TaxTMI 
TaxTMI 
TaxTMI 
2012 (11) TMI 2
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....oes not fall within the parameters of sub-Section (3) of Section 12AA of the I.T. Act. Therefore, his action in cancelling the registration by invoking the provisions of section 12AA(3) of the I.T. Act is not sustainable and be set aside. 1. (c) Without prejudice, to the above ground, the appellant contends that the power to withdraw registration in case of Institutions registered u/s 12A has been conferred w.e.f. 1.6.2010 and therefore the order canceling the Registration w.e.f. Assessment Year 2009-10 and onwards is without jurisdiction and hence nonest in law and deserved to be cancelled. 2. The DIT(E) has failed to appreciate that the St. Stephen's Hospital came into existence on 31st October 1885 i.e. for the past 126 years the Hospital has been rendering yeoman service in the field of Health care. It was formally Registered as Society on March 24, 1969 and also registered u/s 12A of the Income Tax Act, 1961 on 18th February, 1974. The Income Tax Department has allowed the benefit of section 11 and 12 on the basis that the activities of the Society are charitable as covered u/s 2(15) of the Income Tax Act, 1961. There is no change in the activities therefore, based on the pr....
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....ustoms duty under the customs Act has nothing to do with the Income Tax exemption which is allowed on the basis of 85% application of income for charitable purposes which has been complied by the Assessee. Further, the said matter is sub-judice and can not be used as a reason for cancellation of registration. 7. The DIT(E) has erred on facts and in law in alleging that the Assessee is involved in activity of manufacturing medicines. It is only compounding /mixing and diluting which is undertaken in any pharmacy attached to a Hospital. This is done for the benefit of the patients as these compounded/mixed/diluted formulations are substantially cheaper. The DIT(E) has wrongly presumed it as manufacturing. The Appellant contends that it has no infrastructure to manufacture medicines. Therefore, the conclusions are vitiated in law and on facts. The allegations are without any basis, there is no manufacturing activity done by the Assessee and hence, there is no violation of provisions of sec. 2(15) of the Income Tax Act, 1961. 8. The Appellant contends that the Hospital is under the supervision of the Regulatory Authorities namely Drugs & Narcotic Controller who are periodically verif....
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....in ploughed back for the medical relief activity and therefore, this cannot be a ground for withdrawal of Registration. 14. The DIT(E) has erred in alleging that there is violation of sec. 13 of the Income Tax Act, 1961 and the predominant intention of the Assessee Society is to benefit particular community. The allegations are without any evidence, baseless on surmises and conjectures. Any conclusion .drawn is totally perverse and should be ignored. 15. The Appellant contends that there is no violation of any of the provisions of sec. 13 of the Income Tax Act, 1961 as the income of the Trust has not been applied for any private religious purpose nor for the benefit of any particular religious community and therefore, the benefit u/s 11 and 12 as well as the Registration under sec. 12A should be allowed. 16. The above grounds are independent and without prejudice to each other. 17. The Assessee may be allowed to add, amend, alter or forgo any of the grounds at the time of hearing." 3. M/s St. Stephen Hospital Society is a Society registered under Societies Registration Act, 1860 of India. It was granted registration u/s. 12A of the Income Tax Act, 1961 on 18.2.1974. One of the....
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.... has arrived at the conclusion that assessee society has been involved in commercial sale of various types of medicines in the hospital and pharmacy to out patients and general public. As a result of such activities, the society has earned huge profits on account of sale of medicines from hospital premises. In response, the assessee society submitted certain details with respect to 'expenses incurred and contended that Auditors have not considered such expenses before working out profit margin and profit of Rs. 5.26 crores is apparently fallacious. The assessee has contended that the profit from the activities can be determined and therefore no adverse inference regarding maintenance of accounts can be drawn. After considering the assessee's contentions, the remarks of the Special Auditors and considering the fact that the Pharmacy Department is showing substantial profit, it is held that there is conclusive proof that the medicines are sold at huge profits. Even as per details provided by the assessee only medicines worth Rs.82.03 lacs have been stated to be sold at a price lesser than MRP out of the total sales of Rs.15.55 crores. Further, the assessee also failed to place on re....
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....use, rather it has repeated the same arguments which were put up during the course of assessment proceedings before the AO. Further, it has not provided any supporting documentary evidence in respect of the actual expenditure incurred on individual smile surgery. Though the object of smile surgery is charitable but the manner in which the activities are being carried out under Smile surgery makes it profitable in nature. Fun Fair fund The assessee society is showing opening income amounting to Rs. 40.95 lakhs under Fun Fair Fund through lucky draw. The fund was accumulated through its activity where employees of the hospital were involved and participated in that fair which was exclusively organized by the hospital for them. The society has submitted that this fund has been generated in the earlier year for ex-gratia payment to the retiring employees. On going through the details/documents, it IS clear that assessee is conducting fair every year for its employee and assessee society also holds lucky draw. The money collected through this fair is later on utilized for its employees only. Thus, the event is being organized exclusively for the employees and not for general public. ....
