And Recognition Under Section Sog Of The Act v. Cit (1971) 82 1Itr 704?

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23 DAY OF FREBRUARY 2016. PRESENT THE HON’BLE MR.JUSTICE JAYANT PATEL AND THE HON’BLE MRS.JUSTICE S.SUJATHA ITA Nos.78/2010 BETWEEN M/S. BANGALORE URBAN & RURAL.DISTRICT CO-OPBRATIVE MILKPRODUCBRS SOCIBTIBS MBMBERSAND BMPLOYBES WELFARE TRUST|BANGALORE MILK UNION LTD.,DR.H.M.MARIGOWDA ROAD.D.R.COLLBGKH POSTBANGALORE -560 029.RBEPRBESEBNTBD BY ITS PRESIDESRI.C.MANJUNATHAGED ABOUT 50 YBARSSON OF SRI CHIKKAAPPAYANNA. APPRLLANT (BY SRI.S.PARTHASARATHI, ADVOCATE) AND THR DIRECTOR OF INCOMB TAX (EXEMPTIONS) 3 FLOOR, CR BUILDINGS| QUEENS ROADBANGALORE-560 OO1. RBSPONDENT. (BY SRI. K.V.ARAVIND, ADVOCATE) THRSK APPEALS ARB FILED UNDER SBCTION260-A OF INCOME TAX ACT 1961, TO SET ASIDE THE|ORDBRS PASSBD BY THR [TAT BANGALORE IN [TANOs.301 AND 302/BNG/2009, DATED 30.09.2009, IN-THE INTEREST OF JUSTICE AND EQUITY. THERESK APPEALS HAVING BEBEEN HRBEARRESBRVED FOR JUDGMENT ON 19 KHBRU AR Y2016, COMING ON FOR PRONOUNCEMENT OF)JUDGMENT THIS DAY,S.SUJATHA J.,LDKBELIVEHTHR FOLLOWINGa JUDGMENT These appeals are preferred by the Assessee,Challenging the Order of the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore, |"‘Tribunal’ for short],raising the following substantial questions of law. TheAppellanttTuUSThavingobject for advancement of general publicutility which is evident from the objectclause of the trust, whether the Tribunalwas justified in holding that the trust wasonly for the benefit of milk producerssocieties and more of mutual concern andnot a charitable entity by upholding thedenial of registration under Section 12A and recognition under Section SOG of theAct. UW) Assuming that the Appellantwas constituted for the benefit of milkproducers societies, can it be said to be amutual concern and not charitable as heldby the Tribunal without appreciating theratio laid down by the Supreme Court inAhmedabad Rana Caste Association Vs.CIT (1971) 82 1ITR 704?. Ut)Whether the mere fact that thetrust having not carried on all objects ofthe trust, being the first year of existence,can the Tribunal conclude that the trustwas not constituted for charitable purposeto uphold the denial of registration undersection 12A and consequently denial ofrecognition under Section SOG(5)(v1) of theActP” 2.The Appellant is a Trust and applied to the|Director of Income Tax |Exemptions|, respondent herein,for grant of registration under Section 12A of theIncome Tax Act, 1961, |‘the Act’, for short] and also forerant of recognition under Section 80G]/9]||vi| of the Act.The respondent rejected the application holding that theTrust exists not for general public or a section of generalpublic, but for the benefit of its Members. Aggrieved by the Order of the respondent, the appellant preferredappeals before the Tribunal. The Tribunal rejecting thecontentions of the appellant dismissed the appealsholding that the Appellant-Trust emerges out from theMembers involved in a particular commercial activityand exists mainly for the purpose of the well being ofthe Members of a particular trade/occupation onmutuality concept and there is no enduring benefit tothe general public. 3.HeardMr.S |Partharasarathi,learnedCounsel for the Appellant-Assessee and Mr. K.V.Aravind, learned Counsel appearing for the Revenueand perused the material on record. 4TheTribunal|has.extractedthemainobjectives of the Trust at paragraph 7.1 of the Judgmentwhich reads as under: | “T) The benefit of the project or schemeShall flow to the public in general or toindividuals belong to the economicallyweaker sections of the society; Il)The applicant has the necessary|expertise, personnel and other facilities forefficient implementation of the project orscheme; 3.HeardMr.S |Partharasarathi,learnedCounsel for the Appellant-Assessee and Mr. K.V.Aravind, learned Counsel appearing for the Revenueand perused the material on record. 