DCIT Vs Madurai District Cooperative Milk Producers Union Limited (ITAT Chennai)
ITAT Chennai: Milk Trading by Charitable Trust Does Not Automatically Attract Proviso to Sec.2(15) – Matter Remanded
The assessee, Shri Gaura Nitai Seva Trust, a registered charitable trust u/s 12AA, filed its return for AY 2017-18 claiming exemption u/s 11. The AO denied the exemption by invoking the proviso to Section 2(15) on the ground that the trust was engaged in purchase and sale of milk and earning surplus, which according to the AO amounted to carrying on business activity. The CIT(A) upheld the denial of exemption.
Before the ITAT, the assessee argued that its activities were charitable in nature such as relief to the poor, education and environmental activities, and that mere generation of surplus from activities does not convert the activity into trade or business when the surplus is applied for charitable purposes. Reliance was placed on judicial precedents including the decision of the Supreme Court in Thiagarajar Charities and High Court rulings.
The Tribunal observed that even if a charitable institution generates surplus from certain activities, exemption u/s 11 cannot be denied so long as the surplus is applied for charitable purposes. Since the AO had not examined whether the surplus generated from milk trading was actually applied towards charitable activities, the issue required fresh factual verification.
Accordingly, the ITAT set aside the order and remanded the matter to the AO for de novo assessment to examine whether the surplus generated was utilised for charitable purposes in line with the law laid down by the Supreme Court.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
