Kerala High Court
M/S. Biowin Agro Research vs The Income Tax Officer on 24 January, 2025
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
2025:KER:5496
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.
FRIDAY, THE 24TH DAY OF JANUARY 2025/4TH MAGHA, 1946
I.T.A.NO.4 OF 2023
AGAINST THE ORDER DATED 24.02.2023 N I.T.A.NO.3/COCH/2022 ON THE
FILE OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN
APPELLANT/APPELLANT/APPELLANT/ASSESSEE:
M/S. BIOWIN AGRO RESEARCH
VEMOM, MANANTHAVADY, WAYNAD,
REPRESENTED BY ITS DIRECTOR JOHN JOSEPH,
PIN - 670 645
BY ADV.SRI.K.SRIKUMAR (SR.)(S-609)
BY ADV.SMT.AMMU CHARLES
BY ADV.SRI.K.MANOJ CHANDRAN(K/264/1998)
RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:
THE INCOME TAX OFFICER
EXEMPTION WARD, AAYAKAR BHAVAN, NORTH BLOCK,
MANANCHIRA, KOZHIKODE, PIN - 673001
BY SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT
THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON
14.01.2025 ALONG WITH I.T.A.NO.5/2023, THE COURT ON
24.01.2025 DELIVERED THE FOLLOWING:
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.
FRIDAY, THE 24TH DAY OF JANUARY 2025/4TH MAGHA, 1946
I.T.A.NO.5 OF 2023
AGAINST THE ORDER DATED 24.02.2023 N I.T.A.NO.2/COCH/2022 ON THE
FILE OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN
APPELLANT/APPELLANT/APPELLANT/ASSESSEE:
M/S. BIOWIN AGRO RESEARCH
VEMOM, MANANTHAVADY, WAYNAD,
REPRESENTED BY ITS DIRECTOR JOHN JOSEPH,
PIN - 670645
BY ADV.SRI.K.SRIKUMAR (SR.)(S-609)
BY ADV.SMT.AMMU CHARLES
BY ADV.SRI.K.MANOJ CHANDRAN(K/264/1998)
RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:
THE INCOME TAX OFFICER
EXEMPTION WARD, AAYAKAR BHAVAN, NORTH BLOCK,
MANANCHIRA, KOZHIKODE, PIN - 673001
BY SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT
THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON
14.01.2025 ALONG WITH I.T.A.NO.4/2023, THE COURT ON
24.01.2025 DELIVERED THE FOLLOWING:
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"C.R."
JUDGMENT
Dr. A.K.Jayasankaran Nambiar, J.
In these appeals, the appellant/assessee impugns the
common order dated 24.02.2023 of the Income Tax Appellate Tribunal,
Cochin Bench in I.T. Appeal Nos.2 and 3/Coch/2022 pertaining to the
assessment years 2017-18 and 2018-19 respectively.
2. The brief facts necessary for disposal of these I.T. Appeals
are as follows:
The appellant is a company registered under Section 8 of the
Companies Act, 2013 for carrying out public charitable objects and is
also registered as a charitable institution under Section 12A of the
Income Tax Act [hereinafter referred to as the "I.T. Act"]. The main
objects of the appellant/company as per its Memorandum of Association
are as follows:
"1. To establish a world class research centre in the field of organic
farming and to promote, encourage, establish, develop, maintain,
organize, undertake, manage, operate, research in all kinds of
biotechnological, organic, agricultural, horticultural, dairy, poultry
and farm produces and products and to encourage research and
development for promoting nutritious food-grains, cereals, seeds,
soya-beans, corn, corn oils, cash crops, plants, flowers, vegetables,
spices, coffee, edible oils, meat fish, eggs, and other human food
products to ensure quality food products are made available to the
society.
