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Lotus Charitable Trust Versus Director of Income-tax (Exemption)

2016 (6) TMI 377 - ITAT KOLKATA

Cancellation of registration u/s 12A - assessee runs a diabetic centre under the name of Sunny Park Diabetic Endocrine Centre - whether the Learned DIT(E) is justified in cancelling the registration u/s 12AA(3) of the Act? - Held that:- Learned DIT(E) himself had stated in his order that the activity of ‘Solace’ would fall under the fourth limb of the definition of charitable purpose u/s 2(15) of the Act i.e ‘advancement of any other object of general public utility’. Hence in view of the afores .....

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on at present in this case - Decided in favour of assessee - I.T.A No. 398/Kol/2012 - Dated:- 8-6-2016 - Shri N. V. Vasudevan, JM And Shri M. Balaganesh, AM For the Appellant : Shri D. S. Damle, FCA For the Respondent : Shri Rajat Subhra Biswas, CIT, DR ORDER Per Shri M Balaganesh, AM This appeal by assessee is arising out of order of DIT(E), Kolkata vide M. No. DIT(E)/Kol/12AA(3)/2011-12/3072-74 dated 16.01.2012, withdrawing the registration granted u/s 12AA(3) of the Income Tax Act, 1961 (here .....

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was granted to the assessee with effect from 25.9.1980 and approval u/s 80G was granted to the assessee from time to time and last of such approval was granted vide proceedings dated 20.5.2011 in perpetuity. The main objects for which the assessee trust was created are as follows:- i) To assist, finance, support, found establish and maintain any trust, society or institution meant for the relief of the poor, advancement of education, medical relief or advancement of any other object of general p .....

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the deaf and the dumb. vi) To open, found, establish or contribute to the maintenance of orphanages, widow homes, lunatic, asylums, poor houses etc. vii) To distribute dhotis, blankets, rugs, woolen clothing, quilts or cotton, woolen, silken or other variations of clothings in the poor. viii) To pay stipends, scholarships and other aid for prosecuting studies, training or research. ix) To establish found and maintain libraries, reading rooms for the convenience of the public. x) To start maintai .....

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ame of Sunny Park Diabetic Endocrine Centre. This is claimed to be a part of the parent trust (i.e Lotus Charitable Trust) and books of accounts maintained separately for the same. The assessee falls under the second limb of the definition of charitable purpose u/s 2(15) of the Act i.e medical relief . The assessee in furtherance of its charitable objects of granting medical relief, chose to start a pranic healing centre . The assessee also started a AC fitness centre under the name and style of .....

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it claimed that the incomes derived from those activities would also enjoy exemption u/s 11 of the Act. The assessee trust has been accepted as a public charitable trust by the department and exemption u/s 11 of the Act has been granted all along. The Learned AR placed on record a copy of the assessment order for the Asst Year 2004-05 framed u/s 143(3) of the Act on 29.12.2006 (pages 14 to 15 of paper book) which was framed subsequent to the commencement of Solace . In the said assessment, the L .....

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from running the centre for physical fitness named solace . He held that Solace provides a multi-facility health unit which is not restricted to Pranic Healing alone. The term medical relief in common parlance means provision of facility for diagnosis of ailments through modern scientific methods and treatment of diseases through medication or surgery for achieving recovery and cure. Hence medical relief cannot be stretched to include provision of facilities for maintaining or promoting general .....

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rded as an object of general public utility and consequently hit by the proviso to section 2(15) as the gross receipt exceed ₹ 25 lacs thereon. Accordingly he concluded that the activities of the trust cannot be regarded any longer as being for charitable purpose. Hence he proceeded to hold that the activities of the trust are not genuine and invoked the powers vested in him u/s 12AA(3) of the Act and cancelled the registration u/s 12AA of the Act. Aggrieved, the assessee is in appeal befo .....

