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2020 (9) TMI 858 - AT - Income TaxExemption u/s 11 - charitable activity u/s 2(15) - Assessee i.e. Nari Utthan Sansthan is a charitable Institution, which is registered under Societies Registration Act and also under section 12AA - whether milk collection and distribution activity of assessee Trust was a business? - HELD THAT - The assessee society was not at all indulged or involved in any kind of milk business. The activities of milk collecting and disbursement were only in the nature to support to women welfare. Such giving up of milk chilling plant and other allied facilities including equipment etc. held by NUS (assessee society) to FPO created and run by women beneficiaries fully substantiates that there was no business taken up by the assessee. Definition of the term business as per section 2(13) of the Act defining it as any trade, commerce, manufacturing activity or any adventure or concern in the nature of trade, commerce or manufacture. Purely and merely a hypothetical thought made by the A.O. without understanding the genuineness of the assessee s case to treat milk collecting and disbursement activity as business carried out by the assessee. The milk collection and disbursement was only a support activity to achieve the purpose of women empowerment particularly that belonging to the backward rural area of the state of Rajasthan. Perusal of the list of various women beneficiaries further demonstrate that women beneficiaries under the project were including SC/ST/OBC/BPL, Widows as well as other needed section of the society - We can safely conclude that the milk collecting and disbursement activity by no means could be treated as business carried out by the assessee. The charitable purpose carried out and ensured by the assessee trust may it be running an orphanage cum old age home in the name of Snehalaya - Activity of milk collection and disbursement carried out by trust was only to provide a platform to disadvantaged women beneficiaries from rural background particularly being economically highly weaker areas therefore undoubtedly to be treated as charitable purposes promoting relief to poor . Accordingly, the A.O. was not justified in invoking proviso to Section 2(15) of the Act and denial of exemption under section 11 12 of the Act to the assessee society is unjustified under the facts and circumstances of the case. Separate books of accounts were not maintained by the assessee for milk trading as required u/s 11(4A) - HELD THAT - We found that the assessee had got its books of accounts duly audited and submitted the details to the extent possible for the kind reference of the AO even. The milk collection and disbursement activity was conducted as per the scheme sanctioned by the donors only and the assessee did not itself carried out such activity on its own which distinguishes the requirement of following the provisions of section (4A) of section 11 of the Act in the facts and circumstances of the case. Observations recorded by learned CIT(A) in his appellate order allowed the ground of appeal raised by the assessee in its favour. The detailed findings given by the ld. CIT(A) at para 6 of his appellate order are as per material placed on record. Accordingly, we do not find any reason to interfere in the findings of the ld. CIT(A) wherein he held that the AO was not correct in holding that the assessee was required to maintain project wise books of accounts and thus, working out/addition of surplus held as erroneous. The ground of appeal is allowed. Application of fund on account of aid loans/advance - neither any assurance was given nor any affidavit was filed by the assessee society that these loans/advances given by it were not to be re-paid by these beneficiaries - HELD THAT - The documents so filed during the assessment proceedings substantiates assessee s claim in an explicit manner that the assessee society has distributed only aid / assistance amongst various beneficiaries which was never recovered back from them or was never paid back to the assessee society all. Out of the 11 statements recorded during the course of additional evidence proceedings not a single beneficiary accepted to have returned or repaid the amount disbursed to them. The actual facts are only that the amount distributed amongst women beneficiaries was aid / assistance only which was never returned back. Detailed finding has been recorded by the ld. CIT(A) which are as per material on record and do not require any interference. Accordingly, we do not find any infirmity in the order of the ld. CIT(A) in giving relief of ₹ 2.50 crores and directing the A.O. to recalculate accordingly the application of income and surplus. Corpus fund allowance - HELD THAT - Assessee society has not claimed value of such assets in computation of application of income of the assessee trust which substantiates the assessee s claim that the treatment of corpus fund as general fund is incorrect and unlawful. Even if the capital assets acquired were treated as general fund than corpus fund, the AO while computing the total income of the assessee society in his assessment order dated 30.03.2015 did not reduce such amount therefore again adopted an unlawful action on his part. A detailed finding has been recorded at page No. 26 of his appellate order at para 8.2 and after considering the various judicial pronouncements, directed the A.O. to treat sum of ₹ 60,95,870/- as corpus fund. Detailed finding so recorded by the ld. CIT(A) are as per the material on record and do not require any interference on our part. CIT(A) has dealt with each and every objection of the A.O. threadbare and after giving detailed findings, deleted the addition so made by the A.O. - Appeal of revenue dismissed.
