Income Tax Appellate Tribunal - Bangalore
District Health & Family Welfare ... vs Assessee on 9 May, 2013
Page 1 of 8 1 ITA Nos.1244 & 1245/Bang/2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'A'
BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND
SHRI JASON P BOAZ, ACCOUNTANT MEMBER
ITA Nos.1244 & 1245/Bang/2012
(Asst. years 2008-09 & 2009-2010)
M/s The District Health & The Deputy
Family Welfare Society, Behind Commissioner of
Ek Minar, Old Hospital Income Tax, Circle-1,
Compound Road, Raichur. Vs Raichur.
PA No. AAAAD 6867 D
(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 :
These two appeals of the assessee are directed against the orders of the CIT (A), Hubli dated 31.3.2012. The relevant assessment years are 2008- 09 and 2009-10.
2. The assessee has, for both the assessment years under consideration, raised nine identical grounds. However, all grounds relate to a solitary issue, namely, ''that the authorities below have erred in not considering that the 'programme advance' received cannot be equated with the 'income' and, Page 2 of 8 2 ITA Nos.1244 & 1245/Bang/2012 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 common additional grounds for both the AYs under dispute, 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) copy of the communication received from the Finance Secretary, Ministry of Finance, Government of India has clarified that the type of activity under NRHM scheme do fall/s 10(23C)(iiiac)"
3.1. As the issues raised in both the appeals being similar, they were heard, considered together and dispose of, for the sake of convenience, in this consolidated order.
3.2. The facts of the issue, in brief, are as under:
3.2.1. The assessee, an Association of Persons, is established by the Government of Karnataka for charitable purposes. The Government of India Page 3 of 8 3 ITA Nos.1244 & 1245/Bang/2012 implements its public health and family welfare and child welfare and various diseases control objectives through the assessee. All those 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.
3.2.2. During the year under consideration, the assessee had furnished its returns of income on 22.3.2010 for both the assessment years under consideration, admitting a net taxable income at Rs. Nil which was, initially, processed u/s 143(1) of the Act and, subsequently, taken up for scrutiny.
3.2.3. During the course of assessment proceedings, the AO had noticed from the statements of income that the assessee had received grants of Rs.5.07 crores from the Government of Karnataka. In addition, the assessee had an opening balance of unspent grant for the FY 2006-07 of Rs.1.58 crores etc., thus, the total grants in the possession of the assessee was around Rs.6.66 crores. It was the case of the AO that the balance funds available at its disposal were Rs.6.66 crores, out of which, it had applied for objectives of the assessee for various schemes at Rs.4.06 crores till the end of the FY 31.3.2008.Thus, at the end of the year, the assessee had an unutilised funds of Rs.2.59 crores which was claimed by the assessee as exempt u/s 11 of the Act.
3.2.4. After examining the provisions of s. 11 of the Act and, according to the AO, the assessee had not registered u/s 12AA of the Act, quoting the ruling of the Hon'ble Supreme Court reported in 297 ITR 1 (SC) and for the reasons recorded therein, the AO had held that no exemption u/s 11 of the Act was admissible as the assessee had not obtained registration u/s 12A of the Act. Accordingly, the unspent grant of Rs.2,59,19,530/- was brought under the tax net as income of the assessee in the status of AOP.Page 4 of 8 4 ITA Nos.1244 & 1245/Bang/2012
3.2.5. For the AY 2009-10 too, for the identical reasons as recorded in the previous AY referred supra, the AO had treated the unspent grant of Rs.2,81,87,960/- as income of the assessee in the status of AOP.
3.3. Aggrieved by the stand of the AOs for both the assessment years under dispute, the assessee took up the issues before the CIT (A) for relief.
The CIT (A), after having considered the submissions of the assessee as recorded in his identical, but, separate orders dated 31.3.2012, dismissed the assessee's appeals with the following observations:-
"8. After going through the facts of the case, contents in the assessment order and assessee's submissions, I am of the opinion that the assessee cannot claim the unspent grant to be exempted as the assessee has not filed the registration u/s 12A and the question of exemption u/s 11 won't arise and the case laws relied by the assessee are distinguishable. AO has rightly treated the unspent grant as income of the assessee in the status of AOP."
4. Aggrieved, the assessee has come up before us with the present appeals. The arguments put-forth by the learned AR are summed up as under:
- that the appellate authority erred in upholding the findings of the AO that the 'program advance' received by the assessee from the Government of India under its scheme of NRHM was income in the hands of the assessee within the meaning of s. 2 (24) of the Act. Further, having regard to the fact that such 'program advance' was not income of the assessee, the CIT (A) ought to have noticed that the provisions of sections 11,12 & 13 of the Act were inapplicable;
- 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 Page 5 of 8 5 ITA Nos.1244 & 1245/Bang/2012 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 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 2(24) of the Act and cannot be assessed under any of the heads of income as propounded under the Act;
- 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;
Page 6 of 8 6 ITA Nos.1244 & 1245/Bang/2012
- 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 the section neither envisaged approval by any prescribed authority nor any cap on amount of annual receipts; &
- 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.
4.1. On the other hand, the learned DR supported the stand of the authorities below in bringing to tax the up-spent grant of Rs.2.59 crores and Rs.2.81 crores as income of the assessee for the AYs 2008-09 and 2009-10 respectively.
5. 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 records. It is a 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 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. The Health & FW Page 7 of 8 7 ITA Nos.1244 & 1245/Bang/2012 Secretary, 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. Therefore, no specific order/Notification in this regard can be issued by the CBDT to exempt the State and District Level Societies for health and family welfare." [Courtesy:
P 40 of PB AR].
5.1. 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 entities which were wholly or substantially funded by the Government of India Page 8 of 8 8 ITA Nos.1244 & 1245/Bang/2012 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. 5.2. Before parting, we would like to point out that for the 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.
6. In the result, the assessee's appeals for the assessment years 2008- 09 and 2009-10 are allowed.
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.