Mid Day Meal supply to poor students of schools is Charitable in Nature

Manna Trust Vs CIT (Exemption) (ITAT Jodhpur)

The issue under consideration is whether the Mid Day Meal supply to the poor students of the schools as per the programme of State Government is considered as commercial activity?

In the present case, the assessee is a is a Public Charitable Trust registered u/s 12AA of the Act. The Trust is mainly engaged in providing nutritional status and reduce the drop out of student from school by implementing mid-day meal scheme. The assessee Trust is providing Mid Day meal in Govt. Schools in the State of Andhra Pradesh, Telangana, Odisha and Madhya Pradesh.

ITAT states that it is apparent that merely because consideration is collected or received by an Institution, it would not lose its character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the Institution in question. If the dominant activity of the Institution was not business of trade or commerce then they such incidental or ancillary activity would also not fall within the categories of the trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profit, but the object is to provide nutritional status and reduce the drop out of student from school by implementing mid-day meal scheme. In view of the above ITAT safely conclude that the nature of activities carried out by the assessee trust is charitable in nature and hence proviso to section 2(15) would not be applicable.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal filed by assessee against the order of CIT(E) dated 01/01/2020 for A.Y. 2016-17 in the matter of order passed u/s 263 of IT Act.

2. Only grievance of assessee revolves around treating the Mid Day Meal supply to the poor students of the schools as per the programme of State Government as commercial activity.

3. Rival contentions have been heard and record perused.

4. Facts in brief are that are that Manna Trust is a Public Charitable Trust registered u/s 12AA of the Act by the Id. CIT, Udaipur vide order No. 1261 dated 08/07/2013. The trust is mainly engaged in providing nutritional status and reduce the drop out of student from school by implementing mid-day meal scheme. The assessee Trust is providing Mid Day Meal in Govt. Schools in the State of Andhra Prades, Telangana, Odisha and Madhya Pradesh. For the year under consideration assessee filed its return of income on 17/10/2016 which was selected for complete scrutiny through CASS and assessment u/s 143(3) of the I.T. Act was completed on 01.09.2018 by accepting the income returned by the assessee after allowing the claim of exemption u/s 11 of the 1.T. Act. Thereafter, show-cause notice dated 05/11/2019 was issued u/s 263 on the issues identified therein. After giving opportunities the CIT(E) held that the applicability of provisions of section 2(15) along with its proviso have not been examined during assessment, rendering the order erroneous insofar as it is prejudicial to the interest of the revenue. The order is passed by allowing relief due to non-application of the said proviso, without inquiring into the veracity of claim of exemption and is, therefore, erroneous and prejudicial to the interest of revenue in accordance with Explanation 2(b) to Section 263. The assessment order dated 01.09.2018 is, therefore, set-aside with a direction to assessee the income afresh.

5. Assessee is in further appeal before Income Tax Appellate Tribunal.

6. It was argued by Id. A.R. that Id. CIT Exemption not accepting the Mid Day Mill Programme as Charitable activity but CBDT granting 12A and 80G and also allowing certificate 35AC exemption to the following Trust for exclusively Mid Day Meal programme.

1. Akshya Patra Foundation (Project cost Rs. 400.00 crore to 00 crore).

2. Isckon Food Relief Foundation (Project cost Rs. 10.55 crore)

3. Maria Seva Sangh Mumbai.

7. As per A.R. the assessee is doing same project of Mid Day Meal programme then why Id. CIT Exemption is not accepting our project as charitable activity.

8. The ld. A.R. also invited our attention to section 35AC, real with_.explanation (b) thereto, of the Income Tax Act, 1961-eligible projects or scheme, expenditure on-notified eligible projects or schemes-Akshayapatra Foundation Bangalore. Notification No. SO 1488(E) [No. 163/2015 (F.No.V.27015/1/2015-50(NAT.COM))] Dated 04/06/2015, according to which the Central Government had notified at serial number 3, “Mid Day Meal program run by the Akshayapatra Foundation, Hare Krishna Hills, Wet of Chort Road, Rajajinagar Bangalore-560010”, as an eligible project or scheme for a period of three years ending with assessment year 2005-2006, which was extended further vide notification number S.O. 1008(E) dated the 5th July, 2006 for a period of three years beginning with financial year 2006-2007, which was extended further vide notification number S.O. 856(E) dated 25th March, 2009 for a period of three years beginning with financial year 2009-10 and which was extended further vide notification number S.O. 481(E) dated 16^th March, 2012 for a period of three years beginning with financial year 2012-13. He further submitted that as per this notification the Central Government notifies the scheme or project “Mid Day Meal Programme run by the Akshayapatra Foundation”, which is being carried out by “Akshayapatra Foundation, Hare Krishna Hills, West of Chrot Road, Rajajinagar, Bangalore -560010”, for a further period of three years commencing with the financial year 2015-16 i.e. 2015-16, 2016-17 & 2017-18.

9. As per Id. A.R. that The id. CIT(E) has not understood the nature of services actually carried out by the assessed trust, Following literature would clarify the actual nature of work:

Mid-Day Meal

On November 28th, 2001 the Supreme Court of India passed an order stating: “We direct the State Governments/Union Territories to implement the Mid-Day Meal Scherne by providing every child in every Government and Government assisted Primary School with a prepared mid-day meal.”

Mid-Day Meal Scheme aimed to:

• avoid classroom hunger
• increase school enrolment
• increase school attendance
• improve socialisation among castes
• address malnutrition
• empower women through employment

Objectives of Mid-Day Meal

The Government of India started Mid-Day Meal Scheme. With an aim to enhancing enrolment of children in schools, retention and increased attendance while also improving nutritional levels among children, the National Programme of Nutritional Support to Primary Education (NP-NSPE) was launched as a Centrally Sponsored Scheme on 15th August, 1995. After some amendments there on, as per the expansion of the programme, the Government designed a set of rules and guidelines to be followed for implementation. These include various aspects related to child health and growth like the quantity of calories and proteins required for children from specific age groups, the quantity of grains that can be allotted to each child and so on.

