2011 (12) TMI 232 - AT - Income Tax

Charitable Trust u/s 12A - charitable dispensary and medical/health centre - denial of application moved on 17.02.2011 for renewal of exemption u/s 80G(5)(vi) Trust last renewal granted for the period 1.04.2008 to 31.3.2011 DIT(E) contended that since trust is charging fees from patients hence it is engaged in any activity of trade commerce or business as per sec 2(15) - Held that - The Proviso to clause (vi) of sec. 80G(5) imposing the limitation of five years has been omitted by the Finance Act 2009 w.e.f. 1.10.2009 to provide that the approval once granted shall continue to be valid in perpetuity. Circular No. 5 dated 3.06.2010 clarifies that the existing approval expiring on or after 1st October 2009 will be deemed to have been extended in perpetuity unless specifically withdrawn. Exemption was expiring in the instant case after 1-10-2009 the deeming provision of perpetuity clause stood attracted. That being so the exemption granted u/s 80G would remain operative unless withdrawn. Further Proviso to sec. 2(15) is applicable in respect of charitable institutions engaged in the activity of advancement of any other object of general public utility. Relief of the poor education and medical relief are outside the purview of the aforesaid Proviso. Therefore applying the provisions of Proviso to sec. 2(15) of the Act to the present case by the DIT(E) is also totally misplaced. Further nominal fees are charged from patients and charging of fee from the patients in itself cannot be considered to be a commercial activity. - Decided in favor of assessee.

Summary

Issues Involved:
1. Denial of exemption under Section 80G(5)(vi) of the Income-tax Act, 1961.
2. Applicability of Proviso to Section 2(15) of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Denial of Exemption under Section 80G(5)(vi):

The assessee trust filed an application for renewal of exemption under Section 80G on 17.02.2011 in Form No. 10G. The Director of Income-tax (Exemptions) [DIT(E)] rejected this application, stating that the trust did not meet the conditions outlined in Section 80G(5). The DIT(E) argued that the medical services provided by the trust were not free and were available on a payment basis, which he claimed disqualified the trust from being considered a charitable organization. Additionally, the DIT(E) noted the absence of details regarding patients treated free of cost and concluded that the trust's income from medical services constituted commercial activity.

However, the Tribunal highlighted that the Proviso to clause (vi) of Section 80G(5) had been omitted by the Finance Act, 2009, effective from 1st October 2009. This omission implies that approvals granted under Section 80G(5)(vi) are valid in perpetuity unless specifically withdrawn. The Tribunal referenced Circular No. 5 dated 3.06.2010, which clarified that existing approvals expiring on or after 1st October 2009 would be deemed extended in perpetuity unless withdrawn.

In this case, the trust's approval granted on 2.09.2008 was valid until 31.03.2011, meaning it should be deemed extended in perpetuity. The Tribunal cited the Allahabad High Court's decision in Babu Hargovind Dayal Trust v. ITAT, which supported the view that approvals expiring after 1st October 2009 are deemed extended unless specifically withdrawn. Consequently, the Tribunal held that the assessee trust's exemption under Section 80G should be considered extended in perpetuity, and the DIT(E)'s order was cancelled.

2. Applicability of Proviso to Section 2(15):

The DIT(E) also invoked the Proviso to Section 2(15) of the Act, inserted by the Finance Act, 2008, effective from 1.04.2009. This Proviso states that the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves any trade, commerce, or business activities. The DIT(E) argued that the trust's activities fell under this category, thus disqualifying it from exemption.

The Tribunal clarified that the Proviso to Section 2(15) applies only to charitable institutions engaged in the advancement of any other object of general public utility, not to those involved in relief of the poor, education, or medical relief. Since the trust was engaged in medical relief, the Proviso did not apply. The Tribunal also noted that the fees charged by the trust were nominal and not indicative of commercial activity. The trust had utilized its income towards its charitable objectives, further supporting its eligibility for exemption.

Conclusion:

The Tribunal allowed the appeal filed by the assessee trust, holding that the exemption under Section 80G should be deemed extended in perpetuity and that the Proviso to Section 2(15) did not apply to the trust's activities. The DIT(E)'s order was thus cancelled.