GAUSHALA TRUST SOCIETY,AMBALA CITY vs. CIT(E), CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘A’, CHANDIGARH

BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.1185/Chd/2017 (Assessment Year : 2017-18) Gaushala Trust Society, Vs. The CIT(Exemptions), Spatu Road, Central Revenue Building, Ambala City. 5th Floor, Sector-17E, Chandigarh. PAN: AABAG6754D (Appellant) (Respondent)

Appellant by : Shri Rohit Goyal, CA Respondent by : Shri Gulshan Raj, CIT DR Date of hearing : 26.04.2018 Date of Pronouncement : 11.07.2018

ORDER PER ANNAPURNA GUPTA, A.M. :

This appeal has been preferred by the assessee against

the order of learned Commissioner of Income Tax

(Exemptions), Chandigarh (hereinafter referred to as

CIT(Appeals)) dated 31.5.2017 relating to assessment year

2017-18, refusing grant of registration u/s 12A of the

Income Tax Act, 1961 (in short the ‘Act’).

Form No.10A seeking registration as a charitable trust for

claiming exemption of its income u/s 11 and 12 of the Act.

The Ld.CIT(E) noted from the application that the assessee

society was an ongoing entity since 1913 with the following

aims and objects as outlined in para 2 of the order as

under:

“2. The stated ostensible aims and objects of the society are to make general improvement of cows and its off springs and thus to increase milk yield; to develop such cattle into cows, oxen and bulls of good pedigree; to take care of old, tame and lame and famine- stricken cows, oxen, bulls, calves and their pedigree and to give maximum help/protection to aforesaid; to supply pure milk in the illaqa at reasonable rates; to feed up and develop the calves and selected various pedigrees into stud-bulls and to provide such bulls to villages for improvement of cows bread at reasonable rates.” 3. With this background the Ld.CIT(E) proceeded to

examine whether the assessee was entitled for registration

as per the provisions of section 12A of the Act and,

therefore, issued a questionnaire seeking to examine the

fulfillment of the conditions for grant of registration u/s

12AA, being the genuineness of the objects and the

genuineness of the activities carried out by the assessee.

Due replies were filed by the assessee, after considering

which, the Ld.CIT(E) held that the assessee had failed to

fulfill the basic conditions for being eligible for grant of

registration, since its major emphasis was on creating

income from sale of milk, enhancing FDR’s and earning

interest on the same and that there was no income from

property of the assessee society, as the title of land in the

name of the society, was under litigation for the past many

years. The Ld.CIT(E) denied the registration also for the

reason that there was no corpus fund received by the

assessee society and the same was created only by way of

accretion in the shape of profits, which the Ld.CIT(E) held,

did not partake the character of corpus donations as

envisaged u/s 11(1)(d) of the Act and further that there

were no voluntary donations received by the assessee and

thus no income that could be covered by the provisions of

sections 11 and 12 of the Act. The Ld.CIT(E) also found the

claim of the society of treating more than 500 cows as not

genuine for the reason that the assessee gaushala was

running a Government Veterinary hospital in its premises

since it had employed a doctor from the Government for

treating injured and sick cows and only meagre amount had

been spent by it on medicine and, therefore, it was not the

assessee who was treating the sick and injured cows but

the Government which was doing so, which belied the claim

of the assessee that it was carrying out charitable activities

of treating sick and injured cows. For the above reasons,

the Ld.CIT(E) refused the grant of registration u/s 12A of

the Act. The relevant findings of the Ld.CIT(Appeals) in

paras 7 to 10 of the order are as under:

