TaxTMI 
TaxTMI 
2011 (5) TMI 591
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....tions of medical research and such other similar institutions as would give teaching and educating, medical and surgical treatment, care, cure, recuperation and other advantages to alleviate the sufferings of mankind. (b) To take over any existing institutions of the kind referred to above and conduct, run, maintain, develop, extend and improve the same. (c) To promote and carry on research in diseases and to promote education and research of innovation, experimental, preventive, curative and demonstrative kinds of various diseases prevalent among the people. (d) To recruit, train and provide or to assist in recruitment and training medical and other staff for any such institutions with a view to attaining and in support of the said objects. (e) To produce or manufacture or help to produce or manufacture medical equipments including ophthalmic instruments, lenses, surgical equipments and other accessories that are necessary for the treatment of patients or any product relating to the field of research and development of trust or activities of the trust and generally make them available to the public or enter into any activity to f....
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.... manufacturing and trading in ophthalmic and cardiovascular products and accessories and the above activities are carried on as a business venture and therefore, the activities of the assessee trust could not be considered as charitable in nature. The Commissioner examined the relevant provisions of law contained in section 11(4) and 11(4A) and stated that charitable or religious trusts can carry on business if the business is incidental to the attainment of the objects of the trust. He stated that the business income of a charitable trust or institution would be exempt if the business carried on by the trust or institution is incidental to the attainment of the objectives of the trust and carrying on the business should not be the primary object of the trust or institution. The Commissioner held that out of the seven objects pronounced in the trust deed, the assessee-company was carrying on one particular object alone which relates to manufacture and sale of medical necessaries including ophthalmic instruments, lenses, surgical equipments etc. 6. The Commissioner further perused the profit and loss accounts and balance sheets of the assessee trust for the period covered by assess....
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...., that the assessee trust has not carried on any charitable activities. Accordingly, he issued notice to the assessee trust proposing to cancel its registration earlier granted under section 12A. The assessee filed detailed objections against the notice issued by the Commissioner. The assessee trust contended that the products manufactured by the assessee are sold at affordable price benefiting the weaker sections of the society. The assessee contended that its activities related to medical relief, general public utility in the form of cost effective eye care products supplied to the poor and weaker sections of the society who undergo surgery in various non-profit hospitals and under various non-Governmental organization initiatives. The assessee contended that it is participating in the movement to prevent blindness. The assessee trust relied on a series of decisions including that of the Hon'ble Supreme Court in the cases of Asstt. CIT v. Surat City Gymkhana [2008] 300 ITR 214/170 Taxman 612, Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1/[1979] 2 Taxman 501. 8. After examining the detailed objections filed and explained by the assessee trust, the C....
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....n cancelling the registration granted under section 12A(a) of the Act. The order of the Commissioner of Income-tax is against the weight of evidence and documents on record. (b) The Commissioner of Income-tax ought to have seen that the appellant is a Trust constituted as early as 1992, its objects and activities have been under scrutiny, ever since the constitution of the trust has been submitting return regularly and the assessments have been completed in respect of all the assessment years upto 2007-08 accepting the claim of the Trust for exemption under section 11 and that there are no changes in facts and circumstances. Consequently there is no justification for the Commissioner to take a different view from that which was adopted in all the aforesaid previous years. (c) The Commissioner of Income-tax is wrong in his view that in so far as the appellant had spent a sum of Rs. 17,53,40,952 on purchase of raw materials and other costs and was in receipt of interest of Rs. 17,94,06,260, export incentive of Rs. 14,77,643, profit on sale of investment of Rs. 28,08,400 and derived a net profit of Rs. 19,80,75,566 it would lead to the conclusion that the Tru....
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....holding that the Trust is not entitled to registration on the ground that there is no element of charity and it clearly shows non-advertence to the relevant statutory provisions and legal principles that should be applied in considering the eligibility for exemption under section 11 and for registration under section 12A(a). (i) The Commissioner of Income-tax has failed to note that in the case of activity which yields profit the question to be considered is the satisfaction of the twin conditions under section 11(4A). In so far as the Commissioner has not adverted to this aspect at all and has steered clear of the said provision, which has to be considered in this case, the conclusion is vitiated by non-application of mind. (j) The Commissioner of Income-tax has repeatedly stated that the institution sells medical products in India and abroad and has promoted the products and has acted in a commercial manner. He failed to note that the Hon'ble Supreme Court has unequivocally held that where a business is held upon Trust the business has to be carried on in a commercial manner and it does not detract from the charitable activity of the Trust, so long as t....
