Artificial Limbs Manufacturing Corporation of India, Kanpur V. Commissioner of Income Tax-II, Kanpur

ITA 214/LKW/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83266 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-07-2014
• Assessment Year: misc
• Appeal Filed On: 04-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K KAPOOR
• Assessee Lawyers: VIVEK MISHRA
• Keywords: Charitable institution; Principle of natural justice; Retrospective amendment
• Section: 12A; 12AA; 11; 15

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.214/LKW/2013 ASSESSMENT YEAR:N.A. ARTIFICIAL LIMBS MANUFACTURING CORPORATION OF INDIA, VILL. NARAMAU, G.T. ROAD, KANPUR. PAN:AABCA8899F VS. C.I.T. - II, KANPUR (APPELLANT) (RESPONDENT) APPELLANT BY SHRI P. K. KAPOOR, C.A. RESPONDENT BY SHRI VIVEK MISHRA, CIT, D.R. DATE OF HEARING 02/07/2014 DATE OF PRONOUNCEMENT 2 1 /08/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT - II, KANPUR DATED 20/02/2013 PASSED BY HIM U/S 80G(5) OF THE INCOME TAX ACT. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. BECAUSE THE 'CIT' HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT EVEN THOUGH, THE TERM 'CHARITABLE PURPOSES' IS DEFINED UNDER SECTION 2(15) OF THE ACT, THE ISSUE INVOLVED BEFORE HIM WAS TO BE DECIDED BY THE LEXICAL MEANING OF 'CHARIT Y ' AND FOR THE REASON TH AT APPELLANT ITSELF IS NOT INDULGED IN ANY 'CHARITY', IT IS NOT 'ELIGIBLE FOR APPROVAL UNDER SECTION 80G(5) OF THE ACT'. 2. BECAUSE O N A DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS ARE ALREADY ON RECORD, IN RELATION TO THE PROCEEDINGS FOR REGISTRATION UNDER SECTION 2 12AA OF THE ACT AS ALSO THE REGULAR ASSESSMENT PROCEEDINGS, TO THE EFFECT THAT; ( A ) THE ACTIVITIES CARRIED ON BY THE APPELLANT WERE MEANT TO PROVIDE 'RELIEF TO THE POOR' AND 'MEDICAL RELIEF', WHICH ARE FULLY COVERED BY THE DEFIN ITION OF 'CHARITABLE PURPOSES' AS GIVEN IN SECTION 2(15) OF THE ACT; ( B ) LOOKING TO ITS ELIGIBILITY, ITS CLAIM FOR REGISTRATION UNDER SECTION 12AA OF THE ACT HAD BEEN UPHELD BY THE HON'BLE. ITAT VIDE ITS ORDER DATED 15.9.2008 PASSED IN IT A NO.579/LUC/2008; AN D ( C ) IN PURSUANCE OF THE TRIBUNAL'S ORDER AS AFORESAID, THE CIT (HIS PREDECESSOR) HAD ALREADY ISSUED REGISTRATION CERTIFICATE UNDER SECTION 12AA DATED 5.12.2008, WHICH WAS STILL IN FORCE; THE APPELLANT'S ELIGIBILITY FOR APPROVAL UNDER SECTION 8 ()G(5) COULD NOT HAVE BEEN DENIED. 