“7. On 18.05.2017, Sh. Karan Jain, C.A., Counsel for the applicant attended and filed, written submissions in response to above noted queries, While examining the Income & Expenditure statements for the F.Y 2016-17 it transpired that major emphasis of the society is on creating income from, sale of milk and enhancing FDRs and earning interest on the same. This issue also exacerbated by the fact that the income from sale milk in F.Y. 2015-16 was 56.31 lacs and. the same has readied to 63.51 lacs in F.Y. 2016-17. This arrangement clearly leads to conclude that society has been diverted from its object of serving the old, tame and lame cows and got involved in commercial activity of selling of milk. Moreover the claims of the applicant that it is taking care of more than 500 old and lame cows loses its veracity as how old and lame cows could produce that huge quantity of milk that would increase income on account of milk sale from 56 lacs to 63 lacs. 8. It has also been observed that title of land in the name of the society is under litigation from last many year tinder this scenario it clearly leads to conclusion that there is no income from property and it might possibly be the case of encroachment on government land, by the applicant. Further perusal of financial statements reveals that no evidence of corpus funds being shown, in. the balance sheet being received as such has been provided by the applicant rather the

accretions in. the shape of profits are being taken to corpus every year by the applicant. This doesn't take partake the character of corpus donations as envisaged in section 11(1 )(d). Moreover, Perusal of Income & Expenditure reveals no voluntary donations as envisaged in section 12 of l.T. Act has been, received and there is no income that could be covered, by the provision of section 11 & 1.2 of IT. Act. 9. It has also been, revealed from the submissions that a veterinary hospital is running in. the premises of Gaushala and government has employed a doctor which, clearly establishes that it is a government hospital being managed by the government and. society has nothing to do with it. The issue gets exacerbated by the fact, that society has claimed exemption u/s l0(23C)(v) in the previous year on account of charitable activities of serving of injured, or sick cows which in actuality is being done by the Govt. Veterinary Hospital. The same claim was even rejected by the Assessing office in last assessment,: This issue also gets impinged by the fact that out of the total income of 90 lcs as on 31.03.2017 only a sum of 92,.982/- has been spent on medicines which is merely 1.02%. This arrangement clearly leads to the conclusion that claim of society that it is treating more than 500 cows is not genuine rather it is operating on commercial principal and. focusing on generating income on account of milk sale and creation of Fixed Assets. Moreover, no justification for the claim of exemption, after 113 years of incorporation of the society has been provided by the applicant 10. In the instant case, given all of the above. The application, under section 12.A for grant of registration is rejected.” 4. Aggrieved by the same, the assessee has come up in

appeal before us, raising the following ground of appeal:

“1. The learned Commissioner of Income Tax (Exemptions) has erred in laws and facts and law in not registering the applicant Trust u/s 12AA.” 5. During the course of hearing before us, the Ld. counsel

for assessee first stated the facts relating to the assessee

society pointing out that the assessee society was more

than 100 years old and had been established with the object

to take care and to give shelter to old and lame cows, whom

the public do not keep with them. That it was taking care of

more than 500 vows and was running a cow hospital by

employing the Government doctor to serve the old and

helpless cows. The Ld. counsel for assessee stated that it

was providing free medical facilities for the treatment of any

cow brought by general public. The Ld. counsel for assessee

further stated that the cost of maintenance of cow was

being met out of selling milk of these very cows. The Ld.

counsel for assessee drew our attention to the submissions

made in this regard before the Ld.CIT(E) placed at Paper

Book page NO.29 as under:

“1. Assessee is engaged in the activities to take care and to give shelter to old and lame Cows, whom the public do not, keep with them and are of status of without owner. Presently the Gaushala is taking care of more than 500 cows. To meet the purpose of serving ill & helpless cows, Gaushala is maintaining a cow hospital in which Government employed a doctor. A Veterinary Hospital is running in the premises of Gaushala and a regular veterinarian is engaged there whose main responsibility is to treat the cows of Gaushala and the Gaushala Hospital is providing free medical facility for the treatment of any cow brought for treatment by General Public. Gaushala is also providing medicines for cows free of cost. As the Gaushala is engaged in taking care of old and lame Cows and running a Government Veterinary Hospital in the premises itself 'which is an evidential proof of its charitable activities. Thus, exemption under Section 10(23C) is claimed. Photocopy of Assessment order for the A.Y. 2014-15 is enclosed herewith. 2. Financial Statement as on 31.03.2017 i.e. Receipt & Payment Account, Balance Sheetand Income & Expenditure Account are attached herewith. The Gaushala Trust Society was established in February 1913 with the object to take care and to give shelter to old and lame Cows, whom the public do not keep with them and the Gaushala is serving its object from more than last 100 years. The motto of Gaushala is "GAU SEWA - ISHWAR SEWA". Presently the Gaushala is taking care of more than 500 cows. For meeting out the cost of Maintenance of Cows, the Society sells the milk of Cows which is an allied work as after providing medical aid, good and nutritious feed, it produces milk. For feeding the cows, the society has its own agriculture land on which the feed for cows are sown. As the number of cows are more than 500 therefore Milk sale is of considerable amount but

