Case Law Details
ITAT CHANDIGARH BENCH ‘B’
PIMS Medical & Education Charitable Society
versus
Commissioner of Income-tax-II, Chandigarh
IT Appeal No. 456 (Chd.) of 2012
OCTOBER 30, 2012
ORDER
Mehar Singh, Accountant Member
The present appeal filed by the assessee is directed against the order dated 29.03.2012 passed by the ld. CIT u/s 12AA of the Income-tax Act,1961 (in short ‘the Act’).
2. In this appeal, the assessee has raised the following Grounds of Appeal:
“1. That the order of the Learned Commissioner of Income Tax II, Chandigarh is defective both in law and facts of the case.
2. That the Learned Commissioner of Income Tax II, Chandigarh is not justified in rejecting the application of the appellant for the grant of registration u/s 12A of Income-tax Act, 1961 as the appellant Trust duly fulfills all the necessary conditions for registration u/s 12A of Income-tax Act, 1961. The Application for Registration has been rejected only on surmises and on whimsical grounds.
3. That any other ground may kindly be allowed to be taken at the time of hearing.”
3. In the course of present appellate proceedings, ld. ‘AR’ vehemently contended that ld. CIT has declined registration, to the appellant, u/s 12AA of the Act, vide order, dated 29.03.2012, on the foundation of irrelevant considerations by invoking the provisions of sections 11 & 12 of the Act. The issue of registration u/s 12AA of the Act, has to be considered, in the light of the statutory provisions, as contained u/s 12A read with section 12AA of the Act and not in the context of sections 11 & 12 of the Act. He was of the opinion that registration proceedings u/s 12AA of the Act and assessment proceedings of the Institution or Trust are exclusive, different and independent proceedings. Ld. ‘AR’ contended that the appellant society is running a hospital and rendering other services, within the meaning of section 2(15) of the Act. Members of the society are qualified doctors, as is evident from page 31 of the Paper Book. Ld. ‘AR’ narrated factual history of the case and, further, stated that the hospital is run on the pattern and rules of PGI, Chandigarh, in terms of charging of fees, from the patients, irrespective of the caste, creed, religion etc. of the patients. The assessee filed a Paper Book and placed reliance on pages 32, 33 and 34 of the same. He also placed reliance on the Paper Book from pages 22 to 29, which contain note on charitable activities. The summary of charitable objects, as contained at page 22 of the book are reproduced here under :
“Major Charitable Activities done by our Society.
• Dec 15,16: General check-up camp in Cambridge International School for Girls
• PIMS joins hands with WHO against Drunk Driving RS 10 project for two days; Dec 12,13
• Dec 07: ENT department holds medical camp; 202 patients checked
• Nov 24’11: PIMS holds Orthopedic camp; 263 patients diagnosed
• Medical camp at PIMS on World Diabetes Day; Nov 14’11443 patients avail free sugar test and medicines
• Urology camp held at PIMS; Nov 11’11152 patients availed the facility and Uroflowmetry test was done.
• Diabetic, BP and Blood Donation camp organized; 215 patients
• Psychiatry Camp; 86 patients October 20’11
• Pulmonary Medicine camp; Oct 17’11
• Sep 08’11 International students do a project on AIDS in PIMS
• CCCON organized at PIMS; Critical Care and patient management inlCU;07Aug’ll
• Medical camp at Ramnagar; pulmonary medicine & medicine
• Budhiana medical camp June 13’11: Medicine, ENT, Physiotherapy
• May 29’11: PIMS organizes medical camp at Missionaries of Charity; Psychiatry, Physiotherapy, Peeds
• PIMS performing major acid burn injuries and cancer tissue.
• May 06’11 Cambridge School students; 503 visit PIMS for check-up
3. (i) Activities of the appellant society are providing health care and education. Punjab Institute of Medical Sciences under the aegis of PIMS Medical and Education Charitable Society, is spread over 56 acre of land in the heart of city, has been contributing to the society in form of health care and education since two years now. Fifth June, 2010 has been an important landmark in the history of the hospital, as on this day the hospital started functioning. Since then it has reached out to nearly 2.5 lakh OPD patients, with an average of 1300 patients a day and the IPD mark touching 17,000 patients. An extremely dedicated team of professional doctors, nurses and technicians have performed approximately 6,700 surgeries with well equipped ICU, ICCU and NICU unit. PIMS is also providing oncology treatment at 15% discount and has a well equipped dialysis unit providing treatment at subsidized cost.