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2. To initiate, carry out, execute, implement, aid and assist activities
towards development in the organic farming sector in India and
meeting the entire value chain's requirements of approximately
trained manpower in quantity and quality on a sustained and evolving
basis and to prevent use of harmful chemicals and pesticides in
agricultural activities in land through establishing, promoting
academics of excellence and to coordinate participation of social
partners, employers in the private sector, training providers,
professional societies and NGOs/civil society groups in the process of
skill development for the organic farming sector and to facilitate in
setting up a robust and stringent certification and accreditation
process for the Organic farming Sector to ensure consistency and
acceptability of standards with approval of appropriate authorities.
3. To buy, sell, resell, import, export, transport, store, develop, promote,
market or supply, trade, deal in any manner whatsoever in all type of
agro-products and related goods on retain as well as on wholesale
basis in India or elsewhere."
3. The appellant filed Nil returns during the assessment
years 2017-18 and 2018-19 respectively. The case of the appellant was
however selected for scrutiny under Section 143(2) of the I.T. Act, and
after hearing the appellant, the assessment was completed for the said
years by disallowing the claim for exemption under Section 11 of the
I.T. Act and demanding substantial amounts towards tax, cess and
interest. Penalty proceedings under Section 270A were also separately
initiated.
4. Essentially, the Assessing Officer found that the appellant
company had earned a net profit from its business activities and had
declared Nil taxable income after application of its income under
Section 11 of the I.T. Act. However, the Assessing Officer also found
that the appellant did not satisfy the requirement of application of
income for "relief of the poor" for the purposes of Section 11 read with
Section 2(15) of the I.T. Act and that the activities of the appellant were
more in the nature of business activities carried on with a profit motive.
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5. In the appeals carried by the appellant against the
assessment orders, the First Appellate Authority upheld the order of
the Assessing Officer inter alia by finding that although the appellant
was established as a charitable company and was registered under
Section 12A of the I.T. Act, its activities would attract only the later
limb of the definition of "charitable purpose" under Section 2(15) that
dealt with "advancement of an object of general public utility".
Consequently, the First Appellate Authority proceeded to hold that the
appellant did not satisfy the requirement for exemption as per the
proviso to Section 2(15) read with Section 11 of the I.T. Act. Although
the appellant preferred further appeals before the Appellate Tribunal,
the Tribunal also dismissed the appeals by sustaining the order of the
First Appellate Authority.
6. Before us, the appellant raises the following substantial
questions of law:
a) Whether on the facts and in the circumstances of the case
has not the learned tribunal gone wrong in finding that
the object of the appellant is not "relief of the poor" ?
b) Ought not the learned Tribunal to have allowed the claim
of exemption under Section 11 of the Act ?
7. We have heard Sri.K.Sreekumar, the learned senior
counsel, assisted by Smt.Ammu Charles, the learned counsel for the
appellant/assessee and Sri.Christopher Abraham, the learned Standing
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Counsel for the Department.
8. The contentions of Sri.Sreekumar, the learned senior
counsel for the appellant, briefly stated, are as follows:
● Referring to Circular No.11/2008 dated 19.12.2008, the
appellant would contend that the finding that the activities carried
on by the appellant do not attract the description of "Relief of the
poor" for the purposes of Section 2(15) of the I.T. Act is wholly
incorrect. It is argued that relief provided to small and marginal
farmers would also qualify as "Relief of the poor". The
categorisation effected by the Ministry of Agriculture & Farmers
Welfare, Government of India, is relied upon to show that a "Small
farmer" refers to a farmer whose agricultural area is more than 1
hectare and upto 2 hectares either as owner or tenant or share
proper. "Marginal farmer" refers to a farmer whose agricultural
tract is upto 1 hectare for peasant farming. It is the case of the
appellant that the small and marginal farmers residing in Wayanad,
Kerala had obtained registration under the Organic Certification
Standards implemented through the Agricultural and Processed
Food Products Export Development Authority [APEDA], which is a
body under the Ministry of Commerce and Industry, Government of
India, and the said farmers were engaged in organic farming in
accordance with the said Certification Program. Inasmuch as these
small and marginal farmers found it almost impossible to sell their
products as organic certified products in the national and
international market, and they could not obtain organic certification
on account of the stringent standards that were expensive to attain,
they were being deprived of their rightful share in the national and
international markets. It was in order to alleviate the hardship of
such small and marginal farmers that the appellant sourced
products from them by offering premium prices and marketing their
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products in India and abroad. After initially paying a base price for
the products sourced from them, the appellant would thereafter
share the higher price obtained by them consequent to receipt of
fair trade premium amounts, with the said farmers so as to save
them from poverty. The appellant contends therefore that its
activities, which are in tune with the objects in the Memorandum of
Association have necessarily to be seen as geared towards providing
relief of the poor.