3. BECAUSE THE APPELLANT'S ELIGIBILITY FOR APPROVAL UNDER SECTION 80G(5) OF THE ACT COULD NOT HAVE BEEN TREATED TO BE DEFEATED BY THE FACT THAT IT HAS BEEN INSTRUMENTAL IN IMPLEMENTATION OF THE WELFARE SCHEMES OF THE GOVERNMENT, BY UTILIZING THE GRANTS AS GIVEN BY THE GOVERNMENT FOR THE SPECIFIED PURPOSES, AS SUCH ACTIVITIES ALSO FALL WITHIN THE MEANING OF 'CHARITABLE PURPOSES' AS DEFINED IN SECTION 2(15) OF' THE ACT. 4. BECAUSE THE ORDER DATED 20.2.2013 AS HAS BEEN I MPUGNED IN THE PRESENT APPEAL, IS BASED ON EXTRANEOUS CONSIDERATIONS, NOT GERMANE TO THE ISSUE INVOLVED BEFORE THE CIT AND T HE SAME, THEREFORE, DESERVES TO BE STRUCK DOWN AND THE APPROVAL UNDER SECTION 80G(5) FOR WHICH APPLICATION HAD DULY BEEN SUBMITTED A ND ALL THE REQUISITE CONDITIONS HAVE BEEN COMPLIED WITH, WAS LIABLE TO BE ACCEPTED. 5. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS LAW AND PRINCIPLES OF NATURAL JUSTICE . 3. LEARNED A.R. OF THE ASSESSEE PLACED RELIANCE ON A JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF CIT VS. RAJMALA 3 EDUCATIONAL SOCIETY [2012] 65 DTR )P&H) 307. HE SUBMITTED THAT THE COPY OF THE JUDGMENT IS AVAILABLE ON PAGE NO. 279 TO 283 OF THE PAPER BOOK. 4. AS AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDER OF CIT. HE ALSO SUBMITTED THAT IN THE PRESENT CASE, PROVISO TO SECTION 2 ( 15 ) IS APPLICABLE AND THEREFORE, IT CANNOT BE ACCEPTED THAT THE ASSESSEE IS ENGAGED IN THE CHARITABLE ACTIVITIES AND THEREFORE, THE ASSESSEE CANNOT BE GRANTED APPROVAL U/S 80G(5) OF THE ACT. 5. IN THE REJOINDER, IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT FOR ASSESSMENT YEAR 2008 - 09, THE TRIBUNAL HAS HELD THAT THE ASSESSEE IS ELI GIBLE FOR EXEMPTION U/S 11 IN I.T.A. NO.739/LKW/2011 DATED 27/12/2003 , COPY OF WHICH IS AVAILABLE ON PAGE NO. 9 TO 12 OF THE PAPER BOOK. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IN ASSESSMENT YEAR 2008 - 09, IT WAS HELD BY CIT(A) THAT THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTED THE INCOME OF THE ASSESSEE IN THE TERMS OF SECTION 11 KEEPING IN VIEW THAT CIT - II, KANPUR HAS ALREADY GRANTED REGISTRATION U/S 12A OF THE ACT. THIS ORDER OF CIT(A) HAS BEEN CONFIRMED BY THE TRIBUNAL. BUT WE ALS O FIND THAT THERE IS AMENDMENT IN THE PROVISIONS OF SECTION 2(15) OF THE ACT WITH EFFECT FROM 01/04/2009 AND A PROVISO HAS BEEN INSERTED IN SECTION 2(15) AS PER WHICH , ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURP OSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR 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 THE NATU RE OF USE OR APPLICATION OR RETENTION OF THE INCOME FROM SUCH ACTIVITY. HENCE, IN OUR CONSIDERED OPINION, FROM ASSESSMENT YEAR 2009 - 10, THE POSITION HAS TO BE EXAMINED IN THE LIGHT OF THIS AMENDMENT. THE PRESENT APPLICATION FOR APPROVAL U/S 80G(5) HAS BE EN SUBMITTED BY THE ASSESSEE ON 10/10/2012 AND THEREFORE, WE HAVE TO CONSIDER 4 THE AMENDED PROVISIONS OF SECTION 2(15) OF THE ACT FOR THE PURPOSE