Income Tax Appellate Tribunal - Bangalore
District Health & Family Welfare ... vs Assessee on 9 May, 2013
Page 1 of 8 1 ITA No.1387/Bang/12 &
S.P.No.174/Bang/12
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'A'
BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND
SHRI JASON P BOAZ, ACCOUNTANT MEMBER
ITA No.1387/Bang/2012
(Asst. year 2009-2010)
AND
S.P.No.174/Bang/2012
(Asst. year 2009-2010)
M/s The District Health & The Deputy
Family Welfare Society, DC Commissioner of
Office Compound, DHO Office, Income Tax, Circle-1,
Hospet Road, Koppal, Vs Raichur.
Karnataka.
PA No. AAALD 0669 E
(Appellant) (Respondent)
Date of Hearing : 09.05.2013
Date of Pronouncement : 17.05.2013
Appellant by : Shri Madhusudhan, C.A.
Respondent by : Shri S K Ambastha, CIT(DR-I), ITAT
ORDER
PER GEORGE GEORGE K :
This appeal of the assessee is directed against the order of the CIT (A), Hubli dated 31.3.2012. The relevant assessment year is 2009-10.
2. The assessee-society has raised eight grounds in its Memorandum of appeal. However, all grounds relate to a solitary issue, namely, ''that the Page 2 of 8 2 ITA No.1387/Bang/12 & S.P.No.174/Bang/12 authorities below have erred in not considering that the 'programme advance' received cannot be equated with the 'income' and, thus, such income cannot be subjected to the provisions of sections 11, 12 and 13 of the Act."
3. During the course of hearing, the learned A R sought the permission of this Bench under rule 29 of Income-tax (Appellate Tribunal) Rules, 1963 to raise the additional grounds, namely:
"(i) that the assessee is one of the Society (sic) Societies formed by the Government of Karnataka under the directions of the Government of India for implementing Government of India's flagship scheme known as National Rural Health Mission (NRHM);
(ii) that the NRHM envisages prevention, treatment and cure of diseases such as malaria, leprosy, T.B., Control of blindness etc., such prevention and control of diseases requires proactive and reactive measures. These measures are sought to be achieved through providing funds under the scheme by the Government to implementing agencies such as the assessee. Further, the scheme envisages creation of facilities from District to grass root level for treating patients suffering from the above diseases; &
(iii) that the above activities of the assessee under NRHM scheme fully funded by the Government squarely falls under the purview of s.10(23C)(iiiac) of the Act both in its intent and funding arrangement.
(iv) The Finance Secretary, Government of India, has clarified that the provisions of section 10(23C) (iiiac) has application to the type activities of the assessee.
4. The facts of the issue, in brief, are as under:
4.1. The assessee, an Association of Persons, is established by the Government of Karnataka for charitable purposes. The Government of India implements its public Health and Family Welfare and Child Welfare and various Page 3 of 8 3 ITA No.1387/Bang/12 & S.P.No.174/Bang/12 diseases control objectives through the assessee. All these programmes were announced by the Ministry of Health and Family Welfare, Government of India and allot funds and advances to the assessee to implement the above programmes on its behalf.
4.2. During the year under consideration, the assessee had furnished its return of income on 23.9.2010, admitting a net taxable income at Re. Nil.
This case was taken up for scrutiny.
4.3. During the course of assessment proceedings, the AO had noticed that the assessee was granted funds under various schemes every year as per the line item budget based on records of proceedings. Every year funds were received to the extent of allotment. However, unspent funds were adjusted against the funds granted as per the allotment. Accordingly, the assessee society was allotted grants during the year at Rs.14,11,41,523/- as per line item budget as per records on proceedings. The assessee society actually received Rs.12,58,95,024/- after adjusting last year's balance of unspent amount of Rs.1,46,19,091/- and interest receipts of Rs.6,27,408/-. According to the AO, out of the total funds granted at Rs.14.11 crores, the assessee society had spent during the year to the extent of Rs.7,69,02,030/-. Thus, the amount of surplus worked out at Rs.6,42,39,493/- out of total sanctioned grant of Rs.14.11 crores. It was the case of the AO that the balance funds available at its disposal were Rs.6,42,39,493/- which was proposed to be assessed in the hands of the assessee under the status of AOP.
Page 4 of 8 4 ITA No.1387/Bang/12 &S.P.No.174/Bang/12 4.4. After examining the contentions of the assessee and for the reasons recorded therein, the AO had held that the funds received by way of grants also amount to receipts within the meaning of the provisions of section 12(1) of the Act. However, conceding to the representative's submission that the surplus funds brought forward from the earlier year cannot be considered as receipts of the year, the AO treated the surplus amount of Rs.5,02,47,810/- [Rs.12,71,49,840 - 7,69,02,030 being the amount spent during year] as taxable income of the assessee in the status of AOP.
