2013 (5) TMI 635 - AT - Income Tax

Entitlement to exemption u/s 10(23C) (iiiac) - Programme advance received - whether be equated with the income and be subjected to the provisions of sections 11, 12 and 13 of the Act - assessee is one of the Society formed by the Government of Karnataka for implementing Government of India s flagship scheme known as National Rural Health Mission (NRHM) - Held that - It is a fact that the Karnataka State Health & Family Welfare Society and the District Health & Family Welfare Societies at the Districts level were non-profit making societies registered by the Government of Karnataka way back in 2005-06 specifically for the implementation of the Central Government sponsored programme of NRHM which had, undoubtedly, the sole objective of providing accessible, affordable health care to the rural population. It is also an un-denying fact that the purpose of establishing the State and District level health societies as per NRHM norms was to act as nodal agency for implementation of the Central Government s programme of NRHM and, thus, there can be no profit motivation. Exemption under section 10(23C)(iiiac) is automatic for entities which are wholly or substantially funded by the Government and a Notification is not issued under this section. Therefore, no specific order/Notification in this regard can be issued by the CBDT to exempt the State and District Level Societies for health and family welfare. The assessee society has since been recognized as a Government established/sponsored entity, as affirmed by the Finance Secretary, Government of India, exemption u/s 10(23C) (iiiac) is automatic for entities which were wholly or substantially funded by the Government of India or a State Government as the case may be. In essence, the assessee is entitled for exemption under section 10(23C) (iiiac) of the Act. In favour of assessee.

Summary

Issues:
Interpretation of 'programme advance' as income under sections 11, 12, and 13 of the Act.

Analysis:
The appeals involved a dispute regarding the treatment of 'programme advance' received by the assessee from the Government of India as income under sections 11, 12, and 13 of the Act for the assessment years 2008-09 and 2009-10. The assessee contended that the advance should not be considered income and, therefore, not subject to the provisions of the Act.

The assessee, established by the Government of Karnataka for charitable purposes, received grants from the government to implement public health and welfare programs. The AO observed unspent grants and deemed them as income since the assessee was not registered under section 12AA of the Act. Consequently, the unspent grants were brought under the tax net as income of the assessee.

The CIT (A) upheld the AO's decision, ruling that without registration under section 12A, exemption under section 11 was not applicable. The CIT (A) dismissed the appeals, stating that the unspent grant could not be exempted as the assessee had not filed for registration under section 12A.

The appellate authority argued that the 'programme advance' should not be equated with income and, therefore, not subject to the Act's provisions. The authority highlighted that the assessee operated under the NRHM scheme fully funded by the government, falling within the purview of section 10(23C)(iiiac) of the Act.

The Tribunal analyzed the nature of the assessee's activities under NRHM and its funding arrangement. Referring to communications from the Finance Secretary, Government of India, the Tribunal concluded that the assessee, being substantially funded by the government, was entitled to exemption under section 10(23C)(iiiac) of the Act.

Ultimately, the Tribunal allowed the assessee's appeals for the assessment years 2008-09 and 2009-10, recognizing the automatic exemption under section 10(23C)(iiiac) for entities substantially funded by the government. The Tribunal's decision was based on the understanding that the assessee, as a government-sponsored entity, was entitled to the exemption, and the unspent grants should not be treated as income.

In conclusion, the Tribunal's judgment clarified the treatment of 'programme advance' received by the assessee, emphasizing the exemption under section 10(23C)(iiiac) for entities substantially funded by the government and rejecting the notion that such advances should be considered income under the Act.