Indian Kanoon - Search engine for Indian Law

i) the business should be incidental to the attainment of the objectives of the entity,

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 Suvasini Charitable Trust 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.

12. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that running of cafeteria is an incidental activity for attaining the objects of the assessee trust which are charitable in nature. It was pointed out that the main object of the assessee is to provide medical relief to the poor and whatever income was generated that was utilized to attain the said object. It was submitted that the cafeteria is run by the trust not for earning profit but to promote vegetarianism. It was further submitted that the assessee trust is established to provide relief by giving medical treatment, medicines and surgical relief to the poor and to assist in maintaining and improving the standard of health of the people and to preserve the standard of public health. It was emphasized that the cafeteria was run to generate the funds to achieve the object and as such it is incidental to the attainment of main objects of providing medical relief to the poor. It was stated that the Premwati cafeteria was setup by the assessee trust, since Suvasini Charitable Trust inception to provide hygienic vegetarian food to the visiting Akshardham Mandir with the object of promotion of vegetarianism and the funds generated are used only and only to achieve the objects of the assessee trust and as such as per the provisions of Section 11(4A) of the Act, such activity can be considered as incidental to the main object of the assessee. The reliance was placed on the following case laws:

"6.7.8 We find that the section deals with cases where the business itself is settled to take care of interest for a charitable purpose. Sub section (4A) of section 11 also exempts income tax of a business carried on by the trust so long as the business carried on by the trust is (a) incidental to the attainment of main objects (b) feeds the charitable objects (c) separate books of accounts are maintained in respect of the same, even on fulfillment of the aforesaid conditions profit from Suvasini Charitable Trust such business are exempt u/s 11/12 of the Act. Thus it is clear that the charitable trust can carry on business and utilize its profits therefrom for the charitable purposes but a charitable trust cannot have its purpose, an activity that involves the buying and selling of goods and making profits. The business undertaking of the appellant as discussed above are thus the means for effectuating a charity, but not a charitable object itself. We find that in the case of appellant before us the activity of manufacturing and sale of ayurvedic preparations has been undertaken only for the purpose of effectuating the charitable objective of providing 'medical relief to the society at large on a genuine need was felt to provide superior quality ayurvedic preparations at economical prices in order to attain effective medical results. Only because the activity carried on yielded" profits a negative inference cannot drawn that the activity was undertaken with the sole intention of earning profits. It is also pertinent to note that the total donations/voluntary contributions received by the appellant trust during the assessment year under consideration amounted to Rs. 3,89,14,100/- only. Whereas the total revenue expenditure incurred by the appellant trust in the assessment year under consideration for undertaking its charitable activities amounted to Rs. 48,54,93,383/- (excluding depreciation). Further it is apparent from page 26 of the paper book i.e. income and expenditure account for the year ending 31st March, 2009 that substantial capital expenditure has also been incurred by the appellant trust in pursuing its charitable activities. We also find that the donations/contributions received by the appellant trust constituted only a minuscule portion of the heavy outlay of expenditure incurred in pursuing the charitable activities. The meaning of Suvasini Charitable Trust expression not for purpose of profit is no longer res integra the test being what is the predominant object of the activity whether it is to carry out a charitable purpose or to earn profit ? If the predominant object is to carry out as charitable purpose and not to earn profit the organization would not lose its charitable character merely because some profits arises from the activity. The Hon'ble Supreme Court in the case of Surat Art Silk Cloth Manufacturers (supra) has been pleased to observe that the expression 'for the purpose of 'profit' implies that the predominant object should be to earn profit. Further to determine the predominant object, what is required to be examined is the objects of the society and not the quantum of surplus though such quantum may become relevant in certain circumstances. The same ratio has been laid down by the Supreme Court in the case of Andhra Pradesh State Road Transport Corpn. (supra), Victoria Technical Institute (supra), Thiagarajar Charities (supra), Aditanar Educational Institution (supra), Bar Council of Maharashtra (supra), American Hotel Lodging Association Education Institute (supra), Delhi Kannada Education Society (supra), Samaj Kalyan Parishad (supra).