the fact is that main source of funds for meeting out day to day maintenance expenses like feed, consumables, labour etc is the Milk sale. During the year 2015-16 the total expenses of the Gaushala excluding Depreciation was Approx. 78 Lacs as against the milk sale of Rs. 63 Lacs. From the above it is clear that the. presumption of engagement of Gaushala in commercial activities of sale of milk is not correct.” 6. The Ld. counsel for assessee thereafter stated that the

basis on which the Ld.CIT(E) held that the assessee was not

entitled to grant of registration u/s 12A of the Act were

either on misappreciation of facts or were irrelevant to the

issue of grant of registration. Drawing our attention to the

contention of the Ld.CIT(E) that the assessee was indulging

primarily in the commercial activity of selling milk, the Ld.

counsel for assessee stated that the generation of milk and

selling of the same was an allied activity and incidental

activity of the assessee society arising from its main

activity of looking after cows. Ld.Counsel for the assessee,

in this regard stated that out of 500 cows which it was

looking after, only 80 cows were producing milk while the

balance were either non milk producing cows or those not

used for breeding or they were bulls used for breeding or

were cows which were breedable and were not giving milk at

that time. In this regard, the Ld. counsel for assessee drew

our attention to a certificate of the Veterinary Surgeon

certifying monthly progress report of the gaushala for the

month of March, 2017, to the office of the Deputy Director,

ICD Project Ambala City. The Ld. counsel for assessee

stated that this progress report showed the number

animal/cows which were there with gaushala and their

break-up on the basis of whether they were milk cows,

breedable cows, buffaloes, heifers etc. and also their daily

milk production, annual milk production, monthly and

yearly expenses on the cows. The Ld. counsel for assessee

drew our attention to the analysis of the data in the said

monthly report by way of a chart submitted before us as

under:

Cows (in Milk/Breedable) Cows/Bullocks(Non Milk Producing/ Bulls used for Breeding Not used for Breeding) Description Nos. Description Nos. Description Nos. Current Milk 80 Disabled Cows 103 Good Bulls used for 5 Bearing cows non Milk breeding Producing Breedable but not 105 Calves Male 48 milk bearing currently Female Heifers 43 Sterlised 73 Bullocks Calves Female 52 Bulls not used 31 for breeding TOTAL 280 TOTAL 255 TOTAL 5

stated that it was evident from the above that out of the

540 cows owned by it, only 80 cows were currently bearing

milk and only 280 in all were capable to give milk, while the

rest were either disabled, sterilized or male cows or were

bulls. The Ld. counsel for assessee, therefore, stated that

the above statistics clearly revealed that major objective of

the assessee society was not to indulge in milk generation

and sale of the same. The Ld. counsel for assessee drew our

attention to an analysis of the milk realization by assessee

society for the year ending 31-03-2017 and pointed out

there from that even as per the said data of the annual milk

production of the assessee society , which was correlated

with the data as certified by the Veterinary doctor and

revenue generation on account of the same which tallied

with the revenue generated from the sale of milk as

reflected in the income and expenditure account of the

assessee , the total milk yielding cows available with the

assessee society were approximately 75. The Ld. counsel

for assessee further pointed out that the selling price of the

milk was Rs.38/- to Rs.40/- per litre which was far less

than the market price and which proved that the intention

of the assessee society was not to indulge in any

commercial activity and generation of huge profits by sale

of milk. The Ld. counsel for assessee further pointed out

that in any case, the assessee society was not earning any

surplus from the sale of milk and to substantiate the same.

