Income Tax Appellate Tribunal - Delhi
Populatgion Health Services (India), ... vs Assessee on 5 September, 2008
ITA No.3498/Del/2008
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : F : NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
SHRI A.D. JAIN, JUDICIAL MEMBER
ITA No.3498/Del/2008
Assessment Year : NA
Population Health Services Vs. Director of Income Tax
(India), (Exemptions),
IB/2A, Ashok Vihar Phase-I, Delhi.
Delhi - 110 052.
PAN : AAATP2715K
(Appellant) (Respondent)
Assessee By : Shri R.S. Adlakha, Advocate
Department By : Shri Shameer Sharma, DR
ORDER
PER A.D. JAIN, JUDICIAL MEMBER:
This is Assessee's appeal against the order dated 05.09.2008, passed by the Ld. DIT (E), Delhi, u/s 80G(5)(vi) of the IT Act read with Rule 11AA of the IT Rules. The following grounds have been taken:-
"1. That the Order No. DIT (E) 2008-2009/P595/1613 dated 5.9.2008 is bad in law and against the true self explanatory facts of the case.
2. That the provisions of Section 2(15) of the Income Tax Act, 1961 covers the activities undertaken by the assessee as its primary objective activities, hence withdrawal of exemption is without any basis.
3. That the rejection of renewal of grant of exemption under section 80(G) is wrong and unjustified, as assessee is engaged in 1 ITA No.3498/Del/2008 health services within the meaning of Section 2 (15). As such no notice of withdrawal of exemption under section 11 & 12 of the Income Tax Act, 1961 was served.
4. That the Director of Income Tax (Exemption) never provided an opportunity of hearing except the ITO (E), and passed the order with predetermined opinion that it is not covered under Section 2 (15) without considering the facts and figures of the case and prime objective of the assessee for which it was established and covering provisions of Sect 2 (15), 11, 12 of the Income Tax Act, 1961.
5. That the DIT (E) did not review and evaluated the activities of the assessee neither the figures in the Statement of accounts with his wrong perception and pre-determined opinion. In the FY 2006-07, DIT (E) had wrongly mentioned in his order Rs.5.63 Crores as total income instead of correct total income of Rs.7.55 Crores, in case of expenditure Rs.4.21 crores & Rs.1.47 crores instead of correct total expenditure of Rs.13.67 crores which is resulting in Excess of expenditure over income of Rs.(-) 4.86 Crores. Whereas in the FY 2005- 06 DIT (E) had mentioned in order income as Rs.5.74 crores instead of Rs.8.81 crores, in case of expenditure Rs.5.59 & Rs.0.69 crore instead of correct total expenditure of Rs.13.67 Crores which is resulting in Excess of Expenditure over income of Rs. (-) 48.68 Crores. It is self explanatory and reflect that no serious efforts were taken to understand the activities and interpretation of financial data before issuing such order by DIT (E). A detailed sheet is annex for clear interpretation of account data is enclosed for immediate consideration.
6. That the order significantly ignores the fact that assessee fulfill the conditions of Income tax Rule 11AA of the Income Tax Rules, 1962 as we have Registration granted under section 12A of the Income Tax Act, 1961, notes on activities undertaken since inception of organization and audited accounts since inception of organization as the pre-condition before applying under section 80G. Based on these facts exemption under section 80G was granted to us.
7. The allegation raised in the order is grossly wrong and unframed adequacy as the facts are against the ruling."
2. The facts as per the impugned order are that the assessee filed an application dated 07.03.2008 in Form No.10G, seeking exemption u/s 80G of the IT Act. The Ld. DIT (E), vide letter dated 02.05.2008, asked the assessee to file certain documents/explanations to justify its claim.
2 ITA No.3498/Del/20083. Vide the impugned order, the ld. DIT (E) dismissed the assessee's application, observing as follows:-
"4. Arguments of the applicant have been examined. Financial statements of FY 2006-07 & 2005-06 have also been examined. Income & Expenditure account for FY 2006-07 reveals that the applicant has received income of Rs.5,63,68,492/- from distribution of contraceptive and other products and has claimed expenses on purchases at Rs.4,21,93,847/- and procurement & distribution expenses at Rs.1,47,31,456/-. Similarly, in the FY 2005-06, the applicant received income from distribution of contraceptives and other products at Rs.5,74,42,662/- and has claimed expenses on purchases at Rs.5,59,48,339/- and procurement & distribution expenses at Rs.69,18,733/-. Further the Auditor in audit reports have also confirmed that VAT tax paid is passed through I&E Account. Thus, the systematic activity of sale & purchase of condoms, being run by the assessee is a commercial activity wherein it is getting payment from third parties for the sales made by it. It is earning income from sale of condoms and claiming expenditure pertaining to sales. Even though the activity of distribution of condoms can be said to be an advancement of an object of general public utility, however, if the same activity is done for a consideration, it loses the character of the charitable activity and becomes a commercial activity. Proviso below section 2 (15) has also been introduced with effect from Assessment Year 2009-10 to clarify the intent of legislature that any activity of trade commerce or business or any rendering of service in relation to trade, commerce or business for a fee or consideration, will not be taken as charitable activity if the other activities of a charitable institution are categorized as advancement of any other object of general public utility. The activities of the applicant do not fall under the head relief of poor, medical relief or education and accordingly can only be categorized as advancement of any other object of general public utility. Thus, in view of the proviso to section 2 (15), activities of the assessee are no longer charitable and therefore exemption u/s 11 and 12 may not be available from Assessment Year 2009-10."