4TheTribunal|has.extractedthemainobjectives of the Trust at paragraph 7.1 of the Judgmentwhich reads as under: | “T) The benefit of the project or schemeShall flow to the public in general or toindividuals belong to the economicallyweaker sections of the society; Il)The applicant has the necessary|expertise, personnel and other facilities forefficient implementation of the project orscheme; a)|Constructionandmaintenance|of|drinking water projects in rural areas andin urban slums, including installation ofpump-sets, digging of wells, tube-wells|and laying of pipes for supply of drinkingwater;b)|construction of dwelling units for the|economically weaker sections; Cc)Constructionof|Schoolbuildings primarily for children belonging to theeconomically weakersectionsofthe.society; d)Establishment and running of non-conventionaland renewal sources oOfenergy Systems; e)|Any other programme for uplift of the)rural poor or the urban slum dwellers, asthe National Committee may|considerfitfor support; p)Promotion of sports; g)Establishment|andrunning|of|educational institutions in rural areas,exclusively for and children up to 12 yearsof age; h)Establishmentandrunning|of|hospitals and medical facilities in ruralareas, exclusive women and children up to12 years of age; U)Encouraging the production of bacteria|induced fertilizers; J)Construction of hostel accommodation|for woman or handicapped individuals orindividual who are of the age of 65 yearsOF Trlore k)|Establishment|andrunning|of|Institutions imparting education n the fieldof engineering, medicine in rural areas ortowns which consists of population of less”than 5 lakhs; etc. D)Plantation of softwood on degraded|non-forest land; m) Any programme of conservation ofnatural resources or of afforestation; n) Reliefand|rehabilitationof|handicapped individuals.” 5.However, while coming to a conclusion, the Tribunal has relied on the other objectives of the Trustwhich reads thus: “To provide educational facilities andmedicalSCTUICES(preventiondeceaseincluding immunization) to the members of the Milk Producers societies and their'family members as also to the employeesof the societies. (3) To establish educational institutionsand hospitals, to promote education andsafeguard the health of the mild producersand their families and also the employeesof the societies. (4) To open shops to sell stationary itemsand from the income derived out of thebusiness will be utilized for the activitiesof the trust. (5) To take up the work for the benefit ofthe producers and their families and alsothe employees of the societies through thetrust and to decide the other mattersrelating to the mutual interest of themembers. (6) To run the hospitals having inpatient,out-patient,pharmacylaboratoryandmedical store facilities; (7) tolorganizeruraldevelopmentprogrammes apart form all other activitiessupporting the aforesaid objectives. 5)|To render financial assistance from|the Trust to the family (husband/ wife) ofthe deceased in the event of death of anymilk producer /member. (9) in the event of death of the cattle ofthemilkproducers/ membersby| consuming poison/accident /thunder/firetoprovideappropriatefinancial compensation through trust by treating thesame as a special circumstance.” 6.Theapplication{Orregistration under section 12A of the Act is rejected by the respondent and confirmed by the Tribunal, placing reliance on the otherobjectives of the Trust cited supra and the preamble ofthe Trust Deed which reads as under: (7) tolorganizeruraldevelopmentprogrammes apart form all other activitiessupporting the aforesaid objectives. 5)|To render financial assistance from|the Trust to the family (husband/ wife) ofthe deceased in the event of death of anymilk producer /member. (9) in the event of death of the cattle ofthemilkproducers/ membersby| consuming poison/accident /thunder/firetoprovideappropriatefinancial compensation through trust by treating thesame as a special circumstance.” 