● Reliance is placed on the decision in Thiagarajar
Charities v. Additional Commissioner of Income-tax - [(1997)
92 Taxman 152 (SC)] to contend that the carrying on of business
by the appellant is not the main object of the Trust but merely a
means to attain the objects of a Trust. Inasmuch as the carrying on
of business was only a means of achieving the object of the Trust
which was to provide relief of the poor, the exemption claimed by
the appellant could not have been denied by the Appellate Tribunal.
Reliance is also placed on the decision in Commissioner of
Income-tax - I, Lucknow v. Lucknow Development Authority,
Gomti Nagar - [(2013) 38 Taxmann.com 246 (Allahabad)] to
point out that in the absence of any material that was brought on
record by the Department to suggest that the assessee was
conducting its affairs on commercial lines with the motive of earning
profit or that it had deviated from its objects as detailed in the
Memorandum of Association, the proviso to Section 2(15) of the I.T.
Act could not be held applicable to the appellant/assessee and it had
to be seen as entitled to the exemption provided under Section 11 of
the I.T. Act.
● It is the specific case of the appellant that it had produced
documents in the form of details of approximately 13,320 farmers,
including therein the extent of their landholdings, to show their
categorization as 'small and marginal farmers' based on the criteria
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prescribed by the Ministry of Agriculture & Farmers Welfare, to
establish that its activities were intended to provide relief of the
poor. The Tribunal, on the other hand, chose not to consider the
said documentary proof produced by the appellant before it and
proceeded to mechanically deny the exemption to the appellant.
9. Per contra, Sri. Christopher Abraham, the learned
Standing Counsel, while supporting the impugned orders of the First
Appellate Authority and the Appellate Tribunal, further contends in the
alternative that there never was an application of income by the
appellant/company to the extent envisaged under Section 11 of the I.T.
Act and no proof was produced before the Tribunal to substantiate the
said fact. It is pointed out that in the absence of any discussion by the
Assessing Authority, the Appellate Authority or the Appellate Tribunal
on the merits of the claim for exemption, the impugned orders did not
require to be interfered with.
10. We have considered the rival submissions and also
perused the pleadings in the appeals and the documents and
precedents made available before us at the time of hearing. It is clear
from the pleadings before us that the appellant/company is engaged in
the activity of procuring agricultural produce at premium price and re-
selling the same in the domestic and international market. In tune with
the main objects in the Memorandum of Association of the
appellant/company it effectively prevents the exploitation of farmers by
middleman. There is also sufficient indication that the appellant
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provides assistance in the form of crop saplings, manure, awareness
programs related to organic farming and sustainable farming methods
designed to preserve the ecological systems. The receipts obtained by
the appellant out of the aforesaid activities are stated to be utilised for
the upliftment of farmers. It is apparently on account of the said
objects pursued by the appellant/company that it was permitted to be
registered under Section 8 of the Companies Act which deals with
companies carrying out public charitable objects. It is for the same
reason that they were granted registration under Section 12A of the
I.T. Act as well. It cannot be in dispute therefore that the company is
engaged in the pursuit of charitable objects and the only question that
arises for consideration before us is with regard to the categorisation to
be accorded to the activities carried on by the company. While the
appellant/company would contend that its activities are geared towards
providing relief of the poor which would include providing relief to
small and marginal farmers in the light of Circular No.11/2008 dated
19.12.2008 issued by the Central Board of Direct Taxes, the contention
of the Revenue is essentially that the activities of the
appellant/company are more in the nature of business activities and
that the carrying on of charitable objects is only incidental to such
business activities; that the appellant is therefore engaged only in the
advancement of other objects of general public utility.
