Income Tax Appellate Tribunal - Jodhpur
Mahaveer Charitable Society, ... vs Cit(E), Jaipur on 9 September, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR
BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM
ITA. No. 282/JODH/2019
Mahaveer Charitable Society, Vs. Commissioner of Income-
Burhani Shopping Centre tax (E), Kailash height, Lal
Pratapgarh Kothi, Tonk Road, Jaipur
PAN/GIR No.: AAAAM9649Q
Appellant Respondent
Assessee by : Sh. N. R. Mertia (CA)
Revenue by : Smt. Sanchita Kumar (CIT)
Date of Hearing : 09/08/2021
Date of Pronouncement : 09/09/2021
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT Exemption, Jaipur passed u/s 12AA(1)(b)(ii) of the Act dated 28.06.2019 wherein he has denied the registration to the assessee trust u/s 12AA of the Act.
2. During the course of hearing, the ld. AR submitted that the assessee trust is engaged in providing medical relief to the poor which includes providing ambulance services on cost recovery basis. It was submitted that the assessee trust has been arranging free medical camps to provide medical relief to the poor and it has also been providing free medicines and food to the patients during the medical camps. It was submitted that the assessee trust has also been providing ambulance services in case of non-availability of the ambulance or 2 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur driver to the City Civil Hospitals and had been receiving payments against such services from hospital which are utilized towards providing such services and small surplus which remains is again utilized towards the carrying on other charitable activities as per the aims and objects of assessee society which are clearly charitable in nature as per Sec. 2(15) of the I.T Act. It was submitted that the ld. CIT(E) has failed to consider the aims and objects of the assessee trust and has referred to the receipt and expenditure account which are the subject matter of assessment proceedings and not while deciding the application seeking registration u/s 12AA of the Act. It was accordingly submitted that the assessee society was engaged in charitable activities by way of providing medical relief to the poor and public at large and not by way of providing any general Public Utility as held by the ld. CIT(E) and therefore, the proviso to section 2(15) of the Act which is only applicable in case of any other objects of General Public Utility is not applicable in the instant case and has been wrongly invoked by the ld. CIT(E). In support, reliance was placed on the following decisions:
• Institute of Chartered Accountants of India and another vs. Director-General of Income-Tax (Exemptions) and others [2013] 358 ITR 91 (Del) • Director of Income-tax vs. Bharat Diamond Bourse [2003] 259 ITR 280 (SC) • Samarpan Samiti vs. CIT-II, Agra (ITAT Agra) dated 22.06.2012.
It was accordingly submitted that necessary directions may be issued to the ld. CIT(E) to grant registration to the assessee society.
3 ITA No. 282/JODH/2019Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur
3. Per contra, the ld. CIT/DR submitted that during the course of proceedings before the ld CIT(E) in connection with assessee's trust application seeking registration u/s 12AA, information was called u/s 133(6) of the Act from the Principal Medical Officer, Pratapgarh and as per his letter dated 25.06.2019, he has submitted the details of payment made to the assessee society and details of TDS being deducted along with copy of the agreement. It was submitted that on perusal of the details so submitted, the ld. CIT(E) noted that the assessee trust is engaged in the business of providing man power and contractual services of providing ambulance van. It was further submitted that the ld. CIT(E) has also analyzed the income and expenditure accounts and other details submitted by the assessee including the objects deed and the relevant findings are contained at paras 3 to 5 of his order which reads as under:-
"3. During the proceedings u/s 12AA, the applicant has furnished various details viz. details of activities carried out by applicant society, financial accounts of FY 2015-16, 2016-17, 2017-18, Object Deed etc. On examination of the details furnished by the applicant vide financial accounts of FY 2015-16, 2016-17, 2017-18 and details provided by Principal Medical Officer, Pratapgarh, it is revealed that applicant is engaged in the Business of providing Man power and contractual services of Ambulance Van to Principal Medical Officer, Pratapgarh.
It is clearly evident that the society is getting receipts for providing Ambulance Van and Man Power. Furthermore, the clauses of agreement for providing Ambulance Van on contract basis are also examined and it is noticed that applicant society i.e. Mahaveer Charitable Society will provide ambulance on 365 days x 24 hours basis 4 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur & the ambulance will be stationed in the hospital only and will be paid for such services.
