IDHAYANGAL CHARITABLE TRUST,COIMBATORE V. CIT (EXEMPTIONS), CHENNAI

ITA 2706/CHNY/2024

AI Insights

The case involves Idhayangal Charitable Trust appealing against the decision of the Commissioner of Income Tax (Exemptions), who rejected the trust's application for renewal of registration under section 12AB of the Income Tax Act, 1961. The Commissioner had concluded that the trust's activities, particularly through its unit 'Madhuram Diabetic and Thyroid Centre (MDTC)', constituted a commercial activity exceeding the permissible limit of 20% of total receipts, thus falling under the proviso to section 2(15) of the Act. The Tribunal, however, found that the trust's activities were primarily charitable, focusing on providing medical relief to the poor, and that the commercial activities were incidental and properly accounted for.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 469605 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Other Referred Cases: M/s. Additional Commissioner Of Income- Tax Vs Surat Art Silk Cloth Manufacturers, ACIT vs. Ahmedabad Urban Development Authority
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R. CLEMENT RAMESH KUMAR
• Assessee Lawyers: Y. SRIDHAR
• Keywords: Set aside; Charitable institution
• Section: 13; 6; 10(23C); 80G

Judgement Text

"आयकर अपीलȣय अͬधकरण, ‘सी’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI Įी जॉज[ जॉज[ क े, उपाÚय¢ एवं Įी एस.आर.रघुनाथा, लेखा सदèय क े सम¢ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENTAND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 2706/CHNY/2024 M/s. Idhayangal Charitable Trust, Site 10 & 11, Mathuram, Natchara Classic, Phase-I, Era Mohan Nagar, Kalapati, Coimbatore – 641 002. PAN: AABTI 4322G Vs. The Commissioner of Income Tax (Exemption), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri Y. Sridhar, FCA ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri R. Clement Ramesh Kumar, CIT सुनवाई कᳱ तारीख/Date of Hearing : 06.02.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 18.02.2025 आदेश /O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: This appeal at the instance of the assessee trust is directed against the Commissioner of Income Tax (Exemptions) order dated 29.08.2024, rejecting assessee’s application seeking registration u/s.12AB of the Income Tax Act, 1961 (hereinafter called ‘the Act’). - 2 - ITA No.2706//CHNY/2024 2. The assessee has filed concise grounds on 01.11.2024. The concise grounds raised read as follows:- 1. The CIT (Exemption) has failed to appreciate that, the appellant trust formed only to provide medical relief hence, it falls under 1st six limps of the section 2(15) of IT Act 1961 and falls under \"per se category\". 2. The CIT (Exemption) has failed to appreciate that, the very object of the trust & its division named Madhuram Diabetic And Thyroid Centre, is medical relief as provided in the form 10AB. 3. The CIT (Exemption) simply presumed that certain revenue receipts of its division converted into donation in order to not attract proviso to sec 2(15) without any facts on record. 4. The CIT (Exemption) simply arrived at ratio of 34% as per provision of section 2(15) based on certain presumptions and surmises. 5. The CIT (Exemption) has not appreciated the theme and jurisprudence of the judgement of Hon'ble Supreme court of India in case of Ahmedabad Urban Development Authority\" where in which health is considered as \"per se category\" and not clearly in general public utility area. 6. The CIT (Exemption) failed to appreciate these settled principles as observed in the case of \"M/s. Additional Commissioner Of Income- Tax Vs Surat Art Silk Cloth Manufacturers on 19 November, 1979\" by the Hon'ble supreme court of India 7. The CIT (Exemption) failed to appreciate the department circular no. 11 of CBDT dated 19.12.2016 which is categorically observed that in para 3.1 and para 3.2, which clearly says that, the newly inserted proviso Sec 2(15) it applied only to the entity who pursue the advancement of any other public utility and not to that 1st 6 limps of section 2(15). 8. The CIT (Exemption) also failed to appreciate that the appellant trust does not fall under the General public utility but clearly falls under the 1st 6 limbs of Sec 2(15) hence the ration 20% is not applicable. 9. The CIT(Exemption) has not appreciated the fact that as per the circular no.21 of 2016. Even if they wrongly treated the Appellant Trust as General - 3 - ITA No.2706//CHNY/2024 Public Utility even in such case The CIT(Exemption) can deny only the exemption but not go for cancellation of 12AB. 3. Brief facts of the case are as follows: The assessee is a public charitable trust established by a registered trust deed dated 07.03.2017. The assessee trust was established by Dr.Krishnan Swaminathan, a medical professional (Endocrinologist) who focuses on treatment of diabetic patients, along with his wife, who is also a medical professional as Authors of the Trust. The main object of the assessee trust is to provide medical relief to patients suffering from diabetics especially for poor children with insulin needing Type 1 diabetics. The assessee trust was registered u/s.12A and 80G of the Act vide orders dated 16.10.2017 and 05.03.2018 respectively. During the financial year 2020-21, the trust deed was amended. Consequently, the trust filed Form 10A for renewal of registration u/s.12A & 80G of the Act. The said applications were approved in Form 10AC vide order dated 31.05.2021 for the period of 5 years from AY 2022-23 to 2026- 27. In July, 2021, the founders of the trust decided to establish a unit in the name and style of “Madhuram Diabetic and Thyroid Centre (MDTC)” vide resolution dated 16.07.2021. Further, the assessee had amended few clauses of the trust deed