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Facts
The assessee, Radha Madhav Nishkam Seva Samiti, appealed against the CIT(E)'s rejection of its application for registration under Section 12AA of the Income Tax Act. The CIT(E) rejected the application on grounds that the assessee's activities, particularly selling medicines, were commercial, lacked proper documentation for purchases and genuineness, and involved large cash transactions, failing to demonstrate a charitable nature.
Held
The Tribunal noted that the assessee produced additional documents and financial statements during the appeal. Considering these new submissions and guided by the Supreme Court's decision in `ACIT(E) vs. Ahmedabad Urban Development Authority`, the Tribunal decided to remand the case to the Assessing Officer (AO) for a fresh examination. The AO was directed to consider the new evidence and financial statements in light of the judicial pronouncements.
Key Issues
The core issues were whether the assessee's activities were genuinely charitable or commercial, justifying the rejection of 12AA registration, and the proper application of provisions concerning income from incidental commercial activities for charitable entities.
Sections Cited
12AA, 12A, 80G(5D), 11(4A), 2(15), 13(8), 10(23C), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI
Date of Hearing 11/01/2024 Date of Pronouncement 17/01/2024 ORDER
PER YOGESH KUMAR U.S., JM:
This appeal filed by the Assessee against the order of Learned Commissioner of Income Tax (Exemptions), [“CIT(E)”, for short], New Delhi, dated 31/08/2018. The following grounds of appeal taken by the assessee:
2 Radha Madhav Nishkam Seva Samity vs. CIT “1. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Exemption) erred in rejecting Appellant application filed u/s 12AA of the Income Tax Act.
2. On the facts and circumstances of the case, the learned Commissioner (Exemption) erred in his findings that the religious objects are not eligible for registration Income Tax u/s 12A of the Income Tax Act.
3. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Exemption) erroneously concluded the following, while rejecting Appellant application filed u/s 12AA of the Income Tax Act: a) The 70% of donation received in cash and alleged that it is violation of section 80G (5D) when the section provides, donation paid cash above Rs 2000 is not eligible for deduction. b) Huge cash deposit and payment from bank does not give credence for charitable in nature. When medicine sales and donations deposited in bank. c) Only 20% of total income applied, even after having sufficient fund did not undertake the sufficient charitable activity.
4. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Exemption) erred in following observations: a) The selling of medicine is not in accordance with objects and aim of society. b) The activity of selling of medicine at low rate by the applicant society is not charitable in nature c) The selling of medicine does not indicate genuineness of the activities of society d) The purchase/ sales bills of medicine not provided 5. The Appellant craves to leave, add, amend, modify, delete and/or change all or any of the grounds on/or before the date of hearing.”
The assessee is aggrieved by the order of the Ld. CIT(E) in denying the registration u/s 12AA of the Income Tax Act, 1961 (“Act”, for short). The Ld. Counsel for the assessee submitted that the reason for rejecting the registration u/s 12AA of the Act is that nature, there is a religious objects in the MOA, activity undertaken by the assessee is different from the objects and almost all transactions are in cash, the charitable and religious nature of the objectives and genuineness of the activities of the trust or institution cannot be established’. Ld. Counsel for the assessee has also filed numerous documents before the Tribunal for admission of additional evidence under Rules-29 of the Rules and submitted that the documents produced by the appellant will suffice the requirements in support of the assessee for grant of registration u/s 12AA of the Act, therefore, sought for remanding to the file of Ld. PCIT(E).
Per contra, the Ld. DR vehemently objected the submission made by the Ld. AR and contended that the order of the CIT(E) requires no interference as the assessee is conducting activities of selling the medicines and the assessee is not entitled to get the registration u/s 12AA of the Act. Further submitted that the Assessee is carrying out commercial activity and the receipt thereon exceeds the quantified limit, therefore, the Assessee is not entitled Page 3 of 7 the Supreme Court in the case of ACIT(E) vs. Ahmedabad Urban Development Authority [2022] 449 ITR 1 (SC).
We have heard the parties and perused the materials available on record. While rejecting the registration u/s 12AA of the Act, the CIT(E) specifically observed that ‘the appellant has claimed that the society is engaged in selling the medicine at subsidize rate, but no bills for purchase of medicines have been provided by the applicant and also no expenses and particulars of purchasing the medicine are reflected in the Income and Expenditure Account. The sales/purchases account of medicines is not provided and only Rs.2,50,880/- has been shown as net receipts. It was not denied by the appellant has shown some expenses towards group marriage and gift etc. apart from miscellaneous administration expenses, however, gross sales/purchase of medicine is not provided which is commercial activity having net profit of Rs.2,50,880/-. Therefore, the genuineness of the activity undertaken by the society i.e., selling of medicines or charity activities have not been proved, therefore, the Ld. CIT(E) rejected the registration. Page 4 of 7
The Ld. Counsel for the assessee has produced numerous documents under Rule-29 of Income Tax Appellate Tribunal Rules and also produced the financials for the period ending on 31/03/2019. The Hon’ble Supreme Court in the case of ACIT(E) vs. Ahmedabad Urban Development Authority [2022] 449 ITR 1 (SC) laid down the ratio as under:
“A.1. It is clarified that an assesses advancing general public utility cannot engage itself in any trade commerce or business or provide service in relation thereto for any consideration (cess, or fee or any other consideration); A.2 However, in the course of achieving the object of general public utility, the concerned trust, society, on other such organization, can carry on trade commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or business are connected (actual carrying out inserted wet. 01 04 2016) to the achievement of its objects of GPU and (i) the receipt from such business or commercial activity or service in relation thereto does not exceed the quantified limit as amended over the years (Rs. 10 lakhs wet 01.04.2009, then Rs. 25 lakhs wet. 01.04.2012, and now 20% of total receipts of the previous year, w.e.f 01.04.2016); A3. Generally the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost- basis or nominally above cost, cannot be considered to be trade commerce. or business” or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fail within the mischief of "cess, or fee, or any other consideration towards Trace, commerce or business" In this regard, the Court has clarified through lustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment. A.4 Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the Page 5 of 7
6 Radha Madhav Nishkam Seva Samity vs. CIT nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus of gains must, therefore be incidental. The requirement in Section 11/4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15) has not been breached. Similarly, the insertion of Section 13(8) seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions.”
Considering the above facts and circumstances that the assessee has produced the documents in support of the claim for registration and also the copy of the financials for the period ended 31/03/2019, we deem it fit to remand the matter to the file of the AO with direction to consider the documents produced by the appellant including financial statement in terms of judgment of Hon’ble Supreme Court in the case of PCIT vs. Ahmedabad Urban Development Authority (supra).
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in open Court on 17th January, 2024.