2017 (3) TMI 1262 - HC - Income Tax

Charitable activity u/s 2(15) - Entitlement for continued registration u/s 12A - activities carried by the assessee were commercial in nature - Held that - Tribunal has recorded a finding of fact that the dominant function of the respondent Trust is to provide an asylum to old, maimed, sick and stray cows. Further, only 25% of the cows being looked after yield milk and if the milk is not procured, it would be detrimental to the health of the cows. Therefore, the milk which is obtained and sold by the respondent assessee is an activity incidental to its primary / principal activity of providing asylum to old, maimed, sick and disabled cows. In the present facts, the activity of milking the cows and selling the milk is almost compelled upon the Trust, in the process of giving asylum to the cows. In our view, the activity to be considered in the nature of trade, commerce or business would in most cases have to be carried out on a regular basis with a view to earn the profit. The presence of the profit intent (even if it does not fructify) would normally be a sine qua non for the activity to be considered as trade, commerce or business. Therefore, in the present facts, it is not as though the keeping of the cows and milking them was with a view to carry out activity in the nature of trade, commerce or business to earn profits. The Revenue has not shown how even in the absence of profit motive, the activity of obtaining milk and selling the same would still be an activity of trade, commerce or business. In the alternative, Mr. Malhotra submitted that the proviso to Section 2(15) of the Act would apply even if it is not trade, commerce or business but only in its nature. However, how and why the activity of selling milk obtained incidentally while taking care of the cows, is in the nature of trade, business or commerce is not shown. Admittedly, in the present facts, the dominant activity carried out by the respondent assessee s Trust for over 130 years is to take care of old, sick and disabled cows. In these circumstances, an incidental activity of selling milk which may result 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 the proviso to Section 2(15) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the Tribunal was justified in holding that the assessee is entitled to continued registration under Section 12A of the Income Tax Act, 1961, despite the amendment to Section 2(15) which redefined "charitable purpose" to exclude activities of a commercial nature.

Issue-wise Detailed Analysis:

1. Continued Registration under Section 12A:
The primary issue in this case is whether the assessee Trust, engaged in activities such as running a Panjrapole (protection of cows), is entitled to continued registration under Section 12A of the Income Tax Act, 1961, in light of the amended definition of "charitable purpose" under Section 2(15). The amendment specifies that activities involving trade, commerce, or business with receipts exceeding ?10 lakhs are not considered charitable.

The Tribunal's impugned order noted that the Trust's dominant function is to provide asylum to old, maimed, sick, weak, disabled, and stray animals, particularly cows. Only 25% of the cows yield milk, which is essential for their health, and the milk is distributed free or sold at nominal rates. The Tribunal relied on the case of Sabarmati Ashram Gaushala Trust and the Delhi High Court's decision in ICAI v. Director General of Income Tax (Exemption) to conclude that the sale of milk is incidental to the Trust's primary charitable activity and does not constitute a commercial activity.

The Revenue's argument was that the Trust's receipts from milk sales exceeded ?1.57 crores, indicating a commercial activity. However, the Tribunal found that the dominant activity of the Trust is charitable, and the incidental sale of milk does not negate this. The Tribunal's decision was supported by the Gujarat High Court's ruling in Sabarmati Ashram Gaushala Trust, which held that incidental surpluses from charitable activities do not convert them into commercial activities.

The High Court upheld the Tribunal's decision, emphasizing that the dominant activity test is crucial. The Court referred to the Supreme Court's decision in CIT v. Surat Art Silk Cloth Manufacturers' Association, which stated that profit-making intent is necessary for an activity to be considered commercial. The Court also cited the Delhi High Court's interpretation that the expressions "trade," "commerce," and "business" should be interpreted restrictively, focusing on the dominant charitable purpose.

The High Court dismissed the Revenue's appeal, concluding that the Trust's primary activity of providing asylum to cows is charitable, and the incidental sale of milk does not transform it into a commercial activity. The appeal was dismissed with no order as to costs.