The objectives of the Mid–Day Meal Scheme are:

• Improving the nutritional status of children in classes I-V in Government, Local Body and Government aided schools.
• Encouraging poor children, belonging to disadvantaged sections, to attend school more regularly and help them concentrate on classroom
• Providing nutritional support to children of primary stage in drought affected areas during summer vacation.

Quality of Mid Day Meal

Quality and Food Safety are the primary ingredients at each of the Manna Trust kitchens. Learning from the past, Trust have introduced various metrics in every area of operations and service delivery Trust have also tied up with different donor’s to review the quality of the mid-day meals Trust prepares and serves children. To maintain the quality of the meal, standardization of recipes across all locations has been undertaken. Employee Health and Safety activities are conducted to further increase hygiene standards and improve safety and health.

Nutrition

The table below shows the required dietary norms as stated by the Central Mid-Day Meal Scheme:

The table below shows the item-wise dietary norms as stated by the Central Mid-Day Meal Scheme:

• Willingness to work with PRIs/ Municipal bodies in accordance with relevant guidelines of the State Government.
• Financial and logistic capacity to supply the mid day meal on the requisite scale.
• it will furnish to the body assigning the work to it an Annual Report along with audited statement of accounts in terms of all grants received from the State Government, both in cash and kind, duly certified by an approved Chartered Accountant

From grain grants to a cooked meal

Once chosen, an NGO must set up a kitchen, carry out the day to day operations of preparing meals and maintain its running costs. As the NP-NSPE, 2004 Guidelines state, ‘In urban areas where a centralized kitchen setup is possible for a cluster of schools, cooking may wherever appropriate, be undertaken in a centralized kitchen and cooked hot meal may then be transported under hygienic conditions through a reliable transport system to various schools. There may be one or more such nodal kitchen(s) in an urban area, depending on the number of clusters which they serve.’ In order to implement the programme effectively, therefore, an NGO must be well equipped to handle the logistics of the programme. A non-profit must have ‘financial and logistic capacity to supply the mid-day meal on the requisite scale’ The Government provides a solution as to how this may be attained. The Ministry of Human Resources Department states:

“The state government shall be fully responsible in implementing the programme through NGOs support either for a cooked meal or pre Trust strives to ensure that children not only have access to ‘unlimited food for education’ but also to prescribed quantities of the nutrition. In order to consistently maintain quality of the meal, we take feedback from schools on a daily basis while delivering the meal.

Role of NGOS

NGOs play an important role in the expansion of the Mid-Day Meal Scheme. The State Governments partner with NGOs to implement the Mid-Day Meal Programme in order to increase the number of children they reach out to. Thus many NGOs work towards countering hunger and malnutrition.

This Public-Private Partnership (PPP) has proved instrumental in improving the quality and reach of the programme. There are many facets which the Government considers when selecting a non-profit to partner with. Such organisations must be transparent and ‘of proven integrity ‘. Below are the NP-NSPE 2004 criteria for choosing an NGO:

NP–NSPE 2004 criteria for choosing an NGO

• The voluntary agencies should not discriminate in any manner on the basis of religion, caste and creed, and should not use the programme for propagation of any religious practice.
• The voluntary agency should be a body that is registered under the Societies Registration Act or the Public Trust Act, and should have been in existence for a minimum period of two years.
• Commitment to undertake supply responsibility on a no-profit basis.

cooked food variant in eligible schools. To this extent the State Government or the NGO concerned, may mobilize resources for conversion of food grains in to a cooked meal.”

It is submitted from the above particulars that it is charitable work which is allotted only to the trust who are doing work on the no profit basis. It is impossible for the Govt. to provide Mid Day Meal to the various schools like Education. Govt cannot provide education, to all the students at their level so they permit to the private persons to provide the education so in the case of Mid Day Meal project also Govt allottes work to the eligible NGOS on the criteria set up as per NP-NSPE 2004 scheme.

3,1. The id. CITE) has not understood the nature of work carried out by the assessee Trust. He has not appreciated the agreement entered by the assessee trust and the Government of Telangana. The relevance of the MOU has been completely ignored by the Id. CIT(E).Some of the relevant clauses which shows that the activity carried out by the assessee trust is not commercial but is purely charitable in nature is reproduced as hereunder PB 90-94:

(14) Government of Telangana shall make Grant funding to Manna Trust for undertaking the project………………

(30) Since Manna Trust is a non-profit organization, the prevailing rules for a not-for-profit organization shall apply. No part of the Project shall be considered as a commercial activity and project shall not attract any taxes of Government of Telanffana or Local Bodies or the Central Government whatsoever. The Government of Telangana shall issue Government Order (GO) according to specific exemption to Manna Trust

3.2. Trusts carrying out similar objectives have been granted exemptions by the Income-tax Department u/s. 12AA, 35AC, 80G and for no reason, discriminatory approach has been adopted towards the assessee by the Id. CIT(E). Some of the well-known trusts of national importance carrying out similar nature of activity are:

a. AkshyaPatra Foundation

b. Isckon Food Releif Foundation

c. Maria SevaSangh, Mumbai

3.3. The Id. CIT(E) has erroneously held that the assessee trust is carrying out activity of business and hence proviso to section 2(15) would apply. We rely upon:

a. Section 2(13)defines ‘business’ as includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The agreement with Government of Telangana [PB 90-94] itself clarifies that the project undertaken by the assessee trust shall not be treated as  commercial activity.

b. Interpreting the term ‘business’, Hon’ble Supreme Court in State Of Karnataka v. Shreyas Papers P. Ltd. 2006 (1) TMI 243 – SC has held:

11. A careful reading of section 15(1) of the KST Act shows that the consequences contemplated therein, namely, foisting of the liabilities of the defaulting transferor onto the transferee, would come into effect only if the “ownership of the business” is transferred.

