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2013 (4) TMI 397 - HC - Income TaxExemptions under Section 10(23C)(iv) denied - as per assessee they are dedicated to business of manufacture of sale of unani medicines for the purpose of charity - as per dept petitioner No.1 is not engaged in any charitable activities set out in Section 2(15) but donates a part of its surplus to Hamdard National Foundation ( HNA ) which does not meet the requirements of Section 2(15) - Held that - It is stated in the impugned order that this financial help was being given to selected Hakims and Vaids of repute. However, no details of Hakims and Vaids and their incomes have stated or mentioned in the impugned order. On what basis did the author of the order reach the conclusion that financial aid was being given to already well of Hakims and Vaids is not indicated or averred to. HNF is registered under Section 12A read with Section 12AA of the Act and throughout they have been granted exemption. For assessment year 2007-08, the Assessing Officer had denied exemption to HNF under Section 11 of the Act but the said decision was reversed by the appellate authority vide decision dated 31.1.2012 i.e. before the date of the present order dated 22.2.2012. The impugned order however, does refer to the order of the Assessment Officer but does not notice the appellate order passed on 31.01.2012 reversing the findings of the AO On the question of books of accounts the contention of petitioner No.1 relying upon the decision of Delhi High Court in Mehta Charitable Prajnalay Trust 2012 (12) TMI 211 - DELHI HIGH COURT . Petitioner No.1 submits that the amount mentioned in last column accumulation is less than 15% of the general reserve and therefore, the petitioner meets the prescribed parameters. This aspect has been ignored in the impugned order by recording that the surplus has been given to HNF or surplus/income has been passed on and given to HNF. The effect thereof and whether objects/use of funds by HNF can be determinative and relevant for deciding the applicable head u/s 2(15) in the case of the petitioner No.1 is an aspect which requires examination/consideration. allow the present writ petition and issue the writ of certiorari quashing the impugned order dated 22.2.2012 passed by the Director General of Income Tax (Exemptions). The Director General of Income Tax (Exemptions) will pass a fresh order dealing with all the contentions and issues raised by the petitioner No.1
Issues Involved:
1. Whether the petitioner No.1 is engaged in charitable activities as defined under Section 2(15) of the Income Tax Act, 1961. 2. The applicability of the first proviso to Section 2(15) concerning the carrying on of any activity in the nature of trade, commerce, or business. 3. Whether the petitioner No.1 maintains proper books of accounts for charitable and business activities. 4. The validity of the impugned order dated 22.02.2012 rescinding the earlier order granting renewal under Section 10(23C)(iv). Detailed Analysis: Issue 1: Engagement in Charitable Activities - The petitioner No.1, Hamdard Laboratories (India), claims to be a trust dedicated to the manufacture and sale of unani medicines for charitable purposes, governed by a Constitution dated 28.8.1948. Clauses 44 to 47 of the deed emphasize spending income on public charity within India, prioritizing medical education, research, and charitable hospitals. - The petitioner asserts that it has been recognized as a charitable institution under Section 2(15) of the Act since assessment year 1984-1985. The petitioner's application for renewal of approval under Section 10(23C)(iv) for the assessment year 2004-05 onwards was initially granted but later rescinded by the impugned order dated 22.02.2012. Issue 2: Applicability of the First Proviso to Section 2(15) - The impugned order dated 22.02.2012 rescinded the renewal on grounds that the petitioner No.1 was engaged in business activities, primarily manufacturing and selling unani and ayurvedic medicines on commercial lines, not for charitable purposes. - The petitioner argues that Section 2(15) does not prohibit a charitable institution from undertaking business activities if the income generated is used for charitable purposes. The amendment to Section 2(15) effective from assessment year 2009-10 applies only to the clause "advancement of any other object of public utility," which is not applicable to the petitioner as their activities fall under relief to the poor, education, and medical relief. Issue 3: Proper Maintenance of Books of Accounts - The impugned order states that the petitioner No.1 does not maintain separate books of accounts for charitable and business activities, violating Clause (c) of the notification under Section 10(23C)(iv) and Section 11(4A) of the Act. - The petitioner contends that the entire income or surplus from business is used for charitable purposes, making Section 11(4) applicable, not Section 11(4A). They cite the case of CIT vs. Mehta Charitable Prajnalay Trust, where it was held that Section 11(4A) applies only when the business is not held under trust. Issue 4: Validity of the Impugned Order - The court found that the impugned order did not provide specific findings that the petitioner's charitable activities fall under the residuary head of Section 2(15). The order assumed that the petitioner's activities were covered by the residuary clause without recording any specific finding. - The petitioner referred to earlier favorable decisions of the High Court, which the impugned order disregarded without valid justification. The court noted that binding precedents cannot be ignored unless distinguished on facts or superseded by a Supreme Court decision. - The court also noted that the impugned order did not adequately address the petitioner's argument that transferring surplus income to another charitable entity (HNF) constitutes a valid application of income for charitable purposes. The petitioner cited several cases supporting this view and pointed out that HNF has been consistently granted exemption under Section 12A read with Section 12AA of the Act. Conclusion: The High Court quashed the impugned order dated 22.02.2012 and remanded the matter to the Director General of Income Tax (Exemptions) for a fresh order, addressing all contentions and issues raised by the petitioner, considering the relevant case law. The court emphasized the need for a thorough factual and legal examination before forming a firm view. The petitioner is directed to appear before the Director General (Exemptions) on 2nd May 2013 for further proceedings, and interim orders regarding assessment proceedings will continue for three months. The writ petition No.3598/2012 is disposed of with no order as to costs.
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