2012 (7) TMI 366 - AT - Income Tax

Tribunal restores registration & exemption for genuine charitable society

The Tribunal ruled in favor of the assessee, holding that the CIT incorrectly canceled the registration under section 12AA and refused the exemption under ... Refusal to grant exemption u/s 80G(5) - withdrawal of the registration granted to the assessee society under section 12AA - Held that:- Assessee Samiti is carrying on the activities in respect of medical relief whose object is ‘education’ or ‘medical relief’ would continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity - 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). Thus, there is no basis for satisfying the CIT that the activities of the trust are not genuine and they are not being carried out in accordance with the object of the trust/society - C.B.D.T. Circular No.11/2008 dated 19.12.2008 clearly pointed out that the amendment to section 2(15) is applicable only to the fourth limb of the definition i.e. ‘advancement of any other object of general public utility’ and not to other activities in the field of relief to the poor, education or medical relief - cancellation of registration under section 12AA (3) and refusal to renew exemption u/s 80G is not warranted - in favour of assessee. Issues Involved:1. Refusal to grant exemption under section 80G(5) of the Income Tax Act.2. Withdrawal of registration granted to the assessee society under section 12AA of the Income Tax Act.Detailed Analysis:Refusal to Grant Exemption under Section 80G(5):The assessee society, a registered entity since 1993, had its exemption under section 80G extended until 2011. The CIT noted that the society engaged in activities such as running a Blood Bank, X-ray Centre, Physiotherapy Centre, and Homoeopathic Dispensaries, which were considered commercial in nature. The CIT observed that the society's activities generated substantial surpluses annually, indicating that the services were provided for a fee, thus resulting in profits. Consequently, the CIT concluded that the activities did not qualify as 'charitable purposes' under section 2(15) of the Act and refused the renewal of the exemption under section 80G(5).Withdrawal of Registration under Section 12AA:The CIT withdrew the registration granted under section 12AA, citing that the society's activities were commercial and not charitable. The CIT's decision was based on the observation that the society's activities resulted in significant surpluses, and the services were provided for a fee, which was seen as trading or business activities.Assessee's Arguments:The assessee argued that there had been no change in the society's activities, which were primarily focused on medical relief, a recognized 'charitable purpose' under section 2(15) of the Act. The society provided various medical services at substantially low rates or free of cost, including blood supply, X-ray services, physiotherapy, homeopathic dispensaries, and free medical oxygen. The assessee contended that the surplus generated was incidental and necessary for the sustainability of the charitable activities. The assessee also emphasized that the society was not controlled by any particular family or section of society, and no individual had any vested interest in the society's assets or income.Tribunal's Findings:The Tribunal examined the relevant provisions of sections 12A, 12AA, 2(15), and the CBDT Circular No. 11/2008. It noted that the CIT's power to cancel registration under section 12AA(3) is conditional upon finding that the activities of the trust are not genuine or not carried out in accordance with its objects. The Tribunal found that the society's activities were genuine and aligned with its charitable objectives, which included providing medical relief. The Tribunal emphasized that generating surplus income does not disqualify an entity from being considered charitable, provided the surplus is used for charitable purposes.The Tribunal also referred to the Finance Minister's Budget speech and the CBDT Circular, which clarified that genuine charitable organizations engaged in medical relief or education would not be affected by the amendment to section 2(15). The Tribunal concluded that the CIT had wrongly interpreted the amendment and the society's activities did not fall under the category of 'advancement of any other object of general public utility' that involves trade, commerce, or business.Conclusion:The Tribunal held that the CIT had wrongly canceled the registration under section 12AA and refused the exemption under section 80G. The Tribunal directed the CIT to restore the registration under section 12AA and grant the renewal of the exemption under section 80G to the assessee society. The appeals filed by the assessee were allowed.Summary:The Tribunal ruled in favor of the assessee, holding that the CIT had incorrectly canceled the registration under section 12AA and refused the exemption under section 80G. The Tribunal found that the society's activities were genuine and charitable, primarily focused on medical relief, and the generation of surplus income was incidental and necessary for the sustainability of the charitable activities. The Tribunal directed the CIT to restore the registration and grant the renewal of the exemption.