Although, Mr. Hegde strenuously urged that “business” could not be separated from the assets of the business, we are unable to accept this contention. Business is an activity, directed with a certain purpose, more often towards producing income or profit.

c. Interpreting the term ‘business’, Hon’ble Supreme Court in State of A.P. H. Abdul Bakhi& Bros., AIR 1965 SC 531 has held: The expression “business” though extensively used is a word of indefinite import; in taxing statutes it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure.

d. Interpreting the term `business’, Hon’ble Supreme Court in Director of Supplies & Disposals Board of Revenue AIR 1967 SC 1826 has held: The expression “business” though extensively used in taxing statutes is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation or profession  which occupies the time. attention and labour of a person,  normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive; there must be some real and systematic or organised course of activity or conduct with a set purpose of making profit. To infer from a course of transactions that it is intended thereby to carry on business, ordinarily there must exist the characteristics of volume, frequency, continuity and system indicating an intention to continue the activity of carrying on the transactions for a  profit.

From the aforesaid decisions, it is apparent that merely because consideration is collected or received by an Institution, it would not lose its character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the Institution in question. If the dominant activity of the Institution was not business of trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of the trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profit, but the object is to provide nutritional status and reduce the drop out of student from school by implementing mid-day meal scheme

3.4. The nature of activities carried out by the assessee trust is charitable in nature and hence proviso to section 2(15) would not be applicable, we further rely upon following:

a. Hon’ble Allahabad High Court under identical facts & circumstancesin CIT v. Shri Map VikasSamitt has held: Merely because the State had itself not been able to cook and supply cooked food by way of mid-day-meals at it’s schools and further because it out-sourced that part of the work, against consideration, it cannot be said that it transformed the activity into one in the nature of trade, commerce or business etc. Execution of a contract between two parties, in these facts cannot be decisive whether the activity itself was one purely in the nature of trade, commerce or business. What was more important is to examine whether assessee had engaged in an activity that was inseparably linked to and performed in continuation of the charitable scheme of the government.

The fact that some money had been paid by the State to the assessee was only a necessary expense at the hands of the State. Looking at the nature of expenses met by the assessee one cannot escape the conclusion that similar expenses would have been incurred by the State, had it performed that work itself or though it’s own agencies.

Thus, at the hands .of the assessee, the payments received were utilized to defray the expenses met to perform the task of cooking and supplying the meals as directed by the State government It is also not the case of the revenue that the assessee was in any manner free to utilize either the materials supplied to it or food cooked by it, as per its own wish/discretion. The assessee appears to have acted merely as an agent of the State.

Therefore, on the basis of findings recorded by the Tribunal and the material examined by the Commissioner it would be wrong to conclude that because there existed a contract between the assessee & the government therefore the assessee was not pursuing a “charitable purpose”. On the other hand the activity performed by the assessee clearly appears to be inseparably linked to the ‘charitable purpose’ of providing mid-day meals at village schools.

b. Hon’ble Rajasthan High Court in Rajasthan Hindi Granth Academy v. DCIT where the id. AO also held that the assessee appellant is carrying on the publication and sale of books and is not carrying on any charitable work and the work carried out by the assessee appellant is more in the nature of trade, commerce & industry had held as under:

10. Before proceeding with the matter, it will not be out of place to mention that Rajasthan Hindi Granth Academy is established by the State Government to see that the books are available to the students of the educational institutions at the grass root level, therefore, while considering the matter, we have considered that mainly the substantive amount out of receipts of Rs.1,81,44,567/-, 1,24,10,000/- is received by the assesse efrom State Government by way of subsidy. Even if, name of th einstitution Le. Rajasthan Hindi Granth Academy is considered, it is established that it is for the purpose of publication of Hindi Granth i.e. for education. In that view of the matter, in our considered opinion, in view of decisions referred by Mr. Ranka, this is an educational institution activity.

11. In that view of the matter, we are of the opinion that this academy is running only with a view to publish educational books and we have no hesitation in accepting the submissions of Mr. Ranka that this is only for the purpose of academy which is educational in nature.

c. Hon’ble Rajasthan High Court in CIT Jodhpur Development Authority has held: From various decisions of the Hon `ble Supreme Court discussed herein above, the settled position of law emerges is that if the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, may be involving element of profit, would not prevent the institution from  being a valid charitable trust

d. Hon’ble ITAT, Jaipur Bench in Rajasthan Gau Seva Sangh CIT(E) has held: We have considered the rival submissions as well as relevant materials available on record. There is no dispute that the assessee trust was granted registration u/s 1241)(a) of the Act on 6-12-1974. We further note that there is no change since the assessee trust was formed and registered under Societies Registration Act, 1860 vide Registration Certificate dated 14-10-1954 as a public charitable society, either in the object of the assessee trust or in the memorandum of association of the society. Therefore, the object of the assessee trust cannot be questioned being charitable in nature when the same objects were considered by the competent authority while granting registration u/s 12A(1) of the Act.