11. Section 2(15) of the I.T. Act defines "charitable purpose"
for the purposes inter alia of Section 11 of the I.T. Act, as follows:
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"2. In this Act, unless the context otherwise requires.-
xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx
xxxxxxxxxxxxxx
(15) "charitable purpose" includes relief of the poor, education,
yoga, medical relief, preservation of environment (including water-sheds,
forests and wildlife) and preservation of monuments or places or objects of
artistic or historic interest, and the advancement of any other object of
general public utility:
Provided that the advancement of any other object of general
public utility shall not be a charitable purpose, if it involves the carrying on
of any activity in the nature of trade, commerce or business, or any activity
of rendering any service in relation to any trade, commerce or business, for
a cess or fee or any other consideration, irrespective of the nature of use or
application, or retention, of the income from such activity, unless--
(i) such activity is undertaken in the course of actual carrying
out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities
during the previous year, do not exceed twenty per cent of the total
receipts, of the trust or institution undertaking such activity or activities, of
that previous year;"
It is apparent from a reading of the definition of 'charitable purpose'
that while it specifically includes "relief of the poor", it also includes as
a residual category the "advancement of any other object of general
public utility". In our view, a correct understanding of the scope of the
definition would be to treat the first limb of the definition as referring
to specific instances of charitable purpose and the last limb as a
residual category encompassing therewith charitable purposes other
than those that are specifically mentioned in the first limb.
Accordingly, if we find that the activities of the appellant can be
appropriately categorised under any of the categories falling in the first
limb of the definition, then there is no occasion to look to the second
limb of the definition. A reading of the definition, in its entirety also
indicates that the criteria that decides whether an activity would fall
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within the first or the second limb of the definition would be whether or
not the business activity carried on by the appellant manifests the
pursuit of its main objects or is merely incidental thereto. In the case
of the appellant/assessee, we find from the nature of the activities
carried on by the assessee that the business activities are merely
incidental to the pursuit of its main object which is to establish a world
class Research Centre in the field of organic farming and to promote,
encourage, establish, develop, maintain, organize, undertake, manage,
operate, research inter alia in all kinds of biotechnological, organic,
agricultural, horticultural, dairy, poultry and farm produces and
products and to encourage research and development for promoting
nutritious food-grains, cereals, seeds, soya-beans, corn, corn oils, cash
crops, plants, flowers, vegetables, spices, coffee, edible oils, meat fish,
eggs, and other human food products to ensure quality food products
are made available to the society. The activity of "buying, selling, re-
selling, importing, exporting, transporting, storing, developing,
promoting, marketing or supplying, trading", dealing in any manner
whatsoever in all type of agro-products and related goods on retail as
well as on wholesale basis in India or elsewhere is only incidental to the
first two main objects specified in the Memorandum of Association.
The tests laid down in Thiagarajar Charities (supra) and Assistant
Commissioner of Income Tax v. Thanthi Trust - [(2001) 247 ITR
785] that hold that if a business is carried on solely for the purposes of
attainment of a charitable object, it cannot be seen as a pursuit of the
object itself, applies squarely in the case of the appellant/assessee and
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persuades us to hold that the activities of the assessee are intended to
fulfill a charitable purpose of relief of the poor. We cannot find it in
ourselves to accept the reasoning of the authorities below that the main
object of the appellant/assessee was to carry out business and that the
charitable purpose carried on by it was merely one for the
advancement of an object of general public utility. This is more so
because we find that the authorities below virtually ignored the
evidence produced by the appellant to demonstrate that a substantial
part of the income received by it was given to poor and marginal
farmers from whom they had sourced organic agricultural produce. In
our view, the payment of such amounts to the poor and marginal
farmers, if proved, would have led the authorities below to conclude
that the activities of the appellant were carried on with the object of
providing relief of the poor. They would have arrived at such a
conclusion by looking at the activities of the appellant company in a
holistic manner and against the backdrop of its stated objects in its
Memorandum of Association.
