M/s. Auro Lab, CHENNAI V. ITO, Madurai

ITA 1750/CHNY/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7955 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 31-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 21-09-2012
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADHUKAR BHUSARI
• Assessee Lawyers: DR ANITA SUMANTH
• Keywords: Charitable institution; Cancellation of registration
• Section: 12AA; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.1750 & 1751/MDS/2012 / ASSESSMENT YEARS : 2008-09 & 2009-10 M/S AURO LAB NO.1, ANNA NAGAR MADURAI 625 020 VS. THE INCOME TAX OFFICER WARD II(4) MADURAI [PAN AAATA 1142 P ] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : DR. ANITA SUMANTH , ADVOCATE /RESPONDENT BY : DR. MILIND MADHUKAR BHUSARI, CIT / DATE OF HEARING : 31 - 12 - 2015 ! / DATE OF PRONOUNCEMENT : 19 - 0 2 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AG AINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX (AP PEALS)-I, MADURAI, DATED 29.6.2012, FOR ASSESSMENT YEARS 2008 -09 AND 2009-10. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS, WE HEARD THEM TOGETHER AND DISPOSING OF THE SAME BY TH IS COMMON ORDER. 2. DR. ANITA SUMANTH, LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSEE-TRUST WAS REGISTERED U/S 12AA O F THE ACT INITIALLY. ITA NO.1750 & 1751/12 :- 2 -: SUBSEQUENTLY, THE CIT CANCELLED THE REGISTRATION BY AN ORDER DATED 30.12.2010. THE ASSESSEE CHALLENGED THE ORDER OF THE CIT CANCELLING THE REGISTRATION U/S 12AA(3) OF THE ACT BEFORE THI S TRIBUNAL IN I.T.A.NO.135/MDS/2011. THIS TRIBUNAL BY AN ORDER D ATED 11.5.2011, UPHELD THE ORDER OF THE CIT CANCELLING THE REGISTRA TION. ACCORDING TO THE LD. COUNSEL, THE REGISTRATION WAS CANCELLED BY AN ORDER DATED 30.12.2010. THE ASSESSMENT YEARS UNDER CONSIDERATI ON ARE 2008-09 AND 2009-10, THEREFORE, THE ORDER PASSED BY THE CIT CANCELLING THE REGISTRATION MAY NOT BE APPLICABLE FOR THE ASSESSM ENT YEARS UNDER CONSIDERATION. IN OTHER WORDS, ACCORDING TO THE LD . COUNSEL, THE ORDER DATED 30.12.2010 CANCELLING THE REGISTRATION U/S 1 2AA WOULD OPERATE PROSPECTIVELY FOR THE ASSESSMENT YEAR 2011-12 AND N OT FOR THE ASSESSMENT YEARS UNDER CONSIDERATION, THEREFORE, FO R ALL PRACTICAL PURPOSES, THE ASSESSEE-TRUST HAS TO BE CONSIDERED AS REGISTERED U/S 12AA OF THE ACT. 3. REFERRING TO THE ORDER OF THIS TRIBUNAL DATED 11.5. 2011, THE LD. COUNSEL SUBMITTED THAT THIS TRIBUNAL AT PAGE 39 , PARA37 FOUND THAT THE ASSESSEE-TRUST HAS NOT CARRIED OUT ANY ACTIVIT Y AS PROVIDED IN THE TRUST DEED. THE TRIBUNAL FOUND THAT THE ASSESSEE- TRUST IS CARRYING ON BUSINESS ACTIVITY, THEREFORE, NOT ELIGIBLE FOR CONT INUING THE REGISTRATION. THE ASSESSEE HAS FILED APPEAL AGAINST THE ORDER OF THIS TRIBUNAL AND THE SAME IS PENDING. ACCORDING TO THE LD. COUNSEL, THE OBSERVATION ITA NO.1750 & 1751/12 :- 3 -: WAS NOT MADE IN THE COURSE OF ASSESSMENT PROCEEDIN GS, THEREFORE, THE OBSERVATION MADE BY THE TRIBUNAL HAS TO BE CONFINED ONLY FOR GRANT OF REGISTRATION AND IT CANNOT BE APPLIED IN THE ASSESS MENT PROCEEDINGS FOR THE ASSESSMENT YEARS UNDER CONSIDERATION. 