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n of section 2(15) of the Act. b) For that the Ld. Director of Income Tax (Exemption) erred in holding that the activities of the Trust/ Institution are not genuine and do not conform to the objective outlined in the Trust Deed. c) For that the Ld. Director of Income Tax (Exemption) further erred in holding that the activities of the Trust cannot be categorized under the limb of "medical relief' within the meaning of the provision of Section 2(15) of the Act. 3) For that the Ld. Directo .....

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;Solace" is nothing but a health club and affordable by only the well-to-do sections of the society. b) For that the Ld. Director of Income Tax (Exemption) failed to appreciate the fact that the major part of the gross income of the Trust not only comprises of membership fees but also fees from patients and realization from treatment, therapies & others. 5) a) For that the Ld. Director of Income Tax (Exemption) failed to appreciate the fact that there is no change in the activities of t .....

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oor, Kolkata-700 001 No. DIT(E)/12AA/Cancellation/2011-12/2906 date 30.12.2011/02.01.2012 To The Trustee, Lotus Charitable Trust 4, Sunny Park Kolkata-700 019. Subject : Show Cause notice for cancellation of registration u/s. 12AA(3) of the I. Tax Act, 1961 - regarding. Sir, I am directed to state that you are inter alia, operating a Spa and a club. The activities in which you are engaged in is in the nature of trade, commerce or business within the meaning of 1st proviso to sec. 2(15) of the I. .....

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e receipt of this communication. Yours faithfully, Sd/ (D. K. Kedia) I.T.O. (Exemptions), Hqrs., Kolkata For Director of Income Tax (Exemption), Kolkata The Learned AR stated that the assessee duly filed reply to this show cause notice meeting each and every allegation of the Learned DIT(E). He argued that the trust is providing medical relief and services of mental and physical fitness which are incidental to the main objects of the trust of imparting medical relief among others. He argued that .....

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ous diseases and helped in preventing further deterioration of health. To perform this technique of Pranic healing there is a requirement of peaceful environment from where the healers can do their healing to cure the patients. Initially when the trust started this activity, treatment based on pranic healing was neither well accepted nor so well known. Initially many patients who came to the centre were one who had tried out other systems of treatment and pranic healing was their last hope. The .....

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uated with any activity other than medical relief. He further argued that as per section 2(15) of the Act, relief also by alternative method is per se charitable purpose irrespective of the fact that for providing relief the trust charges fee, and there is no condition to hold that to become eligible for charitable purpose in respect of medical relief, the same should be imparted freely or without charging any fee. Mere making of profit would not be ground to cancel registration once the objects .....

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erwise). The period of membership is also as per choice of the individuals. In fact the centre is not mean for any individual or for a group of individuals or families and such variety of members is represented from a cross-section of the public at large. The member's admission to the centre is not restricted at all. Further It is neither necessary that medical relief, clinical services and/or fitness services should only be given to poor, nor it can be presumed that unless any particular pe .....

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eatment, therapies & others, and receipt from Pranik Healing Treatment. Such receipts or collection of fees in the course of activities of the Trust cannot be viewed as receipts in consideration of rendering the services to trade, commerce or business as the services that are provided are at a very subsidized rate when compared with the rates prevailing in the market. The receipts of the trust are not with a profit motive but essentially only to recoup the cost of discharging services. The s .....

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u/s. 12AA of the Act. 7. In response to this, the Learned DR argued that the assessee trust was carrying out the activities in Solace which is nothing but a Spa or Health Club and was catering only to the affordable sections of the society and does not benefit the general public at large. If the argument of the assessee that activity of Pranic Healing treatment falls under the wider ambit of medical relief , then even the departmental stores selling organic food items also would be beneficial t .....

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in the scrutiny proceedings completed u/s 143(3) of the Act dated 29.12.2006 for the Asst Year 2004- 05. The Learned AR argued that the assessee has been regularly filing its returns of income for all the earlier years. He argued that even up to Asst Year 2008-09, this activity of the assessee trust has been accepted by the revenue as genuine charitable activity. We find that from Asst Year 2002-03 to Asst Year 2008-09, the only year which underwent scrutiny was Asst Year 2004-05 and other asses .....