Moreover, Principal Medical Officer has deducted TDS u/s 194C of the Income Tax Act which strengthens the fact that the applicant society is receiving contractual receipts on account of providing ambulance services.
3.1 Further the Principal Medical Officer, Pratapgarh has also provided a copy of letter no. PMO/RMRS/DDC/2015/172 dated 22-08- 2015 addressed to Mahaveer Charitable Society to provide 3 helpers (Manpower) @ Rs. 4600/- per head per month. It also strengthens the fact that applicant is providing Manpower on contract basis and getting receipts in the name of "Salary receipt from Govt."
04. As such, the income from impugned Business of providing Man power and contractual services of Ambulance Van is forming 76.55% for F.Y 2017-18, 86.60% for F.Y 2016-17, 81.72% for F.Y 2015-16 which are more than 20% i.e. in contravention to the provisions laid down in 1st proviso to sec. 2(15). Hence, the applicant fails condition (b) of the proviso. Further, such commercial activities are not the incidental but are pre-dominant activity of the applicant. Hence, the assessee also fails condition (a) of the proviso. Therefore, as per the proviso, such activity in the nature of advancement of an object of GPU shall not qualify as charitable activity.
05. Based on above discussion, it is clear that the activities of the applicant society are not charitable in nature as it is predominantly carrying out business of providing man power and contractual services of Ambulance Van. The applicant society cannot be held as charitable within the meaning of sec. 2(15) of the Income-tax Act, 1961. Based on 5 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur above, I am satisfied that the applicant trust is not fit for registration and, therefore, registration u/s 12AA is rejected."
4. It was accordingly submitted that there is no infirminity in the order so passed by the ld CIT(E) in denying registration u/s 12AA and the same may be confirmed and the appeal of the assessee be dismissed.
5. We have heard the rival contentions and perused the material available on record. The relevant provisions which are under consideration is Section 2(15) which defines the term "charitable purpose" and the same reads as under:
"2(15) "charitable purpose" includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless--6 ITA No. 282/JODH/2019
Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.
6. The expression "charitable purpose" has been interpreted by the Hon'ble Supreme Court and Hon'ble High Courts in a catena of decisions over a period of time and there is a rich jurisprudence which is available and can be gainfully referred to. The Hon'ble Delhi High Court in case of ICAI vs. DGIT (Exemptions) (Supra) has held as under (page 110):-
"Although, this Court has held that the activities of the petitioner fell within the term "education", it was nonetheless held that the petitioner institute fell under the category of "advancement of any object of general public utility" as the petitioner is a statutory body constituted under the ICAI Act and its fundamental or dominant object was to exercise control and regulate the activities of Chartered Accountants in India. The relevant finding of this court is as under:
"The petitioner-institute will fall under the sixth category, i.e., advancement of any other object of general public utility. The petitioner-institute cannot be regarded as an educational institute as the petitioner's main or predominant objective is to regulate the profession of, and the conduct of, Chartered Accountants enrolled with them. The petitioner is a statutory authority under the Chartered Accountants Act, 1949 ("the CA Act") and its fundamental or dominant function is to exercise overall control and regulate the activities of the members/enrolled chartered 7 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur accountants. This is apparent from the CA Act and the regulations framed under the said Act."
This Court while dismissing the appeal (ITA no. 274/2012) preferred by the revenue under section 260A of the Act against the order dated 16.06.2011 passed by the Tribunal in relation to the Assessment year 2007-08 by its judgment dated 11.5.2012 held as under:
"As held by this Court in its decision dated 19.9.2011 in Writ Petition No.1927/2010 entitled as Institute of Chartered Accountants of India v. DIT, Delhi and Others, the dominant purpose and objective of the Institute is to regulate the profession of chartered accountants in India and for this purpose it holds entrance examination, regulates the conduct of the members and prescribes and fixes the accountancy standards etc. No doubt, the assessee holds classes and provides coaching facilities for the members and articled clerks etc. who want to appear in the examination conducted by the Institute of Chartered Accountants, but these classes are not held for coaching or for appearance in an examination conducted by some other entity/body. Conducting of coaching classes is with the predominant object of maintaining and upholding the standards of the accountancy profession and in furtherance of the object and purpose for which the institute is established, i.e., professional excellence and promotion of accountancy as a preferred profession. Members of petitioner Institute attend courses/lectures etc. to sharpen their skill and knowledge. These are ancillary activities to the main activity performed and the object for which the institute has been established."
