Milk Society for Farmers entitled to Section 11 Exemption; “Relief of Poor” upheld despite commercial activity

By | December 11, 2025
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Milk Society for Farmers entitled to Section 11 Exemption; “Relief of Poor” upheld despite commercial activity

Issue

Whether a charitable society engaged in the procurement and processing of milk from small/marginal farmers is entitled to tax exemption under Sections 11 and 12 as “Relief of the Poor” under Section 2(15), or if its activities constitute a commercial business that disqualifies it from exemption.

Facts

  • Assessee Profile: A society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, and also registered under Section 12A of the Income-tax Act.

  • Activity: The assessee was engaged in the procurement, chilling, processing, and sale of milk. The milk was sourced primarily from small and marginal farmers.

  • Objects: Its stated objects were the relief, upliftment, economic support, and welfare of these farmers.

  • Welfare Activities: The assessee consistently carried out farmer-training programs, cattle-rearing demonstrations, financial assistance, welfare schemes, and subsidies aimed at improving the livelihood of economically weaker farming communities.

  • AO’s Denial: The Assessing Officer (AO) denied the exemption, arguing that the milk processing and sales constituted a commercial business activity (Trade, Commerce, or Business) under the proviso to Section 2(15), rather than charity.

Decision

  • Dominant Object Test: The Tribunal applied the “Dominant Object” test. It held that the primary purpose of the society was the relief of the poor (specifically, supporting small and marginal farmers who are economically vulnerable).

  • Incidental Business: The commercial activity of procuring and selling milk was held to be merely incidental to the primary charitable objective. Without selling the milk, the society could not generate the funds or the market access necessary to support the farmers.

  • Integrated Activity: The processing/sale was inseparable from the charitable goal of ensuring farmers received fair prices and livelihood support.

  • Ruling: Since the dominant activity fell within “Relief of the Poor” (which is distinct from “Advancement of any other object of general public utility” where commercial restrictions are stricter), the proviso regarding commercial receipts did not apply in the same restrictive manner. The assessee was held entitled to exemption under Sections 11 and 12.

Key Takeaways

“Relief of Poor” Privilege: The strict restrictions on commercial activities (Trade/Commerce/Business) introduced by the proviso to Section 2(15) primarily target the residual category (“Advancement of any other object of general public utility”). Trusts falling under specific heads like “Relief of the Poor,” “Education,” or “Medical Relief” have greater leeway to conduct incidental business activities if they directly serve the charitable cause.

Economic Support = Charity: Helping small farmers or artisans market their products to ensure they earn a livelihood is widely recognized as “Relief of the Poor,” distinguishing it from a standard corporate dairy business.