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....nnual report, and seems to be an expert of the matter. The assessee society purchases different types of drugs in bulk and refills the same in small bottles after making some changes or diluting the same. Also, on examination it was found that apart from fixing the price, various processes were involved such as mixing of ingredients, boiling, refilling, labeling etc, which is nothing but manufacturing. It appears that to avoid legal consequences, the act of manufacturing was sought to be presented under the nomenclature of compounding/diluting etc. It is also noted that medicines so manufactured were given or sold to patients of Private OPD by the hospital. Had it been the case of compounding/mixing/diluting, the hospital would not have sold these medicines to Private OPD, but such is not the case here, as the manufactured drugs bear Batch No, expiry date and cost of the medicines. It clearly indicates that assessee society is actually manufacturing drugs under the veil of diluting/compounding/mixing. Thus, a distinct activity of manufacturing was systematically carried out by the assessee, which can in no way be classified as a charitable activity and which essentially amounted to....
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....e above said notification. Thus, assessee society was found to be involved in non- fulfillment of promises for providing medical benefit to poor and other deserving patients. This weakens the assessee claim that all its activities were charitable in nature. Alteration in MOA vis-a-vis communication with revenue authorities As per the record, the assessee has obtained registration u/s 12A(a) of the Income Tax Act, 1961 vide registration No. 1- 138/73-74 dated 18.02.1974 whereas the Memorandum of the assessee's Society have been amended by the Society's minute no. 1(b) dated 27.07.1985 and confirmed by the its minutes no. 4 dated 07.09.1985 as per the Memorandum provided by the assessee. This clearly shows that the registration of the assessee u/s 12A has been granted on the basis of earlier Memorandum and no registration thereafter granted subsequent to the amendment in the Memorandum. It is mandatory on the part of the assessee that whenever some alterations are made to the specific clauses of the Memorandum or Bye Laws, it is the duty of the assessee to communicate such changes to the authorities. The rationale behind it is that the authorities at the time of granting exemptio....
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....s in light of the material produced and precedent relied upon. Ld. counsel of the assessee has submitted the point-wise rebuttal of the observations of the ld. DIT(E) made in his order. The same read as under:- " Contribution to Churches Details of RS.22,500 I-which has been given to 8 Institutions also reported by SAR for advertisement is only information relating to assessee Hospital of the various facilities available along with timings for general OPD, free OPD, emergency services. Since these institutions approached the assessee, the advertisements were given to them. It is only the cost of advertisement and no benefit accrues to the particular religious community. Submission to DIT(E) vide letter dated 31st October 2011 paper book page 5 to 28 (Vol. 1) relevant page 12 and 13 and details in paper book page 205 to 243 (Vol.lI). Advertisement copy at page 209. Sale of medicines in the Pharmacy: -Activity of pharmacy is an integral part of the Hospital running activity which is not a commercial activity. - The assessee dispenses medicines only to patients who are treated by Hospital doctors and who are having prescription of the Hospital and do not sell to outsiders. -Phar....
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....cture any medicines. The pharmacy undertakes only compounding, mixing and diluting the medicines already available with the assessee. This is done for reducing the strength of the medicine, making it cost effective when smaller doses are required or in case medicines are available in large proportions in the market it is made into smaller portions for patients. There is neither violation of any licensing authority nor any prohibition. The Drug Control Department gives permission to sell, stock or exhibit drugs as well as running the pharmacy.Moreover, the Hospital is running for the past 125 years and the Drug Controller conducts regular inspection of the Hospital. It may be stated that the Special Audit Report has exceeded his jurisdiction in alleging that the assessee is undertaking manufacturing activity which is not his forte. In any case the income resulting from medicines given to patients is again utilized for the Hospital activity. Withdrawal of exemption from Import Duty The import of medical equipment had taken place in 1990 and does not pertain to the period under discussion. The duty exemption was withdrawn citing certain non compliance assessee has filed appeal befo....
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....egistration u/s. 12AA(3) may be set aside. 6.1 Ld. Departmental Representative on other hand relied upon the order of the Ld. DIT(E). 6.2 We find that assessee has cogently rebutted all the charges leveled against it by the DIT(E). 6.3 As regards allegation relating to Contribution to Churches. It has been submitted by the assessee that merely a sum of RS. 22,500 was incurred in this regard. The same was given to 8 Institutions for advertisement. It is only information relating to assessee Hospital of the various facilities available along with timings for general OPD, free OPD, emergency services. Since these institutions approached the assessee, the advertisements were given to them. It is only the cost of advertisement and no benefit accrues to the particular religious community. Thus, we agree with the contention of the assessee that the amount involved was very meager and it cannot be said that amount was meant for benefit of any particular community. 6.4 As regards the allegation of Sale of medicines in the Pharmacy, assessee has submitted that the activity of pharmacy is an integral part of the Hospital running activity which is not a commercial activity. It has been sub....
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....nd diluting the medicines already available with the assessee. This is done for reducing the strength of the medicine, making it cost effective when smaller doses are required or in case medicines are available in large proportions in the market it is made into smaller portions for patients. There is neither violation of any licensing authority nor any prohibition. The Drug Control Department gives permission to sell, stock or exhibit drugs as well as running the pharmacy. It has been claimed that the Hospital is running for the past 125 years and the Drug Controller conducts regular inspection of the Hospital. In any case, it has further been submitted that the income resulting from medicines given to patients is again utilized for the Hospital activity. On the facts and circumstances of the case, it cannot be said that assessee is indulging in the manufacturing activity of the medicines. 6.8 As regards allegation of Withdrawal of exemption from Import Duty, it has been submitted that import of medical equipment had taken place in 1990 and does not pertain to the period under discussion. The duty exemption was withdrawn citing certain noncompliance, assessee has filed appeal befo....