6.7.9 Thus we find that there is no bar in the charitable trust/institutioncarrying on business provided the conditions prescribed in section 11(4)/11(4A) of the Act are satisfied. The Hon'ble Supreme Court in the case of P. Krishna Warriers (supra) has been pleased to hold with reference to income tax Act 1922 that if the trust carried on business and the business itself is held in trust and the income from such business is applied or Suvasini Charitable Trust accumulated for application for the charitable or religious purpose of the trust, the conditions prescribed in section 4(3)(i) and fulfilled and the income is exempt from taxation. In that case before the Hon'ble Supreme Court business of making and selling ayurvedic medicines was settled and held in trust and 60% of income from such business was applied for charitable purpose. The AO denied exemption on the ground that part of the income from business was not applied for charitable purposes, the Hon'ble Supreme Court held that where business is held for charitable purposes the conditions prescribed in proviso (b) to section 4(3) (i) of the Income Tax Act is not applicable and the assessee was held to be eligible for exemption. The decision of Delhi High Court in the case of Hamdard Dawakhana (Waqf) (supra) though rendered in the context of the pre amended law i.e. before insertion of section 11(4A) in the 1961 Act. But the Hon'ble Court held that it was immaterial how money which was obtained by running of an activity for profit did not make the objective non charitable. If that money was used for charitable purpose and not for the carrying on any business at a profit, then the object of the trust was charitable notwithstanding the source of the income. The Hon'ble Supreme Court again in the case of Thanthi Trust (supra) held that the trust was entitled to exemption when the business of the trust was incidental to the attainment of the objectives of the trust, namely the objectives of education and relief to the poor. Their lordships observed that after amendment of section 11(4A) in 1992, all that is required for the business income of the trust or institution to be exempt from tax is that the business should be incidental to the attainment of the objects of the trust or institution. The Hon'ble Suvasini Charitable Trust Court further held that if business whose income is utilized by the trust or the institution for the purposes of achieving its objectives is a business which is incidental to the attainment of the objectives of the trust or institution. Respectfully following the ratio laid down in the above cited decisions we come to the conclusion that the authorities below have failed to appreciate that incomes from business undertaken by the appellant fulfills the aforesaid conditions in as much as (a) all the business, including the business of Divya Pharmacy, were incidental to the attainment of main objects: (b) profits from business are applied for charitable objects ; and (c) separate books of accounts are maintained. They were thus not justified in holding that the charitable objects was sub-serving the business, whereas as a matter of fact it was the other way round. We find that in the case of Bombay Keraleeya Samaj (supra) the objects of the assessee registered u/s 12A was inter alia propogation of the Kerala system of Ayurveda and for this purpose the assessee ran five dispensaries rendering free consultation by Ayurved physicians. The assessee was obtaining ayurvedic medicines from an institution (A) at a discount of 11 % which was sold to the patients at the dispensaries as per the prescription of the doctors. The amount of discount _ which the assessee received from A was being used for running the dispensaries and for carrying out the other objects of the trust. The assessee also levied 11% service charge on the price of medicines from non-members and claimed to have utilized the amount so collected for running the dispensaries. In the preceding assessment years, benefit of section 11 was given to the assessee. The assessee claimed the benefit u/s 10(22A) which was refused by the assessing officer mainly on the basis that the dominant object of the Suvasini Charitable Trust trust was to sell medicines and derive profit therefrom. The first appellate authority rejected the assessee's appeal. The Tribunal has however given relief with this finding that the mere fact that the assessee trust has objects other than medical relief was not a condition aliunde to which the exemption u/s 10(22A) could be denied to the assessee. The surplus derived from running the dispensaries was utlised for philanthropic purposes. CBDT circular No. 194/16-17-II(A-1) makes it clear that if a surplus is used for philanthropic purposes the income of the institution will be eligible for exemption u/s 10(22A). We are thus of the view that in the present case the authorities below have grossly erred in holding that the appellant's activities in relation to production and sale of ayurvedic preparations are not incidental to its main objective as the same are commercial in nature. Likewise in the case of Baun Foundation Trust v. Chief CIT [2013] 33 taxmann.com 677, the Hon'ble Bombay High Court has been pleased to hold that activity of running chemist shop within the premises of the hospital was incidental or ancillary to the dominant object of running a hospital. We thus hold that in the present case the authorities below have failed to appreciate that the business set up and held by the appellant under trust is to sub serve the predominant charitable objects of providing medical relief education and relief to poor. Furthermore, since separate books of accounts were maintained and the entire profits are for charitable objects, the conditions prescribed in section 11(4A) of the Act, too were fulfilled. The authorities below have also failed to appreciate that out of total sales.of Rs. 168.12 crores of Divya Pharmacy medicines of Rs. 4.2 crores only were sold from the hospital sales counter (sic). As so far as ground No. 10 is concerned Suvasini Charitable Trust it is rejected as having become infructuous in view of the order dated 3.6.2013 of the AO u/s 154 and the issues raised in ground Nos. 11 to 14 have become infructuous in view of our finding in favour of the appellant in ground Nos. 1 to 9, hence do not need adjudication. The issue of charging of interest under sections 234A, 234B, 234D and 244A of the Act raised in ground Nos. 15 and 16 are consequential in nature."