TaxTMI 
TaxTMI 
2024 (12) TMI 461
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....ciences, Jalandhar (hereinafter to be referred as 'the assessee-society). Appeals by the Assessee ITA No. 271 of 2014 and ITA No. 274 of 2014 have been filed by the assessee arising out of order dated 31.12.2013 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter to be referred as the 'the ITAT) in cross appeals bearing ITA No.504/Asr/2009 and ITA No. 515/Asr/2009 for the assessment year 2006-2007 filed by the Assessee and the Revenue, respectively, vide which the assessee was disallowed to get benefit of Section 11 of the Income Tax Act, 1961 (for short, 'the Act'). ITA No. 33 of 2022 has been filed by the assessee arising out of order dated 12.11.2021 passed by the ITAT dismissing its ITA No.1426/Chd/2018 for the assessment year 2015-2016, upholding the order of the CIT (A) declaring the assessee not entitled to exemption under Section 11 of the Act. Appeals filed by the Revenue In ITA No. 48 of 2020 the Revenue assails the order dated 21.06.2019 passed by the ITAT dismissing its appeal bearing ITA No. 463/Asr/2014 for the assessment year 2006-2007, for imposition of penalty and partly deletion of the penalty levied by the AO in terms....
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.... The proposal to set up the Society - M/s Punjab Institute of Medical Sciences, Jalandhar, was made in the year 1993 by the State Government. Lands and funds were also arranged by the State Government by transferring 1.65 acres of land from Punjab Agriculture University, Ludhiana to PIMS-Society, Jalandhar. The Governing Council was formed headed by Chief Minister. A Director was appointed by the State Government. The society was registered in 1994. The State Government granted a sum of Rs. 3 crores in the year 1994-95. In 1996, an Architect was appointed to prepare master plan. In 1997, the Hon'ble Prime Minister announced additional central assistance of Rs. 25 crores under the 100% centrally sponsored Five Years Plan. The part amount was received on 23.10.1998 of Rs. 7.5 crores. Second installment was received on 05.05.2000 of Rs. 7.5 crores and the balance 10.33 crores was received on 10.03.2006. In 1997, 67.77 acres of land was purchased by the PIMS Society for a sum of Rs. 3 crores to establish Medical College and Hospital. The plan was prepared by entering into an agreement with a contractor. In 1999, a master plan of Rs. 80 crores was approved. A 1000 beds hospital was plan....
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....d in the statute book is only prospective. Having noticed the aforesaid facts from ITA No. 52 of 2017 arising out of ITA No. 740/Asr/2013, we now proceed to note down the submissions raised by learned counsel for the parties. Submissions of the Revenue 8. Learned counsel appearing for the Revenue submitted that the ITAT has not given any findings contrary to the reasons of cancellation as mentioned by the CIT in its impugned order dated 24.10.2013. The assessee had not challenged the said findings in the appeal before this Court and, therefore, the same had attained finality. The ITAT only examined the cancellation made with effect from 2004-2005 on the issue relating to retrospectively. He submits that the judgment of Delhi High Court relied upon by the ld. ITAT in Director of Income Tax (Exemption) vs Mool Chand Khairati Ram Trust (2011) 339 ITR 622 (Delhi) was erroneous and the facts of the said case were different from the facts of the present case. It is submitted that in that case the power under Section 12AA (3) of the Act was exercised before the amendment was incorporated i.e. on 30.06.2009 while the amendment was incorporated with effect from 01.06.2010. Therefore, ....
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....s not the case of the Revenue that funds were diverted for any other activity than for the purpose of related activities. 12. It is admitted position that from 10.10.1994 to 31.03.2006, the building was being constructed. The purpose of construction of the building is to carry out charitable activity and provide medical help. He, therefore, submits that the order dated 30.12.2008 passed by the Assessing Officer disallowing exemption under Section 11 of the Act, was wholly unjustified. He submits that the Revenue has failed to take notice and import of the tripartite agreement executed between the State Government, PIMS and PUDA. All funds of the Society are actually Government funds as has been pointed hereinabove and, therefore, it is argued that the concerned officer has failed to take notice for the purpose of granting exemption and wrongly disallowed the said exemption. 13. Learned counsel for the assessee submits that the order of the ITAT dated 31.12.2013 whereby the appeal of the assessee was rejected and appeal of the Revenue was accepted, deserves to be quashed; and the appeal of the Assessee deserves to be allowed and that of the Revenue deserves to be dismissed. ....
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....usts or institutions from contributions. "12. [(1)] "Any voluntary contributions" received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.] [(2) The value of any services, being medical or educational services, made available by any charitable or religious trust running a hospital or medical institution or an educational institution, to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13, shall be deemed to be income of such trust or institution derived from property held under trust wholly for charitable or religious purposes during the previous year in which such services are so provided and shall be chargeable to income-tax notwithstanding the provisions of sub-section (1) of sec....
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....tuted by Act 49 of 1991, Section 7, for the proviso (w.e.f. 1.10.1991).] (ii) from the 1st day of the financial year in which the application is made, if the] Certain words omitted by Act 27 of 1999, Section 8 (w.e.f. 1.6.1999).] [Commissioner is not so satisfied:][Substituted by Act 49 of 1991, Section 7, for the proviso (w.e.f. 1.10.1991).] [Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;] (aa) [the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the [Principal Commissioner or] Commissioner and such trust or institution is registered under section 12AA;] (ab) the person in receipt of the income has made an application for registration of the trust or institution, in a case where a trust or an institution has been granted registration under section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)], and, subsequently, it has ....