4. This has brought the assessee before us by way of the present appeal.
5. Ground Nos.1 and 7 are general.
6. The ld. Counsel for the assessee has stated at the bar that ground No.5 is not pressed. Rejected as not pressed.
3 ITA No.3498/Del/20087. Apropos Ground Nos.2 to 4 and 6, the facts as available on record are that the assessee Company is registered u/s 25 of the Companies Act. It is primarily engaged in the making available of health services as per the National Family Planning Programme under the policy of the Ministry of Health and Family Welfare, Government of India. It is providing reproductive health care services with special focus on reducing the maternal and infant mortality rate. It is distributing condoms and contraceptives at Government subsidized prices to control the population as well as the HIV AIDS in the society, for which, partially, promotion expenses incurred are reimbursed by the Ministry of Health and Family Welfare, Government of India, to support the National Family Planning Programme activities. The assessee is receiving grants/donation from Marie Stopes International (UK). It filled FCRA returns filed with the Ministry of Home Affairs towards the social charitable usage of the donations/grants received for the purpose of health and family welfare and running clinics. The major income of the assessee is from donations. The primary objective of the assessee company is to socially market all types of contraceptives, especially condoms in India for family planning and HIV/AIDS prevention, with the objective of making available contraceptives at reasonable prices in the country by pricing contraceptive products and services reasonably the assessee covers only costs of the products, overhead, salaries and IEC campaign. The final prices of the contraceptives to the end users are generally less than half of the commercial prices. As their secondary objective, the assessee makes reproductive health care services available in the rural part of the country. It provides clinical and non-clinical services in its clinics in addition to holding free family planning campaigns/sterilization campaigns along with the District Health Authorities. Besides, "let us choose life", a school based Adolescent Awareness Education Programme is conducted in the rural areas of India.
4 ITA No.3498/Del/20088. While rejecting the application filed by the assessee for grant of exemption u/s 80G of the Act, the ld. DIT (E) observed, inter alia, that the assessee's activity of sale and purchase of condoms was a systematic commercial activity, wherein, the assessee was getting payment from third parties for the sales made by it; that the assessee was earning income from sale of condoms and claiming expenditure pertaining to sales; that even though the activity of distribution of condoms could be said to be an advancement of an object of general public utility, since it was being done by the assessee on a commercial basis, it could not be said to be a charitable activity; and that the activities of the assessee did not fall under the head of relief to the poor, medical relief, or education and could only be categorized as advancement of education.
9. Challenging the impugned order, the ld. Counsel for the assessee has contended before us that the ld. DIT (E) has erred in rejecting the application filed by the assessee for exemption u/s 80G of the Act; that while doing so, the ld. DIT (E) has failed to appreciate that the activities undertaken by the assessee as its primary objective activity are squarely covered under the provisions of Section 2 (15) of the Act and that so, the assessee is entitled to the exemption claimed; that the assessee is engaged in health services within the meaning of Section 2 (15) of the Act; that since the assessee has been granted registration u/s 12 A of the Act, the conditions prescribed under Rule 11AA of the IT Rules stand duly fulfilled by the assessee; that it is the assessee's duty to carry out the objects of the assessee; that the assessee is not carrying on any commercial activity; that it is the Ministry of Health which provides the condoms which are sold by the assessee society; that also, it is the Ministry of Health and not the assessee that fixes the price of the condoms; and that the condoms are sold at highly subsidized rates. The following case laws have been relied on:-
1. 'N.N. Desai Charitable Trust vs. CIT', 246 ITR 452 (Guj);5 ITA No.3498/Del/2008
2. 'Sonepat Hindu Educational Charitable Trust vs. CIT', 278 ITR 262 (P&H);
3. 'Gaur Brahmin Vidya Pracharini Sabha vs. CIT', 129 TTJ (Del) 627;
4. 'Orpat Charitable Trust vs. CIT', 256 ITR 690 (Guj);
5. 'Sewagram Ashram Prasthan vs. CIT', 129 TTJ (Nag) 506; and
6. 'CIT Rohtak vs. Gaur Brahmin Vidya Pracharini Trust', 203 Taxman 226 (P&H)
10. The Ld. DR, on the other hand, has strongly supported the impugned order. It has been contended that the assessee has not been able to controvert the categorical findings of fact recorded by the ld. DIT (E), to the effect that the activity carried on by the assessee is a commercial activity, inasmuch as the assessee is getting payment from third parties for the sales of contraceptives by it and that the assessee is claiming expenditure pertaining to such sales. It has been submitted that such activity cannot at all be said to be a charitable activity; and that therefore, the ld. DIT (E) has rightly rejected the application filed by the assessee seeking exemption u/s 80G of the IT Act.
