TMI Blog2024 (2) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... more factor which needs consideration is, till date, assessee's registration under section 12A of the Act as a charitable institution subsists. In fact, approval granted under section 80G of the Act is still continuing. These facts reflect the dichotomy in the stand of the revenue. For the purpose of section 12A and 800 of the Act the assessee is recognized as charitable institution, whereas, for the purpose of section 10(23C)(iv) assessee loses its charitable status. This approach of the revenue is unacceptable. The approval under section 10(23C) of the Act cannot be revoked, more so, when the objects of the assessee have remained same. We, for a moment, do not say that the competent authority under no circumstances can revoke the approval granted under section 10(23C)(iv) of the Act. However, for doing so, the revenue must bring on record cogent material to demonstrate that the assessee has deviated from the core objects based on which approval under section 10(23C)(iv) was initially granted to the assessee. It is also a fact on record that the activities of the assessee are in the category of medical relief to the poor. Thus, if we interpret the provisions of section 2(15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of assessment proceedings the Ld. Assessing Officer ( AO ) noticed difference in the donation as per FCRA returns and those shown in Income and Expenditure Account. The Ld. AO submitted proposal dated 12.12.2018 for Special Audit. Proposal for withdrawal of approval granted under section 10(23C)(iv) of the Act was also forwarded to Commissioner of Income Tax (Exemption), Delhi ( CIT(E) ) who issued show cause notice to the assessee. It is stated that the assessee could not give any proper explanation and failed to counter the findings of the Special Audit Team that the assessee is operating as a commercial pharmaceutical company by making its own products and maximising its projects. The activities of the assessee were not charitable and purely commercial in nature. The Ld. CIT(E) Delhi withdrew the approval under section 10(23C)(iv) granted to the assessee. Consequently, the Ld. AO rejected the assessee s claim of exemption and held its income to be taxable as AOP. Accordingly, he completed the assessment on income of Rs. 1,84,49,07,500/- under section 143(3) r.w. section 144B of the Act on 13.05.2021. 4. On appeal by the assessee, the Ld. CIT(A) allowed ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, the core issue which arises for consideration is, whether it can be said that the assessee is not carrying out charitable activity as envisaged in section 2(15) read with section 10(23C) (iv) of the Act. In this regard, the main allegation of the Departmental authorities is in relation to activities undertaking by the assessee in two targeted projects, viz., 'Pehel Project' and NACO Project. As discussed earlier 'Pehel Project is an initiative of assessee's parent organization, Population Services International to contribute to millennium development goal through limiting births and reducing maternal mortality amongst low-income group women of reproductive age in 30 districts across three states, Uttar Pradesh, Rajasthan and Delhi. The said program is created for improving the health of women by preventing unintended pregnancies by promoting modem family planning methods including IUD and increasing access to safe and legal MTP through medical abortion project. The allegation of departmental authorities in this regard is twofold, firstly, in the garb of charitable activity the assessee is actually promoting its own products, viz., Freedom 5 and Freedom 10 and, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, which resulted in breach of contract and the assessee had to invoke the arbitration clause and the Arbitrator passed an award in favour of assessee. Thus, short supply of Deluxe Nirodh by the Government compelled the assessee to sell more Masti condoms. It is a further fact on record that condom is categorized as essential drug and the pricing of condoms are regulated under the government regulations. Therefore, they have to be sold at subsidized rates, as per ceiling fixed by the Government. No adverse material has been brought on record by the Revenue to demonstrate that the assessee has violated the pricing of the products, as per the Government mandate. Moreover, there is no allegation by Government as per ceiling brought on record by the violated the pricing of the Moreover, there is no allegation by any of the Government agencies, be it Central or State, regarding promotion of assessee's own brand at the cost of Government brand of condoms. That being the factual position emerging on record, it cannot be said that the assessee has derived any undue benefit by promoting its own brand. In any case of the matter, the assessee was granted approval under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are in the category of medical relief to the poor. Thus, if we interpret the provision of section 2(15) of the Act strictly, the proviso would not apply . That being the case, by referring to the proviso to section 2(15) of the Act, it cannot be said that the assessee is engaged in any activity of business or commercial nature, hence, not existing for charitable purpose. Thus, on overall consideration of facts and materials on record and keeping in view the ratio laid down in the decisions relied upon, we hold that the impugned order passed by learned CIT (Exemption) withdrawing the approval granted under section/10 (23C) (iv) of the Act is unsustainable. Hence, deserves to be set aside. Accordingly, we do so. 6. It is pertinent to note that section 10(23C)(iv) of the income tax Act, 1961 provides for exemption from income for any income received by a trust, society, or other association of persons established for charitable purposes. However, such exemption is subject to certain conditions and requirements, and the Commissioner of Income tax (Exemptions) has the power to grant or revoke the approval of such exemption. In the present case, the assessment order was made based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact on record that the assessee has been registered as a charitable institution under section 12A of the Act since 20.03.1989 and registration under section 80G of the Act has been granted to the assessee on 20.09.2007. It is also a fact on record that the CBDT has granted approval under section 10(23)(iv) of the Act to the assessee vide notification dated 14.03.1991. These facts clearly establish that various departmental authorities in the past have recognized the assessee as an organization having charitable objects and essentially a charitable organization. It is a fact on record that even as on date, assessee's registration under section 12A and approval under section 80G of the Act is intact. On a careful reading of the impugned order of learned CIT (Exemption), it is very much evident that the trigger point for revocation of assessee's approval under section 10(23C)(iv) of the Act is the proposal given by the Assessing Officer while undertaking the assessment proceeding for assessment year 2016-17. As recorded by learned CIT (Exemption) in paragraph 6.2 of his order, the proposal for cancellation of approval under section 10(23C)(iv) of the Act was mainly for the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate books of account for foreign contribution and business activities. The only requirement in law is, the assessee must maintain separate bank accounts for foreign contribution, which the assessee has complied. It is noteworthy, before the departmental authorities, the assessee has specifically submitted that its accounts are maintained in ERP software, viz., Lawson to record transaction. It is understood, ERP software can be used to compute figures of any segment of the entity. Further, we have noted, in case of Ranbaxy Laboratories Ltd. Vs. ACIT (supra), the Coordinate Bench, while considering the issue whether separate books of account are required to be maintained where the accounts are maintained on SAP ERP System, has observed that SAP based ERP system of accounting tantamount to maintenance of separate books of account. Thus, applying the ratio laid down by Coordinate Bench, we have to accept assessee's plea that there is no necessity of maintaining separate AR books of account, once the accounts are maintained in ERP system. Thus, in view of the aforesaid, the allegation of the CIT (Exemption) that due to non-maintenance of separate books of account the condition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and spreading awareness and increasing acceptance of an alternative method of family planning alien to the target population it is a fact on record that the allegation made by the departmental authorities is unilateral There is nothing on record to suggest that either the parent organization or the Government Authorities have made any allegation regarding the diversion of foreign contribution received for any other purpose, except the purpose for which it was given or it was utilized for the business pain of the assessee. Even there is no violation, as alleged, under the Foreign Contribution Regulation Act. Thus, in absence of any contrary material brought on record by the Revenue, it cannot be said that the assessee has utilized the foreign contribution received in respect of 'Pehel Project' for its own commercial gain. 23. As regards the allegation of the Departmental Authorities that the assessee has earned profit by selling products, viz., Masti Brand of condoms in NACO project. The facts on record reveal that, though, as per the agreement with the Government, the Government has to supply the assessee two different brands of condoms, viz., Delux Nirodh and Masti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the said assessment year can be rejected. However, that cannot be a reason to revoke the approval granted under section 10(23C)(iv) of the Act. One more factor which needs consideration is, till date, assessee's registration under section 12A of the Act as a charitable institution subsists. In fact, approval granted under section 80G of the Act is still continuing. These facts reflect the dichotomy in the stand of the revenue. For the purpose of section 12A and 800 of the Act the assessee is recognized as charitable institution, whereas, for the purpose of section 10(23C)(iv) assessee loses its charitable status. This approach of the revenue is unacceptable. 25. In the aforesaid scenario, the approval under section 10(23C) of the Act cannot be revoked, more so, when the objects of the assessee have remained same. We, for a moment, do not say that the competent authority under no circumstances can revoke the approval granted under section 10(23C)(iv) of the Act. However, for doing so, the revenue must bring on record cogent material to demonstrate that the assessee has deviated from the core objects based on which approval under section 10(23C)(iv) was initially granted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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