OF DECIDING THE CLAIM OF THE ASSESSEE. IT IS TRUE THAT THE REGISTRATION IS GRANTED TO THE ASSESSEE U/S 12AA AN D SAME STILL CONTINUES BUT STILL FOR THE PURPOSE OF GRANTING APPROVAL U/S 80G(5), IT HAS TO BE SEEN THAT THE INSTITUTION IS ESTABLISHED IN INDIA FOR A CHARITABLE PURPOSE AND THEREAFTER IT IS FURTHER REQUIRED THAT THE SAME FULFILLS THE PRESCRIBED CONDITION. HENCE, IT IS THE FIRST REQUIREMENT THAT IT SHOULD BE THE INSTITUTION ESTABLISHED FOR CHARITABLE PURPOSES IN INDIA. WE FIND THAT THE COPY OF AUDITED ACCOUNTS FOR THE YEAR ENDING ON 31/03/2010, 31/03/2011 AND 31/03/2012 ARE AVAILABLE ON PAGE NO. 48 TO 122 , PAGE NO. 123 TO 200 AND PAGE NO. 201 TO 272 OF THE PAPER BOOK RESPECTIVELY. IN ALL THESE YEAR S, THE ASSESSEE IS SHOWING HUGE INCOME ON ACCOUNT OF SALES AND HANDLING CHARGES OF ARTIFICIAL LIMBS AND ITS FITTING CHARGES. THE SURPLUS OF THE ASSESSEE IN ALL THESE YEARS IS IN CRORES OF RUPEES . IN FACT , FOR THE YEAR ENDED ON 31/03/2012, THE INCOME SHOWN BY THE ASSESSEE IS RS.1169.51 LACS. WE ALSO FIND THAT APART FROM RECEIVING GRANTS FROM GOVT. OF INDIA, THERE IS NO DONATION RECEIPT SHOWN BY THE ASSESSEE IN ANY OF THESE YEARS FOR WHICH THE ASSESSEE REQUIRES APPROVAL U/S 80G(5) OF THE ACT. IT IS ALSO NOT SHOWN TO US THAT INCOME OF THE ASSESSEE HAS BEEN ACCEPTED AS EXEMPT AFTER ITS AMENDMENT IN SECTION 2(15) WITH EFFECT FROM 01/04/2009. WE ALSO FIND THAT THERE WAS ONE MORE AMENDMENT IN SECTION 2(15) BY WAY OF INSERTION OF SECOND PROVISO WITH RETROSPECTIVE EFFECT FROM 01/04/2009 AS PER WHICH IT WAS PROVIDED THAT THE FIRST PROVISO SHALL NOT APPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO IN FIRST PROVISO IS RS.10 LAC OR LESS IN THE PREVIOUS YEAR. WITH EFFECT FROM 01/04/2012, THI S LIMIT HAS BEEN INCREASED TO RS.25 LAC BUT AS PER THE FACTS NOTED BY US, WE FIND THAT THE SURPLUS OF THE ASSESSEE IN ALL THESE YEARS I S MANY TIMES MORE THAN THE PRESCRIBED LIMIT OF RS.25 LAC. 7. IN THE LIGHT OF THESE FACTS, WE EXAMINE THE APPLICABILITY OF THE JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE BEING THE JUDGMENT OF HON'BLE PUNJAB & 5 HARYANA HIGH COURT RENDERED IN THE CASE OF CIT VS. RAJMALA EDUCATIONAL SOCIETY (SUPRA). WE FIND THAT IN THAT CASE , THE ASSESSEE WAS RUNNING A SCHOOL AND THE SURP LUS WAS BEING GENERATED IN THE RUNNING OF THE SCHOOL AND THE SAME WAS UTILIZED BY WAY OF EXPENDITURE FOR THE ASSETS OF THE SCHOOL. HENCE, IT IS SEEN THAT IN THAT CASE , THE CHARITABLE PURPOSE WAS EDUCATION AND NOT OTHER GENERAL PUBLIC UTILITY AS IN THE PRE SENT CASE. HENCE, IN OUR CONSIDERED OPINION, THIS JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IS NOT APPLICABLE BECAUSE FACTS ARE DIFFERENT