2017 (2) TMI 781 - AT - Income Tax

Denial of exemption under sections 11/12 - propagation of yoga - commercial activities by receiving certain contributions under the scheme for construction of cottages at Patanjali Yogpeeth II known as Vanprastha Ashram - non-applicability of proviso to section 2(15) - allegation of anonymous donation - Alleged activities undertaken outside India - Absolute Denial of exemption - violation under section 13(1) - Held that - The activities undertaken by the appellant, being in the nature of providing medical relief through Pranayam and Yoga and also to impart education in the field of yoga, would fall under the category of providing medical relief and imparting education as provided under section 2(15) of the Act, meaning thereby that the proviso to section 2(15) of the Act would not apply. The assessee has applied substantial amount in setting up of Patanjali University , a Deemed University set up under the University of Patanjali Act, inter-alia, for having courses in M.A. Yoga Science , M.Sc. (Yoga Science), B.A. (Yoga Science) Post Graduate Diploma in Panchkarma, Post Graduate Diploma in Yoga Science and Post Graduate Diploma in Yoga Health and Cultural Tourism. It has also been informed that the university has become operational on September, 2009. The finding of the authorities below that propagation of Yoga by the assessee does not qualify as medical relief or imparting of education is thus held as not justified. Vanprastha Ashram at Patanjali Yogpeeth-II was proposed to be constructed by the assessee in furtherance of its charitable objectives of providing medical relief through Yoga and to impart Yoga training /education. It was submitted that assessee did not charge any fee / rent from the general public for uses of such cottages constructed under Vanprastha Ashram Scheme. The cottages are allotted to general public on the basis of availability i.e. on first come first served basis and no other conditions are stipulated for uses of such cottages. We also agree with the submission of the ld. AR that business refers to real, substantial, organized course of activity for earning profits as profit motive is essential requisite for conducting business. We have discussed the facts of the present case in the preceding paragraphs as well as the predominant objects of the assessee in detail supported with activities done by it from which no inference can be drawn that assessee is in trade, commerce and business. Allegations of violation of provisions of section 13 of the Act made by the authorities below are erroneous and legally unsustainable. The allegations are based on incorrect appreciation of the facts of the case and the position of law. On the basis of those unsustainable allegations the action of the Assessing Officer in assessing the income of the assessee treating it to be a non-charitable is not tenable in law. We find that the ld. CIT (Appeals) has also summarily concluded that the assessee has violated the provisions of section 13 of the Act without judiciously disposing off the specific objections raised by the assessee meeting out the various allegations leveled by the Assessing Officer in the assessment order. In view of these observations, we conclude that the allegations leveled by the authorities below are not tenable and hence their action of denial of exemption on the basis of violation of the provisions laid down under section 13 of the Act is held as not justified We concur with the contention of the ld. AR that in terms of section 2(24)(iia), voluntary donations received, inter alia, by a charitable trust/institution are by legal fiction treated as income and is thereafter, excluded from total income in accordance with the provisions of sections 11/12 of the Act. Such voluntary contributions are contributions other than for capital purposes i.e. contributions which do not form part of the corpus of the trust, whether or not such trust is eligible or not for exemption. We hold accordingly. In para No. 7.5(k) of the assessment order, the Assessing Officer has alleged that assessee had undertaken various activities outside India which was in violation of provisions of section 11(1)(c) of the Act. We, however, find that the Assessing Officer has not brought anything on record to substantiate the aforesaid allegation nor has he quantified the amount of expenditure incurred in relation to such activities undertaken outside India. Assessee had furnished affidavits of organisors of ad-hoc committees through whom the assessee had organized Yoga camps made available at page Nos. 503 to 569 of the paper book, but the Assessing Officer did not bother himself to verify the same even on test-check basis. In absence of such efforts by the Assessing Officer, we are of the view that the authorities below were not justified in making and sustaining the treatment of receipt of ₹ 13.68 crores as annonymous donation. Undisputedly, in almost all donations name and address of the donors have been maintained and thus bonafide of the assessee cannot be doubted where such detail has remained to be maintained in some cases. Such donations worth ₹ 1,07,73,438/- has also not been alleged to spent on other than the objects of the assessee trust. We, thus, while setting aside orders of the authorities below in this regard, direct the Assessing Officer to accept the claimed receipt as donation. We agree with the submission of the assessee that application of income in the form of acquisition of fixed assets and other capital expenditure incurred solely for the purpose of fulfillment of its charitable objectives during the year should be considered as application of income for charitable purposes. Besides, the explanation of the assessee to meet out the small irregularities shown in the books of account maintained by the assessee, which are based on special audit report, cannot be out-rightly ignored especially when it is not the case of the Revenue that the out-come of it was utilized somewhere else rather than on the objects of the assessee - Decided in favor of assessee

Issues Involved:
1. Denial of exemption under sections 11/12 of the Income Tax Act, 1961.
2. Passing of a cryptic and non-speaking order by the Commissioner of Income-tax (Appeals).
3. Disregarding the objectives contained in the trust deed and misclassification of activities.
4. Inconsistent treatment of activities in past years.
5. Classification of 'propagation of yoga' activities.
6. Reliance on erroneous findings in the special audit report.
7. Alleged violation of provisions of section 13 of the Act.
8. Undertaking activities outside India.
9. Addition of corpus donations.
10. Denial of exemption for voluntary contributions.
11. Classification of anonymous donations.
12. Addition of the value of a donated vehicle.
13. Construction on land not owned by the appellant.
14. Alleged irregularities in the books of accounts.
15. Disallowance of expenditure without considering additional evidence.
16. Disallowance of expenditure under section 40(a)(ia) of the Act.
17. Addition for lack of documentary evidence for charitable activities.
18. Non-allowance of expenditure towards acquisition of capital assets.
19. Non-deletion of interest charged under section 234B of the Act.