Thus the proviso inserted in Section 2(15) was considered by the Hon’ble Bombay High Court and held the expression Trade, Commerce and Business as provided in first proviso to Section 2(15) must be read in the context of intent and purport of Section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organized manner, even as per intent of the legislature and as per Finance Bill, 2008 whereby the said proviso to section 2(15) was inserted, is found to be not to bring the incidental activity for furtherance of the object within the expression business, trade or commerce. It is pertinent to note that when the assessee is maintaining various Gaushalas then production of milk is bound to happen and dealing in purchase and sale of milk & milk products as well as cattle feed is nothing but the activity in furtherance of the objects of the assessee trust. The ld.DR of the assessee relied on the decision of ITAT Bangalore Bench in the case of Sri Vidyaranya SevaSamiti vs CIT (supra) wherein the Tribunal has specifically noted that the assessee society is not carrying out any activity since 2001. Therefore, the genuineness of the activity itself was not even in existence. Hence, the said decision cannot be applied in the present case where there is no dispute about the activities being carried out by the assessee trust and it has maintained 11 Gaushalas and 14 Famine Relief Centres which is the main and pre-dominant object of the assessee trust. Hence, the impugned order passed by the ld. CIT(E) is based on the presumption of incorrect facts that the activities of the assessee trust are not in accordance with the object of the assessee trust The Id. CIT(E) has even not taken into consideration the fact that the assessee is maintaining various Gaushalas and Famine Relief Centres and also carrying out various activities of imparting education and training. The assessee trust is also engaged in the activities of research and development of medicines by the use of cow products. Therefore, the findings of the ld. CIT(E) is contrary to the undisputed facts regarding the objects of the assessee trust and the activities of the trust are being carried out for attainment of main objects of the trust. Hence in view of the above facts and circumstances of the case, the impugned order of the Id. CIT(E) is set aside and grant of registration u/s 12A is restored.

e. Hon’ble ITAT, Jaipur Bench in DCIT v. Shri Ramdoot Prasad Sewa Samiti Trust has held: We have considered the rival submissions as well as relevant materials available on record. The AO invoked the proviso to section 2(15) of the Act to deny the benefit of section 11 and 12 of the Act on the ground that the activities of the assessee are in the nature of trade, commerce and business as the assessee is selling the Prasad which does not involve in any activity of charitable in nature. We find that there is no change of the activity of the assessee during the year under consideration as the assessee has been carrying out the same activity of preparing the Prasad as per request of the devotees, offering the same to Lord Balaji and thereafter the Prasad is being distributed to the devotees at the temple, general public and students of various schools. The assessee has specifically given the details of around 200 to 250 schools in seven district of Rajasthan State wherein the assessee is distributing the Prasad under the Midday Meal Scheme of the State Govt. It is also not in dispute that entire receipts as pointed out by the AO are received from the devotees who are requesting for preparation of Sawamani for offering to the Lord Balaji  and thereafter Prasad is distributed amongst the devotees general public and remaining Prasad is distributed to school children as well as even offered to animals and birds. The AO has not disputed all these activities of the assessee but the AO has raised the point that the assessee is doing activity of purchasing the raw materials for Parsad and selling the Prasad which is nothing but it is in the nature of trade, commerce or business. However, in the absence of profit motive the said activity of preparing the Prasad on behalf of the devotees and after offering to the God, the same is distributed to the devotees visiting temple, general public as well as students of various schools as Midday Meal. It is clearly established that the entire exercise and services offered by the assessee is for advancement of the objection of the public utility in the shape of providing Prasad for offering to God as well as providing Midday Meal to the school children which is in the interest of larger general public and therefore, the said activity of the assessee is clearly a charitable activity and does not involve any motive of earning profit and consequently it cannot be termed as trade, commerce or business. This is a consistent activity being performed by the assessee for the last several years and the AO has undisputedly accepted the same as charitable in nature and benefit of section 11 and 12 in the scrutiny assessment for the Assessment Year 2007-08, 2009-10 and 2011-12. Only for the Assessment Year under consideration, the AO has first time treated the activity of the assessee in the nature of trade, commerce of business. …………………….

f. Hon’ble ITAT, Jaipur Bench in Rajasthan State Road Transport Corporation v. DCIT has held: The assessee corporation is registered under section 12,4(4 The assessee corporation is engaged in providing transportation services in the state of Rajasthan. Provision of transportation services through running of buses is clearly an activity of “general public utility” as the said services are meant and availed by the public at large and therefore, it would fall in the last limb of definition of charitable purpose as so defined in section 2(15).

The argument of assessee corporation provides various concessions and relief in fare to poor, students, senior citizens, women, etc doesn’t take away the inherent and fundamental aspect of providing a public utility service of running of buses for the public at large. The services are not limited to particular section of the society but open to all including the poor, marginalized and needy section of our society namely senior citizens, women etc. Therefore, the last limb “general public utility” clearly defined in section 2(15) and being more specific will be applicable in the instant case and has been rightly invoked by the Assessing officer.

g. ITAT, Jaipur Bench in Sakhi-Saheli Microfinance Forum v. CITE) has held: Assessee LI/s 8 company in providing micro finance to economically and financially weaker section without any discrimination as to caste, creed, religion or sex for earning their livelihood at nominal rate of interest on their personal guarantee only – HELD THAT:- Primary and predominant object of the assessee are to promote the welfare of the economically weaker and destitute persons of the society by way of providing finance at concessional of rate interest and without asking for any security. Thus prima fade the object of the assessee are charitable in nature in terms of Section 2(15)

h. Hon’ble ITAT, Jaipur Bench in Rajasthan Cricket Association v. Addl. CIT has held:

Claim of the deduction u/s 11 declined – whether the assessee exist for purpose of earning profit and the applicant is not promoting sports on non-profit basis – Held that:- In the present case, material as placed before us suggests that the Assessing Officer is swayed by the figures and volume of receipts. Admittedly, such receipts are intermittent and not regular and also is dependent on the conduct of cricket match. It is not other way round that the cricket matches are dependent upon such activities. The undisputed facts are that the assessee is registered under the Rajasthan Sports (registration, recognition and regulation) Act 2005 and formed with the objective of promoting the sports of cricket within the state of Rajasthan so main objective or activity of the assessee is promotion of the cricket. The association is organizing tournament like Ranji Trophy, Irani Trophy, Dilip Trophy, Maharan Bhagwat Singh Trophy, Salim Durrani Trophy etc. the Assessing Officer has not doubted about these activities of the association. It is also brought to our notice that in the international one day match between south Africa and India, the association suffered deficits of q 1.6 crones.

