2013 (9) TMI 1192 - HC - Income Tax

Registration under Section 12A rejected by the Director of Income Tax (Exemption) but the findings were not accepted by the Tribunal - Charitable activity - for the benefit of any particular community or not - Selling of medicines with profit motive or not - Charging fee from an international organization for Smile Surgery Project for medical procedure is commercial activity or not - HELD THAT- Submission of the revenue, not appear to be correct as the Director of Income Tax (Exemption) has computed and was aware of the total sales made by the pharmacy. He has referred to the gross profit and expenditure. It appears that at the time of argument before the Tribunal, this contention was not specifically argued as this has not been separately addressed in the impugned order of the Tribunal. It is not alleged in the grounds of appeal that the contention was raised but not answered or noticed. As recorded above, full details of the sales made by the pharmacy and also details of the medicines purchased etc. were available. The Director of Income Tax (Exemption) had made calculations. We do not see any reason to re-examine the factual narration and the findings recorded by the Tribunal that the respondent assessee is entitled to registration under Section 12AA. The appeal is dismissed.

Summary

Issues involved: Registration u/s 12A denied by Director of Income Tax (Exemption) but later accepted by the Tribunal based on factual findings.

The judgment addresses various issues raised by the Revenue regarding the registration of a society under Section 12A. Firstly, the Tribunal justified the society's contribution to churches/institutions for advertisement, ruling that the amount was meager and did not indicate a benefit to any particular community. Secondly, the Tribunal rejected the contention that selling medicines from the society's pharmacy constituted a business activity, emphasizing that it was only incidental to the hospital's main purpose of providing medical relief. The Tribunal cited the Supreme Court's decision in Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association to support this stance. Thirdly, the Tribunal disagreed with the view that receiving funds for Smile Surgery Project constituted commercial activity, noting that the surgeries were performed on children without charge. Fourthly, the Tribunal found no issue with the surplus generated in the Fun Fair Fund, as it was used for ex-gratia payments to retired employees. Fifthly, the Tribunal approved the manufacture of medicines by the society, highlighting that the profits were utilized for charitable activities. Sixthly, the Tribunal noted that an incident related to the import of medical equipment was pending consideration and did not result in a final finding against the society. Lastly, the Tribunal concluded that alterations in the Memorandum of Association did not change the society's primary purpose of providing medical relief.

In response to the appellant's argument regarding the maintenance of separate books of account for business activities, the Court found that the Director of Income Tax (Exemption) had the necessary details for computation and was aware of the sales made by the pharmacy. The Court dismissed the appeal, upholding the Tribunal's decision to grant registration under Section 12AA to the respondent assessee.