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2015 (6) TMI 318 - ITAT HYDERABAD

2015 (6) TMI 318 - ITAT HYDERABAD - TMI - Registration U/s.12A canceled - whether assessee is not a charitable organisation as it is engaged in the business activity as a commercial concern and that it is a contractor to the Government of Andhra Pradesh - Held that:- In the present case the DIT (E) has not established that the conditions (a) and (b) mentioned in section 12AA(3) of the I.T. Act are attracted. Therefore, order of the DIT (E) improper relying on the decision of the Tamil Nadu Crick .....

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moted by the Women & Child Welfare Department of the Government of Andhra Pradesh and other such related programmes. The nutritious food produced by the assessee is not sold in the commercial market nor it is supplied to the parties other than the beneficiaries under the schemes referred to above. It cannot be referred to as a contractor to the Government of Andhra Pradesh as it is involved in manufacture and supply of the food to the beneficiaries. Only, the supervisory activities are carried o .....

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ing the charitable purposes.For the reason given above, we set aside the impugned order of the ld DIT (E) - Decided in favour of assessee. - ITA No.1759/Hyd/2014 - Dated:- 15-5-2015 - Shri P.M. Jagtap and Smt.Asha Vijayaraghavan,JJ. For the Petitioner: Shri B. Satyanarayana Murty For the Respondent: Shri D. Sudhakar Rao, CIT (DR) ORDER Per Smt. Asha Vijayaraghavan, J.M. This is an appeal preferred by the assessee against the order of the Director of Income Tax (Exemptions), Hyderabad dated 25.09 .....

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. 3. The Government of Andhra Pradesh has instituted the ICDS (Integrated Child Development 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 t .....

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red 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 is carrying on the business of manufacturing and supplying of RTE Nutritious Food under govt. sponsored nutrition programmes. The DIT (E) further stated that in the notes to the computation, it is indicated that th .....

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objects of the Trust and is permissible u/s 11(4A). 7. The ld AR also explained that the object of the institution is relief of poor and medical relief and that the amendment to section 2(15) w.e.f. 1.4.2009 does not disentitle the exemption u/s 11. 8. The ld AR also referred to the order of the CIT (A) for AY 2005-06, 2006-07, 2007-08 and 2010-11 wherein 12A registration has been granted. 9. The DIT (E) further held as follows: 3. Further it was noticed from a brief note filed on Andhra Prades .....

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vision made to these departments. Thus, as per such note furnished during assessment proceedings, it is stated that the assessee institution is being reimbursed by the concerned departments the cost of manufactured food supplied by it. However, from the audited statement of accounts furnished by Andhra Pradesh Foods, filed with the returns of income for A.Y 2005-06 to 2007-08, it is seen that the assessee institution is operating as a business concern with profit motive. In Col.No.32(b) of the t .....

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eply, 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 .....

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s for the implementation of schemes promoted by Women & Child Welfare Department of the Govt. of Andhra Pradesh and other such related programmes. The nutritious food produced by the assessee is not sold in the commercial market nor it is supplied to the parties other than the beneficiaries under the schemes referred to above. It cannot be referred to as a contractor to the Govt. of A.P as it is involved in manufacture and supply of the food to the beneficiaries. Only, the supervisory activi .....

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activities are supervised and supported by the Govt. the DIT (E) cannot term the assessee as a contractor. 14. The ld DIT (E) pointed out in the show cause notice that the assessee is paying the taxes such as sales tax, service tax and VAT etc., as any other commercial organization. The ld AR reiterated that u/s 11(4A) the assessee will not be denied exemption u/s 12A in paying the other taxes. 15. The ld AR also submitted before the DIT (E) the objects of the Institution which are charitable in .....

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of Anganwadis. On the basis of the schedule, the assessee manufactures and supplies the products, and gets a reimbursement at the predetermined costs. There are about 90,000 Anganwadis in the State of A.P. Thus the assessee is a charitable institution meeting the 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 .....

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re 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 11 as detailed hereinabove. As long as the pr .....

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tic or historic interest.] and the advancement of any other object of general public utility: Provided that tile 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 fee or any other consideration, irrespective of the nature of use or application, or retention, of .....

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elief of the poor, education, medical relief and the advancement of any other object of general public utility. There are four limbs in the definition of charitable purpose. They are (1) Relief of the Poor, (2) Education, (3) Medical Relief, and 4) The advancement of any other object of general public utility As is evident from tile amendment, the fourth limb i.e.G the advancement of any other object of general public utility is hit by the amendment. It means a charitable organization claiming e .....

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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 .....

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s of Section 2(15) defining the charitable purposes. 19. The ld Counsel relied on the decision in the case of ACIT vs. Thanthi Trust (247 ITR 785 (S.C). The ld Counsel also pointed out that all these aspects dealt with by the DIT (E) were considered CIT (A)-IV Hyderabad while disposing off the group appeals for the AYs 2005-06 2006-07, 2007-08 and 2010-11 wherein he had held as under: "8.6 To sum up, I hold that the appellant was engaged in charitable purposes inthe nature of relief to the .....

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(E). 22. We heard both the parties. We find that circular dated 6.4.2011 clearly states that Sec. 12AA (3) is only operative w.e.f. A.Y 2011-12 onwards. In the case of DIT (E) vs. Moolchand Khairati Ram Trust (339 ITR 622) it has been held as follows: In sub-section (1) clause (b) and sub-section (3) of section 12AA of the Income Tax Act, 1961, cancellation of registration was provided where the registration was granted under clause (b) of sub-section (1). Further, cancellation under sub-sectio .....

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egistration in December, 1974. Based on this the assessee got exemption of income-tax in the assessments u/s 143(3) of the assessment years 1996-97 to 2005-06. The Director of Income Tax cancelled the registration u/s 12AA(3) w.e.f. A.Y 2002-03 by his order dated June 30, 2009. The Tribunal set aside the order of cancellation. On appeal the High Court: Held, dismissing the appeal, that the cancellation of registration was not valid . 23. We also are of the opinion that for invoking the provision .....

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