RCA has also incurred in various other expenses with a view to promote the game of Cricket viz. on coaching camps of q 20,40,360/-, state cricket activities of q 1,08,60,566/-, Ground expense of [i 33,97,435/- and international tournament expenses of q 2,09,16,911/-. These facts go to demonstrate that the assessee has been predominantly engaged into the activity of promoting cricket match.

Case of Institute of Chartered Accountant vs Director General of Income Tax [2013 (7) TMI 205 – DELHI HIGH COURT] held that even though fee are charged by the petitioner Institute for providing coaching classes and holding interviews with respect of campus placement, the said activity cannot be stated to be rendering of service in relation to any trade, commerce or business as such activities are undertaken by the petitioner institute in furtherance of its main object which has held earlier are not trade, commerce or business. In the present case also the main activity of the assessee is conducting of the cricket match which falls under the category of general public utility. This fact is not disputed by the Revenue. All these activities an ancillary to the main activity. Therefore, we are of the considered view that the Assessing Officer was not justified in declining the exemption. – Decided in favour of assessee

i. ITAT, Jodhpur Bench in ACIT(E) v. Mehrangarh Museum Trust has held:As decided in assessee’s own case the appellant is engaged in preservation of monuments and articles/ things of historic nature, which is the predominant object of the appellant. The aforesaid activities are incidental to the main object only. As has been held in various decisions relied upon charging of fee to meet a part of the cost for rendering charitable services cannot, result in the services being regarded as business activities and, accordingly, the appellant does not cease to be a charitable institution  notwithstanding proviso to section 2(15) of the Act –

Decided in favour of assessee

j. Hon’ble ITAT, Jaipur Bench in Rajasthan State Text Book Board v. ACIT (E) where its objects were mainly to prepare edit, publish, print, stock, sell distribute, or otherwise deal in text books free of cost to the Government schools as well as on discount rate to the private distributor for private schools. The entire receipt is against the supply of school books as per the NCERT curriculum. Further, the Government of Rajasthan has financed 100% capital of the assessee society in the year 1974 and thereafter the assessee started sell generated surplus without collecting the money from any person except the amount received from the Government on account of textbooks supplied free of cost to the students of government schools and private schools on discount rate has held;

Therefore, as far as the finding of the Id. CIT(A) that the assessee is not existing solely for education purpose but is doing commercial activity the issue is covered by the earlier decision of this Tribunal as well as the decision of Hon’ble Jurisdictional High Court Hence, the said finding of the Id. CIT(A) is contrary to the binding precedent and therefore is not sustainable. Even otherwise there are series of decisions on this point which includes the decision of Hon’ble Madras High Court in case of DCIT vs. Tamil Nadu Text Book Corporation in ITA No. 1519 to 1521/Mds/2008 dated 27.07.2012 as well as decision of Hon’ble Supreme Court in case of Assam State Text Book Production & Publication Corporation Ltd. vs. CIT 319 ITR 317.

10. With regard to the surplus earned by the Trust, contention of Id. A.R. was that if there is some surplus in the Income and Expenditure A/c. does not mean that trust is earning profit and its object of charitable nature is ceases. The Id. CIT(E) has failed to appreciate and consider that the assessee trust had incurred a loss of 3.64% during F.Y.2013-2014 and a surplus of 0.37% during F.Y. 2014-2015. Substantial surplus which is reflected during the year is due to certain sundry balances written-off amounting to Rs. 175.56 lacs of past years. If the same is ignored, then the surplus is just 11.12%.

3.5. The surplus in the instant case is less than 15%. Even as per Act, charitable trusts are to apply .85% of the gross receipts in order to enjoy exemption for the remaining 15%. However, in the instant case, the assessee trust has spent more than 85%.

3.6. Even in case, the trust is not able to spend 85% of the receipts, then the Act provides opportunity to set-apart to be spend in subsequent years. However, in the instant case, the assessee trust has spent more than 85% and no amount has been set-apart for future years.

3.7. Surplus generated by assessee is ploughed back for charitable purposes and to make their kitchen hygienic and automation. Beneficiary of surplus is not for an individual person but for the trust only.

That the results of the assessee trust & M/s. Akshay Patra which is also carrying on the similar nature of charitable activity are comparable, reasonable and reasonable.

3.8. In support above we rely upon following judicial pronouncement:

a. In CIT v. Surat Art Silk Cloth Manufacturers’ Assn. (1980) 2 SCC 31 and culled out in American Hotel and Lodging Association Educational Institute CBDT (2008)10 SCC 509 has held as follows: “In order to ascertain whether the institute is carried on with the object of making profit or not it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established” (Paragraph 37)

b. Queen’s Educational Society v. CIT (2015) 55 com255 (SC) held that:The final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fall out of Section 10(23-C) is to ignore the language of the section and to ignore the tests laid down in Surat Art Silk Cloth case [CIT v. Surat Art Silk Cloth Manufacturers’ Assn. (1980) 2 SCC 31], Aditanar case [Aditanar Educational Institution v. CIT [(1997) 3 SCC 346] and American Hotel & Lodging case [American Hotel & Lodging Assn. Educational Institute v. CBDT [(2008) 10 SCC 5097. It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit.

