Sub: ITAT Order for the A/Y 2009-2010 ADIT (E) vs
IMA
1. The
Income Tax case for A/Y2009-2010 was selected for scrutiny and the order was
passed against IMA by the then AO on the basis that some of the receipts are
arising out of commercial transactions with outsider who are non- member of the
IMA.
2. For
the next A/Ys i.e. 2010-11,2011-12 all orders were
passed on the same ground and huge demands were created against IMA. ( over
five crores)
3. The main controversy/ground was related to
section 2(15) regarding nature of receipts from various endorsements and rent
received.
4. The
IO case was that IMA case does not fall in the 2(15) "charitable purpose"
but falls in the proviso under advancement of any other object of general
public utility
2(15)
"charitable purpose" includes relief of the poor, education, medical relief,
preservation of environment (including watersheds, forests and wildlife) and reservation
of monuments or places or objects of artistic or historic interest,] and the
advancement of any other object of general public utility:
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 fee 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 [twenty-five lakh
rupees] or less in the previous year;]
5.
IMA appealed
against the AO Order in The court of CIT (Appeals) and won. This order was
challenged by IT Department in ITAT. The final order passed by ITAT is passed
now in IMA's favour.
Main Points
·
"
7.3. In the facts of the present case since the Ld. Sr. DR inviting attention
to only the agreement of Pepsico has canvassed that it cannot be related to any
charitable activity as the other companies may be health related and pharmaceuticals
companies we find on considering the copy of the specific agreement which is
placed at pages 152 to 169 that the “endorsement ” refers to “Quaker Oats” and
“Tropicana 100% fruit Juice and fortified drinks” as set out in page 152. Per se we find no conflict if the assessee in
the advancement of its aims and objects to promoting by improving public health
if on research and analysis it propounds that there are significant health
benefits to the uses of Oats or drinking fruit based, fortified health drinks
as opposed to aerted drinks having no health benefits."
·
" It is not the case of the Revenue that
the endorsement of healthy nutrition is medically/scientifically incorrect. "
·
" The assessee as per the mandate of its
objects and the methods set out in Clause IV(2); (3)(5) (6); (7) and (16) has
endorsed products on the claims of health and nutritional benefit the grievance
of the Revenue appears to be misplaced. The above is notwithstanding the
material fact considering the judicial precedent as laid down by the Jurisdictional
High Court in ITPO case (cited supra) namely that the dominant purpose of the activity was to mobilize funds for
charitable purposes and not for endorsing the products. In the absence
of any adverse finding in regard to the activities of the trust we find that
the department’s case has no merits. "
·
" On considering the judicial precedent
cited we find that the Hon’ble High Court took into consideration in the facts
of the ITPO that prime land was made available to the assessee to facilitate
its objects of providing space on rent etc. for promotion of trade wherein the
assessee apart from selling tickets etc was also providing food & beverage
outlets and providing for water, electricity etc in the facts of the present
case admittedly financial support is also provided to the assessee trust whose
activities have not been assailed to be contrary to the aims and objects and we
find that mobilizing resources towards its aims and objects that too within the
methods enshrined by the trust deed which are ploughed back by the society
towards its aims & objects to our minds does not cause any grievance to the
Revenue."
·
:It goes without saying that financial support
from the Ministry of Health and Family Welfare to the assessee necessarily
would be based on the functions performed by the said trust and would
necessarily be monitored at each and every step and stage with adequate checks
and balances and would not be allowed to be frittered away carelessly".
·
"Accordingly
considering the judicial precedent cited and the arguments of the parties
before the Bench and the peculiar facts and circumstances of the case which we
have brought out in great detail in the earlier part of this order, we hold
that the departmental grounds have no merit and deserve to be dismissed."
·
".................."trade",
"commerce" or "business" in Section 2(15), mean activity
undertaken with a view to make or earn profit. Profit motive is determinative
and a critical factor to discern whether an activity is business, trade or
commerce."