11. We have heard the parties and have perused the record. The undisputed facts are that the assessee is a company established u/s 25 of the Companies Act. The Company was established for social activities. It is a non-profit organization. The assessee Company also stands granted registration u/s 12A of the IT Act. It was granted certificate u/s 80G of the IT Act on 31.03.2001. As per the Memorandum of Association of the assessee Company, the main objects of the Company are the following:-
"III. The objects for which the Company is established are:-
(A) Main Objects to be pursued by the Company on its incorporation are, subject to all the approvals required from various statutory bodies/Government Departments, as the case may be:-
1. To establish, run and operate on non-profit basis education, research agency (ies) clinics, centres and dispensaries of all types 6 ITA No.3498/Del/2008 including hospitals connected with or in relation to and/or otherwise to regulate and/or to solve and remove all or any problems of population control, growth of human fertility and particularly about family welfare, Family Planning, Birth Control and contraception with a view to preventing poverty, hardship and distress specially caused to weaker and poor sections of the Indian population or people of India.
2. To promote, distribute and sell contraceptives, family welfare and/or planning devices and drugs through social marketing techniques and to make them more popular and affordable for the Indian masses.
3. To undertake activities in fields such as health services, nutrition, low cost weaning foods, Vitamin A and other related fields and to deal with malnutrition problems and mortality and morbidity due to dehydration including the promotion of Oral Rehydration Therapy (ORT) and Social Marketing of Oral Rehydration Salts (ORS)."
12. The assessee is engaged in making available health services. This is as per the National Family Planning Programme under the policy of the Ministry of Health and Family Welfare, Government of India. The promotion expenses incurred are partially reimbursed by the Ministry of Health and Family Welfare, Government of India, in order to support the National Family Planning Programme activities. The assessee is receiving grants/donations from Marie Stopes International (UK) and these donations comprise the major income of the assessee. Apropos the contraceptive sales made by the assessee company, it is in pursuance of the primary objective of the assessee company (being to socially market contraceptives in India for family planning and for HIV and AIDS prevention) and to increase the availability of contraceptives at reasonable prices in the country, that the assessee makes such sales, at highly subsidized rates as compared to the MRP/across the counter sales in the market. The prices of the contraceptive products and the services of the assessee company cover only the costs of the products, overheads, salaries and IEC campaign costs. The activity of the assessee is aided by the Government of India itself, in the Ministry of Health, in pursuance of its policies and National Family Planning Programme.
7 ITA No.3498/Del/200813. Therefore, the activity carried on by the assessee cannot at all be said to be a commercial activity. Rather, this activity is squarely covered by the provisions of Section 2 (15) of the IT Act. The conditions of Rule 11AA of the IT Rules, 1962 stand duly complied with. It has not been shown otherwise. Moreover, undisputedly, the assessee company stands granted registration u/s 12A of the Act and approval u/s 80G (5) of the Act was granted to it.
14. In 'N.N. Desai Charitable Trust vs. CIT' (supra), it has been held that once the applicant was registered u/s 12A of the Act and was granted approval u/s 80G (5) of the Act, refusal of renewal of such approval was not justified on the ground that the income of the applicant Trust was likely to be included in the taxable income for not complying with the requirement of Section 11.
15. In 'Sonepat Hindu Educational Charitable Trust vs. CIT' (supra), it has been held that while dealing with an application u/s 80G (5) of the Act, the scope of inquiry extends to eligibility to exemption and that registration u/s 12AA of the Act by itself is sufficient proof that the institution is created or established for charitable purposes.
16. In 'Gaur Brahmin Vidya Pracharini Sabha vs. CIT' (supra), it was held that grant of registration u/s 12AA of the Act was testimony to the fact that the Trust was established for charitable purposes and that scope of inquiry u/s 80G of the Act extends to eligibility of income and not actual computation of income under the IT Act.
17. In 'Sewagram Ashram Prasthan vs. CIT' (supra), it has been held that where the purpose of the institution was a charitable purpose, the institution was entitled to approval u/s 80G (5) of the Act.
18. In 'CIT Rohtak vs. Gaur Brahmin Vidya Pracharini Trust' (supra), it has been held that where exemption u/s 80G of the IT Act has been allowed and besides the institution being registered u/s 12A of the Act, such position has 8 ITA No.3498/Del/2008 to be sustained in the subsequent years without sufficient proof that the institution is not carrying on its activities in furtherance of its objects.
19. No decision contrary to the above case laws has been brought to our notice.
20. In view of the above, finding merit therein, the grievance raised by the assessee by way of its grounds of appeal Nos. 1 to 4 and 6 to 7 are accepted. The Order under appeal is cancelled. The application of the assessee is directed to be allowed.
21. In the result, the appeal of the assessee is partly allowed as indicated.
The order pronounced in the open court on 13.12.2013.
Sd/- Sd/-
[S.V. MEHROTRA] [A.D. JAIN]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 13th December, 2013.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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