c. In CIT v. Model Public School Society (Rajasthan High Court) has held as follows:The Supreme Court in the case of Visvesvaraya Technological University vs. Assistant Commissioner of Income Tax [2016 (4) TMI 874 – SUPREME COURT], in para 6 has held as under: The relevant principles of law which will govern the first issue i.e. whether an educational institution or a university, as may be, exists only for educational purpose and not for profit are no longer res integra, having been dealt with by a long line of decisions of this Court which have been elaborately noticed and extracted in a recent pronouncement i.e. Queen’s Educational Society v. Commissioner of Income Tax [2015 (3) TMI 619 – SUPREME COURT ] wherein held as Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. – Decided in favour of assessee

d. Vanita Vishram Trust v. CCIT (Bombay High Court) has held: the rejection of the approval by the First Respondent was manifestly misconceived. Only two reasons have weighed with the First Respondent in rejecting the approval, both of which have been found to suffer from manifest error. In Aditanar Educational Institution (2008 -TMI – 5552 –SUPREME Court), the Supreme Court, while construing the provisions of Section 10(22), held that the availability of exemption should be evaluated each year to find out whether the institution has existed during the relevant year solely for educational purposes and not for the purposes of profit. If after meeting the expenditure, a surplus results incidentally from an 19 activity lawfully carried on by the educational institution, the institution will not cease to be one existing solely for educational purposes since the object is not to make profit

e.  CIT vs Sanatan Dharam Educational Charitable Society (Punjab & Haryana High Court) has confirmed the view of the Tribunal wherein the Hon’ble Tribunal has held :We find that except for the fact that the assessee  society in furtherance of objects of providing education had consistently generated surplus during the last three preceding year, nothing is discernible from the records of the lower authorities which would irrefutably prove that generation of such surplus and not rendering of the education was the predominate object of the assessee society. Surplus in the hands of the assessee society (after claim of depreciation) ranges from 15% to 23%. The aforesaid surplus we find had been ploughed back by the assessee society for the furtherance of its object.

We thus in terms of our aforesaid observations are of the considered view that the generation of surplus by the assessee society in furtherance of its predominate object of rendering education can in no way help to arrive at a conclusion that the emphasis of the assessee society was on generation of excessive surplus and not rendering of education.

In light of above submissions it is submitted that the order of the id. AO does not require any deviation as it is neither erroneous and neither it is prejudicial to the interest of the revenue.

11. On the other hand eontation of CIT-DR he has fully relied on the order passed u/s 263 and submitted that as per details available on record the only activity carried out by the trust of executing the contracts of supplying mid-day meal is not a charitable activity as per the definition of charitable purpose u/s 2(15) of the IT Act, 1961. However, no enquiry was made during the assessment proceedings to verify that the activities being carried out are charitable or not. He further contended that assessee at “Large payment of salary, rent, interest etc. made to specified persons”. However, during the assessment proceedings, it is noted that a query vide notice dated 01/02/2018 u/s 142(1) was raised asking the assessee to justify the payments made to persons specified u/s 13(3). However, no justification was submitted on this issue bythe assessee nor any enquiry was made to verify that the payment was reasonable or excessive.

12. We have considered rival contentions and carefully gone through the orders of lower authorities. We have also deliberated on various judicial pronouncements referred by CIT(E) in his order as well as cited by A.R. and D.R. during the course of hearing before us, in the context of factual matrix of the case. From the record we found that assessee is a is a Public Charitable Trust registered u/s 12AA of the Act by the Ld. UT, Udaipur vide order no. 1261 dated 08.07.2013. The Trust is mainly engaged in providing nutritional status and reduce the drop out of student from school by implementing mid-day meal scheme. The assessee Trust is providing Mid Day meal in Govt. Schools in the State of Andhra Pradesh, Telangana, Odisha and Madhya Pradesh.

13. That position of previous assessment are as follows :-

14. That the ld.CIT (E) initiated proceedings u/s. 263 vide show cause notice dated 05.11.2019 and raised following issues:

(i) Verification of justification of payment made to specified person and u/s 13(3) of IT Act 1961 was not carried out.

(ii) Verification of capital expenditure not carried out.

(iii) Contract of supply of Mid Day Meal is not a charitable activity as per definition of charitable purposes.

(iv) Surplus earned by Trust is huge.

15. Now we deal with each and every objection of CIT(E) with regard to the Verification of justification of payment made to specified person and Ids 13(3) of IT Act 1961 was not carried out, we found that Ld. AO specifically ask in his query letter dated 01.02.2018 in the point no. 11 and assessee vide letter dated 12.02.2018 produced all the details as desired by Ld. AO. We also found that Similar nature of payments was there in the past years and no adverse view taken by the Ld. AO or by the Ld. CIT(E) u/s. 263. As per the records available before us all the details vide letter dated 11.12.2019 to the CIT (E). The CIT (E) personally verified all the evidences regarding justification of payment made to specified persons. However, no adverse finding given by the CIT (E) on assessee’s submission except alleging non-verification by AO. We found that Payment to made is nominal, reasonable and justifiable. However, if the Ld. Pr. CIT has to hold the view of the AO to be erroneous as well as prejudicial to revenue he has to conduct enquiries and record a finding that assessee’s calculation of fair market value was not correct.

16. In the instant case the Id. Pr. CIT has not done in this case, though all facts were furnished before him. For this purpose we place reliance on the decision in case of Trimex Fiscal Services (P) Ltd. v. PCIT (2020) 2 TMI 484 (Kolkata).

17. It was also allegation of CIT(E) that verification of capital expenditure was not carried out. In this regard we found from record that ld. AO specifically ask in his query letter dated 01.02.2018 in the point no. 5 and assessee vide letter dated 12.02.2018 produced all the details as desired by id. AO. We also found that Similar nature of payments was there in the past years and no adverse view taken by the Ld. AO or by the Ld. CIT(E) u/s. 263.

18. We also observed that all the details vide letter dated 11.12.2019 were filed to the CIT(E), the CIT(E) personally verified all the evidences regarding justification of payment made to specified persons. However no adverse finding given by the CIT(E) on assessee’s submission except alleging non-verification by AO.