IN THE ITAT COCHIN BENCH ‘DB’
Malanadu Farmers Society
v.
DCIT, Exemption*
ANIKESH BANERJEE, Judicial Member
and Inturi Rama Rao, Accountant Member
ITA Nos. 674 and 675 (COCH) of 2025
[Assessment years 2016-17 and 2022-23]
NOVEMBER  19, 2025
Jose Kappen, CA for the Appellant. Sanjit Kumar Das, CIT AR. for the Respondent.
ORDER
Anikesh Banerjee, Judicial Member.- Both the instant appeals of the assessee were filed against the order of the National Faceless Appeal Centre (NFAC), Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for assessment year 2016-17 and 2022-23, date of both the order 25/07/2025. The impugned order were emanated from the Assessment Unit, Income-tax Department (for brevity, the “Ld.AO”) passed u/s. 147 r.w.s 144B of the Act, dated of order 28.12.2023 for A.Y. 2016-17 and for A.Y. 2022-23 the order passed u/s 143(3) r.w.s. 144B of the Act date of order 09.03.2024.
2. All the appeals are having same nature of facts and having common issues. All the appeals are taken together, heard together and dispose of by common order. ITA No. 674/COCH/2025 is taken as lead case.
3. The assessee is a charitable society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955(Act No. Xll of 1955) and also registered u/s 12A of the Act. The primary object of the assessee is to conduct social activities aimed to for improving the living conditions and welfare of the poor and marginal section of the society. The assessee filed his return for impugned assessment year by declaring total income Nil, the assessee claimed exempted income u/s 11 as main object of the assessee applicable to provision u/s. 2(15) of the Act. The notice u/s 148A was issued and assessee’s case was reopened on the ground that the assessee is not a charitable organization but the business community. It is observed by Ld.AO that the major activities of the assessee is trading and processing of milk. The assessee has declared total sell of milk amounting to Rs. 107.96 crore. Whereas the assessee declared the net profit of Rs. 13.93 crore against the trading and processing activities of milk. Thus, Ld.AO decided that the assessee was not participated in any activities for relief of poor, but the trading activities are carried out by the society. Finally, the assessment was completed and assessee was denied the exemption u/s 11 of the Act and the addition was confirmed amount of Rs. 13,93,29,934/- related to profit earn by trading milk. The aggrieved assessee filed the appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the order of Ld.AO. Being aggrieved the assessee filed the appeal before us.
3.1. Ld.AR stated that the assessee is a charitable trust and continuing the relief to poor through this business activity. It is submitted that first proviso of section 2(15) of the Act is applicable for the assessee “Advancement of any other object of general public utility.” The Ld.AR heavily relied on the circular No. 11/2008 date 19.12.2008 which clarifies that the proviso of section 2(15) of the Act will not apply in respect of first three limbs of section 2(15) i.e.
1.relief of poor to education,
2.medical relief.
3.education relief.
4. Ld.AR re-invited our attention in order of coordinate bench of Cochin Tribunal. In assessee’s own case where the activity of the assessee was considered. Though the order of the ITAT is related to section 263 bearing Malanadu Farmers Society v. DCIT [IT Appeal Nos. 632 and 633 (Coch) of 2022] A.Y. 2017-18,date of pronouncement 08.03.2023. Wherein the bench observed that the assessee object of the trust is relief of poor, small and marginal farmer and, accordingly, it is covered by circular No. 11/2008 so there is no violation of section 2(15) of the Act.
5. The Ld.AO argued and invited our attention in written submission in APB Vol-1 pages 11-18 where he explained the details about to “relief of poor”. The relevant part of APB Vol-1 pages 11 to 14 is reproduced as below:-
“b. Relief of Poor
The appellant is a charitable society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 (Act No. Xll of 1955) and duly registered under Section 12A of the Income-tax Act, 1961. (Copy of 12A Registration Certificate is enclosed herewith.)
The primary objective of the appellant is to conduct charitable and social service activities aimed at Improving the living conditions and general welfare of the poor and marginalized sections of the society, irrespective of race, community, caste or creed, with special emphasis on small and marginal farmers. These objectives clearly fall under the first limb of Section 2(15) of the Income-tax Act, i.e., “relief of the poor”, which is a recognized charitable purpose.
All the objects of the appellant are oriented towards relief of the poor, and none of its activities fall under the restrictive category of “advancement of any other object of general public utility (GPU)”. Copies of the Memorandum of Association and Rules & Regulations of the society are enclosed herewith (Page no 129 to 138)
In pursuit of its objectives, the society undertakes several educational and livelihood-oriented initiatives, including training and educating farmers in the local areas of Tamil Nadu (Surandai, Perayoor, Dindigul, and Theni) on the benefits of milk farming and cattle rearing as a sustainable means of livelihood. The society operates a model cattle farm at Theni as a live demonstration center for this purpose.
The appellant also extends various welfare and financial assistances to poor farmers, such as: Cattle feed subsidies, Educational aid, Marriage aid, Housing aid, Medical aid, Distribution of food to the poor, Promotion of apiculture, Farmers training programmes, and Other social welfare activities.