6.Theapplication{Orregistration under section 12A of the Act is rejected by the respondent and confirmed by the Tribunal, placing reliance on the otherobjectives of the Trust cited supra and the preamble ofthe Trust Deed which reads as under: “WHEREAS, the SETTLOR/EXECUTORwithan intention to safeguard the interests of the|Milk Producers and the employees of the MilkProducersCo-operative|Societiesof|the|District and to help the Milk Producers, has.come forward to constitute this Trust to|safeguard the interests and to promote thehealth and education of the Member Mulk|Producers, their families/dependant childrenand the employees working in the Mulk|ProducersCo-operative|and.theirfamilies/ dependant children.” T To ascertain the true nature/purpose of the Trust, the objectives have to be considered as a whole,not in isolation. The Tribunal cannot pick and choosecertain objectives ignoring the main objectives. It appears that the respondent and the Tribunal areinfluenced by the preamble in the Trust Deed.Preamble cannot control the main objectives of theTrust. 8.The Appellant-Trust would have started withan intention to safeguard the interest of the MilkProducers and the Employees of the Milk Producers Co-operative Societies of the District and to help the Milkproducers. But, that intention of the Settlor/Executorwould not decide the nature of the Trust whether it isfor charitable purposes or not. A conjoint reading of theObjectives i.e., the main objectives of the Trustenumerated at paragraph-2 of the Trust Deed and theother objectives of the Trust at paragraph-3 of the TrustDeed would indicate that the Trust is created for!charitable purpose or not. QOWhile considering the case of the Trustcreated for the benefit of Rana Caste or community of City of Ahmedabad, the Apex Court in“AHMEDABADRANA CASTE ASSOCIATION Vs. COMMISSIONER OF INCOME TAX’ reported in[1971] 82 ITR O704has held thus: “It is well settled by now, and the High Courtalso has rightly taken that view, that an|object beneficial to a section of the public i1san object of general public utility. To serve a|charitable purpose, it is not necessary that|the object should be to benefit the whole of|mankind or all persons in a particular countryor State. It is sufficient if the intention to|benefitasectionof|thepublicasdistinguished from a specified individual tspresent.” 1Q,Applying the principles laid down in the case oT|AHMEDABAD RANA CASTE ASSOCIATIONjSupra|, we are of the considered opinion that the otherobjectives of the Trust may be to provide educationalfacilities and medical facilities to the Members of the|Milk Producers Societies and their family members asalso to the employees of the Societies, the mainobjective of the Trust as enumerated at paragraph-2 ofthe Trust Deed cannot be ignored. 11.Section2} 1looT theActcontemplates‘charitable purpose’. ‘Charitable purpose’ includes reliefoT|thePOOor,education,medicalreliefandtheadvancement of any other object of general publicutility. The phrase ‘any other object of general publicutility’ if, examined in the light of the Judgment in thecase oftAHMEDABAD RANA CASTE ASSOCIATION| jSupra|, it is not necessary that the object should be tobenefit of the whole of mankind or of persons in aCountry or State. If it is distinguished from a specifiedindividual and if it is to the benefit of section of the'public, it has to be construed as charitable purpose. As-such,theOrder|passedbythe|Tribunal1S.unsustainable. 11.Section2} 1looT theActcontemplates‘charitable purpose’. ‘Charitable purpose’ includes reliefoT|thePOOor,education,medicalreliefandtheadvancement of any other object of general publicutility. The phrase ‘any other object of general publicutility’ if, examined in the light of the Judgment in thecase oftAHMEDABAD RANA CASTE ASSOCIATION| jSupra|, it is not necessary that the object should be tobenefit of the whole of mankind or of persons in aCountry or State. If it is distinguished from a specifiedindividual and if it is to the benefit of section of the'public, it has to be construed as charitable purpose. As-such,theOrder|passedbythe|Tribunal1S.unsustainable. 12,In the given circumstances, we are of theconsidered opinion that the matter deserves to bereconsidered by the Tribunal regarding the purpose and objectives of the Trust in the light of the Trust Deed andany other documents to be furnished by the Assessee. 13,Accordingly,|withoutansweringthequestions of law raised in these appeals, we arerestoring the matter to the Tribunal to consider thematter afresh in the light of the observations asaforesaid. All contentions are left open to the parties. 14)In the result, the appeals are allowed to theextent indicated above. AN/- Sd/-JUDGE| Sd/-JUDGE|