and the same has been registered with the sub-registrar on 25.02.2024. As per the provisions of section 12A(1)(ac)(v) of the Act, the assessee trust filed application - 4 - ITA No.2706//CHNY/2024 in Form 10AB on 29.02.2024. The CIT(E) issued notice dated 31.05.2024 for seeking clarification and documents. The assessee filed detailed submission through covering letter dated 07.06.2024. In the said submission, the assessee explained the nature of activities and programmes carried out by the Trust to meet the main objective of the assessee. The assessee had also submitted relevant documents in support of the clarification sought. In addition to the submissions made, the Managing Trustee and the Auditor of the Trust appeared before the CIT(E) along with the authorized representative and made another submission dated 26.08.2024 and explained about the source of income and the activities carried on by the trust and its unit MDTC during the course of personal hearing. 4. The CIT(E) however rejected the application for renewal of registration u/s.12AB of the Act. The CIT(E) held the unit of assessee trust i.e., MDTC is providing treatment to patients who are otherwise financially affluent and affordable to pay for lab testing and consultancy services. The CIT(E) also observed that activity of MDTC as incidental activity that generates revenue on commercial basis, hence, it violates the proviso to section 2(15) of the Act. The CIT(E) also held that receipts generated by MDTC exceeded the permissible limit of 20% as specified in proviso to section 2(15) of the Act. The said conclusion of - 5 - ITA No.2706//CHNY/2024 the CIT(E) is arrived based on the following observation. (i) the CIT(E) noted inconsistency between the amounts declared in the submissions and those reflected in the signed financial statements. These discrepancies led the CIT(E) to conclude that explanation provided by the assessee trust regarding the MDTC’s income were not accurate. The CIT(E) further observed that difference between the amount of voluntary contribution reported in Form 10BD and the actual amount recorded in the signed financial statements. 5. Based on the above observation, the CIT(E) made the following assumption that 50% of the total voluntary contribution received from general public should be considered as receipts generated by MDTC. Based on this assumption, there was a significant increase in percentage of receipt from commercial activity pushing it to 36.94% which is well above the permissible limit of 20% as per the proviso to section 2(15) of the Act. Consequently, it was concluded by the CIT(E) that assessee’s activities no longer qualify as ‘charitable’ as per the provisions of the Act. 6. Aggrieved by the order of the CIT(E) rejecting the application for registration u/s.12AB of the Act, the assessee has filed the present appeal before the Tribunal. The assessee has filed a paper-book - 6 - ITA No.2706//CHNY/2024 enclosing the orders of approval granted u/s.12A & 80G of the Act right from the inception of the assessee trust up to the latest application. The assessee had furnished in the paper book, the trust deed, the amendments made to the various clauses in the trust deed, the notices issued during the course of hearing before the CIT(E), the submissions made during course of proceeding before CIT(E), the case laws relied on, etc. The assessee had also filed press release No.2 dated 13.01.2025, wherein the assessee trust was awarded by the Governor of Tamil Nadu for its activities in the field of social services of providing medical aid to public at large. The assessee trust was also in this context awarded a cash prize of Rs.5,00,000/- by the Governor of Tamil Nadu. 7. The ld.AR submitted the primary object of the assessee trust is to provide medical relief to the poor. It was stated that the said object falls under the ‘per se’ category trust and not that of a general public utility. The ld.AR in this context submitted that the proviso to section 2(15) of the Act cannot be applied in assessee’s case. Further the Ld.AR submitted that the assessee had maintained separate books of accounts for the trust and MDTC. It was stated by the ld.AR, where the business activity of the trust is incidental to the main attainment of objects of the trust of providing medical relief to public at large, the - 7 - ITA No.2706//CHNY/2024 assessee is entitled to benefit of registration u/s.12AB of the Act. The Ld.AR stressed on the point that proviso to section 2(15) of the Act does not apply to first three limbs namely relief to the poor, medical or education, even if such trust incidentally involves in carrying on the commercial activity subject to the conditions stipulated u/s.11(4A) or seventh proviso to section 10(23c) of the Act. It was further contended by Ld.AR that reliance of CIT(E) judgment of Hon’ble Apex Court in the case of ACIT vs. Ahmedabad Urban Development Authority reported in 143 Taxmann.com 278 is not applicable to the facts of the instant case since the said judgment has been rendered in cases pertaining to the trusts which are rendering services in the field of general public utility, hence, proviso to section 2(15) has got application. The Ld.AR further submitted that the CIT(E) had cancelled the existing registration citing percentage received from commercial activity is determined at 36.94% of the gross receipts on wrong assumption by treating 50% of the voluntary contribution from general public as receipts from MDTC. It was stated that the assessee trust had maintained separate books for the trust as well as MDTC and the same was placed on record. 8. The Ld.DR supported the order of the CIT(E). 