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TMI Blog2015 (9) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in not setting off brought forward deficit of Rs. 51,25,546/- while computing the income of the trust. 4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)-I, Nashik was justified to held that the A.O. has erred in not reducing capital expenditure of Rs. 62,47,446/- incurred by the trust on the objects of the trust being application of income. 5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)-I, Nashik was justified to held that the A.O. has erred in not computing the income of the Charitable Trust registered under the B.P.T. Act and as per provisions of Income Tax Act, 1961. 6. The appellant prays that the order of the Assessing Officer may be restored. 7. The appellant prays to adduce such further evidence to substantiate his case. 8. The appellant prays leave to add, alter, clarify, amend and or withdraw any grounds of appeal as and when the occasion demands." 3. Briefly stated, the Assessee is a Charitable Trust registered under Bombay Public Trust Act, 1950. The trust is duly registered under section 12A w.e.f. 31.07.1975 and recognized under section 80G w.e.f. 01.04.2009 vide approval dated 10.11.2009. It als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The net profit is stated to be Rs. 27,25,450/- i.e. 8.4% of the sales. Based on these broad statistics, the Assessing Officer held that "Aushadi Bhavan" section is a manufacturing unit which is being run on commercial basis. The net profit of Rs. 27,25,450/- is of substantial nature and it is not for the purpose which include any relief of the poor, education or medical relief, etc. as contemplated in the definition of "charitable purpose" under section 2(15) of the Act. The assessee, on the other hand, relied upon the copy of the trust deed and submitted before the Assessing Officer that the main object of the trust is to promote Ayurveda and create awareness of Ayurveda as enshrined in ancient Shashtras and Granthas. In order to fulfill the main object, the trust is manufacturing Scientific Ayurvedic Medicines besides their other activities. So, it is to be understood that the manufacturing activity is undertaken to fulfill the object of the trust and not with the objective of carrying on any business activity/profit motive. The objects of the trust are "medical relief and educational" in nature and hence any activity undertaken in pursuance of these objects are in the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application of funds is towards educational and medical purposes. The surplus from Aushadi Bhavan is transferred to Head Office section and therefrom it is applied for Ayurved Rugnalaya (Medical) and Ayurved Mahavidyalaya (Education) and P.G. Course (Education). In the light of the above facts, it is the case of the assessee that the objects of the assessee trust are towards relief to the poor, education and medical relief. 8. The Assessing Officer did not find merit in the contentions of the assessee. The Assessing Officer observed that making available medical help and Ayurvedic Medicines at lower cost is hollow in the absence of any documentary evidences. He relied upon the gross profit ratio and net profit ratio and also expenses towards advertisement, sales incentive scheme, etc. to support his observation that the manufacturing activity is commercial in nature. Likewise, visit of students to manufacturing unit and awareness created cannot be accepted as charitable activity either under the "Education" or "Medical Relief". He drew parallel with the pharmaceutical companies which are not covered under section 2(15) of the Act as charitable entities. He further stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Office section and applied for its charitable objects. 11. The assessee further relied upon CBDT Circular No.11 of 2008 dated 19.12.2008 and contended that proviso to section 2(15) of the Act is not applicable to assessee trust whose object are either (i) Relief to poor; (ii) Medical relief; and, (iii) Education, even if they incidentally carry on a commercial activity subject to the following conditions "(1) the business should be incidental to the attainment of the objectives of the entity. (2) separate books of account should be maintained in respect of such business." 12. On facts, separate books of account are maintained for Aushadi Bhavan section and business is incidental to the attainment of the objectives of the trust and therefore considering the charitable objects and in the light of CBDT Circular (supra) proviso to section 2(15) is not applicable to the case of the assessee trust. Therefore, the assessee trust is entitled to exemption under section 11 and 12 of the Act. 13. The assessee controverted the observations of the Assessing Officer that the manufacturing and selling of Ayurvedic Medicines is a business activity and same is in the nature of advancement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of medicines is incidental activity of the trust to attain the main objects of the medical relief and medical education, as in the absence of Ayurvedic Medicines, the objects of the trust cannot be attained. The CIT(A) further observed that the separate books of account has been maintained in respect of activity of Aushadi Bhavan. He negated the contention of the Assessing Officer in drawing similarity with the pharmaceutical companies. He observed that the object of the pharmaceutical companies is that of earning profit and distributing the same to the shareholders as dividend or bonus shares and therefore such