MANCAN FOUNDATION,UDAIPUR vs. COMMISSIONER OF INCOME TAX (EXEMPTION), JAIPUR

2 ITA 1092/JP/2019_ Manchan Foundation Vs CIT(E) i. Holding that the activities of the Foundation are not Charitable in nature and it is predominantly carrying out business on commercial basis. ii. The Trust having undertaken sponsored programs and activities which solely cater to product branding activities for the sponsoring multinational pharma companies, its activities cannot be held as Charitable within the meaning of sec. 2(15) of ITA. iii. The Foundation's activities are not charitable but predominantly commercial in nature. iv. Since the Foundation has undertaken only Sponsored programs for which it has been a recipient amounts on which TDS has been deducted and the conditions of which sponsorships prevent the freedom of the Foundation to spend the amounts for any activities on its volitions, such activities undertaken cater to the profit motives of such sponsoring multinational companies and hence its activities cannot be held to be charitable in nature u/s 2(15) of ITA and thus Registration u/s. 12AA to such a Trust/ Foundation cannot be granted. v. The CIT Exemption, while rejecting the Registration has gone by his wrong notion to conclude that such sponsored programs was the sole activities of the Foundation in in doing so ignoring the wide range of charitable object specified in its Charter for formation, all of which are with the ultimate object of charitable activities with no objects of commercial nature. The appellant prays leave to add to, alter and / or amend the aforesaid grounds of appeal at or before the time of hearing of appeal.”

We have considered the rival submissions as well as relevant material on record. As regards the sufficiency of cause for filing the appeals belatedly, it is settled principles of law that the Courts have to take liberal approach while interpreting the expression ‘sufficient cause’ for condonation of delay. In case of Collector, Land Acquisition Vs. Mst. Katiji (1987) 167 ITR 471, the Hon’ble Supreme Court has laid down the principle that the power to condone the delay provided under the statute is to enable the Courts to do substantial justice to the parties by disposing of the matter on merits, therefore, while considering the matters for condonation of delay, the law must be applied in a meaningful manner which subserves ends of justice and technical considerations should not come on the way of cause of substantial justice. There is no quarrel that the explanation and reasons explained for delay must be bonafide and not merely a device to cover an ulterior purpose such as laches on the part of the litigant or an attempt to save limitation in the underhand way. If the party who is seeking condonation of delay has not acted in malafide manner and reasons explained are factually correct then the Court should 5 ITA 1092/JP/2019_ Manchan Foundation Vs CIT(E) be liberal in construing the sufficient cause and lean in favour of such party. A justice-oriented approach has to be taken while deciding the matter for condonation of delay. However, this does not mean that a litigant gets free right to approach the court at its will.

The facts of the case in brief are that the assessee filed application before the ld. CIT(E) seeking registration U/s 12AA of the Act. However, the ld. CIT(E) after considering the case of the assessee passed order U/s 12AA(1)(b)(ii) of the Act dated 27/06/2019 thereby rejected the application for registration U/s 12AA of the Act.

Aggrieved by the order of the ld. CIT(A), the assessee is in further appeal before the ITAT by taking the grounds mentioned above.

On the other hand, the ld AR of the assessee has reiterated the same arguments as were raised before the ld. CIT(E) and relied on the written submissions filed before the Bench and the same is reproduced below:

The learned CIT(Exemption) has denied registration u/s 12AA laying emphasis on the nature of contributions made by the pharmaceutical companies terming the same as " Sponsorship" and also alleging that such contributing companies also deducting TDS on their such sponsorship contributions and hence same being largely driven by their Object of maximizing the profits of the Sponsors/ sponsoring entities and any activities so conducted with such sponsorships cannot be termed as charitable activities.

The CIT(E) has acting with strong bias against the pharma companies in general that in concluding the issue of registration, has not even bothered to appreciate the jurisprudence on the issue of granting registration on the basis of Objects of the trust and its overall intent and purposes.

Commencement of activities not a pre-condition for Granting Registration to a Trust. Thus, commencement or carrying out actual activities and/ or review of such activities to ascertain if factually in the nature of Charitable Object of the Trust is not required nor necessary for grant of Registration u/s 12AA, if the Objects defined are Charitable in nature pursuant to Sec.2(15) of ITA. Decisions relied in support of this contention are: i. Ananda Social & Education Trust [2020] 114 taxmann.com 693 (SC) ii. [2015] 58 taxmann.com 335 (Rajasthan)/[2015] 2014] iii. CIT v. Vijay Vargiya Vani Charitable Trust 232 Taxman 340 (Rajasthan)/ [2014] 369 ITR 360 (Rajasthan) iv. Abacus Foundation v. CIT. [2017] 88 taxmann.com 661 (Kolkata ITAT)

Holding of Talks & Events for Cancer awareness and prevention in different strata of people even with the help of sponsorship & contributions from business entities and/or generation of Surplus in the conduct of any charitable activity, is in itself cannot be a reason for denial of Registration on the pretext of the purpose or intent of the Trust to be that of carrying an activity of profit making or to be in the nature of trade/ commerce/ business. What needs to be seen the basic Objects and purposes and the overall intent and not the basis of resources to carry out such activities or an outcome of any such activities of charitable nature undertaken without any intent or purpose of profit. Reliance placed on the following judgements in support of the above: i. Credai Bengal v. ITO(Exemption) [2019] 110 taxmann.com 113 (Kolkata - Trib.) ii. Fragrance & Flavours Association [2018] 92 taxmann.com 325 (Mumbai Trib.) iii. India Olympic Association [2018] 96 taxmann.com 184 (Delhi - Trib.) iv. Rajasthan Cricket Association V ACIT [2017] 79 taxmann.com 464 (Jaipur -Trib.)