3. (ii) Jalandhar, being the heart of Doaba, has the highest number of hospitals in the continent, but PIMS stand out due to its medical care affordability. The main aim of the hospital is to provide treatment to all sections of society at subsidized rates. This thought was nurtured by a group of promoters which includes very prominent doctors, businessmen and industrialists. Dr. APPA RAO MUKKAMALA, MD, FACR, Clinical Professor in Radiology is a board-certified radiologist and has been in private practice in Flint, Michigan (USA) for over 30 years. He is one of the prime promoters of the hospital and medical college. Dr. Suresh Anne, MD, FACP, FAAAAI, FACAAI, who practices Allergy and Clinical Immunology in Flint, MI (USA) has a standing of over 25 years in his field. Dr. Devinder Mahajan is also one of the promoters who is a known pulmonary specialist in pulmonary Medicine since 1980.
3. (iii) Apart from doctors, Brigadier (retd) Kuldip Singh Chandpuri is the executive Member of PIMS Medical and Education Charitable Society. A distinguished soldier, he is known for displaying conspicuous bravery and leadership in the face of enemy in the Battle of Longowala (Rajasthan) for which he was awarded the nation’s second highest gallantry award of Maha Vir Chakra, during the Indo-Pak war 1971.
4. Other Important conditions required to be fulfilled under the Societies Registration Act, 1860:
(i) The income and property of the Society shall be applied solely towards the promotion of the objects of the Society as set forth in the Memorandum of Association and no portion thereof, shall be paid or transferred directly or indirectly to the members of the Society.
(ii) The Society by its constitution is required to apply its. profits, if any or other income in promoting its objects.
(iii) If upon the winding up or dissolution of the Society, there remains after payment of its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the members of the Society, but shall be given or/transferred to some other institution, having objects similar to the objects of the Society, determined by the members of the Society at or before the time of dissolution.
5. Teaching/General Hospital :
The concessionaire shall be able to generate revenue from the Teaching/General Hospital. PSP shall strictly follow the rates of PGIMER, Chandigarh as amended from time to time, for various categories of services.
6. Ld. ‘AR’ also filed a copy of registration certificate No. 4004 of 2009, vide order dated 29.01.2009 by the Registrar of Firms & Societies, UT, Chandigarh (at page 54 of the Paper Book). Page 55 of the Paper Book contains rules and regulations of the Society with aims and objectives of appellant Society stated therein. The aims and objects, inter alia, includes to start, establish, run, takeover or manage and maintain educational institutions, schools, colleges, technical educational institutes in anyone or multiple fields of Arts, design, science, medical, nursing, dental, pharmaceutical, para-medical, engineering, law, education, management, information technology, commerce or any other discipline/system of education, to open, run & manage hospitals, health clubs, hostels, recuperation centers, orphanages, old people’s homes, shelters for needy/poor, shelters for widows or destitute women and provide transport for students, faculty, patients or staff etc.
6. (i) Ld. ‘AR’ placed reliance, on the decision, of the Chandigarh Bench, in ITA No. 253/Chd/2011 dated 31.05.2012 in the case of Sandhya Educational Trust v. CIT, Sector 37, Chandigarh V CIT-II, Chandigarh. He also placed reliance on the decision, as reported in 69 DTR 315, in the case of Pinegrove International Charitable Trust v. Union of India [2010] 327 ITR 73.