4. REFERRING TO THE OBJECT OF THE TRUST, THE LD. COUNS EL SUBMITTED THAT THE OBJECT OF THE TRUST IS TO PROVIDE MEDICAL CARE. IN THE COURSE OF PROVIDING MEDICAL CARE TO THE BENEFICIARIES, THE A SSESSEE HAS ALSO MANUFACTURED OPHTHALMIC INSTRUMENTS, LENSES, SURGIC AL EQUIPMENTS AND OTHER ACCESSORIES WHICH ARE NECESSARY FOR THE TREAT MENT OF THE PATIENTS. IN FACT, THE PRODUCTS MANUFACTURED BY TH E ASSESSEE ARE DELIVERED AT A LOWER COST TO THE NEEDY PEOPLE. THE REFORE, THE BUSINESS ACTIVITY OF MANUFACTURING LENSES, SURGICAL EQUIPMEN TS ETC. HAS TO BE CONSTRUED AS A BUSINESS HELD UNDER A TRUST IN VIEW OF SEC. 11(4A) OF THE ACT, THEREFORE, THE INCOME GENERATED ON SUCH BU SINESS ACTIVITY IS ELIGIBLE FOR EXEMPTION U/S 11 ON APPLICATION. 5. REFERRING TO SECTIONS 11 & 12 OF THE ACT, THE LD. C OUNSEL SUBMITTED THAT CARRYING ON BUSINESS ACTIVITY IS NOT PROHIBITED BY THE INCOME-TAX ACT, 1961. THE LD. COUNSEL FURTHER SUBM ITTED THAT UNLESS THE ASSESSEE CARRY ON THE BUSINESS AND GENERATES INCOME, IT CANNOT FEED THE CHARITY. ON A QUERY FROM THE BENCH, HOW TH E INCOME OF THE TRUST WAS APPLIED FOR CHARITABLE PURPOSES, THE LD. COUNSEL CLARIFIED THAT ITA NO.1750 & 1751/12 :- 4 -: THE INCOME WAS ACCUMULATED FOR APPLYING THE SAME IN FUTURE YEARS. THE NECESSARY FORM 10 WAS FILED BEFORE THE LOWER AU THORITIES SEEKING PERMISSION TO ACCUMULATE THE INCOME AS REQUIRED UND ER THE SCHEME OF THE INCOME-TAX ACT. PLACING RELIANCE ON THE JUDGME NT OF THE DELHI HIGH COURT IN THE CASE OF GSI INDIA VS DIRECTOR GEN ERAL OF INCOME- TAX(EXEMPTIONS) & ANOTHER, 360 ITR 138, THE LD. COU NSEL SUBMITTED THAT THE ASSESSEE BEFORE THE DELHI HIGH COURT WAS PROMOTED BY THE DEPARTMENT OF COMMERCE, MINISTRY OF COMMERCE AND IN DUSTRIES, GOVERNMENT OF INDIA. THE OBJECT OF THE ASSESSEE I S TO PROMOTE STUDY OF GLOBAL STANDARDS REGARDING COMPANY PREFIX NUMBER , LOCATION NUMBERING, EDI, ECR, AUTOMATIC DATA COLLECTION AND RELATED SERVICES AND TECHNOLOGIES. THE ASSESSEE WAS ALSO CHARGING FEE FOR THE SERVICES RENDERED BY IT. THE DELHI HIGH COURT, AFTER CONSID ERING THE ACTIVITY BY THE ASSESSEE FOUND THAT EVEN THOUGH THE ACTIVITY O F THE ASSESSEE- TRUST IS IN THE NATURE OF BUSINESS, THE ASSESSEE I S ENTITLED FOR EXEMPTION U/S 10(23C)(IV) OF THE ACT. REFERRING T O SEC. 2(15) OF THE ACT, THE DELHI HIGH COURT FOUND THAT PROVISO TO SEC . 2(15) IS APPLICABLE ONLY TO THOSE ASSESSEES WHO ARE ENGAGED IN COMMERC IAL ACTIVITY. THE DELHI HIGH COURT FURTHER FOUND THAT CHARGING A NOM INAL FEE TO USE THE CODING SYSTEM AND TO AVAIL OF THE ADVANTAGES AND BE NEFITS THEREIN IS NEITHER REFLECTIVE OF BUSINESS APTITUDE NOR INDICAT IVE OF PROFIT ORIENTED INTENT. IN THE ABSENCE OF ANY PROFIT MOTIVE AND CH ARITY BEING THE ITA NO.1750 & 1751/12 :- 5 -: PRIMARY AND SOLE PURPOSE OF THE ASSESSEE-TRUST, AC CORDING TO THE LD. COUNSEL, EXEMPTION U/S 11 CANNOT BE DENIED. ACCOR DING TO THE LD. COUNSEL, THIS JUDGMENT OF THE DELHI HIGH COURT IS S QUARELY