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2025 (3) TMI 1213 - AT - Income TaxRejection of application for renewal of registration u/s.12AB - Charitable purpose u/s 2(15) - HELD THAT - The undisputed fact that the main object of the trust is to provide medical relief to patients suffering from diabetes. On facts on record we find that the assessee trust maintains separate accounts for funds mobilised from various sources and such funds are utilised for purchase of insulin etc for supplying to the poor patients free of cost. We find that Charitable purpose includes relief of the poor education medical relief and any other object of public utility. These activities are tax exempt. In the present case the assessee trust primary objective is to provide the medical relief to poor which falls within first three limbs of section 2(15) and hence the proviso to section 2(15) does not attract to the appellant trust. The MDTC a unit of assessee trust is carrying on incidental activities to the main objective of the trust and further on facts on record assessee trust maintain separate books of account for such incidental activity. CIT(E) had rejected the application seeking registration u/s 12AB and cancelled the existing registration citing that the percentage of receipts from commercial activity is determined to 36.94% based on assumption and treating 50% of voluntary contributions from general public as receipts from MDTC and also citing that no separate books of accounts were maintained for MDTC. However the assessee trust had maintained separate books of account for Trust and MDTC (two separate tally accounts were maintained). CIT(E) has grossly erred in making presumption that 50% of amount received from general public as receipts from the diabetic clinic without any evidence and arriving at mentioned 36.94%. Moreover as mentioned the proviso to section 2(15) is applicable only to the entities whose purpose is advancement of any other object of general public utility and as per the circular 11 of 2008 and judicial pronouncements the said proviso would not applicable to the assessee trust as the main objective is medical relief to poor. We hold that the CIT Exemption has wrongly cancelled the registration granted to the assessee trust under section 12AB - Appeal filed by assessee trust is allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents Section 2(15) of the Income Tax Act defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. The proviso to this section restricts the definition of charitable purpose if it involves trade, commerce, or business activities exceeding 20% of the total receipts. The CBDT Circular No. 11/2008 clarifies that the proviso does not apply to the first three limbs of section 2(15), i.e., relief of the poor, education, or medical relief. Court's Interpretation and Reasoning The Tribunal interpreted that the primary objective of the assessee trust, which is to provide medical relief, falls under the first three limbs of section 2(15). The Tribunal emphasized that the proviso to section 2(15) does not apply to entities whose primary purpose is medical relief, even if they incidentally engage in commercial activities, provided separate books of accounts are maintained. Key Evidence and Findings The Tribunal noted that the assessee trust maintained separate accounts for its activities, including those of MDTC. The trust's primary activities involved providing medical relief to poor diabetic patients, which aligns with the charitable purposes defined in section 2(15). The Tribunal found that the CIT (Exemption) erroneously assumed that 50% of the voluntary contributions were receipts from MDTC without evidence. Application of Law to Facts The Tribunal applied the provisions of section 2(15) and the CBDT Circular No. 11/2008, concluding that the assessee trust's activities fall within the definition of "charitable purpose" as they primarily provide medical relief. The Tribunal held that the proviso to section 2(15) does not apply, as the trust's activities are not primarily commercial. Treatment of Competing Arguments The Tribunal addressed the CIT (Exemption)'s arguments by highlighting the lack of evidence for the assumption that 50% of voluntary contributions were commercial receipts. It also noted the trust's compliance with maintaining separate books of accounts, which supports its claim of charitable activities. Conclusions The Tribunal concluded that the CIT (Exemption) erred in applying the proviso to section 2(15) and in rejecting the registration application under section 12AB. The Tribunal directed the CIT (Exemption) to allow the continuation of registration under section 12AB for the assessee trust. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning "The proviso to section 2(15) does not apply to the first three limbs i.e relief to the poor, medical or educational relief of section 2(15), which provides the definition of 'Charitable purpose' even if such entity incidentally involves the carrying on of commercial activities, subject to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C)." Core Principles Established
Final Determinations on Each Issue
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