7. In case of Commissioner of Income Tax Jodhpur vs Jodhpur Development Authority (DB Income Tax Appeal No. 63/12 dated 5.07.2016), the Hon'ble Rajasthan High Court held as under:
8 ITA No. 282/JODH/2019Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur "27. From various decisions of the Hon'ble Supreme Court discussed hereinabove, the settled position of law emerges is that if the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, may be involving element of profit, would not prevent the institution from being a valid charitable trust.
28. In the backdrop of settled position of law discussed hereinabove, adverting to the facts of the present case, indubitably, JDA is a statutory body constituted and established under the provisions of Section 3 of JDA Act with a main object to secure the integrated development of Jodhpur Region and for that purpose to discharge inter alia the functions of Urban Planning including preparation of Master Development Plan and Zonal Development plans; formulation and sanction of the projects and schemes for the development of Jodhpur Region or any part thereof; execution of the project and schemes directly by itself or through a local authority or other agency; coordinating execution of projects or schemes for the development of Jodhpur Region supervision or otherwise ensuring adequate supervision over the planning and execution of any project or scheme the expenses of which in whole or in part are to be met from Jodhpur Region Development Funds; preparing schemes and advising the concerned authorities, department and agencies in formulating and undertaking schemes for development of agriculture horticulture, forestry, dairy development, transport, communication, schooling, cultural activities, sports, medicine, tourism and similar other activities; to prepare Master Plan for traffic control and management; devise policy and programmes of action for smooth flow of traffic and matters connected therewith;
undertaking housing activity in Jodhpur Region etc., are essentially the functions, which promote the welfare of the general public. Of course, while discharging the said functions, the JDA also discharges function to acquire, hold, manage and dispose of property movable or immovable as may be deemed necessary and also enters into contract, agreements or 9 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur arrangements with any person or organization may deem necessary for performing its function and in this process, it might be earning income but the primary object of the JDA certainly does not involve any profit motive whatsoever. It is pertinent to note that as per the provisions of Section 51 of the JDA Act, for the purpose of discharging the statutory functions, "The Jodhpur Region Development Fund" is created to which all money received by the authority is credited including amount of contribution to be made by the State Government, such other money as may be paid to the authority by the State Government, Central Government or any other authority or agency by way of grant, loans advances or otherwise, income derived from premium on second and subsequent sale of vacant land, income from levy on vacant land, all fees, costs and charges received by the JDA under the JDA Act or any other law for time being in force, all money received by the JDA from the disposal of land buildings and other property movable and immovable and other transactions including lease money, urban assessment development charges and other similar charges and all money received by way of rents and profits or in any other manner or from any other source. A fortiori, as per the mandate of Section 54 of the JDA Act, all property funds and other assets vesting in the JDA shall be held and applied by it for the purposes and subject to the provisions of the Act. Suffice it to say that the entire funds of the JDA is mandatorily required to be utilized for discharging the functions to achieve the object of integrated development of Jodhpur Region Thus, predominant object of the JDA being to secure the integrated development of the Jodhpur Region which is undoubtedly falls within the expression 'advancement of any other objects of general public utility' within the definition of Section 2(15) of the Act of 1961 and therefore, on account of profit being earned by it through some of the activities, undertaken by it, which are ancillary or incidental to the main object of general public utility, it does not cease to be charitable in character so as to render it ineligible to claim registration under Section 12A read with Section 12AA of the Act of 1961. As a matter of fact, it is not even the case of the 10 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur Revenue that the object of general public utility sought to be achieved by constitution and establishment of the JDA as such, involve carrying on of any activity for profit and therefore, it is immaterial if some income is earned by ancillary and incidental activities, which as per the mandate of the relevant statute, is used for achieving or implementing such object. The genuineness of the activities of the JDA, which are regulated by the provisions of the JDA Act and the Rules made thereunder, cannot be doubted. Thus, the order passed by the ITAT holding the JDA, Jodhpur entitled for registration under Section 12A read with Section 12AA of the Act of 1961, does not suffer from any infirmity or illegality."