APPLICABLE TO THE FACTS OF THIS CASE. ON A QUERY FROM THE BENCH IN THE ASSESSEES OWN CASE WHILE CONFIRMING THE ORDER OF CANCELLATIO N OF REGISTRATION, A CO-ORDINATE BENCH OF THIS TRIBUNAL, AFTER CONSIDERI NG THE FACTS OF THE ASSESSEE, FOUND THAT THE ASSESSEE-TRUST HAS NOT CA RRIED OUT ANY CHARITABLE ACTIVITY OTHER THAN BUSINESS, HOW THIS BENCH CAN GO BEYOND THE OBSERVATION MADE BY THE EARLIER BENCH, THE LD. COUNSEL CLARIFIED THAT THE EARLIER BENCH MADE THE OBSERVATION ON AN A PPEAL FILED BY THE ASSESSEE AGAINST THE CANCELLATION OF REGISTRATION B Y THE CIT AND NOT IN THE COURSE OF ASSESSMENT PROCEEDINGS. NOW THE APPE ALS BEFORE THIS TRIBUNAL ARE AGAINST THE ASSESSMENT ORDERS, THEREFO RE, THE OBSERVATION MADE BY THE EARLIER BENCH OF THIS TRIBUNAL MORE PAR TICULARLY AT PARA 37 OF ITS ORDER, IS NOT APPLICABLE. 6. THE LD. COUNSEL FURTHER SUBMITTED THAT SEC. 12AA(3) WAS INTRODUCED WITH EFFECT FROM 1.6.2010 ENABLING THE C IT TO CANCEL THE REGISTRATION GRANTED U/S 12AA OF THE ACT. THEREFO RE, THE CIT HAS NO POWER TO CANCEL THE REGISTRATION GRANTED U/S 12AA B EFORE 1.6.2010. THE LD. COUNSEL PLACED HER RELIANCE ON THE DECISION OF LUCKNOW BENCH OF THIS TRIBUNAL IN THE CASE OF KAPOOR EDUCATIONAL SOCIETY VS CIT, 44 DTR 97. THE LD. COUNSEL HAS ALSO PLACED RELIANCE O N THE JUDGMENT OF ITA NO.1750 & 1751/12 :- 6 -: ALLAHABAD HIGH COURT (LUCKNOW BENCH) IN THE CASE OF OXFORD ACADEMY FOR CAREER DEVELOPMENT VS CHIEF COMMISSIONER OF INC OME-TAX & OTHERS, 315 ITR 382. 7. ON THE CONTRARY, DR MILIND MADHUKAR BHUSARI, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ACTI VITY OF THE ASSESSEE WAS CONSIDERED BY THIS TRIBUNAL ELABORATEL Y IN I.T.A.NO. 135/MDS/2011 DATED 11.5.2011. ACCORDING TO THE LD. DR, NO INTERFERENCE IN THE ORDER OF THE CIT(A) IS CALLED FOR. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THI S TRIBUNAL, IN ASSESSEES OWN CASE IN I.T.A.NO.135/MDS/2011, AFTER CONSIDERING THE WORKING RESULT OF THE ASSESSEE-TRUST FOR THE ASSES SMENT YEAR 2007-08 TO 2010-11, FOUND THAT NO CHARITABLE ACTIVITY WAS C ARRIED ON BY THE ASSESSEE AS PROVIDED IN THE TRUST DEED. THE TRIBUN AL FURTHER FOUND THAT THE ASSESSEE IS CARRYING ON BUSINESS ACTIVITY ONLY. THE TRIBUNAL HAS ALSO FOUND THAT THE ONLY ACTIVITY CARRIED ON BY THE ASSESSEE IS MANUFACTURING OF LENSES AND SURGICAL EQUIPMENTS. I N FACT, THE TRIBUNAL HAS OBSERVED AT PARA 37 OF ITS ORDER AS FOLLOWS: 37. THEREFORE, THE QUESTION TO BE CONSIDERED IF FURTHER MODIFIED IS, WHETHER THE ACTIVITY OF MANUFACTURING AND SELLING OF INTRA OCULAR LENS AND OTHER SURGICAL ACC ESSORIES IS CHARITABLE ACTIVITY OR NOT. AS THE ASSESSEE TRU ST HAS NOT CARRIED OUT ANY OTHER ACTIVITIES IN NATURE AS PROVI DED IN THE ITA NO.1750 & 1751/12 :- 7 -: TRUST DEED, THE BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE HAS TO BE EVALUATED INDEPENDENTLY WITHOU T THE COMPANY OF OTHER OBJECTS THEORETICALLY PROVIDED IN ITS TRUST DEED. WHEN OTHER OBJECTS OF CHARITY PROVIDED IN TH E TRUST DEED ARE DE-LINKED FROM THE COMPANY OF OTHER OBJECT S, IT IS