Shri Gau Sewa Trust vs Income Tax Officer, Ward Exemption 2(1), Delhi

PER MAHAVIR SINGH, VP:

These two appeals by the assessee arise out of the orders of the Learned Commissioner of Income Tax (Exemptions), Delhi dated 26^th May, 2026, passed under section 12AB(1)(b)(ii)(B) of the Income-tax Act, 1961 ( hereinafter referred to as 'the Act') rejecting registration under Section 12A(1)(ac)(ii) and order dated 22^nd May, 2026, rejecting the assessee's application for approval under section 80G(5) of the Act. Since both the appeals pertain to the same assessee and involve interconnected issues, they were heard together and are being disposed of by this consolidated order.

First, we will take up ITA No.5988/Del/2026. The only issue in this appeal of the assessee is as regards the order of learned CIT(E), Delhi in rejecting the application for registration of the assessee trust under Section 12A of the Act vide his order dated 26^th March, 2026 despite the fact that the objects of the assessee are charitable in nature as per the main limb of Section 2(15) of the Act.

The brief facts are that the assessee trust was constituted in the year 2008 vide trust deed dated 6^th November, 2008. The objects of the trust, inter-alia, provide for promotion of gaushalas, protection and welfare of cows, providing food, shelter and medical aid to cows, research and development in the field of gau seva, promotion of products such as cow milk, cow urine and cow dung in furtherance of gau seva and creating awareness amongst the public regarding the significance of gau seva. The assessee trust has been regularly filing its return of income and has continuously been granted registration under Section 12AB and also approval under Section 80G of the Act in the preceding years. Pursuant to the amendment in the law regarding registration of trusts, the assessee made an application for renewal of registration under Section 12A(1)(ac)(ii) on 30^th September, 2025. Learned CIT(E) called for various documents and explanations, all of which were duly furnished by the assessee and taken on record. Learned CIT(E) refused to renew the registration principally on the ground that the assessee is earning receipt from sale of milk and such receipts exceed 20% of the total receipts in violation of the provisions of Section 2(15) of the Act and therefore, according to him, the activities of the trust are in the nature of trade, commerce or business within the meaning of the proviso to Section 2(15) of the Act. Learned Counsel took us through the order rejecting application under Section 12A(1)(ac)(ii) of the Act. He stated that learned CIT(E) was under wrong impression that the trust is receiving income from sale of milk and the same falls in the nomenclature of commercial nature and in violation of the provisions of Section 2(15) of the Act as the assessee's total receipts are more than 20% from commercial activity. Learned Counsel pointed out that assessee before learned CIT(E) relied on the decision of ITAT, Ahmedabad Bench in the case of Sabarmati Ashram Gaushala Trust Vs. ADIT(Exemption) – [2013] 25 ITR (Trib) 701 (Ahd.), which is exactly on identical facts and whereby, the Tribunal held that where the trust is running a gaushala, the sale of milk was merely incidental to carrying out the charitable objects and there was no element of profit motive so as to attract the proviso to Section 2(15) of the Act. This decision of the Tribunal has been affirmed by Hon'ble Gujarat High Court in Director of Income-tax (Exemption) Vs. Sabarmati Ashram Gaushala Trust – [2014] 362 ITR 539 (Guj.). However, the learned CIT(E) noted the assessee's receipts from sale of cow milk for the financial year 2022-23 to 2024-25 and other receipts such as donations and bank interest also and accordingly, rejected the assessee's claim by observing in paragraph No.6 as under:-

We have heard the submissions of both the sides and perused the material placed before us. The entire basis of the impugned order is that sale of milk constitutes the activity in the nature of trade, commerce or business. The finding is on an erroneous appreciation of the very nature of activities. We noted that the trust has been established with the primary object of protection and welfare of cows. The objects of the trust specifically provide for maintenance of gaushalas, protection and welfare of cows, research and development in the field of gau seva, promotion of products such as cow milk, cow urine and cow dung. These charitable objects have remained unchanged since the creation of the trust in the year 2008 and have been accepted by the Department while granting registration in the past. The production of milk is an inseparable and natural consequence of maintaining cows. Milk cannot be allowed to go waste and has necessarily to be accepted and disposed of. Merely because the milk so obtained is sold and the sale proceeds are utilized for maintaining the gaushala and carrying out the charitable objects of the trust, it cannot be said to be carrying out the commercial diary or carrying on the business in milk.

The learned CIT(E) has placed reliance on the judgment of Hon'ble Supreme Court in the case of ACIT(Exemptions) Vs. Ahmedabad Urban Development Authority in Civil Appeal No.21762 of 2017. However, learned CIT(E) has completely misunderstood and misapplied the ratio of the said judgement to the facts of the present case. We noted that in the case of Ahmedabad Urban Development Authority (supra), Hon'ble Supreme Court has not held that registration of such institution is liable to be cancelled or refused merely because certain receipts are alleged to be commercial in nature. We have gone through various judicial pronouncements cited by the learned Counsel i.e., Sabarmati Ashram Gaushala Trust (supra), in which the Tribunal, after examining the objects and activities of the trust, held that breeding of cattle, maintenance of cows and sale of milk were inseparable parts of the charitable activities of the trust. It was held that the sale of milk was merely incidental to carrying out the charitable objects and there was no element of profit motive so as to attract the provisions of Section 2(15) of the Act. Consequently, the assessee was held entitled to exemption under Section 11 of the Act. Respectfully following the judgment in the case of Sabarmati Ashram Gaushala Trust (supra), we are of the considered view that sale of milk cannot be considered as commercial in nature as production of milk is an inseparable and natural consequence of maintaining cows. In this view of the matter, we direct the learned CIT(E) to grant registration to the assessee trust.

Coming to ITA No.5987/Del/2026, since we have already directed the learned CIT(E) to grant registration, the approval under Section 80G is consequential. Accordingly, this appeal of the assessee is also allowed.

In the result, both the appeals of the assessee are allowed. Decision pronounced in the open Court on conclusion of hearing on 13th July, 2026.