A major issue faced by small and marginal farmers is their inability to sell raw milk at fair prices, leading to exploitation by middlemen and local milk merchants. To mitigate this hardship, the society procures raw milk directly from these farmers through collection agents and pays a higher price than what is offered by local traders. This ensures that the farmers receive fair compensation for their produce, thereby directly promoting their economic wellbeing.
A comparative statement of milk procurement prices demonstrates that the appellant society pays approximately 2.94 to 73.47 more per litre than the price paid by Aavin (Tamil Nadu Co-operative Milk Producers’ Federation Ltd.). depending on milk quality. (Comparative price charts of Malanadu Farmers Society (MFS) (appellant) and Aavin, as submitted before the Assessing Officer during the course of original assessment.)
The above facts clearly establish that appellant is paying a higher price to poor, small, and marginal farmers purely for their relief and upliftment, which squarely falls within the scope of “charitable purpose” as defined under Section 2(15) of the Act.
Since raw milk is a highly perishable commodity, basic chilling and processing is done before being sold. The collection, processing, and sale of milk generated by these farmers are purely incidental to the primary charitable objective of the society, namely, the relief and assistance of small and marginal farmers.
Without procuring milk from these farmers, the society’s objective of teaching and promoting cattle rearing as a means of livelihood of farmers would be rendered meaningless. Hence, the milk procurement and sale activity is an inseparable and incidental part of its charitable operations.
(c) Applicability of Proviso to Sec 2(15)
It is submitted that proviso to Sec. 2(15) is not applicable in this case, as the activities of the society is covered under the 1st limb of Sec 2(15).
The CBDT Circular clarified the applicability of proviso to Sec2(15):
The proviso to Section 2(15) is applicable only in respect of residual clause of Section2(15), i.e. advancement of any other object of general public utility”. It has been clearly clarified by the CBDT vide its Circular No. 11/2008 dated 19.12.2008 (Copy of the circular is enclosed herewith)
The relevant portion of the Circular No. 11/2008 dated 19.12.2008 read as under
“The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), ie, relief of the poor, education or medical relief Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities.
‘Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that
(i)the business should be incidental to the attainment of the objectives of the entity, and
(ii)separate books of account should be maintained in respect of such business.
Similarly, entities whose object is ‘education’ or ‘medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above.”
The object of the appellant society is to extend various forms of assistance to small and marginal farmers for their upliftment and welfare, and to protect them from exploitation by middlemen and traders. These activities are squarely covered within the scope of “relief of the poor”, which is expressly recognized as a charitable purpose under Section 2(15) of the Incometax Act, 1961, as clarified in CBDT Circular No. 11/2008 dated 19.12.2008.
The Circular specifically explains that the term “relief of the poor” encompasses a wide range of welfare activities aimed at assisting the economically disadvantaged, including small and marginal farmers. Accordingly, activities carried out for the benefit of such farmers constitute charitable activities within the meaning of Section 2(15).
Since all the activities of the appellant are solely directed towards achieving its main charitable objective-that is, relief of the poor, small and marginal farmers and since the conditions prescribed under Section 11(4A) are duly satisfied, the entire income of the appellant society is exempt under Section 11 of the Act.
The major and predominant activity of the society is providing relief to the poor, while the collection, chilling, and processing of milk constitute only an incidental activity in furtherance of this primary objective. Without such milk collection, the objective of promoting dairy farming as a sustainable livelihood for small farmers would not be effectively achieved.
Therefore, as per the ratio of CBDT Circular No. 11/2008, the appellant society is clearly eligible for exemption under Section 11 of the Income-tax Act, 1961.
The Hon’ble Supreme court in the case of Assistant Commissioner Of Income Tax. v. Ahmedabad Urban Development Authority in CIVIL APPEAL NO. 21762(SC)/[2022] 449 ITR 1 (SC) (SC), held that
“126. As observed at the beginning of this judgment, GPU charities have been recognized as distinct from the ‘per se categories’ of charity (education, medical relief, relief to the poor; and later -preservation of water sheds, monuments, environment, and yoga). The judgment of this court in Dharmadeepti (supra) has clarified that the per se categories – are not subjected to the restrictive condition of eschewing activities of profit. This enunciation of the principle has been endorsed in all later decisions starting with Surat Art Silk (supra). Therefore, (1975) 3 SCR 783 (1960) 3 SCR 837 (1991) 1 SCR 938 the restriction imposed by Parliament against charities -prohibiting them from carrying on activities of profit do not apply to the first six categories. Although the occasion did not so arise in Surat Art Silk (supra) (since this Court was dealing with AYs prior to 1975), the provision in Section 13(1)(bb) which prevailed then with effect from 01.04.1977 made the position clearer in that it permitted these per se category charities, in the course of their actual carrying on of their activities, to earn profits. Of course, this provision was deleted from 01.04.1984. Alongside, the restriction imposed on GPUs from engaging in activities for profit, was also deleted.”
The Hon’ble Kerala High court in the case of M/S. BIOWIN AGRO RESEARCH v. ITO (ITA 4/2023) held that