Detailed Analysis:

1. Denial of Exemption under Sections 11/12 of the Act:
The primary issue was whether the activities of the assessee trust fell under the definition of "charitable purpose" as per section 2(15) of the Act. The Tribunal held that the predominant objects of the assessee, which include providing medical relief through Yoga/Pranayam, imparting education in the field of yoga, and providing relief to the poor, qualify as charitable purposes. The Tribunal cited the case of Divya Yog Mandir Trust vs. JCIT, where similar activities were considered charitable.

2. Passing of a Cryptic and Non-Speaking Order:
The Tribunal noted that the Commissioner of Income-tax (Appeals) failed to judiciously consider the submissions of the appellant and merely reiterated the findings of the assessing officer. This was deemed a procedural lapse.

3. Disregarding the Objectives Contained in the Trust Deed:
The Tribunal found that the objectives of the trust, as outlined in the trust deed, clearly fall within the purview of 'medical relief', 'imparting education', and 'relief to the poor'. The activities undertaken by the appellant were consistent with these objectives.

4. Inconsistent Treatment of Activities in Past Years:
The Tribunal emphasized the principle of consistency, noting that the Revenue had accepted the activities of the appellant as charitable in nature in past years. Abruptly changing this stance without any material change in facts was deemed unjustified.

5. Classification of 'Propagation of Yoga' Activities:
The Tribunal held that the propagation of yoga qualifies as providing 'medical relief' and 'imparting education'. This was supported by the recognition of yoga as a system of medicine under the Clinical Establishments (Registration and Regulation) Act, 2010.

6. Reliance on Erroneous Findings in the Special Audit Report:
The Tribunal found that the special audit report contained several erroneous findings, which were relied upon by the Commissioner of Income-tax (Appeals) without proper appreciation of the details furnished by the appellant.

7. Alleged Violation of Provisions of Section 13 of the Act:
The Tribunal addressed each allegation of violation under section 13, including services made available to Vedic Broadcasting Limited, interest-free advances to Dynamic Buildcon Private Limited, and investments in modes other than specified in section 11(5). The Tribunal found that these allegations were based on incorrect appreciation of facts and were legally unsustainable.

8. Undertaking Activities Outside India:
The Tribunal noted that the assessing officer failed to substantiate the allegation that the assessee undertook activities outside India. The Tribunal found no basis for this allegation.

9. Addition of Corpus Donations:
The Tribunal held that corpus donations, being capital receipts, are not liable to tax. This includes donations received from Divya Yog Mandir Trust, donations for Vanprasth Ashram, Disaster Relief Fund, and University of Patanjali.

10. Denial of Exemption for Voluntary Contributions:
The Tribunal found that voluntary contributions received by the appellant, including donations received through Yoga Camps and Yoga Samitis, were eligible for exemption under sections 11/12 of the Act.

11. Classification of Anonymous Donations:
The Tribunal held that the donations received were not anonymous as the identity of the donors was available. The assessing officer's failure to verify the details provided by the appellant was noted.

12. Addition of the Value of a Donated Vehicle:
The Tribunal found that the donated vehicle, being a capital receipt, was not liable to tax. The vehicle was capitalized in the books of the assessee at a nominal value, which was appropriate.

13. Construction on Land Not Owned by the Appellant:
The Tribunal held that capital expenditure incurred for construction of buildings used for charitable purposes qualifies as application of income, even if the land is not owned by the appellant.

14. Alleged Irregularities in the Books of Accounts:
The Tribunal found that the alleged irregularities were not substantiated and did not warrant denial of exemption. The books of accounts were found to be in order.

15. Disallowance of Expenditure Without Considering Additional Evidence:
The Tribunal noted that the Commissioner of Income-tax (Appeals) failed to consider additional documentary evidence furnished by the appellant. This was deemed a procedural lapse.

16. Disallowance of Expenditure under Section 40(a)(ia) of the Act:
The Tribunal held that the provisions of section 40(a)(ia) do not apply to a charitable trust claiming exemption under sections 11/12 of the Act. The income of the trust is to be computed in accordance with normal commercial principles.

17. Addition for Lack of Documentary Evidence for Charitable Activities:
The Tribunal found that the expenditure incurred for charitable activities was duly supported by appropriate bills/vouchers. The addition made by the assessing officer was not justified.

18. Non-Allowance of Expenditure Towards Acquisition of Capital Assets:
The Tribunal held that expenditure incurred towards the acquisition of capital assets for charitable purposes qualifies as application of income.

19. Non-Deletion of Interest Charged under Section 234B of the Act:
The Tribunal noted that interest charged under section 234B is consequential in nature and does not require independent adjudication.

Conclusion:
The Tribunal allowed the appeal, holding that the activities of the appellant trust qualify as charitable purposes under section 2(15) of the Act. The denial of exemption under sections 11/12 of the Act was found to be unjustified, and the various additions made by the assessing officer were deleted. The principle of consistency was emphasized, and the procedural lapses by the Commissioner of Income-tax (Appeals) were noted.

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