companies are not and cannot be registered under Bombay Public Trust Act as public charitable trust. Accordingly, it will be incorrect to make comparison with the pharmaceutical companies. In the light of the facts broadly noted above, he concluded that the trust is engaged in the activity of relief to poor, education and medical relief and cannot be said to have engaged in the activity of advancement of any other object of general public utility. He, accordingly, held that the Assessing Officer is not justified in denying the benefits granted by section 11 and 12 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee trust cannot be said to be towards "charitable purposes" as contemplated under section 2(15) r.w. proviso thereto. His main plank of contention is that the activity of manufacturing of medicines and selling thereof is neither be termed educational nor medical relief. The Ld. Departmental Representative for the Revenue adverted attention to section 10(23C)(iiiab) and (iiiac) of the IT Act and vehemently argued that the income-tax reliefs are given to the educational institution under section (iiiab) of the Act and reliefs are given to hospital and other institutions engaged in imparting medical reliefs under section (iiiac) of the Act. He submitted that in view of separate subsections i.e. (iiiab) and (iiiac) to section 10(23C), the relief can be either taken under education or towards medical treatment and not both. In order to reflect this intention of legislature, separate sub-sections (iiiab) and (iiiac) to section 10(23C) of the Act has been inserted in the Statute. The reliefs available are not overlapping to each other but are exclusively in nature. Therefore, argument of the assessee that the manufacturing activity of medicines one of the sections of the assessee trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of Association of the assessee clearly reflects the object of the assessee trust which is established for education and medical reliefs, etc.. One of its sections, namely, Ayurved Mahavidyalaya is substantially added by the Government grants. The manufacturing activity being its section, namely, Aushadi Bhavan which resulted in profits is only incidental to its primary object i.e. imparting education and providing medical reliefs to the needy. The manufacturing activity is not the object of the trust per se but a conduit to achieve the primary objects. Further section 2(15) of the IT Act which defines charitable purpose also covers the activities of the assessee. As per the definition, "charitable purpose" includes relief of the poor, education, medical relief and advancement of any other object of general public utility, etc. The assessee trust is established for the purpose of education and medical relief and therefore the assessee is fully eligible for exemption under section 11 and 12 of the Act as claimed. In the alternate, the assessee is also entitled for relief under section 10(23C)(iiiab) of the Act which is available for educational purposes and section 10(23C)(iiiac) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. Therefore, proviso to section 2(15) gives differential treatment to the objects namely reliefs of the poor, education and medical relief, etc. vis-à-vis advancement of any other object of general public utility. It is the case of the assessee trust that its activities are in the field of education and medical relief and therefore proviso to section 2(15) of the Act does not come into play at all, whereas it is the case of the Revenue that the nature of the activity conducted by the assessee falls within the ambit of 'advancement of any other object of general public utility'. 27. The relevant object clause of the Assessee trust as set out in its Memorandum of Association is extracted below to ascertain the main objects of the Assessee Trust "4) The aims and objects of the Ayurved Seva Sangh Nashik 4.1) To impart instructions & Education in Ayurved by sharing, establishing, conducting, Ayurvedic schools, colleges, Post graduate courses, Research institutes & liabraries and by editing, printing, publishing & selling, the books, magazines, journals, newspaper on Ayurvedic and allied subjects. 4.2) To establish and conduct, Ayurvedic and allied research laborator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said object clauses. The activities carried out by the Assessee are not found by the Revenue to be ultra vires the objects. It is true that merely because the CIT has granted registration u/s 12A will not by itself preclude the AO from examining compliance u/s 11 of the Act. However, in the present case, no cogent case of non compliance has been made out. Merely because some manufacturing activities in the nature of alleged business activities are involved, this will not change the character of activity. The Assessee has demonstrated as to how these allied manufacturing activity has assisted its key objects in the area of education and medical reliefs. The receipts from manufacturing activities have been admittedly applied towards the objects of the trust. The relevant first proviso to S. 2(15) which holds 'any other objects of general public utility' as non charitable if it involves the carrying on of any activity in the nature of business, etc. has no application in the facts of the case. The criteria that activity should not be in the nature of business or commerce etc. for the purposes of S. 2(15) is restricted only to advancement of residual objects of general public utility e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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