The Ld. counsel for assessee pointed out that against the

revenue generated from the sale of milk during the year

2015-16 of Rs.63,51,321/-, the expenses incurred in the

gaushala amounted to Rs.75 lacs approximately, thus

resulting in loss from this activity carried out by the

assessee society. The Ld.Counsel for the assessee stated

that it was amply clear from the above that the activity of

selling milk by the assessee society was in no way the

primary object of the assessee society and was also not

carried out with the object to earn profits, and, therefore,

the findings of the Ld.CIT(Appeals) in this regard were

incorrect and hence denial of registration for the above

reason.

CIT(E), which was not actually taking care of old and lame

cows but only getting it done at no expenses to the

assessee society through a Government Veterinary doctor

and spending very meagre amount for treating the said

animals by way of purchase of medicines etc, Ld.Counsel for

the assessee stated that the Ld.CIT(E) had again

misappreciated the facts and contention on this issue. The

Ld. counsel for assessee stated that it was the Government

of Haryana which had extended the facilities and doctors for

the hospital and, therefore, it cannot be stated that for this

reason, the assessee was diverted from its object of serving

old and lame cows. As far the meagre amount spent on

taking care of these cows, the Ld. counsel for assessee

stated that the objective of the assessee society was to give

shelter and take care of old and lame cows and for this

purpose it provided feed and other consumables including

medicines to the cows. Further the Ld. counsel for assessee

stated that the Government of Haryana had extended the

facilities and doctors and also provided medicines available

with them for treating the cows at the gaushala and

besides, the assessee society had also spent an amount of

Rs.1,44,842/- towards medicines purchased for taking care

of the cows. The Ld. counsel for assessee stated that it is

clearly evident that the assessee was indulging in its stated

objective of taking care of old and lame cows and finding of

the of the Ld.CIT(E) that the expenditure on medicine was

very low and thus the assessee was not carrying out its

stated object, had no basis at all and was irrelevant. The

Ld. counsel for assessee drew our attention to its

contention before the Ld.CIT(E) in this regard reproduced at

Paper Book page No.30 as under:

“5. During the year 2015-16 the office has raised a query that out of total Receipts, only 1.06% amount is spent for medicine Purchased. The above correlation has no relevance to form a presumption that Gaushala is not following the basic principles of Gaushala. The main object of Gaushala is to-give shelter and take care of old and lame cow. To fulfilling its objects Gaushala provides Feed and other Consumables including Medicines etc to cows and provide proper medical checkup to Cows, time to time so that the Cows maintained by Gaushala may remain Healthy. Further a regular veterinarian is engaged there whose main responsibility is to treat the cows of Gaushala and the Gaushala Hospital is proving free medical facility for the treatment of any cow brought for treatment by general public. The expenses incurred for Medicine Purchase of Rs. 144842.00 only does not mean that Society is not following the basic purpose of its establishment. As the Cows maintained at Gaushala are healthy and the outsiders who brought their cows for medical treatment and consultancy are duly satisfied. It is worthwhile to state here that Govt of Haryana who has extended the facilities & doctors in the hospital also provide medicines available with them and rest of the medicines are purchased by us. 9. Taking up the contention of the Ld.CIT(E) that the

assessee was indulging only in the activity of enhancing its

FDRs and earning interest on the same, the Ld. counsel for

assessee stated that it had been clearly pointed out to the

Ld.CIT(E) that FDRs had been made from the fund received

from the Government out of compulsory acquisition of land

of the assessee society in the year and the assessee

Gaushala was holding on to the FDRs due to the

uncertainty regarding premises on which it was running

gaushala which was taken on lease, as it was under

litigation for the past many years. The Ld. counsel for

assessee stated that FDRs were being kept to be utilized if

the assessee had to vacate its present premises and shift to

a new place. The Ld. counsel for assessee drew our

attention to its submissions made in this regard before the

Ld.CIT(E) reproduced at page 30 of the Paper Book as

under:

“6. The FDR's appearing in the Balance Sheet are made of the Fund received from Government out of Compulsory acquisition of Land of Gaushala in the year. The Present premises of Gaushala is taken by it on Lease which is under litigation from last many Years. The Gaushala is Holding FDR's due to the future Uncertainty regarding its Premises, in case Gaushala has to vacant the premises it has to buy the Premises so that the Cows can be shifted there. Therefore Holding of FDR is not under the Discretion of Gaushala but it is bound to hold the FDR due to the uncertainty of Litigation outcome . A copy of lease deed is enclosed herewith.” 10. The Ld. counsel for assessee stated that it is clearly

evident from the above that it was not the objective of the

assessee society to enhance its FDRs and the finding of the

Ld.CIT(E) in this regard was, therefore, incorrect on facts.

attention to the findings of Ld.CIT(E) that since the title of

land in the name of society was under litigation it had no

income from property and it was probably a case of

encroachment on Government land by the assessee. Our

attention was also drawn to the finding of Ld.CIT(E) at para

8 of its order that the assessee did not have any corpus

fund and was creating the same out of the profit generated

year to year, which as per the Ld.CIT(E) did not partake

the character of corpus donation. The Ld. counsel for

assessee further pointed out the findings of the Ld.CIT(E)

that no voluntary donation had been received by the

assessee and it had no income which could be covered by

the provisions of section 11 and 12 of the Act. The Ld.

counsel for assessee stated that the above findings of the

Ld.CIT(E) were wholly irrelevant for the purpose of grant of

registration u/s 12A of the Act since they did not impinge

on the genuineness of either its objects of the activities

carried out by it.

evident that the assessee society was entitled to grant of

registration u/s 12A of the Act and the Ld.CIT(E) had on the

basis of irrelevant consideration and by mis-appreciation of

facts before it denied the same. Reliance was placed by the

Ld. counsel for assessee on the following judgments of the

Hon'ble High Court in support of its contention:

1) CIT Vs. Delhi Kannada Education Society 246 ITR 731 (Delhi HC) 2) Secondary Board of Education Orissa Vs. ITO (1972) 86 ITR 408 (Orissa HC) 3) DIT(Exemptions), Mumbai Vs. Shree Nashik Panchvati Panjrapole (2017) 397 ITR 501

4) DIT(Exemptions Vs. Sabarmati Ashram Gaushala Trust (2014) 362 ITR 539 13. The Ld. DR, on the other hand, relied upon the order

of the Ld.CIT(E).

gone through the documents and case laws referred to

before us. The issue before us pertains to refusal of grant of

registration u/s 12A of the Act. That the assessee society

was established with the object of making general

improvement of cows and to take care of old and lame cows,

oxen, bulls, etc. is not disputed. Further, we find that it is

not the case of Revenue that the said stated objects were

not charitable in character. The contention of the Revenue,

we find, is that the assessee was not genuinely carrying out

its stated objects and the reason and basis for arriving at

this conclusion was the following:

1) That the assessee was primarily indulging in the

activity of selling milk, yielded by the cows, on

commercial lines.

derived from sale of milk for the purpose of earning

interest thereon.

3) That it was spending meagre amount on

medicines thus belying its claim that it was looking

after old and lame cows.