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.... sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, or section 11 or section 12, for any previous year ending on or before the date of such application, at any time after the commencement of such activities.] - [and such trust or institution is regulated under Section 12AB] (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year,- (i) the books of account and other documents have been kept and maintained in such form and manner and at such place, as may be prescribed; and (ii) the accounts of the trust or institution for that year have been audited by an accountant defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed; (ba) the person in receipt of the income has furnished the ret....
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....nt of any other law, as referred to in sub-clause (ii) of clause (a) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality, then, the Principal Commissioner or the Commissioner may, by an order in writing, cancel the registration of such trust or institution:] Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner.] (5) Nothing contained in this section shall apply on or after the 1st day of April, 2021." 17. The present institute, as established by the Government of Punjab, admittedly was formed with the purposes as have already noticed hereinabove. The added object, as mentioned in clause (c) of the objects, has to be considered as part of charitable purpose for achieving a general public utility object. Taking into consideration the aforesaid, the assessee society was granted registration in terms of Section 12 of the Act. From perusal of the aforesaid, it is apparent that an in....
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....rofits' in the seventh proviso to Section 10 (23C) and Section 11 (4A) merely means that the profits of business which is 'incidental' to educational activity - as explained in the earlier part of the judgment i.e., relating to education such as sale of text books, providing school bus facilities, hostel facilities, etc. e. The reasoning and conclusions in American Hotel (supra) and Queen's Education Society (supra) so far as they pertain to the interpretation of expression 'solely' are hereby disapproved. The judgments are accordingly overruled to that extent. f. While considering applications for approval under Section 10 (23C), the Commissioner or the concerned authority as the case may be under the second proviso is not bound to examine only the objects of the institution. To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes. The observations made in American Hotel (supra) suggest that the Commissioner could ....
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....s, autonomous or self-governing government sponsored bodies, are GPU category charities: (a) Does the state or central law, or the memorandum of association, constitution, etc. advance any GPU object, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services - such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc.; (b) While carrying on of such activities to achieve such objects (which are to be discerned from the objects and policy of the enactment; or in terms of the controlling instrument, such as memorandum of association etc.), the purpose for which such public GPU charity, is set-up-whether for furthering the development or a charitable object or for carrying on trade, business or commerce or service in relation to such trade, etc.; (c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business,....
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....ase, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, w.r.e.f 01.04.2009) to Section 10 (23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity. If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - such amounts are not consideration towards trade, commerce or business, or service in relation thereto. However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act." It further considered the said aspect with reference to the Institute of Chartered Accountants of India and thereafter lays down the conclusion, for the present, we notice the g....
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.... of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10 (23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions. xxx xxx xxx D. Trade promotion bodies Bodies involved in trade promotion (such as AEPC), or set up with the objects of purely advocating for, coordinating and assisting trading organisations, can be said to be involved in advancement of objects of general public utility. However, if such organisations provide additional services such as courses meant to skill personnel, providing private rental spaces in fairs or trade shows, consulting services, etc. then income or receipts from such activities, would be business or commercial in nature. In that event, the claim for tax exemption would have to be again subjected to th....
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.... of hospital in various districts of Punjab, the same cannot be said to be a ground for treating the action to be beyond the purposes and objects of the assessee society. The cancellation of registration of the society on such premise is, therefore, found to be unlawful. We also notice that such setting apart funds is in accordance with the provisions of Section 11 (2) of the Act. Further, we find that it is a Government organization and the observations of the Supreme Court in Ahmedabad Urban Development Authority's case (supra), would have direct application to the facts of the present case. Cancellation of registration under Section 12A of the Act was on facts too only unjustified and illegal. 25. The reliance of the Revenue with reference to judgment of the Bombay High Court in Sinhagad Technical Education Society (supra) is found to be without basis. More so, in view of the subsequent pronouncements of the Supreme Court, the Bombay High Court judgment would have no application, except to the extent that it has upheld the amendment whereby Section 12AA (3) of the Act was added. Since we are not examining the validity of Section 12AA (3) of the Act, the judgment would have re....
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....ion of registration can only be in prospective and not retrospective. The Bombay High Court, therefore, upheld the amendment made in the Finance Act 2010. In the present case, we are not examining the validity of the amendment made in Section 12AA of the Act but are only examining two aspects. Firstly, the cancellation can be done with effect from the earlier year; and Secondly whether in the fact of the present case the said cancellation was warranted. We also note the judgment passed by the ITAT Bangalore Bench 'C' in Sri Vidyaranya Seva Sangha vs Commissioner of Income-Tax, Hubli (2016) 71 taxman.com 152 (Bangalore-Trib) which proceeded on a wrong interpretation of Bombay High Court judgment (supra) and upheld the registration being cancelled with retrospective effect. However, such power being not available, the judgment is erroneous and cannot be relied upon. 31. We find that the Revenue by passing the order dated 24.10.2013 failed to take note of the aims and objects, which were added by the Assessee in October 2009. The order passed by the ITAT, therefore, does not warrant any interference. ITA No. 52 of 2017 filed by the Revenue is dismissed. ITA Nos. 48 and 61 of 202....
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....not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;" Keeping in view of the above definition, the purposes as mentioned by the Society in its objects which have been noticed while deciding appeal no. 52 of 2017 (supra), we find that the activities of the Society in construction of building and medical institute are incidental activities with the sole charitable purpose to provide medical relief. Similarly, incidental activities of the Society like entering into MOUs with another State Medica....