THE COMMISSIONER OF INCOME TAX vs. PARAMOUNT CHARITY TRUST

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TAXAP/1035/2018HC GujaratGJHC24048090201821 August 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court agreed with the view of the Income Tax Appellate Tribunal (ITAT). The Court noted that the existing objects in the original trust deed were sufficiently broad to cover charitable activities related to education, medical aid, and relief during calamities. The Court found that these existing objects would have enabled the Trust to support a diagnostic center as long as it was for a charitable purpose. The amended objects clarified that such a center would be run on a no-charge or no-profit basis. The Court found it difficult to understand how the Commissioner concluded that such a center would be a commercial venture. Therefore, the High Court held that the ITAT was justified in its decision. The operative direction was to dismiss the Tax Appeal.

What were the facts?

The Revenue, represented by the Commissioner of Income Tax, filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had allowed registration to the assessee, Paramount Charity Trust. The Trust, initially registered under Section 12A, had its registration under Section 12AA cancelled by the Commissioner. The Commissioner's reasoning was that the Trust had amended its objects to include providing medical diagnostic facilities without informing him, and that these new objects were not covered by the original charitable purposes. The Commissioner believed these amendments constituted a deviation and potentially a commercial venture. The ITAT reversed the Commissioner's decision, finding the non-communication of amendments to be a mere irregularity and disagreeing with the commercial venture assessment.

What were the issues?

1. Whether the Appellate Tribunal was justified in allowing registration to the assessee, disregarding the fact that the assessee trust is not a charitable organization, as the Trust has not fulfilled the conditions laid down for registration in Section 12AA of the Act, 1961 and Rule 17A of the Income Tax Rules, 1962? Assessee's Contention: The judgment does not record specific arguments made by the assessee before the High Court. However, the ITAT's reasoning, which the High Court agreed with, suggests the assessee argued that the non-communication of amendments was a mere irregularity and that the amended objects did not deviate from the charitable purpose. The ITAT also held that running a diagnostic center was not necessarily a commercial venture and that existing objects sufficiently covered the purpose. Revenue's Contention: The Revenue contended that the assessee trust was not a charitable organization because it failed to fulfill the conditions for registration under Section 12AA of the Income Tax Act, 1961, and Rule 17A of the Income Tax Rules, 1962. Specifically, the Revenue argued that the amendments to the trust deed, which included providing medical diagnostic facilities, were not informed to the Commissioner and mutilated the charitable objects of the trust. The Revenue believed these new objects went beyond the original charitable purposes and could be construed as a commercial venture.

Which sections of the Income-tax Act were involved?

Section 12AA,Section 12A

AI-generated summary — verify with the full judgment below

C/TAXAP/1035/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL No. 1035 of 2018 ============================================================= THE COMMISSIONER OF INCOME TAX Versus PARAMOUNT CHARITY TRUST ============================================================= Appearance : Mrs MAUNA M BHATT, Advocate for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ============================================================= CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Mr. JUSTICE B.N. KARIA 21st August 2018

ORAL ORDER (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI) Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad [“Tribunal” for short] dated 27th February 2018, raising following question for our consideration : “Whether the Appellate Tribunal is justified in allowing registration to the assessee disregarding the fact that the assessee trust is not a charitable organization, as the Trust has not fulfilled the conditions laid down for registration in Section 12AA of the Act, 1961 and Rule 17A of the Income Tax Rules, 1962 ?” Page 1 of 4

C/TAXAP/1035/2018 ORDER The respondent, a registered public trust, had applied for and was granted registration under Section 12A of the Income- tax Act, 1961 [“the Act” for short]. Initially, the object of the Trust had eleven clauses which inter alia included education purpose; research; relief to poor; medical aid in form of donations to the hospitals, dispensaries, convalescent homes, asylums, nursing homes and other public institutes for administering medical relief to the poor and to organize relief works in normal times as well as during natural catastrophes. The trust deed authorize the trustees to amend the objects as long as the same were for public charitable purpose. This trust deed was amended so as to include providing all kinds of medical, diagnostic, family welfare and general health facilities and treatment to the patients, in the field of allopathy, Homeopathy or Ayurved, without any distinction of castes, creed, race, religion or language basis, either on free of charge or no profit basis. Yet another object added was to buy, acquire, hire, take on lease, import medical or diagnostic machineries and equipments to run a hospital, dispensary, maternity home, etc. It was provided that such diagnostic treatment center would be providing service either on free of Page 2 of 4

C/TAXAP/1035/2018 ORDER charge or no profit basis. The Commissioner was of the opinion that insertion of these clauses were not informed to him and they mutilated the charitable objects of the trust. On such basis, he proposed to cancel the registration in exercise of powers under Section 12AA of the Act. He eventually passed an order cancelling the registration. In the process, he rejected the assessee’s contention that the existing clauses already enable the Trust to open diagnostic center and that therefore, there was no deviation from the charitable objects. He concluded that by no stretch of imagination, the existing objects would cover “providing medical diagnostic center ”. In appeal, the Tribunal reversed the contention of the Commissioner. By the impugned judgment, Tribunal was of the opinion that non communication of the amendment in the trust deed was a mere irregularity and would not be a ground for cancellation of registration already granted. The Tribunal did not agree with the Commissioner that running of a diagnostic center was a commercial venture. The Tribunal also held that the existing objects sufficiently cover the purpose also. Page 3 of 4

C/TAXAP/1035/2018 ORDER We are in broad agreement with the view of the Tribunal. We have noted existing objects as well as those which were added by an amendment in the trust deed. The objects in the original trust deed were sufficiently wide and cover range of charitable activities relateable to education, medical aid and help to poor in times of calamities. The existing objects would have enabled the Trust to support the diagnostic center as long as it was done for charitable purpose. The amended objects clarify that such center would be run on no charge, or at any rate on no profit basis. It is difficult to see how the Commissioner thought such center would be a commercial venture. In the result, Tax Appeal is dismissed. [Akil Kureshi, J.] [B.N Karia, J.] Prakash Page 4 of 4

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