2015 (3) TMI 269 - AT - Income Tax

Exemption u/s 11 - AO denied the claim of exemption to the assessee on the fact that assessee on the fact that assessee has not done any kind of medical relief and neither do the objects of the assessee authorize the assessee to extend any kind of medical relief by way of running of any hospitals, nursing home or similar institutions - CIT(A) allowed the exemption - Held that - In the facts of the present case since the Ld. Sr. DR inviting attention to only the agreement of Pepsico has canvassed that it cannot be related to any charitable activity as the other companies may be health related and pharmaceuticals companies we find on considering the copy of the specific agreement that the endorsement refers to Quaker Oats and Tropicana 100% fruit Juice and fortified drinks . Per se we find no conflict if the assessee in the advancement of its aims and objects to promoting by improving public health if on research and analysis it propounds that there are significant health benefits to the uses of Oats or drinking fruit based, fortified health drinks as opposed to aerted drinks having no health benefits. It is not the case of the Revenue that the endorsement of healthy nutrition is medically/scientifically incorrect. The assessee as per the mandate of its objects and the methods set out in Clause IV(2); (3)(5) (6); (7) and (16) has endorsed products on the claims of health and nutritional benefit the grievance of the Revenue appears to be misplaced. In the absence of any adverse finding in regard to the activities of the trust we find that the department s case has no merits. Prime land was made available to the assessee to facilitate its objects of providing space on rent etc. for promotion of trade wherein the assessee apart from selling tickets etc was also providing food & beverage outlets and providing for water, electricity etc in the facts of the present case admittedly financial support is also provided to the assessee trust whose activities have not been assailed to be contrary to the aims and objects and we find that mobilizing resources towards its aims and objects that too within the methods enshrined by the trust deed which are ploughed back by the society towards its aims & objects to our minds does not cause any grievance to the Revenue. It goes without saying that financial support from the Ministry of Health and Family Welfare to the assessee necessarily would be based on the functions performed by the said trust and would necessarily be monitored at each and every step and stage with adequate checks and balances and would not be allowed to be frittered away carelessly. - Decided in favour of assessee.

Issues Involved:
1. Exemption under Section 11 of the I.T. Act.
2. Assessment of activities as charitable under Section 2(15) of the I.T. Act.
3. Commercial nature of transactions and their impact on charitable status.
4. Receipt of endorsement money from corporate entities.
5. Applicability of amended provisions to Section 2(15) from 01.04.2009.
6. Withdrawal of registration under Section 12AA and its impact on exemption.

Detailed Analysis:

1. Exemption under Section 11 of the I.T. Act:
The Revenue argued that the CIT(A) erred in allowing the exemption under Section 11 of the I.T. Act. The AO had denied the exemption on the grounds that the assessee did not engage in 'medical relief' and that the objects of the assessee did not authorize such activities. The CIT(A) concluded that the activities of the assessee remained consistent with previous years, where exemptions were granted, and that the activities fell within the meaning of Section 2(15) of the Act.

2. Assessment of Activities as Charitable under Section 2(15) of the I.T. Act:
The AO observed that the assessee's activities included holding meetings, publishing journals, and conducting educational campaigns. However, the AO noted that some receipts arose from commercial transactions with non-members. The CIT(A) found that the assessee was engaged in promoting medical science and public health, thus falling within the charitable purposes defined in Section 2(15). The CIT(A) emphasized that the amendment to Section 2(15) did not change the charitable nature of the assessee's activities.

3. Commercial Nature of Transactions and Their Impact on Charitable Status:
The AO identified receipts from commercial transactions, such as endorsement money from corporate entities, as indicative of a profit motive. The CIT(A) countered that the nature of income (sponsorship, endorsement, rent) was irrelevant as long as it was used for charitable purposes. The CIT(A) noted that the AO did not allege misuse of income, and the assessee's activities were consistent with its charitable objectives.

4. Receipt of Endorsement Money from Corporate Entities:
The AO highlighted endorsement money received from companies like Pepsico, Dabur, and others, arguing that these were commercial contracts. The CIT(A) found that these endorsements were part of the assessee's efforts to promote public health and medical science. The CIT(A) concluded that mobilizing resources through such means did not invalidate the charitable nature of the assessee's activities.

5. Applicability of Amended Provisions to Section 2(15) from 01.04.2009:
The Revenue argued that the legal position in the assessment year 2009-10 was distinguishable due to the amended provisions. The CIT(A) referred to a CBDT circular clarifying that activities related to poor relief, education, and medical relief were not affected by the amendment. The CIT(A) found no change in the assessee's activities that would warrant a different treatment under the amended provisions.

6. Withdrawal of Registration under Section 12AA and Its Impact on Exemption:
The AO noted that a proposal for withdrawal of registration under Section 12AA had been moved but not acted upon. The CIT(A) emphasized that the absence of such withdrawal did not affect the exemption eligibility. The CIT(A) highlighted that the AO failed to demonstrate why the assessee's activities became non-charitable in the assessment year 2009-10.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The Tribunal found that the assessee's activities were consistent with its charitable objectives, and the nature of income did not affect its exemption eligibility. The Tribunal emphasized that the dominant purpose of the assessee's activities was charitable, and the mobilization of resources through endorsements and sponsorships was aligned with its objectives. The Tribunal also noted that the financial support from the Ministry of Health and Family Welfare indicated the charitable nature of the assessee's activities. The appeal was dismissed, and the exemption under Section 11 was upheld.

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