7. Ld. ‘DR’, on the other hand, placed reliance on the order passed by the CIT.
8. We have carefully perused the rival submissions, facts of the case and the relevant records, as also the judicial precedents relied upon by ld. ‘AR’. The assessee appellant PIMS Medical & Education Charitable Society filed an application dated 16.09.2011, for registration u/s 12A read with Section 12AA of the Act. The competent authority, CIT-II Chandigarh, made inquiries through AO and the Addl. CIT to verify the genuineness of society and its activities. The ld. CIT observed that the society in question obtained registration from the Registrar of Firms & Societies, UT Chandigarh, on 29.01.2009, vide registration No. 4004 of 2009, and in that certificate of registration, no address of society has been recorded by the Registrar. In the course of registration proceedings u/s 12A read with section 12AA of the Act, the appellant society filed various documents/papers including Balance Sheet, income and expenditure statement, for the period from 18.01.2009 to 31.3.2009 (A.Y. 2009-10), balance sheet, income and expenditure statement, for the period 01.04.2009 to 31.3.2010 (A.Y. 2010-11). On a scrutiny of such documents, CIT found that as per balance-sheet filed for assessment year 2009-10 (for the period 18.01.2009 to 31.3.2009) under the head “General Corpus”, the ‘Opening Balance’ has been shown as ‘nil’ while during the year the addition to Corpus has been shown at Rs. 8,03,32,807/-. The CIT, further, observed that in the assessment year 2010-11 (for the period from 1.4.2009 to 31.3.2010) the corpus fund opening balance has been shown at Rs. 8,01,23,338/- and additions during the year have been shown at Rs. 9,58,37,500/-, thus, making a total of Rs. 17,59,60,838/- as the Corpus Fund. The CIT, further, observed that during the year, massive secured loans, to the extent of Rs. 40,42,31,619/- has been shown as term loan from Andhra Bank. The unsecured loans had been shown from various parties at Rs. 33,55,30,093/-. The CIT observed that in the course of registration proceedings before him, the assessee did not give any proper evidence, regarding the existence/identity of the persons stated to have made such massive contributions towards the Corpus Fund of the Society. The CIT also noticed and observed that no proof has been given regarding the investments made in the Corpus Fund. The CIT also observed that Trust/Institution is required to file its accounts for relevant years under Rule 17(A), for the purpose of ascertaining, whether a genuine Trust or Institution was in existence, for which registration is sought. The CIT observed that such massive contribution from individuals/entities, whose identity/existence is not beyond doubt, raised query, on the very identity of the society and its charitable purpose. The ld. CIT, referred to para 9.2 and 8.3 of Concession Agreement dated 28.08.2009, and hold that activities of the Society cannot be performed, in accordance with the objects, for which had been set up, and the same has been set up for, the purpose of carrying and running the Institution, for profit and on commercial lines. The CIT found that it is not a case where society is carrying on charitable activities. Ld. CIT, further, observed that veracity and genuineness of the society is in doubt. After referring to the provisions of section 12AA of the Act, ld. CIT observed that it can be deduced that the project has not been conceived or developed for charity, instead, it is to be run on entirely commercial lines. The CIT, further, noticed that the society, though established and incorporated under the Societies Act, 1860, does not have the stated purpose of ‘no profit’. In the final analysis, findings of the CIT as contained in para 13 of the order is reproduced here under :
“13. Keeping in view the entire correspondence available on file, it can be unambiguously concluded that the applicant society has not proved its case that the project is to be run under its name in a charitable manner. It has miserably failed to prove the genuineness of its financial activities. It is held that the society has not been created wholly for charitable1 purposes. The applicant society has squarely failed to satisfy the undersigned about the objects of the institution and the genuineness of its activities with respect to charitable purpose. As such, the application filed by the applicant Society for registration u/s 12A vide its application dated 16.09.2011 stands rejected u/s 12AA(1)(b)(ii).”
9. The CIT, thus, declined registration to the appellant u/s 12AA of the Act.
10. A bare perusal of the impugned order passed by the CIT(A) reveals that he did not appreciate the amendment effected to the definition of ‘charitable purpose’ as provided u/s 2(15) of the Act and first proviso there under. It appears that ld. CIT(A) has applied first proviso to Section 2(15) of the Act while considering the case of registration of the appellant. It is the settled legal proposition that first proviso to Section 2(15) is not applicable to the first five charitable objects, specified in the said definition of ‘charitable purpose’ and is applicable to the last limb of the definition, i.e. ‘advancement of any other object of general public utility.”
11. Income-tax Act 1961, provides the inclusive definition of the term “charitable purpose” under Section 2(15) of the Act. By the amendment to Section 2(15), by way of insertion of a proviso, to the definition of ‘charitable purpose’ by the Finance Act, 2008, the scope of the expression “advancement of any other object of general public utility” has been restricted, as is evident from a bare perusal of the proviso reproduced here under:
“Provided that the advancement of any other object of general public utility shall 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 free or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year.”
12. In simple language, the activities incorporated in the newly inserted proviso are excluded from the ‘definition’ of charitable purpose provided u/s 2(15) of the Act
(a) any activity in the nature of trade, commerce or business
(b) any activity of rendering any service in relation to trade, commerce or business
(c) if fee or cess or any other consideration, irrespective of the nature of use or application or retention of such income by the concerned entity. The aforesaid proviso will be operative from 1.4.2009 and will accordingly apply in relation to assessment year 2009-10 and subsequent assessment years.
13. The Finance Minister has amended the definition of ‘charitable purpose’ provided under Section 2(15) of the Act by the Finance Act, 2008, with effect from 1.4.2009, by adding a proviso, to the Section of just five lines, which will affect the exemption of charitable trusts for “advancement of any other object of general public utility” very substantially.
14. In Para 180 of the Budget speech, the Finance Minister stated as follows:
“Charitable purpose” includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade commerce or business and earning income have sought to claim that their purpose would also fall under ‘charitable purpose’. Obviously, this way not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.”
14 (1) It will, thus, be noted that the intention of Finance Minister was only to exclude from exemption, entities carrying on business and earning incomes for which exemption was claimed on the basis that the purpose would fall under charitable purpose as defined in the last limb of the definition u/s 2(15) of the Act.
15. The Central Board of Direct Taxes has issued the Circular No.11/2008 dated 19.12.2008, stating that the following implications arise from the amendment,
“The newly inserted proviso to Section 2(15) will not apply in respect of the first three limbs of Section 2(15) i.e. relief of the poor, education or medical relief. Consequently where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose, even if it incidentally involves the carrying on of commercial activities.”
The Circular states further as follows:
“3. The newly inserted proviso to Section 2(15) will apply only to entities whose purpose is advancement ‘of any other object of general public utility’ i.e. the fourth limb of the definition of the charitable purpose contained in Section 2(15). Hence such entities will not be eligible u/s 11 or u/s 10(23C) of the Act if they carry on commercial activity. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.”
16. It is settled proposition that registration by itself would not confer the right to exemption. The registration is granted by the CIT u/s 12A read with Section 12AA of the Act, whereas exemption is granted by the AO, on the satisfaction of statutory condition as laid down under Section 11, 12 and 13 of the Act. Further, as per Section 12AA(3) of the Act, CIT is competent to cancel the registration of an assessee if satisfied that its activities are not genuine. The registration u/s 12A read with section 12AA, is one of the conditions for exemption and not the only condition for exemption. In this specific context, the CIT, is required to appreciate the real activities and objects but not the enabling powers to achieve the objects.
17. The assessee relied on the decision, in the case of Pinegrove International Charitable Trust (supra), the Hon’ble Punjab & Haryana High Court where it was held as under:
“Even after the new dispensation from April 1,1999, the test of predominant object of the activity continues to apply as under Section 1-(22) of the Act. As long as an institution exists solely for educational purposes, it would qualify for grant of exemption u/s 10(23C)(vi) of the Act. Merely because profits have resulted from the activity of imparting education, that would not change the character of the institution existing solely for educational purpose.
At the initial stage, when the application for exemption is filed by an educational institution, the scope of inquiry is restricted only to ascertaining the genuineness of the activities of such an institution. Such an inquiry may even extend to the examination of accounts of the institution, application of its income to the object and purposes of education and the other cognate aspects. Once on the basis of genuineness of the activities of an educational institution approval is granted for exemption……
The words ‘not for the purposes of profit’ accompanying the words ‘existing solely for educational purposes’ have to be read and interpreted in view of third proviso to Section 10(23C)(vi)…….”
18. Further, the CIT failed to bring any cogent material on record to substantiate his finding that in cases of registration under the Society Act, address of the Society is mandatorily required to be recorded. The competent authority, the Registrar has registered the Society, as indicated above, and the assessee society is carrying on its activities at Jalandhar, are relevant factors to show the genuineness of the society. The change of address and different address for procuring loans from different banks at different places has led to construe the society as non-genuine, by the CIT in the face of explanation, filed by the assessee- society that such addresses were changed due to unavoidable exigency. Such conclusion of the CIT is not founded on cogent material brought on records.
