TaxTMI 
TaxTMI 
2015 (6) TMI 318
X X X X Extracts X X X X
X X X X Extracts X X X X
....opment Schemes) in various Districts with a view to implement various social welfare schemes. 4. The Government has decided to install a Centrally manufactured unit for production of Nutritious Food with the assistance of CARE & UNICEF in the year 1971. As a result, the AP Foods was set up for production of Nutritious Food to supply the Ready-to-Eat food to the beneficiaries as mentioned in above Para with the objective to serve the Government noble cause on no profit no loss basis. The Government from time to time allocates the beneficiaries every year and communicates to AP Foods. Accordingly, the Ready-to-Eat food is manufactured and supplied since last 30 years to the Government social welfare programmes. The AP.Foods is charging only the manufacturing cost for the food supplies made to various ICOS Projects and getting reimbursement from the Beneficiary Departments. 5. M/s. AP Foods is registered U/s.12A of the Income Tax vide Proceedings of HOtrs II/12A& 80G/79/86-87, with the main object of providing relief to the poor and Medical Relief. The DIT (E) claimed that he had perused assessment proceedings for 2005-06 and that as per form 3CD, it is shown that the assessee i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the A.Y 2007-08 is shown at high margin of 12.67%. In the face of such high net profit from the turnover made by the assessee institution during different years, it clearly shows that Andhra Pradesh Foods is running purely as a commercial organization and hence, not entitled for registration u/s 12A of the Act". 10. In reply, the ld AR of the assessee submitted that the prices of the products of the assessee are fixed by the State Govt. and are revised from time to time and therefore, the financial results of the assessee cannot be controlled by the assessee. It was pointed out that the profits are ploughed back and used for carrying out the objects of the assessee. 11. The Director of Exemption further objected for granting registration u/s 12A in the show cause notice on the ground that the assessee is only a Contractor carrying the job entrusted to it. The ld AR replied that the assessee manufacture food for needy and supply to beneficiaries specified by the govt. at quantities fixed by the govt. and it is carrying out this at cost specified by the Supreme Court. 12. In reply, it was submitted that the assessee supplies the ready-to-eat food to pregnant women, under-no....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... needs of poor. 16. The ld AR also pointed out that the issues raised by the DIT (E) have already been decided by the CIT (A) and hence the DIT(E) has no jurisdiction to pass order on the same issues. 17. The DIT (E) however, held in his order as follows: "since the assessee is not carrying on activity in accordance with charitable objects, but it is carrying on activity fully as a commercial organization as discussed above, it is a fit case for cancellation of registration u/s 12AA(3) of the Act. Hence, registration granted earlier to the assessee institution u/s 12A of the Act vide that order dated 23.3.1989 in F.No.H.Qrs.II/12A&80G/ 79/1986-87 is hereby cancelled w.e.f. 1.4.2005". 18. Aggrieved, assessee is in appeal before us. The ld Counsel for the assessee Shri Satyanarayana Murthy submitted as follows: " As can be seen from the provisions of Sub section (4A) of Section 11 that even if an assessee carries on business, it will be entitled to the exemption provided U/s 11 if such business is incidental to attainment of the charitable objects of the assessee. The quantum of profits earned by an assessee from such business has no bearing to the provisions of the section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cal Relief, it will continue to enjoy the exemption provided In Section 11 even after the amendment in the Finance Act, 2008. The restriction is only in the case of institutions claiming exemption U/s 11 under the Fourth and the residuary limbs of the definition of charitable purpose. An analysis of all the Objects of M/s AP Foods, indicate that the organization is not only for the welfare of poor but also is pursuing Objects of Medical Relief. As all the objects pertain to "Relief of the Poor" and "Medical Relief', the assessee will continue to enjoy the exemption even after the amendment to Section 2(15) of the Income Tax Act". All these details were placed before the Assessing Officer in the course of the assessments for the Assessment Years 2005-06, 2006-07, 2007-08, 2010- 11 and 2011- 12. Thus, there is no prohibition in the Act that a charitable institution should not indulge in any business activity. The only restriction is that it should conform to the provisions of Sub-sections 4&4A of Section 11 of the Income Tax Act and the activity should come within the provisions of Section 2(15) defining the charitable purposes. 19. The ld Counsel relied on the decision in the....