Trust Serving Public Utility Granted Tax Exemption Under Section 11

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Case Name:

Principal Commissioner of Income Tax vs Animal Breeding Research Organisation (India) (High Court of Gujarat)

R/Tax Appeal No.522 of 2018

Key Takeaways

- The court reaffirmed that activities serving a general public utility qualify for tax exemption under Section 11.

- The trust's activities, such as cattle breeding and agricultural support, were deemed charitable.

- The decision relied on the precedent set by the case Director of Income-Tax (Exemption) v. Sabarmati Ashram Gaushala Trust.

Issue

Was the Tribunal justified in allowing tax exemption under Section 11 despite the trust's commercial activities?

Facts

- The respondent, Animal Breeding Research Organisation (India), is a registered trust.

- The trust's main income came from the sale of cattle semen.

- The Assessing Officer argued that this commercial activity disqualified the trust from being considered charitable under Section 2(15) of the Income Tax Act.

- The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal both ruled in favor of the trust, leading to the Revenue's appeal to the High Court.

Arguments

Revenue

- The trust's commercial activities, specifically the sale of cattle semen, should disqualify it from tax exemption under Section 11.

- The activities fall under the first and second proviso to Section 2(15) of the Income Tax Act, which excludes entities engaged in commercial activities from being considered charitable.

Respondent (Trust)

- The trust's activities serve a general public utility and are therefore charitable.

- The income generated from these activities is used to further the trust's charitable objectives.

Key Legal Precedents

- Director of Income-Tax (Exemption) v. Sabarmati Ashram Gaushala Trust [2014] 362 ITR 539 (Guj):

This case established that activities serving a general public utility qualify as charitable, even if they generate income.

Judgement

The High Court dismissed the Revenue's appeal, upholding the Tribunal's decision to grant tax exemption under Section 11. The court agreed that the trust's activities serve a general public utility and are therefore charitable, citing the precedent set by the Sabarmati Ashram Gaushala Trust case.

FAQs

Q1. Why was the trust granted tax exemption?

A1. The trust was granted tax exemption because its activities serve a general public utility, which qualifies as charitable under Section 11 of the Income Tax Act.

Q2. What was the main argument of the Revenue?

A2. The Revenue argued that the trust's commercial activities, specifically the sale of cattle semen, disqualified it from being considered charitable under Section 2(15) of the Income Tax Act.

Q3. What precedent did the court rely on?

A3. The court relied on the precedent set by the case Director of Income-Tax (Exemption) v. Sabarmati Ashram Gaushala Trust [2014] 362 ITR 539 (Guj), which established that activities serving a general public utility qualify as charitable.

Q4. What does this decision mean for other trusts?

A4. This decision reinforces that trusts engaged in activities serving a general public utility can qualify for tax exemption under Section 11, even if they generate income from those activities.

Q5. What are the implications of this case for the Income Tax Act?

A5. The case clarifies the interpretation of "charitable purpose" under Section 2(15) and the conditions under which trusts can qualify for tax exemption under Section 11.

1. Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 09.11.2017 raising following question for our consideration:

“Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the benefit of exemptions u/s 11 of the Act without considering the fact that the assessee is involved in widespread commercial activities in nature of business and the activity of the assessee is covered under first and second proviso to section 2(15) of the Act?”

2. Respondent­assessee is a registered Trust. Some of the objects for which the Trust is registered are as under:

“AIMS AND OBJECTIVES

The aims and objects of the Society are as under:

1) The society is established with a view to undertake and promote activities connected with the development of cattle and buffaloes (with special reference to the breeding and genetic improvement) and to engage in other allied activities such as development of draught animal power systems, feed and fodder development for live stock and to extend necessary suport persons (including dairy farmers) for carrying out any of such activities in different parts of India and generally to promote economic upliftment of the farmers segment. The society is not established for the purpose of profit.

2) To achieve the aforesaid objectives, the society may carry on all or any of the following activities; .....”

3. For the assessment year 2011­12, the Assessing Officer during scrutiny assessment noticed that the assessee's principal income of Rs.4.84 crores (rounded off) out of the total income of Rs.5.08 crores (rounded off) arose out of the activity of sale of semen. He was of the opinion that the assessee was engaged in a business which was undertaken with a proper motive and therefore would not fall within the definition of 'charitable purpose' as provided under section 2(15) of the Income Tax Act, 1961 ('the Act' for short).

4. The assessee carried the matter in appeal. Commissioner of Income Tax (Appeals) allowed the assessee's appeal, upon which, the Revenue approached the Tribunal. The Tribunal by the impugned judgment, referring to the earlier judgment in case of this very assessee and relying upon the judgment of Division Bench of this Court in case of Director of Income­Tax (Exemption) v. Sabarmati Ashram Gaushala Trust reported in [2014] 362 ITR 539 (Guj), rejected the Revenue's appeal.

5. In case of Sabarmati Ashram Gaushala Trust (supra), under somewhat similar background, this Court had observed as under:

“11. We are wholly in agreement with the view of the Tribunal. The objects of the Trust clearly establish that the same was for general public utility and where for charitable purposes. 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 eduction in cow keeping and agriculture having regard to the trust objects.”

6. In the result, this Tax Appeal is dismissed.

(AKIL KURESHI, J)

(B.N. KARIA, J)