The Revenue has also contended that the assessee is

not entitled to registration u/s 12A for the reason that

it has neither any income from property, nor has it any

income either in the nature of corpus donation or

voluntary donation which are covered by the provisions

of sections 11 and 12 of the Act.

parties, we find merit in the contention of the Ld. counsel

for assessee. The facts and figures, as pointed out to us and

which have not been controverted by the revenue,

substantiate the contention of the Ld.Counsel for the

assessee, that it was primarily indulging in its stated

objects of looking after cows and activity of the sale of milk

was only an incidental activity. We find that the assessee

had contended that it had 500-540 cows and that out of the

above, only 80 cows were milk producing. The Ld.Counsel,

on this basis, has asserted that majority of the cows with

the assessee society were solely for being taken care of,

which was the stated object of the society also. This fact

was evidenced by the monthly progress report of the

assessee society, issued by the Dy.Director, ICD Project,

Ambala. The assessee had also corroborated the same by

submitting an analysis of milk realization by the gaushala

for the year ended 31-03-2017 ,reflecting therein that the

revenue generated from the sale of milk ,at below market

price, was possible from milk produced by 75 cows only ,on

the basis of average daily milk produced by the cows in the

gaushala as certified by the deputy director ICD, Ambala.

The monthly progress report of the assessee society was

placed before the Ld.CIT(E) also and facts stated therein

have not been controverted by the Revenue. The same have

not been controverted even before us, nor has the Ld. DR

pointed out any infirmity in the analysis of the said

monthly progress report of the assessee society placed by

the assessee before us during the course of hearing. The

Revenue also has not pointed out any infirmity in the

analysis of the milk realization by the assessee society in

the year ending 31.3.2017. Thus, the fact that out of 500-

540 cows being looked after by the assessee society, only 80

cows were milk yielding, remains an uncontroverted fact.

We also find that the assessee had demonstrated from its

financial statements that the entire revenue earned from

the sale of milk was utilized in its activity of looking after

all the cows. It is clearly evident from the aforesaid fact

that only a small proportion of cows with the assessee

yielded milk which was sold by the assessee and the

revenue generated thereof was utilized in maintaining all

the cows, which majorly were not producing milk.Therefore

clearly the activity of selling milk was only an ancillary

activity of the assessee, the surplus generated from which

were utilized for achieving its main object of maintaining

and looking after lame and disowned cows, etc. Therefore,

we hold that the denial of grant of registration to the

assessee u/s 12A for the reason that it was primarily

indulging in the commercial activity of selling milk is

against the facts of the case and is totally unwarranted.

Revenue that the fact that the assessee was spending only

meagre amount on medicine, proved that it was not

indulging in its stated object of looking after lame and sick

cows. As rightly pointed out by the Ld. counsel for

assessee, its stated object was not merely treating sick

cows but looking after and maintaining disowned cows and

the financial statements of the assessee society for the year

ending 31.3.2017, 31.3.2016 and 31.3.2015, clearly showed

that it was carrying out its stated object, having spent

substantial amount on procuring feed for the cows

alongwith medicines. Besides, we find that the assessee

society had explained that the cows were being looked after

by the doctor which was provided by the Veterinary Hospital

of the Government. Therefore we find no merit in the

reasoning of the revenue that the low spend on medicines is

a pointer to the fact that the assessee was not carrying out

its stated object.

Revenue that the assessee was only indulging in creating

FDRs and earning interest therefrom, since we find that the

assessee had stated that FDRs had been made from funds

received on acquisition of land owned by it and that it was

holding on to the said FDRs to meet any eventuality of

being displaced from its present premises which was being

disputed. The Revenue has not controverted the above

statement of the assessee. Therefore, the assessee having

explained that the FDRs had not been created from the

income generated from sale of milk, the denial of

registration for this reason also is rejected.

the denial of registration for the reason that it had no

corpus donation or voluntary donation or any income from

property, are irrelevant consideration of grant of

registration since the only satisfaction which the Ld.CIT(E)

has to arrive at when granting registration is vis-à-vis the

genuineness of the objects and the activities of the assessee

society and the fact that it is getting corpus donation or

voluntary donation is irrelevant to the said consideration.

Ld.CIT(E) in refusing grant of registration of the assessee

society and direct that the same be granted to the assessee

society.

stands allowed.

Order pronounced in the Open Court.

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 11th July, 2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR

Assistant Registrar, ITAT, Chandigarh