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....e learned counsel contended that the assessee is distributing its products in India as well as exporting outside India to meet the demand of WHO and the sales are made at a very concessional price compared to normal commercial market rate. The assessee is earning profit in those activities and earning of profit does not mean that the assessee trust is not carrying on charitable activities. The learned counsel explained that the Commissioner of Income-tax has misconstrued the expression of business as a result of which he has made an impression that if a business is carried on by a charitable institution, running of the said business should not be run like the business run by an ordinary business man. The learned counsel explained that the proposition of the Commissioner of Income-tax is fallacious. He invited our attention to the definition "business" provided under clause (13) of section 2, according to which "business" includes any trade, commerce or manufacture or adventure or any concern in the nature of trade, commerce or manufacture. A business is universally accepted as an activity for profit. Section 11(4) specifically uses the expression "business undertaking" and provides....
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....ered in a manner that benefits the assessee. The learned counsel explained that the present case of the assessee trust is squarely covered by the above judgment of the Hon'ble Supreme Court rendered in the case of Thanthi Trust (supra) as the entire profits of the business carried on by the assessee trust is exclusively used for the purpose of the trust which are only charitable in nature. 15. Regarding the above said application of the profits of the assessee trust, the learned counsel explained that the Commissioner of Income-tax himself has stated in his order that the assessee had made donations to other charitable institutions in the course of its activities. All such donations having been made to Aravind Medical Research Foundation cannot be a disqualification against the assessee. Even though Aravind Medical Research Foundation is an associate trust of the assessee and the trustees of both the trusts are common, there is no dispute that the other trust, Aravind Medical Research Foundation is carrying on charitable activities and therefore, the donations given by the assessee trust to Aravind Medical Research Foundation are nothing but application of funds for charitable pur....
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....yapan Blue 0.06% w/v 1 ml Aurolab 100 Biotech 120 4. Sodium Hyaluronate 1.4% w/v 1 ml Aurolab 750 1 ml Appasamy 900 0.8 ml Sun Pharma 950 Biotech 900 AMO 3500 5. Silicone oil 1000 cst 10 ml Aurolab 1800 DORC 2500 6. Silicone oil 5000 cst 10 ml Aurolab 3500 Howard 3800 ANTIGLAUCOMA DRUGS 7. Timolol Maleate 0.5 % w/v 5 ml Aurolab 40 Sun Pharma 49 Allergan 45 Microvision 49 8. Latanoprost 0.005 % w/v 2.5 ml Aurolab 150 Sun Pharma 295 Cipla 344 Microvision 214 Ajanta 229 Pfizer 1188 ANTIBIOTICS 9. Ofloxacin 0.3% 5 ml Aurolab 30 Allergan 33.7 Sun Pharma 38 10. Gatifloxacin 0.3% w/v 5 ml Aurolab 30 Sun Pharma 39 Allergan 42 Warren 45 Ajantha 37 ANTI ALLERGIC DROPS 11. Naphazoline HCL 0.01 % w/v 5 ml Aurolab 32 Sun Pharma 43 12. Chromolyn Sodium 2% 10 ml Aurolab 50 5 ml Cipla 32 Allergan 34 ANTI INFLAMMATORY NSAID 13. Ketorolac tromethamine 0.5 % w/v 5 ml Aurolab 35 Sun Pharma 49 Allergan 51 ANTI INFLAMMATORY STEROID 14. Prednisolone Acetatel % w/v 5 ml Aurolab 12.5 Sun Pharma 17 Alcon 64 Microvision 42 ARTIFICLAL TEARS 15. Hypermellose 0.7 % w/v 10 ml Aurolab ....
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....rned counsel also contended to distinguish the facts of the present case from the decisions rendered in the cases of Sole Trustee Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) and CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker.). 22. The learned counsel further argued that the assessee has been recognized as a charitable institution since its inception in 1992. The assessee has been availing the benefit under section 11 for almost two decades. The activities of the assessee have been consistent through out. A number of times, the assessments were completed under section 143(3). The Assessing Authority has over and again considered the scope and application of section 11 in the case of the assessee trust for a period of two decades and granted exemption under section 11 which show that the department is satisfied about the genuineness of the trust and the charitable nature of its activities. When this is the position, the Commissioner of Income-tax is not justified in breaking the chord of continuity relying on certain observations which do not have support either in facts or in law. 23. The learned Senior Counsel contended that the order of the Commissioner of Income-tax ....