Issues Involved:
1. Whether the milk collection and disbursement activity carried out by the assessee was a business. 2. Applicability of the proviso to Section 2(15) of the Income Tax Act. 3. Requirement of maintaining separate books of accounts under Section 11(4A) of the Act. 4. Treatment of surplus from Foreign Contribution Regulation Act (FCRA) receipts. 5. Treatment of revolving funds as application of funds towards the objectives of the Sansthan. 6. Classification of corpus funds. Detailed Analysis: 1. Whether the Milk Collection and Disbursement Activity was a Business: The assessee, a charitable institution, engaged in milk trade activity to support women welfare. The Assessing Officer (AO) considered this as a commercial activity and estimated income from this activity at ?56,00,592/-. However, the CIT(A) held that the milk trade was not a commercial activity but a part of the charitable purpose of empowering women. The CIT(A) observed that the milk collection and disbursement were integral to the women's welfare activities and not aimed at profit generation. The ITAT upheld the CIT(A)'s decision, emphasizing that the activity was meant to support rural women and not to conduct business. 2. Applicability of the Proviso to Section 2(15) of the Act: The AO invoked the proviso to Section 2(15), arguing that the milk trade activity exceeded the threshold of ?25 lakhs, thus disqualifying the assessee from exemption under Sections 11 and 12. The CIT(A) disagreed, stating that the predominant objective of the assessee was to empower women through education and medical relief, which are not covered by the proviso. The ITAT agreed, noting that the assessee's activities fell under "relief to the poor" and were not general public utility activities subject to the proviso. 3. Requirement of Maintaining Separate Books of Accounts under Section 11(4A): The AO contended that the assessee failed to maintain separate books for the milk trade activity as required under Section 11(4A). The CIT(A) found no requirement for separate books since the activity was not a business but incidental to the charitable objectives. The ITAT upheld this view, noting that the assessee's books were audited, and the milk trade activity was conducted as per donor-sanctioned schemes, distinguishing it from a business. 4. Treatment of Surplus from FCRA Receipts: The AO calculated a surplus of ?3,92,79,110/- from FCRA receipts, arguing that the assessee did not maintain project-wise books. The CIT(A) held that there was no legal requirement for project-wise books and that the surplus was utilized for charitable purposes. The ITAT agreed, noting that the assessee provided sufficient documentation to substantiate the utilization of funds for charitable activities. 5. Treatment of Revolving Funds as Application of Funds: The AO did not accept ?2.50 crores disbursed as revolving funds as application of income. The CIT(A), after considering additional evidence and remand reports, concluded that these funds were not loans but appropriations for charitable purposes. The ITAT upheld this finding, noting that the funds were meant to help women beneficiaries and were not repaid, thus qualifying as application of income. 6. Classification of Corpus Funds: The AO treated ?60,95,870/- parked in the corpus fund as general funds, arguing there were no specific directions from donors. The CIT(A) found that the donations were intended for capital asset acquisition and correctly classified as corpus funds. The ITAT agreed, noting that the assessee did not claim these funds as application of income, supporting their classification as corpus funds. Conclusion: The ITAT upheld the CIT(A)'s decision on all grounds, confirming that the milk trade activity was not a business, the proviso to Section 2(15) was not applicable, separate books of accounts were not required, the surplus from FCRA receipts was correctly utilized, the revolving funds were appropriately treated as application of income, and the corpus funds were correctly classified. The revenue's appeal was dismissed.
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