2018 (7) TMI 2185 - AT - Income Tax

Revision u/s 263 - Exemption u/s 11 - assessee is not doing charitable activities rather engaged in trade, commerce or business - HELD THAT - The main objectives of the trust are to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country; to produce and sale the cow milk; to hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Bharwads; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc.; to establish other allied institutions like leather work and to recognize and help them in order to make the cow keeping economically viable; to publish study materials, books, periodicals, monthlies etc., in order to publicize the objects of the trust as also to open schools and hostels for imparting education in cow keeping and agriculture having regard to the trust objects. Objects of the trust are of general public utility and beneficial to the public at large as the centers are located at village level in various blocks (Tallukas) in the state of Rajasthan and in each center, gopals are deputed who are responsible for the objects of the assessee trust and such gopals organizes meetings with the villagers. When calf is borne out of the activities carried out by the trust then calf borne certificate is issued, which contains the complete details of calving. We have also perused the objects of the trust (available in the paper book) which are of clearly in the nature of charitable purposes, therefore, the objections observed in the impugned order are fully satisfied. So far as the contention of the Ld. CIT-DR and observed by the Ld. CIT(E) also that a detailed assessment order has not been framed is concerned, we find that firstly, AO was having the benefit of earlier assessment orders, wherein, identical claim of the assessee was allowed and secondly, the assessment was framed after issuance of notices, queries so raised, and on consideration of various replies filed by the assessee as discussed in earlier paras of this order and available on record. Thus, decisions from Hon'ble Apex Court, Hon'ble Gujarat High Court, other High Courts and Hon'ble jurisdictional High Court, we are of the clear opinion that the revisional jurisdiction invoked by the Ld. CIT(E) is not justified. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Whether the activities of the assessee trust fall under the definition of "charitable purpose" as per Section 2(15) of the Income Tax Act, 1961.
2. Whether the payment of ?17,78,321 to Shri B.K. Kedia was reasonable and in compliance with Section 13(3) of the Income Tax Act.
3. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue, justifying the invocation of Section 263 by the Commissioner of Income Tax (Exemption).

Issue-wise Detailed Analysis:

1. Definition of "Charitable Purpose" Under Section 2(15):
The assessee contended that its activities, including cattle breeding and improvement through integrated livestock development centers, were charitable as they aimed at improving the socioeconomic conditions of farmers by increasing milk yield. The trust received grants from the government for these activities and did not charge any fees from the beneficiaries, thus fulfilling the criteria of "general public utility."

The Tribunal referred to the Gujarat High Court's decision in the case of DIT (Exemption) vs. Sabarmati Ashram Gaushala Trust, which held that activities aimed at improving cattle quality and milk production, even if generating incidental surplus, are charitable if they are not carried out with a profit motive. The Tribunal concluded that the assessee's activities were genuinely charitable and not in the nature of trade, commerce, or business, thus falling within the definition of "charitable purpose" under Section 2(15).

2. Reasonableness of Payment to Shri B.K. Kedia:
The assessee explained that Shri B.K. Kedia, an experienced professional, was paid ?17,78,321 for his services in managing the trust's projects and operations. The payment was claimed to be reasonable considering his previous salary and the value he brought to the trust.

The Tribunal noted that the payment was made after due consideration and was much lower than his previous earnings. It was also observed that the payment was made for genuine services rendered, and there was no evidence to suggest that it was excessive or unreasonable. The Tribunal concluded that the payment was justified and did not violate Section 13(3).

3. Invocation of Section 263 by the Commissioner:
The Commissioner invoked Section 263, arguing that the assessment order was erroneous and prejudicial to the interests of the Revenue because the Assessing Officer did not properly examine the nature of the trust's activities and the payment to Shri B.K. Kedia.

The Tribunal found that the Assessing Officer had issued notices, raised queries, and received detailed replies from the assessee before framing the assessment order. The Tribunal held that the assessment was made after due verification and examination of facts, and the order was neither erroneous nor prejudicial to the interests of the Revenue. The Tribunal emphasized that the mere fact that the assessment order was not detailed did not justify the invocation of Section 263, especially when the Assessing Officer had considered all relevant aspects.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the activities of the trust were charitable in nature, the payment to Shri B.K. Kedia was reasonable, and the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The invocation of Section 263 by the Commissioner was found to be unjustified.