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....manufacturing and trading in those items are charitable activities. The manufacturing and trading of the above items are mainly carried out by business undertakings and only for the reason that the products are used in medical field, it does not mean that the manufacture of those products, per se, is a charitable activity. The learned Commissioner explained that as the assessee is carrying on that activity alone and has not carried on any other charitable activities, the business carried on by the assessee in the nature of manufacturing and trading cannot be treated as a business carried on by the assessee in the course of discharging its charitable obligations and incidental to the attainment of main objectives. 26. The learned Commissioner further explained that the Commissioner of Income-tax has analysed the working results of the assessee trust for the previous years relevant to the assessment years 2007-08 to 2010-11 on the basis of which he has made a finding of fact that the assessee is carrying on the activities of manufacturing and trading in Intra Ocular Lens and other medical and surgical products as if it is a business carried on with no let down in the profit rate or ....
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....29. In the above facts and circumstances of the case, the learned Commissioner contended that the Commissioner of Income-tax-I, Madurai is justified in relying on the decision of the Hon'ble Supreme Court in the case of Yogiraj Charity Trust (supra) wherein it was held that in spite of all other independent objects if any of the objects cannot be treated as charitable, the claim of entire trust for exemption has to fail. He further explained that in the present case, the situation is more vulnerable in the sense that the assessee trust has not carried out any other activity other than the business activity of manufacturing and selling Intra Ocular Lens and other medical and surgical products. 30. The learned Commissioner explained that the Finance Act, 2008 which became effective from 1-4-2009, from assessment year 2009-10 and subsequent assessment years has restated the meaning of charitable purpose by streamlining the definition thereof. Section 2(15) defines charitable purpose to include relief of the poor, education, medical relief an the advancement of any other object of general public utility. It was noticed in the past a number of entities carrying on commercial activities....
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....ore, a valid registration for the past , does not give any right to the assessee to argue that there was a consistency in the matter of registration enjoyed by the assessee society. In the past, the Department had no way to cancel the registration. Now, provision is available in the Act and it has been acted upon by the competent authority. 33. The learned Commissioner further argued that the assessing authority might have completed a number of assessments including under section 143(3) accepting the accumulation petitions filed by the assessee trust. The assessing authority might have under the impression that the assessee trust was contemplating immediate involvement in charitable activities. But even after a long period of existence, it was found that the asessee trust was not carrying on charitable activities, even though it was enjoying the benefits of section 11. It is at that point of time that the Commissioner of Income-tax has made his intervention. Therefore, there is no case of violation of principles of natural justice in the present case as alleged by the learned Counsel appearing for the assessee. 34. The learned Commissioner, thus, concluded that in the light of th....
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....table activity or not. As the assessee trust has not carried out any other activities in nature as provided in the trust deed, the business activity carried on by the assessee has to be evaluated independently without the company of other objects theoretically provided in its trust deed. When other objects of charity provided in the trust deed are de-linked from the company of other objects, it is to be seen as to whether the actual activity of manufacturing and trading carried on by the assessee trust is charitable in nature as construed under section 11. As that is the only activity carried on by the assessee, the said activity cannot be treated as activity for the advancement of any other object of general public utility in the light of the law stated in section 2(15) as it stood with effect from 1-4-2009. The law has stated that carrying on of a business, shall not be considered as a charitable activity, irrespective of the nature of the application of its profit or disposable funds. In the light of this law, it is to be seen that even if the assessee trust has made donations to other charitable trusts and has accumulated the available funds in accordance with law, it does not ....
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....he assessee fails at the threshold itself. Where the assessee has not carried on any charitable activities but only a business and even if a part of that business income is applied for charitable purposes, still the assessee could not be treated as an institution entitled for the benefit of section 11. It is for such institution, the Act has provided the scheme under section 80G. There is a distinction between carrying on of charitable activities and donations for charitable purposes. In the first case that of charitable activities, the institution is engaged in charitable activities. Charity is its soul. But in the latter case, the activities are business activities even though, as a good samaritan a portion of its income is given for charity. That is only an appropriation of income. It is to take care of such situation that the Act has provided for section 80G. They are not entitled for claiming deduction under section 11. We are afraid that the assessee falls in this category. Even though charitable activity is a liberal manifestation, the frame of a charitable institution under the provisions of the Income-tax Act is strictly defined. The assessee has been carrying on the sole ....