9. We have heard rival submissions and perused the material on record. The issue is to be examined in the case under consideration is - 8 - ITA No.2706//CHNY/2024 whether under the facts and circumstances the CIT [exemption] is right in cancelling the registration of the trust granted under section 12AB of the Act. 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. 10. The C.B.D.T. Circular No. 11/2008 dated 19.12.2008 has clarified the applicability of the commercial activities in respect of charitable purpose. The said circular is reproduced for ready reference: “Definition of ‘Charitable purpose’ under section 2(15) of the Income tax Act, 1961 Section 2(15) of the Income Tax Act, 1961 (‘Act’) defines “charitable purpose” to include the following:- (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of ‘charitable purpose’. Therefore, section 2(15) - 9 - ITA No.2706//CHNY/2024 was amended vide Finance Act, 2008 by adding a proviso which states that the ‘advancement of any other object of general public utility’ shall not be a charitable purpose if it involves the carrying on of – (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business; for a cess or fee or any other consideration, irrespective of nature of use or application, or retention of the income from such activity. 2. The following implications arise from this amendment – 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities. 2.2. ‘Relief of the poor’ encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is ‘education’ or ‘medical relief’ would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is ‘advancement of any other object of general public utility’ i.e. the fourth limb of the definition of ‘charitable purpose’ contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, - 10 - ITA No.2706//CHNY/2024 commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1. There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under ‘any other object of general public utility’. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15). 3.2. In the final analysis, however, whether the assessee has for its object ‘the advancement of any other object of general public utility’ is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of ‘general public utility’ will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is ‘charitable purpose’ within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.” 11. From the above circular, it is clear that 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 - 11 - ITA No.2706//CHNY/2024 involves the carrying on of commercial activities, subject to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C). 12. 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. 13. We rely on the judgement of Hon'ble Supreme court of India in case of Assistant Commissioner Of Income Tax .vs. Ahmedabad Urban Development Authority (supra), wherein Hon'ble Supreme Court of India has clearly mentioned that General Public Utility Charity has been recognized as a distinguished from \"per se category\" of charity. The \"per se categories\" are: i. education, ii. medical relief, iii. relief to poor. In the instant case assessee Trust falls clearly under the limb medical relief and relief to the poor. The CIT (Exemption) treated activity of assessee trust as General Public Utility charitable trust and went ahead with application of proviso to Sec 2(15) for rejecting the application for registration u/s.12AB of the Act. We further rely on the - 12 - ITA No.2706//CHNY/2024 order of the ITAT Chennai bench in the case of Smt. Lingammal Ramaraju Shastra Prathistha Trust v. Asst. Commissioner of Income- tax (Exemptions) reported [2024] 168 taxmann.com 476 (Chennai - Trib.) for the proposition that proviso to section 2(15) of Act does not have application to trust carrying charitable objects in field of medical relief. 14. The CIT(E) in para no. 3 to 3.3 of the impugned order wrongly arrived at a conclusion that that the assessee trust is running a diabetic clinic on commercial basis as such it is hit by the provisions of section 2(15) of the Income Tax Act. It is clear from the above circular 11 of 2008 and judicial pronouncements that proviso to section 2(15) is applicable only for entities whose purpose is 'advancement of any other object of general public utility and not applicable to the first three limbs of section 2(15) of the Act. Further, the assessee trust is primarily using the MDTC for testing of poor children and using only the spare capacity for outsiders at nominal prices. 15. The CIT(E) in para 4.2 of the impugned order had inadvertently concluded that the assessee trust had not filed any form i.e Form 9A/10 for shorter application of CSR funds for AY 2023-24. However, the assessee trust had filed form 10 on 03.11.2023 and the same is placed on record in the paper book filed. - 13 - ITA No.2706//CHNY/2024 16. Further, the 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). 17. Further, we find that the 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. 18. In the light of the above discussions, we hold that the CIT [Exemption] has wrongly cancelled the registration granted to the - 14 - ITA No.2706//CHNY/2024 assessee trust under section 12AB of the Act. We, therefore, set aside the order of CIT[Exemption] on the issue. The CIT [Exemption] is therefore, directed to allow continuation of registration under section 12AB of the Act to the assessee trust in the light of the above discussions and judicial pronouncement cited supra. 19. In the result, the appeal filed by assessee trust is allowed. Order pronounced in the open court on 18th February, 2025 at Chennai. Sd/- Sd/- (एस.आर. रघुनाथा) (S.R. RAGHUNATHA) लेखा सदèय/ACCOUNTANT MEMBER (जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चेÛनई/Chennai, Ǒदनांक/Dated, the 18th February, 2025 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. "