TO BE SEEN AS TO WHETHER THE ACTUAL ACTIVITY OF MANUFACTURING AND TRADING CARRIED ON BY THE ASSESSE E TRUST IS CHARITABLE IN NATURE AS CONSTRUED UNDER SE C.11. AS THAT IS THE ONLY ACTIVITY CARRIED ON BY THE ASSE SSEE, THE SAID ACTIVITY CANNOT BE TREATED AS ACTIVITY FOR THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY IN THE LIGHT OF THE LAW STATED IN SEC.2(15) AS IT STOO D WITH EFFECT FROM 1.4.2009. THE LAW HAS STATED THAT CAR RYING ON OF A BUSINESS, SHALL NOT BE CONSIDERED AS A CHARITA BLE ACTIVITY, IRRESPECTIVE OF THE NATURE OF THE APPLICA TION OF ITS PROFIT OR DISPOSABLE FUNDS. IN THE LIGHT OF THIS L AW, IT IS TO BE SEEN THAT EVEN IF THE ASSESSEE TRUST HAS MADE DONAT IONS TO OTHER CHARITABLE TRUSTS AND HAS ACCUMULATED THE AVAILABLE FUNDS IN ACCORDANCE WITH LAW, IT DOES NOT MEAN THAT THE ASSESSEE IS CARRYING ON A CHARITABLE ACTIV ITY FOR THE REASON THAT IT IS CARRYING ON A BUSINESS. THE FALL OUT OF THE LEGAL POSITION IS THAT THE CONTENTION OF THE ASSESS EE THAT IT HAS NOT APPLIED ITS INCOME FOR NON CHARITABLE PURPO SES WOULD NOT BE RELEVANT IN CONSIDERING THIS CASE, BEC AUSE THE LAW HAS PROVIDED THAT THE APPLICATION OF INCOME IS NOT THE CRITERIA TO DECIDE THE NATURE OF AN INSTITUTION WHETHER CHARITABLE OR NOT, IF THE SAID INSTITUTION IS CARRY ING ON BUSINESS IN THE NATURE OF MANUFACTURE, TRADE, COMME RCE ETC. 9. THIS OBSERVATION WAS MADE BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL WHILE CONSIDERING THE ORDER OF THE CIT CAN CELLING THE REGISTRATION GRANTED U/S 12AA OF THE ACT. THE ONLY OBJECTION OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT THIS OBSERVATION WAS MADE WHILE CONSIDERING THE CANCELLATION OF REGISTRATION AND NO T IN THE ASSESSMENT PROCEEDINGS. THEREFORE, IT IS NOT BINDING ON THE S UBSEQUENT BENCHES OF THIS TRIBUNAL. WE ARE UNABLE TO ACCEPT THIS CON TENTION OF THE LD. ITA NO.1750 & 1751/12 :- 8 -: COUNSEL FOR THE ASSESSEE. WHEN THIS TRIBUNAL, AFT ER EXAMINING THE ENTIRE ACTIVITY AND WORKING RESULT OF THE ASSESSEE FOUND THAT NO OTHER ACTIVITY WAS CARRIED ON OTHER THAN MANUFACTURING OF LENSES AND SURGICAL EQUIPMENTS AND SUCH ACTIVITY OF MANUFACTURING DOES NOT AMOUNT TO CHARITY, THE SUBSEQUENT BENCHES CANNOT GO BEYOND TH E OBSERVATION MADE BY THE EARLIER BENCH. IN OTHER WORDS, THE OBS ERVATION MADE BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IS BINDING O N ALL SUBSEQUENT BENCHES OF THE TRIBUNAL. THE LD. COUNSEL NOW CLAIM S THAT THE MATTER IS PENDING BEFORE THE HIGH COURT. UNLESS AND UNTIL TH E FINDING OF THIS TRIBUNAL IN I.T.A.NO.135/MDS/2011 IS REVERSED BY TH E HIGH COURT, THIS TRIBUNAL MAY NOT BE ABLE TO SAY THAT THE ACTIVITY O F MANUFACTURING LENSES AND SURGICAL EQUIPMENTS WOULD AMOUNT TO CHAR ITY. THEREFORE, BY FOLLOWING THE OBSERVATION MADE BY THIS TRIBUNAL IN I.T.A.NO.135/MDS/2011, WE UPHOLD THE ORDER OF THE L OWER AUTHORITIES. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 19 TH FEBRUARY, 2016 RD ITA NO.1750 & 1751/12 :- 9 -: &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF