Karnataka High Court
The Director Of Income Tax vs M/S Bangalore Orthopedic Society on 19 July, 2012
Bench: K.Sreedhar Rao, B.Manohar
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 19TH DAY OF JULY 2012
PRESENT
THE HON'BLE MR. JUSTICE K.SREEDHAR RAO
AND
THE HON'BLE MR. JUSTICE B.MANOHAR
ITA No.356/2011
BETWEEN :
1 THE DIRECTOR OF INCOME TAX
EXEMPTIONS, C.R. BUILDING,
QUEENS ROAD, BANGALORE.
2 THE INCOME - TAX OFFICER, (EXMP)
WARD-1, C.R BUILDING,
QUEENS ROAD, BANGALORE. ..APPELLANTS
(By Sri K V ARAVIND, ADV.)
AND :
M/S.BANGALORE ORTHOPEDIC
SOCIETY, K.I.M.S. HOSPITAL,
BANGALORE. ...RESPONDENT
(By Sri S PARTHASARATHI, ADV.)
This ITA is filed under Section 260A of the Income Tax Act,
1961, praying to set aside the order passed by the Income Tax
Appellate Tribunal, Bangalore in ITA.No.397/Bang/2002 dated
8.4.2011 and confirm the order of the Appellate Commissioner
confirming the order passed by the Income Tax Officer, Exemptions,
Ward-1, Bangalore.
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This ITA coming on for hearing this day, K.SREEDHAR
RAO, J, delivered the following:
JUDGMENT
The respondent is the Society registered under the Karnataka Societies Registration Act on 14.6.1990 and the objects of the Society is to "promote, encourage and advance the development of the Science of Orthopaedics; to support research; organize programmes pertaining to diagnosis and treatment of handicapped; organize meetings and seminars for education of general public in respect of orthopaedic problems, to establish research units, to arrange for meaningful interaction between hospitals, publish and sell books, documents, articles, literature pertaining to orthopaedic surgery; to form organisations/institutions of qualified medical practitioners involved in treatment of physically handicapped." The membership of the Society is open to all persons who possess post graduate qualification in orthopaedic surgery and the membership is not transferable and no dividends are payable. The respondent/ Society made an application for registration under Section 12A of the IT Act in the year 1998 to the DIT (Exemption). The said application was rejected by the DIT (Exemption) by order dated 22.1.2002. The respondent filed ITA No.397(Bang.)/2002 to the 3 Income-Tax Appellate Tribunal, Bangalure Bench `B', Bangalore. The order of rejection was made beyond the stipulated period of six months. The Tribunal, in appeal, found that there is deemed grant of registration. The said order was challenged before this Court in ITA No.69/2006. This Court set aside the order of the Tribunal and remanded the matter with an observation that the Tribunal has powers to examine the application for rejection and grant exemption, if it is satisfied. The Tribunal after remand has passed the order considering the application for registration under Section 12A of the IT Act and granting exemption. The said order is challenged in this appeal by the Revenue.
2. It is the contention of the appellants that the respondent is not a charitable institution and it does not conduct any activity for the benefit of general public. The benefits and activities of the respondent are not confined to the members. Further it is contended that the respondent has not conducted any charitable activities. Therefore, the grant of registration under Section 12A of the IT Act is bad in law.
3 The following substantial questions of law would arise for consideration:
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1) Whether the Tribunal was right in holding that the respondent is a charitable institution while granting registration under Section 12A of the IT Act and exemption from tax when the respondent since 10 years in existence had not commenced any activities to benefit the public except holding conference?
2) Whether the object of the respondent discloses only a mutual benefit to the members and not to the general public?
4. The facts disclose that the department conducted a search of the premises of Dr.V H Hanumanthaiah on 24.3.1999 and found certain documents indicating the income and expenditure account and balance sheet relating to amounts collected by way of donations for conducting a conference of orthopaedic surgeons in 1994. The Director of Income Tax (Exemptions), Bangalore found that the amount was collected under the name of IOA in collaboration with the respondent for conducting conference in the year 1994. The said Dr.V H Hanumanthaiah was the President of the respondent/society at the time of search. It was found that the substantial amount of funds to the tune of Rs.53,72,054/- was collected and after meeting the expenditure of the conference, a sum of Rs.16,93,911/- was 5 surplus balance. The amount collected was not brought to the account of the Society. During course of search of the premises of Dr.V H Hanumanthaiah, the amount was kept separately and the amount was noticed as an escaped income. A separate bank account was maintained for the purpose of conference and it was operating by Dr.V H Hanumanthaiah. The said amount was kept in fixed deposit. The facts further reveal that the amount was transferred to the S.B. Account of the respondent in the following manner:
Date Amount credited
11.07.1998 Rs. 5,00,000
19.08.1998 Rs. 4,00,000
26.08.1998 Rs.17,00,000
17.09.1998 Rs. 5,000
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Total amount credited Rs.26,05,000
5. The Director of Income Tax (Exemptions), Bangalore, because of belatedly filed the application for registration and absence of material to show the conduct of charitable activities rejected the application for registration. The Appellate Tribunal, however, in its order in para-8.1 has made the following observations:
"8.1 Even as regards the merits of the order passed u/s 12A of the IT Act is concerned, we find that the DIT(Exe.) has to only consider the objects of the association for grant of registration and not as to how 6 the assessee Trust or Association or Society has applied its income. If the Society or Trust has not applied the income/expenses for the objects stated in its Memorandum of Association, it cannot and will not be allowed exemption u/s 11 and 12 of the IT Act and the said amount will be considered as income of the assessee for the relevant assessment year. But in the present case, the application of income by the assessee has got nothing to do with the registration u/s 12A of the IT Act. We draw strength from the decision of the Hon'ble High Court relied on by the learned counsel for the assessee for coming to this view. In view of the above, we are of the opinion, that on both the issue of limitation as well as on merits, the assessee appeal has to be allowed."
6. The fact of registration under Section 12A of the IT Act relates back to the date of application and not from the date of the order of Tribunal. In that view of the matter, the respondent is deemed to have registered under Section 12A of the IT Act with effect from the date of application and the reasons stated by the Director of Income Tax (Exemptions) for rejection are extraneous. If it is found that after the date of registration, no charitable activity is conducted, the registration can be recalled, but at the threshold , no application under Section 12A of the IT Act can be rejected without any proper material. In that view of the matter, the order of Tribunal is sound and proper and does not call for interference. 7
The appeal is dismissed. The substantial questions of law framed are held against the appellants.
Sd/-
JUDGE Sd/-
JUDGE bkm.