8. In case of Director of Income Tax vs Bharat Diamond Bourse (supra), the Hon'ble Supreme Court held as under:
"Though the assessee earned certain income by reason of hiring of locker facilities as incidental to the main custom clearance facilities made available to members as well as non-members, and debited the expenses incurred in respect of customs department, transport charges, security charges and rent for the premises, these earnings must be treated as ancillary to the dominant purpose for which the diamond bourse was established. The Constitutional Bench of the Apex Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 2 SCC 31 has held that if the primary or dominant purpose of the institution is charitable and another which, by itself may not be charitable, but is merely ancillary or incidental to the primary or dominant object, it would not prevent the institution from validly being recognized as a charity. The test to be applied is, whether the object which is said to be non-charitable is the main or primary object of the trust or institution or it is ancillary or incidental to the dominant object which is charitable. Applying the dominant purpose test to the 11 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur objects of the respondent-assessee, it appeared that there was no escape from the conclusion that it was validly recognized as an institution established for charitable purpose. The assessee's pre- dominant objects were: (i) to establish common facilities required to promote exports of diamonds from India and to provide for this purpose trading halls and other utilities at a central place for Indian exporters and overseas buyers to carry on trade and commerce in diamonds with speed and in secure conditions, (ii) to establish and promote effective liaison between diamond trade and industry in India and abroad with a view to promoting their sales from India in International market, (iii) to promote, advance, protect and develop trade, commerce and industry in India relating to exports and imports of diamonds, and (iv) to develop India as modern and sophisticated diamond market by establishing and maintaining an international trading centre in India for all those engaged as manufactures, traders, exporters and importers, brokers/commission agents of diamonds.
These being the pre-dominant objectives, one should agree with the view taken by the Tribunal as well as the High Court that the assessee was rightly registered under section 11 by treating it as an institution established for charitable purpose within the meaning of section 2(15)."
9. In light of aforesaid legal propositions laid down wherein the dominant purpose test has been reiterated by the Hon'ble Courts time and again and which continue to be valid, lets' examine the facts of the present case to determine the dominant objectives and purpose of the assessee society. The assessee society has been formed to carry out the following objects:
12 ITA No. 282/JODH/2019Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur "1- xjhc o vlgk; ejhtksa dh lsok djukA 2- xjhc o vlgk; ejhtksa dks fpfdRlk lsok] nokbZ;ka vkfn fu%'kqYd miyC/k djkukA 3- ,d o"kZ esa "us= f'kfoj" dk vk;kstu djukA 4- vlgk; o xjhc ejhtksa ds iF; dk izcU/k djukA mijksDr mn~n's k dh iwfrZ esas dksbZ ykHk fufgr ugha gSAa "
10. During the course of proceedings before the ld CIT(E), it was submitted that the main object of the society is as set out in the deed of constitution of the society. The society is perusing the said object since its inception and providing free medical help by arranging free medical camp of expert doctors, free food to poor and needy patients and also providing concessional ambulance facilities to patient to carry them to the nearest hospital. Further the society is also arranging many camps and other activities in the field of medical help. The registered office of the Society is at Pratapgarh where none of the good medical facility is available and in case of emergency, even ambulance is also not available to carry the patients to the nearby metro place for better medical facilities. To cater to the need of ambulance, the society has purchased and operated ambulance on cost recovery basis and it has been categorically submitted that none of the individuals involved in the functioning of the assessee's society is entitled to share in any surplus or profits or bear the losses except the society. Similar contentions have been advanced before us and which we have noted supra.