“11………….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 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.”

6. The ld. DR argued heavily relied on the order of the Ld. CIT(A). The Ld. DR argued that the assessee is running the milk business. The “relief to poor” is fully denied by the Ld. DR. He respectfully relied on the order of the Hon’ble Supreme Court in case of Thiagarajar Charities v. Addl. CIT (SC).
7. We have carefully considered the rival submissions, examined the documentary evidence placed on record, and perused the judicial precedents relied upon by both sides. The core controversy revolves around whether the assessee-society—engaged in procurement, chilling, processing and sale of milk sourced from small and marginal farmers—continues to be eligible for exemption under Sections 11 and 12, and whether its activities fall within the first limb of Section 2(15) i.e., “relief of the poor”, or whether its activities constitute a purely commercial venture disentitling it from exemption. It is an admitted fact that the assessee is a charitable society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 and duly registered under Section 12A of the Act. Its stated objects—relief, upliftment, economic support, and welfare of small and marginal farmers—are not disputed. The assessee has consistently carried out activities such as farmer-training programmes, cattle-rearing demonstrations, financial assistance, welfare schemes, subsidies, and other public-oriented initiatives aimed at improving the livelihood of economically weaker farming communities. The primary basis for reopening under Section 148A, as well as the disallowance of exemption by the Ld. AO, is that the assessee has engaged in large-scale purchase, processing, and sale of milk generating substantial turnover and net surplus, which according to the Ld. AO constitutes commercial activity. However, the assessee has demonstrated, with supporting documents, that milk procurement is not a standalone profit-oriented business, but an incidental and inseparable activity directly connected to its charitable object of providing fair and remunerative prices to small and marginal farmers, thereby protecting them from exploitation by middlemen. The CBDT Circular No. 11/2008 dated 19.12.2008 categorically clarifies that the newly inserted proviso to Section 2(15) does not apply to the first three limbs of the definition of “charitable purpose”—namely (i) relief of the poor, (ii) education, and (iii) medical relief. This circular further clarifies that “relief of the poor” includes a wide range of welfare activities benefiting small and marginal farmers, and that entities engaged in such objects are not disentitled merely because they incidentally carry-on commercial activities, provided the conditions of Section 11(4A) are satisfied. In the present case, the assessee maintains separate books of account and the activity is demonstrably incidental to its charitable objects.
Further, the coordinate bench of the ITAT, Cochin, in assessee’s own case for AY 2017-18, ITA Nos. 632 & 633/Coch/2022 (supra), has already held that the assessee’s dominant purpose is “relief of the poor” and that its milk-related operations are incidental to its charitable purpose. This finding, based on identical facts, is binding in absence of any material change in facts or law. Strong support also emerges from the judgment of the Hon’ble Kerala High Court in Biowin Agro Research v. ITO, Exemption (Kerala) date of order 24/01/2025, wherein activities very similar to the present assessee for procurement and sale of agricultural produce from small farmers which were held to constitute “relief of the poor”, and it was emphasised that incidental business activity does not undermine charitable character where the dominant purpose is welfare of the poor. The Hon’ble Supreme Court decision in Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority  (SC), further reinforces that the restrictive proviso to Section 2(15) does not apply to “per se charitable categories” such as relief of the poor, which are not subject to commercial-activity restrictions, unlike the residual GPU category. The reliance placed by the Ld. DR on Thiagarajar Charities (supra) is misplaced in the present factual matrix. That case concerned application of trust property and accumulation issues under an earlier legal regime. The later jurisprudence, including CBDT Circular 11/2008 and Biowin AgroResearch (supra), squarely governs the issue at hand and supports the assessee.
In the present case, the assessee has clearly demonstrated that:
its dominant purpose is relief of poor, small and marginal farmers; milkprocurement and processing activities are merely incidental and inseparable from its charitable objectives;
farmers receive higher prices compared to cooperative benchmarks, which directly contributes to their upliftment; and
conditions under Section 11(4A) are duly complied with.
In view of the consistent judicial position, binding ITAT order in assessee’s own case, CBDT Circular 11/2008, and holistic appreciation of facts, we hold that the assessee’s activities fall squarely within the definition of “relief of the poor” under Section 2(15). The AO’s conclusion that the assessee is engaged in commercial business activity is factually and legally unsustainable.
Accordingly, the denial of exemption under Section 11 by the Ld. AO and confirmed by the Ld. CIT(A) is unjustified. The assessee is entitled to exemption under Sections 11 and 12. The addition of Rs.13,93,29,934/- is therefore directed to be deleted.
8. The facts and circumstances in the above appeal, ITA No. 674/COCH/2025 is identical to ITA No.675/COCH/2025, which we have already decided in favour of the assessee. Therefore, the decision arrived at above shall apply mutatis mutandis to the appeal ITA No. 675/COCH/2025 also and the appeal of the assessee is allowed.
9. In the result, both appeals of the assessee bearing ITA No.674/COCH/2025 and ITA No. 675/COCH/2025areallowed.