5. Aggrieved, the assessee took up the issue before the CIT (A) for relief. The CIT (A), after having considered the submissions of the assessee as recorded in his order under dispute, dismissed the assessee's appeal with the following observations that:-
"5. After going through the facts of the case and contents in the assessment order and submission of the assessee placed before the AO, it is understood that the society is the Dist. Health & Family Welfare Society, and receiving grants/funds from Government and the surplus grants brought forward cannot be considered as they do not belong to the assessee society, and funds were deposited and the bank account was the society. As per the by-laws and guidelines of the projects are which funds are granted the society has right to implement the projects as decides by the management of society on par guidelines of the government and funds are received by way of grants amounts to be receipts within the meaning to the provisions of sec. 12(1). As the society not granted for registration u/s 12A the society cannot claim the exemption u/s 11 of the I. T Act, 1961."Page 5 of 8 5 ITA No.1387/Bang/12 & S.P.No.174/Bang/12
6. Aggrieved, the assessee has come up before us with the present appeal. The arguments of the learned AR are summarized as under:
- that the authorities below have failed to appreciate that the assessee entity was established by the Government to implement its programme under NRHM and accordingly any fund provided by the Government to the assessee and held by it for spending on the programmes approved by the Government cannot be treated as income;
- that the CIT (A) had failed to notice that the assessee was a society formed by the State Government for the express purpose of executing the various schemes under the Government of India's programme of NRHM; and that prior to the formation of the assessee-society, such schemes were being implemented by the State Government directly under the Department of Health & Family Welfare;
- that as per the programme guidelines to implement the various components of the programme which was approved annually through Programme Implementation Plan (PIP), the Government of India advances funds to the assessee and as per the directions, the assessee was required to disburse/spend the funds to various implementing entities at the district, taluk and filed levels; and that the appellate authority had failed to notice that the assessee was holding the programme advance in a fiduciary capacity and such programme advance or any portion of it could be considered as 'income' in the hands of the assessee. Considering this position, the assessee had recognized the unspent as advance as a liability in its books;
- that the appellate authority had failed to consider that the 'programme advance' cannot be equated to 'income' and, accordingly, such income cannot be subjected to the provisions of sections 11, 12 and 13 of the Act;
- that the 'programme advance' received by the assessee from the Government of India does not partake the character of 'income' as understood u/s 12(1) of the Act and cannot be assessed under any of the heads of income as propounded under the Act;
Page 6 of 8 6 ITA No.1387/Bang/12 &S.P.No.174/Bang/12
- that the appellate authority had failed to notice that the assessee was discharging its obligation under the Government of India's programme by utilizing the programme advance placed by the Government of India through State in its hands and that it had no right to use such funds in any manner other than the directions issued by the Government of India;
- that without prejudice, in treating up-spent advance as income, the CIT (A) ought to have noticed that the activities of the assessee under the NRHM having been fully funded by the Government directly falls within the purview of section 10(23C)(iiiac) of the Act both in its intent and funding arrangement and even assuming that the unspent advanced amounted to income in the nature of voluntary contribution u/s 12(1) of the Act, it could not have been subjected to income-tax; &
- that the appellate authority failed to appreciate that it was immaterial whether the assessee was registered u/s 12A of the Act or not and that cannot be a criteria for taxability or otherwise.
6.1. On the other hand, the learned DR supported the stand of the authorities below in bringing to tax the surplus amount of Rs.5.02 crores as the income of the assessee.
7. We have carefully considered the submissions of the learned AR as well as the learned D R in the matter and also perused the relevant materials on case records. It is an admitted fact that the Karnataka State Health & Family Welfare Society and the District Health & Family Welfare Societies at the Districts level were non-profit making societies registered by the Government of Karnataka way back in 2005-06 specifically for the implementation of the Central Government sponsored programme of NRHM which had, undoubtedly, the sole objective of providing accessible, affordable health care to the rural population. It is also an un-denying fact that the very Page 7 of 8 7 ITA No.1387/Bang/12 & S.P.No.174/Bang/12 purpose of establishing the State and District level health societies as per NRHM norms was to act as nodal agency for implementation of the Central Government's programme of NRHM and, thus, in our considered view, there can be no profit motivation as alleged by the authorities below. The Health & FW Secretary had, Government of India in his communication dated 20.6.2005, prevailed on the Chief Secretary of the State Government for the constitution of State and District Health Missions and integration of societies (Source: P 3 and 4 of PB AR). As recently as in the month of March, 2012, the Finance Secretary, Ministry of Finance, Government of India, in his communication to the Chief Secretary of the Government of Karnataka, had explicitly clarified that "the provisions of s. 10(23C) (iiiac) of the Act, 1961 (reproduced for ready reference hereunder), exempt the following incomes of certain entities which are wholly or substantially funded by the Central or State Governments:
Any income received by an (sic) any person on behalf of any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and nor for purposes of profit, and which is wholly or substantially financed by the Government.
As per the above provision, exemption under section 10(23C) (iiiac) is automatic for entities which are wholly or substantially funded by the Government and a Notification is not issued under this section................." [Courtesy: P 40 of PB AR].
7.1. The assessee society has since been recognized as a Government established/sponsored entity, as affirmed by the Finance Secretary, Government of India, exemption u/s 10(23C) (iiiac) of the Act is automatic for Page 8 of 8 8 ITA No.1387/Bang/12 & S.P.No.174/Bang/12 entities which were wholly or substantially funded by the Government of India or a State Government as the case may be. In essence, the assessee is entitled for exemption under section 10(23C) (iiiac) of the Act.
7.2. Before parting with, we would like to point out that for AY 2010-11, the assessment was completed u/s 143(3) (order dated 22/3/2013) accepting the 'Nil' return of income filed by the assessee, since advance received from Government of India was treated as exempt u/s 10(23C)(iiiac) of the Act.
8. In the result, the assessee's appeal for the assessment year 2009-10 is allowed.
STAY PETITION NO.174/BANG/2012
9. The stay petition filed by the assessee to grant absolute stay of collection of tax has become infructuous since the assessee's appeal in ITA No.1387/Bang/2012 is disposed off in its favour. It is ordered accordingly.
Order pronounced in the open court on 17th day of May, 2013.
Sd/- Sd/-
(JASON P BOAZ) (GEORGE GEORGE K)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Copy to :
1. The Revenue 2. The Assessee 3. The CIT concerned. 4. The CIT(A) concerned. 5. DR 6. GF MSP/ By order Senior Private Secretary, ITAT, Bangalore.