·
"
If the dominant and prime objective of the institution, which claims to have been
established for charitable purposes, is profit making whether its activities
are directly in the nature of trade, commerce or business or indirectly in the
rendering of any service in relation to any trade, commerce or business, then
it would not be entitled to claim its object to be a ‘charitable
purpose’. On the flip side, where an institution is not
driven primarily by a desire or motive to earn profits, but to do charity
through the advancement of an object of general public utility, it cannot but
be regarded as an institution established for charitable purposes.
·
" .....the expression "charitable
purpose", as defined in Section 2(15)' cannot be construed literally and
in absolute terms. It has to take colour and be considered in the context of
Section 10(23C)(iv) of the said Act."
·
".
It is also clear that if the literal interpretation is given to the proviso to
Section 2(15) of the said Act, then the proviso would be at risk of running
fowl of the principle of equality enshrined in Article 14 of the Constitution
India. In order to save the Constitutional validity of the proviso, the same
would have to be read down and
interpreted in the context of
Section 10(23C)(iv) because, in our view, the context requires such an
interpretation."
·
"The correct interpretation of the proviso to
Section 2(15) of the said Act would be that it carves out an exception from the
charitable purpose of advancement of any other object of general public utility
and that exception is limited to activities 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. In both the
activities, in the nature of trade, commerce or business or the activity of
rendering any service in relation to any trade, commerce or business, the
dominant and the prime objective has to be seen. If the dominant and prime
objective of the institution, which claims to have been established for
charitable purposes, is profit making whether its activities are directly in
the nature of trade, commerce or business or indirectly in the rendering of any
service in relation to any trade, commerce or business, then it would not be
entitled to claim its object to be a ‘charitable purpose’.
·
Section
10(23C)(iv) of the Income-tax Act, 1961 – Exemptions charitable
funds/institutions – Notified fund or charitable institution: Notification No. S.O. 692, dated
23-9-2009
In exercise of the powers conferred by
sub-section (iv) of clause (23C) of section 10 of the Income-tax Act, 1961 (43
of 1961) read with rule 2C of the Income-tax Rules, 1962, I, Chief Commissioner
of Income-tax, Udaipur hereby notify the Help Society, New Purnima Guest House,
Holy Chowk, Charbhuja, Rajsamand (Rajasthan) for the purpose of the said
sub-clause for the assessment years 2008-09 onwards subject to the following
conditions, namely :-
(i) The
assessee will apply its income, or accumulate for application, wholly and
exclusively to the objects for which it is established;
(ii) The
assessee will not invest or deposit its fund (other than voluntary
contributions received and maintained in the form of jewellery, furniture,
etc.) for any period during the previous year relevant to the assessment years
mentioned above otherwise than in any one or more of the forms or modes
specified in sub-section (5) of section 11;
(iii) This
notification will not apply in relation to any income being profits and gains
of business, unless the business is incidental to the attainment of the
objectives of the assessee and separate books of account are maintained in
respect of such business;
(iv) The
assessee will regularly file its return of income before the income–tax
authority in accordance with the provisions of the Income-tax Act, 1961;
(v) That
in the event of dissolution its surplus and the assets will be given to a
charitable organization with similar objectives;
This notification is applicable only to the
recipients of income on behalf of the assessee and not to any other receipt or
income of such recipients. Taxability or, otherwise of the income of the
assessee would be separately considered as per the provisions of the Income-tax
Act, 1961.
Take
Home Points
·
As
long as the dominant purpose of any activity of society is to mobilize funds and
resources for the charitable purposes as mentioned in its aims and objects and
these raised funds are ploughed back and used by the society only towards its
aims and objects, the same is within the law and within the proviso of section
2(15). And are allowed.
·
Raising
funds by sponsorships, endorsements, registration fee, entry to events ate are
allowed to IMA and its branches as long as the proceeds and the excess of
income over the expenditure is used only for the objects for which IMA was
formed.
·
This
order can be cited in the following A/Ys cases which are pending before
different courts at different stage.
Regards
Dr A Marthanda Pillai and Dr
K K Aggarwal
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