2012 (11) TMI 2 - AT - Income Tax

Tribunal overturns cancellation of charity registration due to genuine and charitable activities.

ST STEPHEN'S HOSPITAL SOCIETY Versus DIRECTOR OF INCOME TAX (EXEMPTIONS)

ST STEPHEN'S HOSPITAL SOCIETY Versus DIRECTOR OF INCOME TAX (EXEMPTIONS) - TMI Issues Involved:1. Cancellation of Registration under Section 12A(a)2. Allegations of Non-Charitable Activities3. Sale of Medicines in the Pharmacy4. Smile Surgery Project5. Fun Fair Fund6. Manufacturing of Medicines7. Withdrawal of Exemption from Import Duty8. Alteration in Memorandum of Association (MOA)Detailed Analysis:1. Cancellation of Registration under Section 12A(a):The main issue is the cancellation of the registration under Section 12A(a) from the assessment year 2009-10 onwards. The assessee argued that their activities, such as providing medical relief, qualify as charitable under Section 2(15). They contended that the DIT(E) did not establish that their activities were non-genuine or inconsistent with their objectives, and thus the cancellation was not justified under Section 12AA(3).2. Allegations of Non-Charitable Activities:The DIT(E) alleged that the society's activities were not charitable, citing contributions to churches, sale of medicines, and other activities. The assessee rebutted these claims, stating that the contributions were for advertisements and did not benefit any particular religious community. They also argued that the pharmacy's activities were integral to the hospital and not commercial.3. Sale of Medicines in the Pharmacy:The DIT(E) claimed that the society earned huge profits from the sale of medicines, which indicated a commercial activity. The assessee countered that the pharmacy only served patients treated by hospital doctors and that the income was reinvested in hospital activities. They also argued that the profit margin was miscalculated by the auditors, and the actual margin was much lower.4. Smile Surgery Project:The DIT(E) alleged that the Smile Surgery Project was a profitable activity. The assessee argued that the project was funded by an international charitable organization and provided free surgeries to children with cleft lips and palates. They stated that any reimbursement received was used to cover the costs and that the project was not commercial.5. Fun Fair Fund:The DIT(E) claimed that the Fun Fair Fund was a non-charitable activity. The assessee explained that the fund was used to make ex-gratia payments to retiring employees and was not a commercial activity. They provided details of the fund's history and argued that helping employees was consistent with their charitable objectives.6. Manufacturing of Medicines:The DIT(E) alleged that the society was manufacturing medicines without proper licenses. The assessee rebutted this, stating that they only compounded, mixed, and diluted medicines, which was permitted under the Drug Control Act. They argued that this activity was for the benefit of patients and not commercial.7. Withdrawal of Exemption from Import Duty:The DIT(E) noted that the customs authorities had withdrawn the exemption for imported equipment due to non-compliance with certain conditions. The assessee argued that this issue was sub-judice and did not pertain to the relevant period. They maintained that the imported equipment was used for charitable purposes.8. Alteration in Memorandum of Association (MOA):The DIT(E) argued that the society had altered its MOA without informing the authorities, which could justify the cancellation of registration. The assessee provided a chart showing minor amendments that did not change the basic charitable objectives. They argued that these changes were insignificant and did not affect their registration.Conclusion:The tribunal found that the assessee had cogently rebutted all the charges leveled against it by the DIT(E). It was held that the activities of the society were genuine and charitable, and there was no reason for the cancellation of registration under Section 12AA(3). The order of the DIT(E) for cancellation of registration was set aside, and the appeal filed by the assessee was allowed.