11. We therefore find that primary and the dominant object of the assessee society is to provide medical relief to poor and needy people and not to carry out any such activities for the purposes of earning profit. The objective is not to earn profit rather the objective is to provide medical facility to the people and make the same accessible by 13 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur providing ambulance services. Where as part of such services, the assessee has entered into some arrangement with local hospital whereby the ambulances are provided to the needy patients, such activities are in furtherance of its main objectives of providing medical relief and related services/facilities. The act of charging of fees for such services cannot by itself diminish the very objectives of setting up of the assessee society which is clearly for charitable purposes and not for purposes of profit. Such fees are towards recovery of cost of providing the ambulance services in terms of driver salary and regular maintenance, wear/tear etc and nominal surplus which get generated from such activities are again utilized for the purposes of its charitable activities. The act of undertaking charitable activities cannot at all times be expected to be undertaken from grants and donations and where as part of undertaking the charitable activities, the assessee is charging certain fees to recoup its cost and make its charitable activities self- sustaining, the same cannot lead to a conclusion that the very nature of its activities have lost the character of charity and such activities are undertaken for earning profits. Where as part of rendering of such activities, it recovers certain nominal fees to meet its operational and administrative expenses, the same will not disqualify it from being involved in carrying on charitable activities.
12. It is a settled position that the proviso to section 2(15) applies only if an institution is engaged in advancement of "any other object of general public utility" and postulates that such an institution is not "charitable" if it is involved in carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess, fee or any other 14 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur consideration. In the instant case, the assessee society is carrying out charitable activities in the field of medical relief to the poor and needy section of the society and not in the field of general public utility and thus, the proviso to section 2(15) is not applicable and thus cannot be invoked.
13. Before parting, we may drawn reference to the decision of the Coordinate Agra Benches in case of Samarpan Samiti (supra) where reference has been drawn to the CBDT Circular no. 11/2008 dated 19.12.2008 and relevant findings read as under:
"26. We may also refer a C.B.D.T. Circular No.11/2008 dated 19.12.2008 wherein the applicability of the commercial activities in respect of charitable purpose has been clarified. The said circular is reproduced as below:-
"2.2. '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 --
(1) the business should be incidental to the attainment of the objectives of the entity, and 15 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur
(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.
3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of `charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity."
27. After examination of the activities of the assessee, Samiti and after considering above C.B.D.T. Circular, we find that the admitted facts of the case under consideration are that the assessee, Samiti is carrying on the activities in respect of medical relief. We find that Samiti/ institution/entities whose object is 'education' or 'medical relief' would continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable 16 ITA No. 282/JODH/2019 Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur purpose' contained in section 2(15). Thus, there is no basis for satisfying the CIT that the activities of the trust are not genuine and they are not being carried out in accordance with the object of the trust/society. Since the conditions laid down for cancellation of registration under section 12AA (3) are not satisfied, therefore, we are of the considered view that the CIT is not empowered for cancellation of registration under section 12A/12AA of the Act of the assessee, Samiti"
14. We therefore find that there are enough safeguards provided in the Act including by way of section 11(4A) to monitor the activities of the assessee society and the Revenue is at liberty to examine the same during the course of regular assessment proceedings. However, as far as the objects of the assessee society are concerned, the same are clearly charitable in nature and the assessee society therefore deserve to succeed in seeking registration u/s 12AA of the Act.
15. In the entirety of facts and circumstances of the case, we therefore set-aside the order passed by the ld CIT(E) and hereby direct him to grant registration to the assessee society u/s 12AA of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 09/09/2021.
Sd/- Sd/-
(Sandeep Gosain) (Vikram Singh Yadav)
Judicial Member Accountant Member
Jodhpur
17 ITA No. 282/JODH/2019
Mahaveer Charitable Society, Pratapgarh vs. Commissioner of Income-tax (E), Jaipur Dated:- 09/09/2021.
*Ganesh Kumar Copy of the order forwarded to:
1. The Appellant- Mahaveer Charitable Society, Pratapgarh
2. The Respondent- Commissioner of Income-tax (E), Jaipur
3. CIT
4. CIT(A)
5. DR, ITAT, Jodhpur.
6. Guard File { ITA No. 282/Jodh/2019} By order, Asst. Registrar