Further similarly, merely because the donors were pharmaceutical companies and they deducted TDS from their contributions to the Charitable Trusts, same would not convert a contribution or donation into a commercial receipt in the hands of the recipient charitable organization, on basis of presumptive inference, as long as assessee had credited amount as donations and also issued donation receipts. Reliance placed on the following in support: i. Heart Care Management v. DIT Exemption [2012] 22 taxmann.com 105 (Delhi)”

After having gone through the facts of the present case and after hearing the parties at length, we found that while denying the registration U/s 12AA of the Act and coming to the conclusion that nature of contributions made by the pharmaceutical companies and deducting TDS on such sponsorship contributions are largely driven by their Object of maximizing the profits of the Sponsors and therefore, the activities of the assessee were not termed as charitable activities. However, while coming to such conclusion, the ld. CIT(E) has not considered the object of the Trust. As per the objects of the Trust, the same is not on profit basis and the intent and also the overall 10 ITA 1092/JP/2019_ Manchan Foundation Vs CIT(E) scheme and theme of activities which were actually undertaken to make people at large aware of Cancer Disease, its dangers and what preventive care against the same was possible. The ld AR has also drawn our attention towards the activity filed by the settler trustee of the appellant wherein it has been specifically mentioned that the said Trust was found in February, 2018 with the objects of carrying out charitable activities primarily in the field of Cancer awareness and preventive care and to extent all kind of possible facilities, support and assistance to Cancer patients including the terminally ill patients amongst the public at large and without any object of profit making or monetary gains/benefit from such activities. The aims and objects have been such upto this date of functioning has been and continues to be same viz, awareness about Cancer ailments, detection of the disease early based on specific symptoms, educate about preventive care and support those suffering from any type of Cancer ailments. It was further affirmed and confirmed that the purpose and object of setting up of the Mancan Foundation was purely to carry out and conduct programs/event/talks to educate the public at large about the disease, to build awareness and preventive care of the disease, its timely symptoms, its detection in day to life of a common man and help and support such cancer victims in best manner possible. In the 11 ITA 1092/JP/2019_ Manchan Foundation Vs CIT(E) said affidavit, it was categorically mentioned that the foundation has never since its inception and till date undertaken any activities such as carrying out of Clinical Trials of any Drugs or products either for its own benefit or for any donor/contributing entities so as to directly or indirectly benefit any commercial activities of any such drugs manufacturing/marketing companies nor it has any such objects in its Charter of such a nature. It was further stated in the affidavit that a primary condition and requirement for undertaking any such activities as that of Clinical Trials of drugs or products, there is a requirement of obtaining a prior approval and registration with the ethics Committee which itself is registered with Drug Controller of Govt. of India (DCGI) and the Foundation neither has such approval/registration nor had ever applied or obtained the same in the past.

Apart from the above, we are of the view that commencement of activities are not necessary to be evaluated while granting of registration U/s 12AA of the Act. In this regard, we draw strength from the decision of Hon’ble Supreme Court in the case of Ananda Social & Education Trust (2020) 114 taxmann.com 693 (SC) wherein it was held that “ Section 12AA provides for registration of a Trust and such registration can be applied for any a trust which has 12 ITA 1092/JP/2019_ Manchan Foundation Vs CIT(E) been in existence for some time and also by a newly registered trust and there is not stipulation that trust should have already been in existence and should have undertaken any activities before making application for registration.

We are of the view that holding of Talks and events for Cancer awareness and prevention in different sections of people with sponsorship and contributions from business entities or surplus generated in any charitable activity, is in itself not an activity of/for making profit or in the nature of trade, commerce or business. In this respect, we draw strength from the following decisions:

Since, Section 12AA of the Act pertains to registration of the trust and not to assess of what a trust has actually done, we are of the view that the term ‘activities’ in the provision includes ‘proposed activities’. That is to say, a Commissioner is bound to consider whether the object of the Trust is genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust. In contrast, the position would be different where the Commissioner proposes to cancel the registration of a Trust under sub-section (3) of Section 12AA. There the Commissioner would be bound to record the finding that an activity or activities actually 14 ITA 1092/JP/2019_ Manchan Foundation Vs CIT(E) carried on by the Trust are not genuine being not in accordance with the objects of the Trust. Similarly, the situation would be different where the trust has before applying for registration found to have undertaken activities contrary to the objects of the Trust. As far as the facts of the present case are concerned, the objects of the Trust were not considered by the ld. CIT(E), therefore, we are of the view that overall scheme and theme of the activities which are undertaken by the appellant is to make people at large aware of Cancer diseases, its dangers and what preventive care against the same was possible. Therefore, at the time of issue of granting registration, the only basis which is required to be considered is the overall objects of the Trust and its overall intent and not the basis of resources to carry out such activities or an outcome of any such activities of charitable nature undertaken without any intent or purpose of profit. Therefore, keeping in view our above discussion, we set aside the order passed by the ld. CIT(E) and direct him to grant registration U/s 12AA of the Act to the appellant. However, in case at a later stage, after granting registration, if it is found that the activities of the appellant actually carried out by the Trust are not genuine, being not in accordance with the objects of the Trust, then in that eventuality, the ld. CIT(E) is at liberty to invoke the provisions of sub-section (3) of Section 12AA of 15 ITA 1092/JP/2019_ Manchan Foundation Vs CIT(E) the Act independently. With these observations, we allow the present appeal in terms indicated hereinabove.

In the result, this appeal of the assessee is allowed.