PARTICULARLY AFTER THE INSERTION OF THE PROVISO IN SECTION 2(15) OF THE ACT. HENCE, IN OUR CONSIDERED OPINION , THIS JUDGMENT IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 8. WE ALSO FIND THAT THE ISSUE HAS BEEN DECIDED BY LEARNED CIT AGAINST THE ASSESSEE AS PER DETAILED DISCUSSION IN PARA 4 TO 8 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READ Y REFERENCE: 4. THE COMPANY IS FULLY OWNED BY THE GOVERNMENT OF INDIA. IT MANUFACTURES ARTIFICIAL LIMBS, ACCESSORIES, REHABILITATION AIDS AND ASSOCIATED PRODUCTS. IT HAS BEEN EXPLAINED ON BEHALF OF THE COMPANY THAT ITS PRODUCTS ARE SUPPLIED UNDER SCHEMES RUN BY THE GOVERNMENT OF INDIA OR STATE GOVERNMENTS OF JOINTLY BY BOTH. IT HAS BEEN FURTHER SUBMITTED THAT ABOUT 95% OF ITS PRODUCTION IS SUPPLIED FOR SUCH SCHEMES AND 5% TO DEALERS AND NATIONAL INSTITUTIONS. IT HAS BEEN URGED ON THE 'COMPANY'S BEH ALF THAT THIS ACTIVITY QUALIFIES FOR APPROVAL U/S 80G(5). 5. THE ACCOUNTS OF THE COMPANY SHOW A SURPLUS OF INCOME OVER EXPENDITURE OF RS.4.61 CRORE FOR THE YEAR ENDED 31.03.2010, RS.5.51 CRORE FOR THE YEAR ENDED 31.03.2011 AND RS.11.59 CRORE F OR THE YEAR ENDED 31.03.2012. THE FUNDS OF THE COMPANY, APART FROM THIS SURPLUS, COME BY WAY OF ANNUAL GRANTS RECEIVED FROM MINISTRY OF SOCIAL JUSTICE AND EMPOWERMENT OF GOVERNMENT OF INDIA AND FROM STATE GOVERNMENTS FOR IMPLEMENTATION OF VARIOUS SCHEMES AND CONTRIBUT IONS FROM STATE GOVERNMENTS AND OTHER PUBLIC INSTITUTIONS. THE APPLIANCES DISTRIBUTED UNDER VARIOUS SCHEMES ARE ALSO FUNDED BY THE CENTRAL AND STATE GOVERNMENT IN VARYING PROPORTIONS DEPENDING UPON THE SCHEME. THE COMPANY IS, THUS, FUNDED BY THE PUBLIC EXC HEQUER AS ITS PRINCIPAL SOURCE OF 6 FUNDS IS GRANTS FROM THE BUDGET OF THE UNION GOVERNMENT AND TO SOME EXTENT BUDGETS OF STATE GOVERNMENTS. THIS IS PUBLIC MONEY COLLECTED BY THE GOVERNMENT AND PASSED ON AS PART OF ITS WELFARE ACTIVITIES TO THE COMPANY. THE ACCOUNTS ALSO SHOW THAT APART FROM THIS THE COMPANY OPERATES ON COMMERCIAL LINES AND EARNS INCOME FROM ITS OPERATIONS. 6. IT IS IN THIS BACKGROUND THAT THE CLAIM OF THE COMPANY NEEDS TO BE EXAMINED. THE BENEFIT U/S 80G(5) CAN BE CLAIMED ONLY BY INSTITU TIONS ESTABLISHED IN INDIA FOR CHARITABLE PURPOSES. THE LEXICAL MEANING OF CHARITY IS ESSENTIALLY THE VOLUNTARY GIVING OF MONEY OR HELP IN ANY MANNER. THIS ELEMENT OF PROVIDING MONEY OR HELP WITHOUT CONSIDERATION IS THE KEY ELEMENT OF CHAR ITY. THE UTTARAKHAND HIGH COURT IN THE CASE OF NATIONAL AERONAUTICAL ENGINEERING EDUCATION SOCIETY EXAMINED SECTION 2(15) OF THE ACT THAT DEFINES CHARITABLE PURPOSE. THE COURT HELD THAT CHARITY IS THE VERY SOUL OF THE PHRASE CHARITABLE PURPOS ES' USED IN SECTION 2(15) OF THE