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2013 (10) TMI 211 - AT - Income TaxObject of Trust - scope of section 2(15) of the Income Tax Act Held that - Pre-dominent object of the trust is to alleviate extreme sufferings and cure diseases by providing practical and functional training of Astang yog, Raj yog, Dhyan Yog, Hath Yog, Ashan and Pranayam etc. as received from the ancient tradition pronounced by the rishies and munis - The various other objectives provided in the trust deed are merely independent/ancillary to the main objection which is to provide medical relief and impart education and do not in any way constitute/objectives of general public utility as contended by Revenue - Case of the appellant does not fall within the last limb of the definition of charitable purpose given u/s 2(15) of the Act Relying upon the judgment of Hon ble Supreme Court of India in the case of Thiagarajar Charities v. ACIT 1997 (4) TMI 7 - SUPREME Court , it has been held that ancillary activity undertaken by the assessee was to afford relief to poor falling within scope of section 2(15) of the Act and was not an object of general public utility - Business being only a means of achieving the object of the trust, exemption could not be denied - Appellant trust falls within the purview of providing relief to the poor Decided in favor of Assessee. Sub section (4A) of section 11 also exempts income tax of a business carried on by the trust so long as the business carried on by the trust is (a) incidental to the attainment of main objects (b) feeds the charitable objects (c) separate books of accounts are maintained in respect of the same, even on fulfillment of the aforesaid conditions profit from such business are exempt u/s 11/12 of the Act In the present case, activity of manufacturing and sale of ayurvedic preparations has been undertaken only for the purpose of effectuating the charitable objective of providing medical relief to the society at large on a genuine need was felt to provide superior quality ayurvedic preparations at economical prices in order to attain effective medical results. Only because the activity carried on yielded profits a negative inference cannot drawn that the activity was undertaken with the sole intention of earning profits. It is also pertinent to note that the total donations/voluntary contributions received by the appellant trust during the assessment year under consideration amounted to ₹ 3,89,14,100/- only. Whereas the total revenue expenditure incurred by the appellant trust in the assessment year under consideration for undertaking its charitable activities amounted to ₹ 48,54,93,383/- (excluding depreciation). In the present case, income and expenditure account for the year ending 31st March, 2009 that substantial capital expenditure has also been incurred by the appellant trust in pursuing its charitable activities - Donations/contributions received by the appellant trust constituted only a minuscule portion of the heavy outlay of expenditure incurred in pursuing the charitable activities. The meaning of expression not for purpose of profit is no longer res integra the test being what is the predominant object of the activity whether it is to carry out a charitable purpose or to earn profit ? If the predominant object is to carry out as charitable purpose and not to earn profit the organization would not lose its charitable character merely because some profits arises from the activity. In the present case, authorities below have failed to appreciate that the business set up and held by the appellant under trust is to sub serve the predominant charitable objects of providing medical relief education and relief to poor - Separate books of accounts were maintained and the entire profits are for charitable objects, the conditions prescribed in section 11(4A) of the Act, too were fulfilled. The revenue authorities have failed to appreciate that out of total sales of ₹ 168.12 crores of Divya Pharmacy medicines of ₹ 4.2 crores only were sold from the hospital sales counter Decided in favor of Assessee.
Issues Involved:
1. Denial of exemption under sections 11/12 of the Income Tax Act. 2. Classification of the appellant's activities as charitable. 3. Consistency in the Revenue authorities' acceptance of the appellant's objects. 4. Classification of yoga as providing medical relief. 5. Expenditure incurred for providing medical relief. 6. Distinction between charitable objectives and business activities. 7. Engagement in imparting education. 8. Treatment of inter-trust donations. 9. Allowance of expenditure towards acquisition of capital assets. 10. Allowance of revenue expenditure. 11. Disallowance under section 40(a)(ia) for non-deduction of tax at source. 12. Restriction of disallowance under section 40(a)(ia). 13. Treatment of donations received if the appellant is held non-charitable. 14. Depreciation on assets if the appellant is held non-charitable. 15. Charging of interest under section 234A. 16. Charging of interest under sections 234B, 234D, and 244A. Detailed Analysis: 1. Denial of Exemption under Sections 11/12: The appellant trust, registered under section 12A, was denied exemption under sections 11/12 for allegedly carrying on business activities with a turnover exceeding the prescribed limit. The tribunal noted that the appellant had been consistently pursuing its charitable activities for 18 years and had always been allowed exemption. The tribunal held that the appellant was entitled to exemption as it was engaged in providing medical relief through Ayurveda, naturopathy, and yoga, and there was no change in the facts during the year under consideration. 2. Classification of Activities as Charitable: The tribunal examined whether the appellant's activities fell within the purview of providing medical relief, imparting education, or relief to the poor. The tribunal found that the appellant had established various departments and facilities providing medical relief to thousands of patients and had set up an Ayurvedic college for imparting education. The tribunal held that the appellant's activities were charitable in nature. 3. Consistency in Revenue Authorities' Acceptance: The tribunal emphasized the principle of consistency, noting that the Revenue had consistently accepted the appellant's activities as charitable in previous years. The tribunal cited several judicial precedents supporting the rule of consistency and held that the Revenue was not justified in deviating from its earlier stand. 4. Classification of Yoga as Providing Medical Relief: The tribunal examined whether yoga could be classified as providing medical relief. It referred to the Clinical Establishment (Registration and Regulation) Act, 2010, which recognizes yoga as a system of medicine. The tribunal also noted various studies and recommendations recognizing the therapeutic effects of yoga. It concluded that yoga could be accepted as a system of medical relief. 5. Expenditure Incurred for Providing Medical Relief: The tribunal found that the appellant had incurred substantial expenditure in providing medical relief through its hospitals and Chikitsalayas. It noted that the appellant had provided free medical services to millions of patients and that the Revenue had not disputed these facts. The tribunal held that the appellant had genuinely applied its income for charitable purposes. 6. Distinction between Charitable Objectives and Business Activities: The tribunal addressed the issue of whether the appellant's business activities were incidental to its charitable objectives. It referred to section 11(4A) of the Act, which allows a charitable trust to carry on business if it is incidental to the attainment of its objectives and separate books of accounts are maintained. The tribunal found that the appellant's business activities were incidental and the profits were applied for charitable purposes. It held that the appellant was entitled to exemption under sections 11/12. 7. Engagement in Imparting Education: The tribunal examined whether the appellant was engaged in imparting education. It found that the appellant had set up an Ayurvedic college affiliated with Uttarakhand Technical University and recognized by the Department of AYUSH. The tribunal held that the appellant's activities in conducting yoga classes and setting up the Ayurvedic college fell under the category of imparting education. 8. Treatment of Inter-Trust Donations: The tribunal addressed the issue of inter-trust donations made by the appellant. It referred to CBDT Instruction No. 1132, which states that donations made by one charitable trust to another for utilization towards charitable objects constitute proper application of income. The tribunal held that the donations made by the appellant to Patanjali Yogpeeth were for charitable purposes and constituted application of income under section 11(1)(a). 9. Allowance of Expenditure towards Acquisition of Capital Assets: The tribunal noted that the appellant had incurred substantial capital expenditure for pursuing its charitable activities. It held that the authorities below had erred in not allowing deduction for the actual expenditure incurred by the appellant in the assessment year under consideration. 10. Allowance of Revenue Expenditure: The tribunal noted that the AO had rectified the assessment order and allowed deduction of revenue expenditure aggregating to Rs. 52,26,81,441/-. Therefore, the ground regarding non-allowance of revenue expenditure was rejected as infructuous. 11. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source: The tribunal addressed the issue of disallowance under section 40(a)(ia) for non-deduction of tax at source. It found that the appellant had made payments to suppliers for the purchase of materials, which constituted a contract of sale and not a works contract. Therefore, section 194C was not applicable, and the disallowance under section 40(a)(ia) was not justified. 12. Restriction of Disallowance under Section 40(a)(ia): The tribunal noted that the disallowance under section 40(a)(ia) should have been restricted only to the amount remaining unpaid/payable as on the last date of the previous year. However, this issue became infructuous as the tribunal held that section 194C was not applicable. 13. Treatment of Donations Received if the Appellant is Held Non-Charitable: The tribunal noted that if the appellant was held to be non-charitable, the donations received would represent capital receipts not liable to tax. However, this issue became infructuous as the appellant was held to be charitable. 14. Depreciation on Assets if the Appellant is Held Non-Charitable: The tribunal noted that if the appellant was held to be non-charitable, it should have been allowed depreciation on assets. However, this issue became infructuous as the appellant was held to be charitable. 15. Charging of Interest under Section 234A: The tribunal held that the charging of interest under section 234A was consequential and dependent on the outcome of the main issues. 16. Charging of Interest under Sections 234B, 234D, and 244A: The tribunal held that the charging of interest under sections 234B, 234D, and 244A was consequential and dependent on the outcome of the main issues. Conclusion: The tribunal allowed the appeal, holding that the appellant trust was entitled to exemption under sections 11/12 of the Income Tax Act as it was engaged in providing medical relief, imparting education, and relief to the poor. The tribunal also addressed and resolved various connected issues in favor of the appellant.
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