Commissioner Of Income Tax vs Amul Research And Development on 8 February, 2017

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Gujarat High Court

Commissioner Of Income Tax vs Amul Research And Development on 8 February, 2017

HC-NIC Page 1 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT Feeling aggrieved and dissatisfied with the impugned judgment and order dated 18th August 2016 passed by the Income Tax Appellate Tribunal, Ahmedabad [hereinafter referred to as, "the Tribunal"] in I.T.A No. 3032/Ahd/2013 for Assessment Year 2010-2011, by which the learned Tribunal has allowed the said Appeal preferred by the assessee and has held that the assessee can be said to be "charitable institution" within the definition of Section 2 [15] of the Income-tax Act, 1961 and consequently is entitled to exemption under Section 11 [1](a) of the I.T Act, the Revenue has preferred the present Tax Appeal with the following proposed questions of law :

[A] "Whether the Appellate Tribunal has substantially erred in allowing the assessee's appeal, negating the finding of the CIT [Appeals] as well as the Assessing Officer denying the benefits of Section 11 [1](a) of the I.T Act and deleting additions of Rs.

3,36,06,368/= ?"

Page 2 of 25

HC-NIC Page 2 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT [B] "Whether the Appellate Tribunal has substantially erred in giving the benefit of Sections 11 and 12 which the Assessing Officer disallowed by invoking the provision of Section 2 [15] r.w.s 13 [8] of the Act ?"

2. The facts leading to the present Tax Appeal in nutshell are as under :

2.1 That the assessee filed return of income for Assessment Year 2010-2011 and claimed exemption under Section 11 [1](a) of the Income-tax Act, 1961 [hereinafter referred to as, "the Act"] contending inter alia that the assessee Trust is providing medical facilities, and therefore, its activities are for charitable purposes under Section 2 [15] of the Act. However, the Assessing Officer applied proviso to Section 2 [15] of the Act and held that the assessee is a profit making company, and therefore, activities of the assessee trust are no longer charitable in view of amended provisions of "charitable purposes" and therefore assessee is not entitled to exemption under Section 11 [1](a) of the Page 3 of 25 HC-NIC Page 3 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT Act; as claimed. Therefore, the Assessing Officer did not accept the claim of the assessee for exemption under Section 11 [1](a) of the Act and consequently, disallowed the amount of Rs. 3,36,06,368/=.

2.2 Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer rejecting the claim of the assessee for exemption under Section 11 [1](a) of the Act, the assessee preferred Appeal before the learned Commissioner of Income-tax [Appeals]. The learned CIT[A] dismissed the appeal preferred by the assessee and confirmed the order passed by the Assessing Officer.

2.3 Feeling aggrieved and dissatisfied with the order passed by the learned CIT[A], the assessee preferred appeal before the learned Tribunal, being ITA No. 3032/Ahd/2013. By the impugned judgment and order, considering the object and purpose as contained in the memorandum of association and considering the activities of the assessee trust, the learned Tribunal has held that the activities of the trust can be said to be Page 4 of 25 HC-NIC Page 4 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT providing medical relief, and therefore, proviso to Section 2 [15] of the Act shall not be applicable and the assessee shall be entitled to exemption under Section 11 [1](a) of the Act.

3. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 18th August 2016 passed by the learned Tribunal, the Revenue has preferred the present Tax Appeal with the following proposed questions of law :-

[A] "Whether the Appellate Tribunal has substantially erred in allowing the assessee's appeal, negating the finding of the CIT [Appeals] as well as the Assessing Officer denying the benefits of Section 11 [1](a) of the I.T Act and deleting additions of Rs.

3,36,06,368/= ?"

[B] "Whether the Appellate Tribunal has substantially erred in giving the benefit of Sections 11 and 12 which the Assessing Officer disallowed by invoking the provision of Section 2 [15] r.w.s 13 Page 5 of 25 HC-NIC Page 5 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT [8] of the Act ?"

4. Shri Manish R Bhatt, learned counsel appearing on behalf of the appellant-Revenue has vehemently submitted that in the facts and circumstances of the case and looking to the objects of the assessee and activities of the assessee, the learned Tribunal has materially erred in not applying proviso to Section 2 [15] of the Act. It is vehemently submitted by Shri Bhatt, learned counsel for the Revenue that the objects of the assessee indicates that the activities of the assessee are for economic development of the agriculturists, and therefore, the same can be said to be for "public utility service" as per Section 2 [15] of the Act, and therefore, proviso to Section 2 [15] of the Act shall be applicable. It is vehemently submitted by Shri Bhatt, learned counsel for the Revenue that the language of Section 2 [15] of the Act is very clear. It is submitted that the activities of the assessee will fall under the last limb of Section 2 [15] of the Act, viz., Page 6 of 25 HC-NIC Page 6 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT "advancement of any other object of general public utility." It is submitted that therefore when the activities of assessee are in the nature of trade, commerce or business, considering the proviso to Section 2 [15] of the Act, the activities of the assessee cannot be said to be for "charitable purpose", and therefore, the assessee is not entitled to exemption under Section 11 [1](a) of the Act.

4.1 It is further submitted by Shri Manish R Bhatt, learned counsel for the Revenue that even otherwise, the ultimate beneficiaries are the farmers who are doing commercial activities, and therefore also, the activities of the assessee cannot be said to be "for charitable purpose", and therefore, the assessee will not be entitled to claim exemption under Section 11 [1]

(a) of the Act. In support of his above submissions, Shri Bhatt, learned counsel for the Revenue has relied upon a decision of the Andhra Pradesh High Court in case of Andhra Pradesh State Seed Certification Agency vs. Chief Commissioner of Income-tax & Ors., 356 Page 7 of 25 HC-NIC Page 7 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT ITR 360 [Madras]. It is further submitted by Shri Bhatt, learned counsel for the Revenue that even otherwise, the expression given in Section 2 [15] of the Act, "relief to the poor, education, medical relief" must be construed ejusdem generis with the next following expression "and the advancement of any other object of general public utility" so as to connote relief to the public at large. It is submitted that therefore, the expressions themselves being clear, it cannot be said that the medical relief to the animals would be covered in those expressions. It is submitted that therefore, the expression, "relief of the poor, education, medical relief " cannot be read in isolation and the same is to be read along with the "relief to the public" and therefore, "for advancement of any other object of general public utility". In support of his above submissions and as to how to read the said expressions, learned counsel Mr. Bhatt has heavily relied upon a decision of the Hon'ble Supreme Court in the case of Sole Trustee Lok Shikshan Trust v. Commissioner of Income Tax, Page 8 of 25 HC-NIC Page 8 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT reported in [1975] 101 ITR 234 [SC].

4.2 Mr. Manish R Bhatt, learned counsel for the Revenue has further submitted that as the activities carried out by the assessee shall fall and/or can be said of "general public utility" and as the assessee is recovering Cess from the farmers, considering the proviso to Section 2 [15] of the Act, the assessee shall not be entitled to claim exemption under Section 11 [1]

(a) of the Act.

4.3 Making the above submissions and relying upon the above decisions, it is requested to admit/allow the present Tax Appeal.

5. Heard Shri M.R Bhatt, learned counsel appearing on behalf of the appellant-Revenue at length. A short question which is posed before this Court for consideration is as to whether the activities carried out by the assessee can be said to be "charitable purpose"

and the assessee is entitled to exemption under Section 11 [1](a) of the Act, or the case of the assessee can be said to be, "for advancement of any other object of Page 9 of 25 HC-NIC Page 9 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT general public utility " and the proviso to Section 2 [15] of the Act will be applicable so as to consider the exemption claimed by the assessee under Section 11 of the Act ?

6. While considering the question posed for consideration of this Court, definition of Section 2 [15] is required to be referred to. Section 2 [15] of the I.T Act, as it stood amended by Finance Act, 2009 w.e.f 1st April 2009, reads as under :-

Section 2(15): "Charitable purpose" relief of the poor, education, medical relief (preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects or artistic or historic interest) and the advancement of any other object of general public utility;

Provided that advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of render any service in relation to any trade, commerce of business, for a CESS or fee or any other consideration, irrespective of the Page 10 of 25 HC-NIC Page 10 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT nature of use or application, or retention, of the income from such activity;

Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year.

7. While considering the aforesaid question, even the objects of the assessee-Trust, as per the Memorandum of Association are also required to be referred to. As per the Memorandum of Association, the objects of the assessee are as under :-

"3.1 To carry Research, Development and Extension work conductive to the economic development of agriculturist and to provide an Organization for the benefit and service to the farmers and further to implement programme to improve the productive efficiency of Live stock, Husbandry and agriculture.

3.2 To act as an advisory body in the interest of the farmers.

3.3 To promote Research, lectures, discussion and correspondence or information on the subject of agriculture and livestock husbandry and other related problems and to co-operate and collaborate with a similar Page 11 of 25 HC-NIC Page 11 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT organization, for furtherance of the objects of the ARDA.

3.4 To undertake directly and/or arrange by subsiding to point and circulate any research works, newsletters, bulletins, pamphlets, posters etc, that the ARDA may think desirable for the promotion of its object. 3.5 To organize or finance and/or assist the training and publicity programme through publicity and audio visual aids for the purpose of Education and extension work in Agriculture and Livestock Husbandry. 3.6 To undertaken research and establish and run veterinary hospitals, laboratory and services, artificial Insemination Centers and serves and further to provide medicines and Veterinary help to cattle and further to undertaken such programme which can improve livestock housing veterinary health and hygiene and to control and eradicate animal disease.

3.7 To establish laboratory, research institutions and may organize works and training camps and undertake all such activities for the benefits of the farmers.

3.8 To provide scholarship grants and/or loans for the training in livestock husbandry, agriculture and allied, offer prize or awards and other inducement for distinguished services and/or for research in the above Page 12 of 25 HC-NIC Page 12 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT field.

3.9 To provide or give and/or loan to village co-operative build milk collection centre and/or equipment with a view to improve the standards of hygiene and quality of milk. The equipments would include amongst other things, testing equipments and materials, equipments for collection, chilling and storage of milk etc,.

3.10 To provide or give grant and/or loan to village cooperative for augmenting water supply resources for improvements of the milk yields, by better fodders and greensand by making drinking water available for livestock.

              3.11 To         render            technical,              financial,
              administrative         and              other           necessary

assistance, other cooperative organization in the field of divests husbandry and agriculture. 3.12 To provide and/or give grant or loan to village cooperative for build warehouse for storage of cattle feed or agriculture produce. 3.13 To establish and own livestock herds and farms to improve their breeds and may undertake or establish herd register and/or advisory services for improving productive efficiency of livestock.

3.14 To co-operate or collaborate with authorities, State or Union Government, International agencies and/or other Institutions anywhere in the world to further Page 13 of 25 HC-NIC Page 13 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT these objectives.

3.15 To undertake such programme, which can courage scientific practices of cultivation, conservation and use of fodders and cattle, feeds to improve productive efficiency of animals.

3.16 To undertake studies and economic of encourage of farms and livestock husbandry and conduct survey and such other activities for the economic development or agriculturist.

3.17 To generally to carry on such other activities as would further the above objects and to do all such other things as are incidental and conductive to the above objects.

7.1 It is not in dispute that the activities of the assessee is also to undertake research and establish and run the veterinary hospitals, laboratory and services, artificial Insemination Centers and services; to provide medicines and Veterinary help to the cattle including organizing programmes which can improve livestock housing veterinary health and to control and eradicate animal diseases. It is the case on behalf of the Revenue that as the assessee is recovering Cess Page 14 of 25 HC-NIC Page 14 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT from the agriculturists/farmers towards services provided by the assessee and/or to carry out the activities of the Trust and also on the ground that the activities of the assessee-Trust can be said to be medical relief, however, the same is to the animals, and therefore, activities of the assessee cannot be said to be "charitable purpose" as per first part of Section 2 [15] of the Act and the same shall fall under advancement of general public utility, and therefore, when the assessee is recovering Cess, as per proviso to Section 2 [15] of the Act, the activities of the assessee cannot be said to be "charitable purpose", and therefore, assessee is not entitled to claim exemption under Section 11 [1] (a) of the Act.

7.2 However, considering Section 2 [15] of the Act, there cannot be any distinction between medical relief to the human and medical relief to the animals. As observed hereinabove, as per Section 2 [15] of the Act, any activity of the relief to the poor, eduction, medical relief, preservation of environment [including Page 15 of 25 HC-NIC Page 15 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT watersheds, forests and wildlife] can be said to be for "charitable purpose". It does not say activities of the medical relief to the human being only which can be said to be for "charitable purpose". Therefore, the language of Section 2 [15] of the Act is very clear. As per the settled proposition of law, any provision under the Statute; more particularly, the benevolent provision of the Statute, is required to be read as it is. Neither there can be any addition nor there can be any deletion, while interpreting a particular statute; more particularly, the benevolent provision. The expression "medical relief " is required to be given widest meaning so as to achieve the object and purpose of granting exemption to an assessee, whose activities are for "charitable purpose". It is not in dispute that the assessee's activities includes providing maternity, animal nursery, fertility, vaccination to milch animals belonging to the milk producers. Thus, the assessee's activities are to ensure that milching animals are free from diseases, their breed improvement and overall Page 16 of 25 HC-NIC Page 16 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT well-being. Thus, we are of the opinion that activities of the medical relief, even to the animals, will fall under former specific category of "medical relief " and not covered under the last limb of Section 2 [15] of the Act ie., "advancement of any other object of general public utility".

8. Now so far as submissions on behalf of the Revenue that as the assessee is recovering/collecting the Cess for the services provided by them, and therefore, considering proviso to Section 2 [15] of the Act, the activities of the assessee cannot be said to be "for charitable purpose" and therefore, not entitled to exemption claimed under Section 11[1](a) of the Act is concerned, at the outset, it is required to be noted that once the activities of the assessee will fall under first three categories of Section 2 [15] of the Act, proviso to Section 2 [15] shall not be applicable.

9. Now in view of the the aforesaid finding that the activities of the assessee is in the field of providing medical relief to the animals, whether the assessee is Page 17 of 25 HC-NIC Page 17 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT entitled to exemption under Section 11 of the Act or not and whether in the facts and circumstances of the case the assessee can be denied exemption under Section 11 of the Act relying upon and/or considering the proviso to Section 2(15) of the Act is concerned so far as the amendment in Section 2(15) of the Act amended vide Finance Act, 2008 and insertion of proviso to Section 2(15) of the act is concerned, as such the same has been explained vide Circular No.11/2008 dated 19/12/2008. It is clarified that where industries or trade association claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to Section 2(15) of the Act owing to the principles of mutuality. From the Circular No.11/2008 dated 19/12/2008 it appears that the the newly inserted proviso to Section 2(15) of the Act will apply to entities whose purpose is advancement of any other object of general public utility i.e. fourth limb of Page 18 of 25 HC-NIC Page 18 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT definition of 'charitable purpose' contained in Section 2(15) of the Act and hence such entities will not be eligible for exemption under Section 11 or under Section 10(23C) of the Act if they carry on commercial activities. Thus, on fair reading of Section 2(15) of the Act, the newly inserted proviso to Section 2(15) of the Act will not apply in respect of the first three limbs of Section 2(15) of the Act i.e. relief to the poor; education or medical relief. Thus, where the purpose of a trust or institution is relief of the poor; education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of the commercial activities. Thus, on fair reading of Section 2(15) of the Act read with Circular No.11/2008 dated 19/12/2008 it appears that if the case of the assessee does not fall within the first three limbs of Section 2(15) of the Act i.e. relief to the poor; education or medical relief and if it falls in the fourth limb i.e. advancement of any other object of general public utility and it is found that such activity of advancement of any other object of general Page 19 of 25 HC-NIC Page 19 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT public utility involves carrying on of (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service 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, the same shall not be considered for "charitable purpose" and shall not be entitled to exemption under Section 11 of the Act.

10. Now so far as reliance placed upon a decision of the Hon'ble Supreme Court in the case of Sole Trustee, Lok Shikshan Trust [Supra] is concerned, as such, the same has been dealt with and considered in detail by the Division Bench of this Court in the case of Tax Appeal No. 707 of 2013 [Director of Income Tax (Exemption) vs. Ahmedabad Management Association] wherein, in para 5.4, the Division Bench has observed and held as under :-

"5.4. Now while considering whether the activities of the assessee can be said to be educational activities or not the decision of this Page 20 of 25 HC-NIC Page 20 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT Court as well as Hon'ble the Supreme Court is required to be referred to and considered. In the case of Gujarat State Cooperative Union (Supra) it is held by the Division Bench of this Court that mere existence of profit will not disqualify institution for exemption under Section 10(22) of the Act, if sole purpose of its existence is not profit making but is educational activities. In the said decision the Division Bench also considered the decision of Hon'ble the Supreme Court in the case of Lok Shikshana Trust (Supra), which has been relied upon by the Assessing Officer as well as the learned Counsel appearing on behalf of the revenue. In the said decision the Division Bench of this Court has observed as under :

"It appears to us that the decision of the tribunal which seeks to rest it on the observations made by the Supreme Court in Loka Shikshana Trust's (Supra) for holding that, the assessee is not entitled to exemption under Section 10(22) of the Act is based on a complete misreading of the observations of the Supreme Court. In Loka Shikshana Trust's (Supra) the Supreme Court, while dealing with the provisions of Section 11 read with Section 2(15) of the Act, which defines "charitable purpose" observed as under :

"The sense in which the word 'education' has been used in Section 2(15) of the Act in the systematic instruction, schooling or training given to the young is preparation Page 21 of 25 HC-NIC Page 21 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word 'education' has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge....but this not the sense in which the word 'education' is used in Clause (15) of Section 2. What 'education' connotes in that Clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling?

The Supreme Court, in the above observations by referring to the systematic instruction, schooling or training given to the young has only cited an instance in order to indicate as to what the word "education" appearing in Section 2(15) of the Act which defines "charitable purposes" is intended to mean. We are certain that these observations were not intended to keep out of the meaning of the word "education", persons other than "young. The expression "schooling" also means "that schools, instructs or educates" (The Oxford English Dictionary Vol. IX, page 217). The Supreme Court has observed that the word "education" also connotes the whole course of scholastic instruction which a person has received. This clearly indicates that the observations of the Supreme Court were not intended to give a narrow or pedantic sense to the word "education". By giving further illustrations of a traveler gaining knowledge, victims of swindlers Page 22 of 25 HC-NIC Page 22 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT and thieves becoming wiser, the visitors to night clubs adding to their knowledge the hidden mysteries of life, the Supreme Court has indicated that the word "education" is not used in a loose sense so as to include acquisition of even such knowledge. The observations of the Supreme Court only indicate the proper confines of the word "education" in the context of the provisions of Section 2(15) of the Act.It will not be proper to construe these observations in a manner in which they are construed by the tribunal when it infers from these observations, in paragraph 17 of its judgment, that the word "education" is limited to schools, colleges and similar institutions and does not extend to any other media for such acquisition of knowledge. The observations of the Supreme Court do not confine the word "education" only to scholastic instructions but other forms of education also are included in the word "education". As noticed above, the word "schooling" also means instructing or educating. It, therefore, cannot be said that the word "education" has been given an unduly restricted meaning by the Supreme Court in the said decision. Though, in the context of the provision of Section 10(22), the concept of education need not be given any wide or extended meaning, it surely would encompass systematic dissemination of knowledge and training in specialized subjects as is done by the assessee. The changing times and the ever widening horizons of knowledge may bring in changes in the Page 23 of 25 HC-NIC Page 23 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT methodology of teaching and a shift of the better in the institutional setup. Advancement of knowledge brings within its fold suitable methods of its dissemination and though the primary method of sitting in a classroom may remain ideal for most of the initial education, it may become necessary to have a different outlook for further education. It is not necessary to nail down the concept of education to a particular formula or to flow it only through a defined channel. Its progress lies in the acceptance of new ideas and development of appropriate means to reach them to recipients."

11. In view of the above and for the reasons stated above, it cannot be said that the learned Tribunal has committed any error in holding/considering the activities of the assessee within the definition of "charitable purpose" provided in Section 2 [15] of the Act, and therefore, the assessee-Trust shall be entitled to exemption claimed under Section 11 [1](a) of the Act.

12. In view of the above and for the reasons aforestated, the present Tax Appeal fails and the same deserves to be dismissed and is accordingly dismissed. The question of law is answered in favour of the Page 24 of 25 HC-NIC Page 24 of 25 Created On Sun Aug 13 11:31:08 IST 2017 O/TAXAP/49/2017 JUDGMENT assessee and against the Revenue.

[M.R Shah, J.] [B.N Karia, J.] Prakash Page 25 of 25 HC-NIC Page 25 of 25 Created On Sun Aug 13 11:31:08 IST 2017

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