ACT. THUS EVEN IF AN ACTIVITY WAS COVERED BY ANY ONE OF THE LIMBS OF SECTION 2(15) IT WAS STILL ESSENTIAL THAT ACTIVITY SHOULD BE FOR CHARITABLE PURPOSES. IF THIS WAS NOT SO THE CASE WOULD NOT BE COVERED U/S 2(15) OF THE ACT. THE PHRASE 'CHARITABLE PURPOSES' HAS BEEN DEFINED IN THE ACT. THUS, WHEREVER THIS PHRASE IS USED IN ANY PROVISION OF THE ACT IT WILL HAVE THE SAME MEANING UNLESS THE CONTEXT STRONGLY SUGGESTS OTHERWISE. SECTION 80G(5) STATES T HE IT 'APPLIES TO DONATIONS TO ANY INSTITUTION'............. 'ONLY IF IT IS ESTABLISHED IN INDIA FOR A CHARITABLE PURPOSE'. THIS THEN IS THE THRESHOLD, TEST FOR DETERMINING WHETHER OR NOT APPROVAL U/S 80G(5) CAN BE GRANTED OR NOT. 7. AS HAS B EEN NOTED ABOVE THE COMPANY BY ITSELF IS NOT PROVIDING ANY HELP OR MONEY FOR ANY CHARITABLE PURPOSES. IT IS SUPPLYING APPLIANCES UNDER GOVERNMENTAL SCHEME FOR WHICH PURPOSE THE GOVERNMENT IS GIVING IT GRANTS. ITS ASSOCIATION WITH A WELFARE SCHEME OF THE GO VERNMENT CANNOT BY OR OF ITSELF BE CONSIDERED AS CHARITY IN ITS HANDS. THEREFORE, IT CANNOT BE SAID THAT THE COMPANY IS ENGAGED IN ANY CHARITABLE PURPOSE AS IS THE REQUIREMENT OF SECTION 80G(5) OF THE ACT. 8. IN VIEW OF THE ABOVE, I AM OF THE VIEW THAT TH E COMPANY IS NOT ELIGIBLE FOR APPROVAL U/S 80G(5) OF THE ACT. ITS APPLICATION FOR SUCH APPROVAL IS ACCORDINGLY REJECTED. 7 8.1 FROM THE ABOVE PARAS FROM THE ORDER OF LEARNED CIT, IT IS SEEN THAT A CLEAR FINDING IS GIVEN BY HIM THAT THE ACCOUNT ALSO SHOWS THAT APART FROM GETTING GRANT FROM GOVT., THE ASSESSEE COMPANY IS OPERATING ON COMMERCIAL LINES AND EARNING INCOME FROM ITS OPERATION. WE ALSO FIND THAT IT IS A PRE - REQUIREMENT OF SECTION 80G(5) THAT THE INSTITUTION SHOULD BE ESTABLISHED IN INDIA FOR CHARITABLE PURPOSE. WE HAVE ALSO SEEN THAT THE ASSESSEE COMPANY IS DOING COMMERCIAL ACTIVITY AND EARNING SURPLUS OUT OF THAT INCLUDING EVEN FOR SUPPLY OF APPLIANCES UNDER GOVT. SCHEMES. THE GOVT. IS GIVING GRANTS AND THEREFORE, MERE ASSOCIATION OF THE ASSESSEE WITH A WELFARE SCHEME OF THE GOVT. CANNOT BE CONSIDERED AS CHARITABLE IN THE HANDS OF THE ASSESSEE AFTER THE AMENDMENT IN SECTION 2 (15) . UNDER THESE FACTS, IT WAS HELD BY LEARNED CIT THAT THE ASSESSEE COMPANY IS NOT ENGAGED IN ANY CHARITABLE ACTIVITY AS PER THE REQUIREMENT OF SECTION 80G(5) OF THE ACT. WE ALSO FEEL THAT IN THE FACTS OF THE PRESENT CASE, AS DISCUSSED, IT CANNOT BE SAID THAT THE A SSESSEE IS ENGAGED IN ANY CHARITABLE ACTIVITY AND THEREFORE, THE REQUIREMENT OF SECTION 80G(5) ARE NOT MET. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE O PEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 1 /08/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR