2011 (5) TMI 591 - AT - Income Tax

Registration u/s 12A cancelled - Held that - Arriving on of a business to be incidental to the charitable activities of a trust, it is necessary that the trust should also carry on the charitable activities stated as its objects. Carrying on of the business should only be in the course of carrying on of its charitable activities. Therefore, carrying on of the main objects of the charitable activities is an indispensable requirement for claiming the statutory recognition as a charitable institution. Carrying on of the business alone, without carrying on the proclaimed charitable objectives does not make the business incidental to the carrying on of the principal charitable activities. The assessee has proclaimed five objectives as principal charitable objectives and two objects objects (e) and (g) to carry on business incidental to the attainment of other five main objectives of the trust. But in the present case, the assessee has converted the incidental objects as the main object of the assessee being that of carrying on of full-fledged business and chose not to carry on the proclaimed main objects of the charitable activities. In these circumstances, the business carried on by the assessee trust cannot be considered as business incidental to the attainment of main objects of charity. As the assessee has not satisfied the first condition of section 11(4A) cancelling the registration u/s 12A is warranted - Decided against the assessee

Issues Involved:
1. Cancellation of registration under section 12A of the Income-tax Act, 1961.
2. Determination of whether the activities of the assessee trust are charitable in nature.
3. Applicability of section 11(4) and 11(4A) regarding business activities of a charitable trust.
4. Analysis of the profit and application of income by the assessee trust.
5. Interpretation of section 2(15) post-amendment by Finance Act, 2008.

Issue-wise Detailed Analysis:

1. Cancellation of registration under section 12A of the Income-tax Act, 1961:
The appeal is directed against the order of the Commissioner of Income-tax-I, Madurai, which canceled the registration granted to the assessee under section 12A through proceedings dated 30-12-2010. The Commissioner held that the assessee trust was not carrying on charitable activities as per its trust deed and was engaged in business activities.

2. Determination of whether the activities of the assessee trust are charitable in nature:
The trust was created in 1992 with objects including establishing hospitals, promoting medical research, and manufacturing medical equipment. The Commissioner found that the trust was primarily engaged in manufacturing and trading ophthalmic and cardiovascular products, which were carried on as a business venture. The trust's activities did not align with the charitable objectives proclaimed in the trust deed.

3. Applicability of section 11(4) and 11(4A) regarding business activities of a charitable trust:
The Commissioner examined sections 11(4) and 11(4A) and concluded that the business activities of the trust were not incidental to the attainment of its charitable objectives. The business income would be exempt only if the business was incidental to the charitable purposes, and the primary object of the trust should not be carrying on the business. The Commissioner noted that the trust was focused on manufacturing and selling medical products, which was not a charitable activity.

4. Analysis of the profit and application of income by the assessee trust:
The Commissioner analyzed the profit and loss accounts and balance sheets from assessment years 2007-08 to 2010-11. The trust's turnover and profit margins were substantial, and the trust incurred regular business expenditures. Donations made by the trust were minimal compared to its profits, with a significant portion donated to its associate trust, Aravind Medical Research Foundation. The Commissioner concluded that the trust accumulated profits and did not carry out charitable activities.

5. Interpretation of section 2(15) post-amendment by Finance Act, 2008:
The amendment to section 2(15) aimed to limit the scope of "advancement of any other object of general public utility" by excluding activities involving trade, commerce, or business. The Commissioner held that the trust's activities fell under this exclusion as they involved manufacturing and trading for profit. The trust's business activities could not be considered charitable, even if a portion of the income was donated to another charitable institution.

Conclusion:
The Tribunal upheld the Commissioner's decision to cancel the registration under section 12A, concluding that the trust's activities were not charitable. The trust was primarily engaged in business activities, and the profits were not applied for charitable purposes in a manner that would qualify for exemption under section 11. The appeal filed by the assessee was dismissed.

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