19. It was also objection of CIT(E) that contract of supply of Mid Day Meal is not a charitable activity as per definition of charitable

20. In this regard we observed that Manna Trust is a Public Charitable Trust registered u/s 12AA of the Act by the Ld. CIT, Udaipur vide order 1261 dated 08.07.2013. The said registration has not been revoked and is active. Therefore, the activity of the assessee has been accepted as charitable in nature. For A.Y. 2013-14 & 2014-15 the Id. CIT(A) after perusing the facts and position of law has reversed the findings of the Id. AO and has categorically held that the activities of the assessee to be charitable in nature.

21. In the context of our above observation we found that Hon’ble ITAT, Pune Bench in Gulab Badgujar (HUF) v. CIT (Central) (ITA No. 798 and 799/pun/2015 dated 03.05.2019) has held: Now coming to appeal in. A.Y. 2007-08, wherein the transaction noted is Rs.127 lakh, the assessment for this year was completed under section 143(3) of the Act but no proceedings u/s 263 of the Act have been initiative against the assessee. Similarly, for A.Ys. 2008-09 and 2009-10 wherein the transactions noted were Rs.45 lakh and Rs.40 lakh, respectively, though the assessment has been completed in the hands of the assessee but no proceedings u/s 263 of the Act have been completed. In the captioned assessment year i.e., A.Y. 2011-12, the amount noted in the seized document is Rs.67 lakh and is the basis for exercise of revisionary power by the Commissioner of Income Tax against the assessee. Once the transaction has been accepted in the earlier years and the transaction emanate from the same seized document, then the Revenue authorities cannot take different stand in different years. We therefore find no merit in the exercise of jurisdiction under section 263 of the Act against the assessee by the Commissioner of Income Tax under section 263 of the Act in A.Y. 2011-12. Hence, the said order passed under section 263 of the Act is set aside.

22. Nowhere id. CIT(E) has appreciated and consider that no amount is charged/recovered by the assessee trust from the students and the entire consideration is received in the nature of grant/subsidy from the State Government. We further observed that The id. AO has applied his mind to the submissions of the assessee and in the assessment order has observed on the basis of submission filed, genuineness of expenses and charitable activities carried out was verified. As per audit report receipt and set apart of income are found correct. The trust is mainly engaged in improving nutritional status and reduce the drop out from school by implementing mid day meal scheme in Government aided school in various district of Andhra Pradesh, Telangana, Odisha and Madhya Pradesh. It also started to implement Arogya lakshmi Scheme and Supplementary Nutrition program in the state of Telangana for women development and Child welfare department to provide one full meal to pregnant, lactating mothers and 3 to 6 years children. Further, the expenses have been found incurred for the aforesaid purposes.

23. As per our considered view Proceedings u/s. 263 cannot be sustained where the ld. CIT holds a view which was different from that of the A.O. It is settled law that where the AO took one of the plausible views, the order cannot be said to be erroneous. In the instant case the ld. AO has relied upon order passed by Id. CIT(A) for the previous year. A plausible view admitted in assessment stage in exercise of quasi-judicial function cannot be dislodged in a light hearted manner in the name of inadequacy in inquiries or verification as perceived in the opinion of the revisional authority. Section 263 of the Act does not visualize a case of substitution of the judgment of the Revisional Commissioner for that of AO unless the decision of the AO is found to be erroneous. Minal Nayan Shah v. PCIT 2019 (10) TMI 730 – ITAT AHD.

24. Now coming to the decision of Kerala High Court in the case of CIV v. Annadan Trust (2018) 258 Taxman 54, we found that the facts of the instant case are fully distinguishable from the fact of Kerala High Court relied on by CIT(E). The distinguishing features are enumerated as under :-

Explanation 2(c) to section 263 is not applicable as the assessment order is not contrary to any order, direction or instruction issued by the Board under section 119. Nor the said provision has been relied upon by the Id. CIT(E)..

Explanation 2(b) to section 263 is not applicable as the assessment order is not passed by .granting any relief without verification. Nor the said provision has been relied upon by the ld. CIT(E).

Explanation 2(a) to section 263 is not applicable as the assessment order is not passed by  without making inquiries or verification granting any relief without verification. Nor the said provision has been relied upon by the Id. CIT(E). On the contrary, the Id. AO has relied upon the fact that the assessee trust has been granted registration u/s. 12AA & the Id. CIT(A) has deleted the addition under similar facts for the previous year.

25. As per Notification No. 12/2017-Central Tax (Rate), dated the 28^thJune, 2017, the Central Government had exempted the Inter-State supply of services as specified in Column No. 3 e. Service by an entity registered under section 12AA of the Income Tax Act,1961 (43 of 1961) by way of charitable activities. Moreover service provided to an educational institution, by way of (1) transportation of students, faculty and staff, (ii) catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory.

26. Moreover On November 28th, 2001 the Supreme. Court of India passed an order stating: “We direct the State Governments/Union Territories to implement the Mid-Day Meal Scheme by providing every child in every Government and Government assisted Primary School with a prepared mid-day meal.”. The objectives of the Mid-day Meal Scheme are :-

• Improving the nutritional status of children in classes in Government, Local Body and Government aided schools.
• Encouraging poor children, belonging to disadvantaged sections, to attend school more regularly and help them concentrate on classroom activities.
• Providing nutritional support to children of primary stage in drought affected areas during summer vacation.