12. The impugned order of the Appellate Tribunal that
upholds the finding of the authorities below is therefore set aside and
the appeals allowed to the extent of holding that the activities of the
appellant/assessee have to be seen as falling under the head of "relief
of the poor" for the purposes of the definition of "charitable purpose"
under Section 2(15) of the I.T. Act and for the purposes of computation
of income and grant of exemption under Section 11 of the I.T. Act.
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13. That said, we do find force in the submission of the
learned counsel for the Department that there was no enquiry by the
authority below, with reference to the accounts and documents
produced by the appellant/assessee, on the aspect of whether the
appellant had in fact satisfied the requirement of application of income
in terms of Section 11 of the I.T. Act, for claiming the exemption. We
feel that the assessment of the appellant/company under the I.T. Act for
the assessment years 2017-18 and 2018-19 would not be complete
unless the above exercise is also completed by the Assessing Officer.
While allowing the I.T. Appeals therefore, by finding that the appellant
would be entitled to the exemption under Section 11 of the I.T. Act as
an entity providing relief of the poor, we remand the matter to the
Assessing Authority to determine whether or not the appellant actually
satisfied the requirement of application of income under Section 11 of
the I.T. Act during the assessment years in question for the purposes of
obtaining the benefit of exemption. The Assessing Authority shall
complete the aforesaid exercise within an outer time limit of six months
from the date of receipt of a copy of this judgment, after hearing the
appellant/assessee and perusing the documents and other materials
produced by the appellant to substantiate its contentions on merits.
The I.T. Appeals are thus allowed by answering Question No.
(a) in favour of the assessee and against the revenue and remanding
the matter to the Assessing Officer for a consequential finding on
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whether or not the appellant satisfies the requirement of application of
income under Section 11 of the I.T. Act during the assessment years in
question for obtaining the benefit of exemption.
Sd/-
DR. A.K.JAYASANKARAN NAMBIAR
JUDGE
Sd/-
EASWARAN S.
JUDGE
prp/
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PETITIONER'S ANNEXURES:
ANNEXURE A COPY OF ASSESSMENT ORDER FOR THE YEAR 2018-
19 ISSUED BY THE NATIONAL FACELESS E-
ASSESSMENT CENTRE, DELHI DTD. 20-04-2021
ANNEXURE B COPY OF ORDEDR ISSUED BY THE COMMISSIONER OF
INCOME TAX APPEALS, NATIONAL FACELESS APPEAL
CENTRE, DELHI DTD. 08-11-2021
ANNEXURE C CERTIFIED COPY OF ORDER IN I.T.A.NO.02 &
03/COCH/2022 DTD. 24-02-2023 ISSUED BY THE
INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH,
COCHIN
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PETITIONER'S ANNEXURES:
ANNEXURE A COPY OF ASSESSMENT ORDER FOR THE YEAR 2017-
18 ISSUED BY THE INCOME TAX OFFICER,
EXEMPTION WARD, KOZHIKODE DTD. 30-12-2019
ANNEXURE B COPY OF ORDER ISSUED BY THE NATIONAL
FACELESS APPEAL CENTRE (NFAC), DELHI DTD.
30-10-2021
ANNEXURE C CERTIFIED COPY OF ORDER IN ITA NO.02 &
03/COCH/2022 ISSUED BY THE INCOME TAX
APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN
DTD. 24-02-2023
RESPONDENTS ANNEXURES: NIL.
//TRUE COPY//
P.S. TO JUDGE
