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.
· " 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.
Dr A Marthanda Pillai and Dr K K Aggarwal