO IT AND AS SUCH, IT CANNOT BE CATEGORIZ ED THAT THE TRUST WAS CREATED FOR THE BENEFIT OF GENERAL PUBLIC AND, THUS , AS RIGHTLY CONCLUDED BY THE DIT(E), THE ASSESSEE-TRUST IS INELIGIBLE FOR RE GISTRATION U/S 12A OF THE ACT. 8.4.9 THE LD. ARS RELIANCE IN THE CASE O F AHMEDABAD RANA CASTE ASSOCIATION V. CIT 82 ITR 704 (SC ) IS ALSO OF NO HELP SINCE THE FACTS OF BOTH THE CASES ARE DISTINGUISHABLE. IN THE ABOVE CITED CASE, THE ASSESSEE WAS AN ASSOCIATION OF PERSONS BELONGING TO RANA CAS TE/COMMUNITY OF THE CITY OF AHMEDABAD PROVIDING EDUCATION, MEDICAL HELP TO THE MEMBERS OF THEIR COMMUNITY WHO ARE NATIVES OF AHMEDABAD AND OT HER MEMBERS OF THE COMMUNITY ACCEPTED BY THEIR CASTE ACCORDING TO ITS AGE OLD CUSTOM AND USAGE AND RESIDENT OF THE CITY. IT WAS HELD IN THI S CASE THAT TO SERVE A CHARITABLE PURPOSE IT IS NOT NECESSARY THAT THE OBJ ECTS SHOULD BE TO BENEFIT ITA NO.301 & 302/B/09 PAGE 16 OF 17 THE WHOLE OF MANKIND OR ALL PERSONS IN A COUNTRY OR STATE, BUT IT IS SUFFICIENT IF THE INTENTION IS TO BENEFIT A SECTION OF THE PUB LIC. 8.4.10 WHILE AS IN THE PRESENT CASE (BANGALORE URB AN AND RURAL DISTRICT CO-OPERATIVE MILK PRODUCERS SOCIETIES MEMB ERS AND EMPLOYEES WELFARE TRUST) IS A TRUST FORMED FOR THE UPLIFTMENT AND PROSPERITY OF THE MEMBERS OF THE MILK PRODUCERS SOCIETIES AND THEIR F AMILY MEMBERS AND IN ORDER TO SAFEGUARD THE INTEREST OF THE MEMBERS OF S UCH SOCIETIES. THEREFORE IT GOES WITHOUT SAYING THAT THE ASSESSEE TRUST EMERGES OUT FROM THE MEMBERS INVOLVED IN A PARTICULAR COMMERCIAL ACT IVITY AND EXISTS MAINLY FOR THE PURPOSE OF THE WELL BEING OF THE MEMBERS OF A PARTICULAR TRADE/OCCUPATION ON A MUTUALITY CONCEPT. 9. IN OVERALL FACTS AND CIRCUMSTANCES OF THE ISSUE , WE ARE OF THE UNANIMOUS VIEW THAT (I) THE LEGISLATURES MAIN INTENT WAS TO PROVIDE SUCCOU RS TO THE POOR IN THE FILED OF EDUCATION, HEALTH RELIEF AND NOT TO CIRCUMVENT SUCH A LEGISLATION TO THE BENEFIT OF THE AFFLUENT IN TH E NAME OF POOR; (II) THE INTENTION OF THE PRESENT ASSESSEE WAS TO AVAIL SUCH BENEFITS AS PROVIDED UNDER THE PROVISIONS OF S.12 OF THE ACT IN THE GUISE OF EXTENDING RELIEF TO THE ECONOMICALLY WEAKER SECTIO N; (III) THE ASSESSEE ALSO CANNOT TAKE SHELTER UNDER THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. AS C OULD BE SEEN FROM THE INTENTION OF THE ASSESSEE TO COMPENSATE ONLY IT S MEMBERS BY WAY OF MEMBERS DEATH RELIEF, CATTLE DEATH RELIEF ETC., AND NOT TO THE GENERAL PUBLIC, THE ADVANCEMENT OF ANY OTHE R OBJECT OF GENERAL PUBLIC UTILITY HAS BEEN PUSHED TO A BACK S EAT; (IV) TO PUT IT IN A NUT-SHELL, THE SOLE INTENTION OF FOR MING THIS TRUST WAS TO PROTECT AND SAFE GUARD THE INTERESTS OF THE MEM BERS OF THE MILK PRODUCERS SOCIETIES AND ITS FAMILY MEMBERS/EMPLOYE ES IN THE GUISE OF GENERAL PUBLIC UTILITY. ITA NO.301 & 302/B/09 PAGE 17 OF 17 8.4.9. IN CONCLUSION, WE UNANIMOUSLY HOLD THAT THE DIT (E) WAS JUSTIFIED IN REJECTING THE ASSESSEES APPLICATION FOR REGISTR ATION U/S 12A OF THE ACT. IT IS ORDERED ACCORDINGLY. 9. WE HAVE SINCE ORDERED THAT THE ASSESSEE-TRU ST IS INELIGIBLE FOR REGISTRATION U/S 12A OF THE ACT, ITS APPLICATION FO R GRANT OF RECOGNITION U/S 80G OF THE ACT REJECTED BY THE DIT (E) IS UPHELD. 10. IN THE RESULT, ASSESSEES BOTH THE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER 2009. SD/- SD/- ( K.P.T. THANGAL ) (A. MOHAN ALANKAMONY ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 30 TH SEPTEMBER, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.