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of the revenue that the activity carried out in Solace is not a genuine activity. In any case, the Learned DIT (E) had held that the objects carried out by the assessee trust falls in the fourth limb of the definition of charitable purpose u/s 2(15) of the Act i.e advancement of any other object of general public utility . Hence we find that the Learned DIT(E) had accepted the objects of the assessee to be charitable in nature . Having construed so, there is no need to cancel the registration u/ .....

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tration of the trust. There may be a situation that in one year the gross receipts, if fourth limb is considered as applicable to trust, might exceed ₹ 25 lacs and accordingly the objects might not be charitable in nature, whereas in another year, the gross receipts might be less than the permissible limits and accordingly the activities would be construed as charitable in nature. Hence under these circumstances, if the registration u/s 12AA of the Act is cancelled, then the maximum eligib .....

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equires satisfaction about the objects of the trust as well as the genuineness of the activities, for the cancellation of the registration under section 12AA(3), all that it is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Thus, even if the trust is a genuine one, i.e., the objects are genuine, if the activities are not genuine and the same .....

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he income of the trust would be exempted under the provisions of the Act are clearly laid down under section 11 as well as in section 12 of the Act. Section 11 of the Act specifically points out the circumstances under which income of the trust is not to be included in the total income of the previous year of the person. So too, section 12 of the Act on the income derived from property held for charitable or religious purposes. 34-35. Thus, when the assessee is in receipt of income from activiti .....

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ese are matters of assessment and has nothing to do with the genuineness of the activity or the activities not in conformity with the objects of the trust. As rightly pointed out by learned senior counsel appearing for the assessee, as is evident from the reading of Circular No. 11 of 2008, dated December 19, 2008, the object of the insertion of first proviso to section 2(15) of the Act was only to curtail institution, which under the garb of "general public utility", carry on business .....

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al contract amongst its member assessee was registered as a charitable trust, falling in the category of advancement of any other objects of general public utility as per the definition of charitable purpose given under section 2(15). The Director (Exemption) noticed that the assessee was carrying out activities in the nature of trade, commerce or business, etc. and gross receipts therefrom were in excess of ₹ 10 lakhs and by taking resort to the newly added proviso w.e.f. 1-4-2009 to sect .....

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the action of the CIT(A) relying upon the newly inserted proviso from 01.04.2009 in cancelling the registration of the trust, in our view, is not correct or justified. The only effect will be that the Assessee will not be entitled for exemption or tax benefits which otherwise would have been available to it being registered as charitable institution, for the relevant year during which its income has crossed the limit of ₹ 10.00 lacs. Subject to our above observations cancellation of regis .....

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the Act. 2. Section 2(15) of the Act provides definition of "charitable purpose". It includes "advancement of any other object of general public utility" provided it does not involve carrying on of any activity in the nature of trade, commerce or business etc. for financial consideration. The 2nd proviso to said section, introduced w.e.f. 1-4-2009 vide Finance Act 2010, provides that in case where the activities of any trust or institution is of the nature of advancement of a .....

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ger be considered as charitable and the income of the trust/institution would not be eligible for tax exemption in that year. Thus an entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the aggregate value of receipts from commercial activities. The position remains similar when the first and second provisos of section 2(15) get substituted by the new proviso int .....

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d vide Finance Act, 2012 by inserting a new sub-section (8) therein to provide that such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1st April, 2009 and accordingly applies in relation to the assessment year 2009-10 onwards. 4. In view of the aforesaid position, it is clarified that it shall .....

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cellation becomes necessary on the ground(s) prescribed under the Act. 5. With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted u/s 12AA may lead to a charitable institution getting hit by sub-section (3) of section 115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, there .....

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