27. NGOs play an important role in the expansion of the Mid-Day Meal Scheme. The State Governments partner with NGOs to implement the Mid-Day Meal Programme in order to increase the number of children they reach out to. Thus many NGOs work towards countering hunger and malnutrition. We found that The Id. CIT(E) has not understood the nature of work carried out by the assessee Trust. He has not appreciated the agreement entered by the assessee trust and the Government of Telangana. The relevance of the MOU has been ignored by the Id. CIT(E). Some of the relevant clauses which shows that the activity carried out by the assessee trust is not commercial but is purely charitable in nature, and we have reproduced this clauses herein above. From the record we also found that Trusts carrying out similar objectives have been granted exemptions by the Income-tax Department u/s. 12AA, 35AC, 80G and for no reason, discriminatory approach has been adopted towards the assessee by the id. CIT(E). Some of the well-known trusts of national importance carrying out similar nature of activity are:

e. AkshyaPatra Foundation

f. Isckon Food Releif Foundation

g. Maria SevaSangh, Mumbai

28. As per our considered view Section 2(13) defines ‘business’ as includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or The agreement with Government of Telangana [PB 90-94] itself clarifies that the project undertaken by the assessee trust shall not be treated as commercial activity.

29. Interpreting the term ‘business’, Hon’ble Supreme Court in Director of Supplies & Disposals v. Board of Revenue AIR 1967 SC 1826 has held: The expression “business” though extensively used in taxing statutes is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive; there must be some real and systematic or organised course of activity or conduct with a set purpose of making To infer from a course of transactions that it is intended thereby to carry on business, ordinarily there must exist the characteristics of volume, frequency, continuity and system indicating an intention to continue the activity of carrying on the transactions for a profit.

From the aforesaid decisions, it is apparent that merely because consideration is collected or received by an Institution, it would not lose its character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the Institution in question. If the dominant activity of the Institution was not business of trade or commerce then they such incidental or ancillary activity would also not fall within the categories of the trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profit, but the object is to provide nutritional status and reduce the drop out of student from school by implementing mid-day meal scheme.

30. In view of the above we can safely conclude that the nature of activities carried out by the assessee trust is charitable in nature and hence proviso to section 2(15) would not be applicable. For reaching to this conclusion we relying following judicial pronouncements :-

Hon’ble Allahabad High Court under identical facts & circumstances in CIT v. Shri Balaji VikasSamiti has held: Merely because the State had itself not been able to cook and supply cooked food by way of mid-day-meals at it’s schools and further because it out-sourced that part of the work, against consideration, it cannot be said that it transformed the activity into one in the nature of trade, commerce or business etc. Execution of a contract between two parties, in these facts cannot be decisive whether the activity itself was one purely In the nature of trade, commerce or business. What was more important is to examine whether assessee had engaged in an activity that was inseparably linked to and performed in continuation of the charitable scheme of the government.

The fact that some money had been paid by the State to the assessee was only a necessary expense at the hands of the State. Looking at the nature of expenses met by the assessee one cannot escape the conclusion that similar expenses would have been incurred by the State, had it performed that work itself or though it’s own agencies.

Thus, at the hands of the assessee, the payments received were utilized to defray the expenses met to perform the task of cooking and supplying the meals as directed by the State government. It is also not the case of the revenue that the assessee was in any manner free to utilize either the materials supplied to it or food cooked by it, as per it’s own wish/discretion. The assessee appears to have acted merely as an agent of the State.

Therefore, on the basis of findings recorded by the Tribunal and the material examined by the Commissioner it would be wrong to conclude that because there existed a contract between the assessee & the government therefore the assessee was not pursuing a “charitable purpose”. On the other hand the activity performed by the assessee clearly appears to be inseparably linked to the ‘charitable purpose’ of providing mid-day meals at village schools.

Hon’ble Rajasthan High Court in Rajasthan Hindi Granth Academy v. DCIT where the Id. AO also held that the assessee appellant is carrying on the publication and sale of books and is not carrying on any charitable work and the work carried out by the assessee appellant is more in the nature of trade, commerce & industry had held as under:

Before proceeding with the matter, it will not be out of place to mention that Rajasthan Hindi Granth Academy is established State Government to see that the books are available to the students of the educational institutions at the grass root level, therefore, while considering the matter, we have considered that mainly the substantive amount out of receipts of Rs.1,81,44,567/-, Rs.1,24,10,000/- is received by the assesse efrom State Government by way of subsidy. Even if, name of th einstitution i.e. Rajasthan Hindi Granth Academy is considered, it is established that it is for the purpose of publication of Hindi Granth i.e. for education. In that view of the matter, in our considered opinion, in view of decisions referred by Mr. Ranka, this is an educational institution activity.

In that view of the matter, we are of the opinion that this academy is running only with a view to publish educational books and we have no hesitation in accepting the submissions of Mr. Ranka that this is only for the purpose of academy which is educational in nature.

Hon’ble Rajasthan High Court in CIT v. Jodhpur Development Authority has held: From various decisions of the Hon’ble Supreme Court discussed herein above, the settled position of law emerges is that if the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, may be involving element of profit, would not prevent the institution from being a valid charitable trust.

31. The surplus in the instant case is less than 15%. Even as per Act, charitable trusts-.are to apply 85% of the gross receipts in order to enjoy exemption for the remaining 15%. However, in the instant case, the assessee trust has spent more than 85%. Even in case, the trust is not able to spend 85% of the receipts, then the Actprovides opportunity to set-apart to be spend in subsequent years. However, in the instant case, the assessee trust has spent more than 85% and no amount has been set-apart for future years. Surplus generated by assessee is ploughed back for charitable purposes and to make their kitchen hygienic and automation. Beneficiary of surplus is not for an individual person but for the trust only.

32. In view of the above observation we do not find any justification in the order passed by C1T(E) under section 263 of IT Act.

33. In the result, appeal of the assessee is allowed.

Order pronounced under Rule 34(3) of the Income Tax (Appellate Tribunal) Rules, 1962 by placing the details on the notice board. Marginal delay in pronouncement of order is attributed to complete lockdown under covid-19.

(Order pronounced in the Court on 08/07/2020