19. At the time of registration proceedings u/s 12A r.w. section 12AA of the Act, the CIT is statutorily required to examine and satisfy himself as to the genuineness of the activities of the Trust or institution, carried on, in consonance with its objects. The objects of the trust or institution must conform to the definition of ‘Charitable purpose’ as defined u/s 2(15) of the Act. The objects of the assessee society are covered by the definition ‘charitable purpose’ as provided u/s 2(15) of the object, as the appellant society is engaged in providing technical education and medical relief. The first proviso to section 2(15) of the Act is not applicable to the society as the same covers the last limb of the ‘charitable purpose’, viz “the advancement of any other object of general public utility”, being legally settled proposition. The CIT has proceeded to conclude that the activities of the assessee society is run on commercial line with profit motive, ignoring the express object of providing medical facilities on the line of PGI, Chandigarh. The taint of commerciality or profitability is covered by the first proviso to Section 2(15) of the Act. Mere earning of surplus income in carrying out charitable activities within the meaning of Section 2(15) of the Act, would not render the activities of the appellant society, as non-genuine, and non-charitable as construed by the ld. CIT, in the instant case. This proposition is fortified by the decision of the jurisdictional High Court in the case of Pinegrove International Charitable Trust (supra).
20. The satisfaction of statutory conditions of Sections 11, 12 & 13 of the Act, for the purpose of grant of registration u/s 12A r.w. section 12AA of the Act, are not relevant. However, the ld. CIT heavily relied on the issue of corpus fund and secured loans, raised by the appellant society, in concluding the activities of the appellant as non-genuine. The nature and source of corpus funds and secured loans are required to be examined by the AO, in the light of the provisions of Section 11, 12, 13 r.w. Sections 2(24) (iia) and Section 15 BBC of the Act. It is incumbent upon the CIT, to decide the issue of granting or decline of registration, only within statutory preconditions as laid down u/s 12A read with Section 12AA of the Act. Needless to state here that registration proceedings u/s 12A r.w. Section 12AA of the Act before the CIT, are not the same as assessment proceedings before the AO. Both the proceedings before different revenue authorities are different and independent, with different statutory subject matter and jurisdiction. Further, the grant of registration u/s 12AA of the Act is not in itself conclusive and the sole statutory condition, for the purpose of exemption of income of the Trust or the Institution, as statutory conditions of Section 11, 12 & 13 of the Act are required to be satisfied, for such exemption. Therefore, grant of registration confers merely entitlement to such exemption, on satisfaction of statutory conditions prescribed under other relevant provisions of the Act. The grant of registration u/s 12AA of the Act, is not eternal in nature, as the legislature has provided safeguard u/s 12AA(3) of the Act, to protect the interest of revenue and the CIT is competent to cancel such registration, if he is subsequently satisfied that activities of the trust or institution are not being carried out, in accordance with its objects. In the present case, the ld. CIT has rejected grant of registration u/s 12A r.w. section 12AA of the Act, on observations not relevant to the legislative intent, embodied in such statutory provisions.
21. It is incumbent upon the CIT, while considering granting of registration u/s 12AA of the Act that he should satisfy himself only about genuineness of activities of the trust, in accordance with its objects and not about credential, capacity and qualification etc. of trust as held by Chennai Bench of the Tribunal in Prayer for India v. ITO [2012] 20 taxmann.com 359 (Chennai). It is held in Vidhya Sikshaa Educational & Charitable Trust v. CIT [2012] 51 SOT 63 that the Act specifies a methodology where anonymous receipts are received by trust. Section 115BBC of the Act specifies a method for taxing anonymous donations. Thus, even if the trustees didn’t have the wherewithal to contribute the sums mentioned and even if such donation was treated as coming from anonymous sources, it would not be reason to deny registration u/s 12AA of the Act.
22. In view of the above legal and factual discussions, it is evident that the assessee- society has fulfilled statutory conditions, for grant of registration u/s 12A read with section 12AA of the Act, as the society is carrying out its activities, in pursuance of its objects. The observation of the CIT that society is running on commercial lines and making profit, is not acceptable in view of the settled legal proposition that eleemosynary element is not essential for charitable purpose, as the definition of ‘charitable purpose’ has been statutorily defined u/s 2(15) of the Act and judicially interpreted by the Courts. To provide something more for nothing or for less than it costs or less than its ordinary value, is not contemplated under the definition of ‘charitable purpose’ as provided u/s 2(15) of the Act. Accordingly, CIT is directed to pass consequential order, granting registration to the assessee appellant u/s 12AA of the Act.
23. In the result, appeal of the assessee is allowed.
