PUNJAB KESARI CHARITABLE TRUST,MUMBAI vs. INCOME TAX OFFICER (EXEMPTION) WARD 2(2), MUMBAI

Date of hearing: 16.04.2024 Date of pronouncement : 13.05.2024 O R D E R PER RAJ KUMAR CHAUHAN, J.M.: 1) This appeal bearing 2015-16 is directed against the order of National Faceless Appellate Centre, Delhi hereinafter referred as CIT(A) [the Ld. Commissioner of Income Tax] Under Section 250 of the Income Tax Act, 1961 of (the Act) dated 18th October, 2023 in DIN No. 2) The order of Ld. CIT has been challenged before us on the following grounds:

“1) The learned CIT (Appeals) has erred in law and on the facts of the case in sustaining the order of the assessing officer holding that the income received from dispensaries is not incidental to be attainment of the main object of the trust and that the trust has not maintained separate books of accounts for the same. 2) The learned CIT (Appeals) has erred in law and on the facts of the case in not appreciating the fact that the assessee trust is maintaining separate books of accounts in relation to the income from dispensaries. 3) Without prejudice to the above, the learned CIT (Appeals) did not appreciate that even if the income is taxed as business income, the same should be taxed on total income of Rs. 25,46,926 instead of on gross receipts of Rs. 1,03,87,060/- 4) The learned CIT (Appeals) has erred in law and on the facts of the case in not adjudicating the ground relating to carry forward of deficit of earlier years.” 3) The brief facts of the case are that the assessee filed its return of income for the relevant assessment year i.e. A.Y. 2015-16 on 27th September, 2015 along with Income and Expenditure Account, “Aim and Objects : 5. To maintain, construct, open own, run, manage libraries, schools, charitable institutions, Dispensaries and hospitals to attain these objects.” 5) It is further argued that to run and manage dispensaries and hospitals for attaining the charitable objects of the trust is one of the main charitable activities carried out by the trust/assessee. It is therefore submitted that the earning from running the dispensary and hospital was entitled to be exempted Under Section 11 of the Act, because the said activity is incidental to the attainment of the 6) The Ld. Departmental Representative on behalf of the Revenue has argued that there is no illegality and perversity in the order of Ld. CIT(A), who has rightly dismissed the appeal because the appellant has miserably failed to satisfy the requirement of Sec 11(4A) of the Act; in order to claim Section 11 of the Act, separate books of accounts need to be maintained by the trust for the earning of the income from dispensary and it is further argued that, the said activity is not incidental to the attainment of the objective of the trust. Therefore, it is vehemently argued on behalf of Revenue that there is no merit in the appeal and same is liable to be rejected.

7) We have considered the rival submissions made on behalf of the parties. The question before us which needs to be determined is whether the Ld. Assessing Officer and CIT(A) are justified in denying the exemption Under Section 11 of the Act to the appellant 8) Let us first examine the provision of Section 11(1) and Section 11(4A) relevant to the present controversy; “11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income— (a) Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; (b) Income derived from property held under trust in part only for such purposes, the trust having been created before the • Case No.1: Acharya Jiyalal Vasant Vs. ITO (Exemption)–II(1), [2021] 127 taxmann.com “7.1 It would be relevant to refer to section 2(15) of the Act which defines "charitable purpose" to include inter alia the following: i. relief of the poor ii. education iii. medical relief, and iv. the advancement of any other object of general public utility. Circular No. 11 of 2008 dated 19.12.2008 issued by Central Board of Direct Taxes (CBDT) clarifies that the newly inserted proviso section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e. relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities. 7.2 ………………………..In the instant case, the maintenance of studio is intrinsic and in pursuance of the objects of the assessee which is education. It is well understood that teaching of Indian Classical Music is within the field of "education". The activities of the studio are carried on in order to achieve the main object of the Trust and cannot be construed as business. As mentioned earlier, since the trust is engaged in education, the provision to 6. We have heard both the parties and perused the records especially the impugned order. We find that AO had denied the exemption u/s 11(1) of the Act for the A.Ys. 1996-97, 1997-98 & 1998- by following the earlier year's order, but the appeal of the assessee was allowed by Tribunal. The department had filed the appeal before the Hon'ble High Court who had dismissed the appeal of the Department Escorts Cardiac Diseases Hospital Society (supra). Later, the Department filed the SLP before the Hon'ble Supreme Court of India against the order of the Hon'ble High Court and the Hon'ble Supreme Court of India had dismissed the SLP of the Department. Accordingly, the exemption u/s 11(1) of the Act for the A.Y 2003-04, 2004-05 & 2005-06 was allowed to the assessee as a charitable society who is engaged in providing medical relief. We further find that the AO has denied the exemption u/s 11(1) of the Act to the assessee for A.Y. 2010-11 by invoking the mischief of the Proviso of Section 2(15) mainly on the ground that the assessee is involved in trade commerce or business as the assessee receives the sponsorship receipt by conducting the seminars vide the order of the AO. The assessee appealed “Sub-section (4A) of Section 11 is the bone of contention between the parties. A careful reading of the said provision indicates that it talks of any income of the trust or an institution which is in the nature of profit and gains of business" and states that sub-section (1) of Section 11 would not apply unless two conditions mentioned therein are fulfilled, i.e (i) such business is incidental to the attainment of the objectives of the trust; (ii) and separate books of accounts are maintained by such trust or institutions in respect of such business.

11) As discussed earlier one of the main objective of the assessee trust and its establishment is to maintain and run the charitable institutions which includes dispensaries and hospitals to attain its objects. On perusal of the material on record and the order of the Ld. CIT(A) dated 22nd June, 2021, it becomes known that activity of running dispensaries is the main charitable object of the assessee. Assessee is a registered charitable trust and is running a 60 bed hospital in Navi Mumbai. The assessee is also having homeopathic dispensaries in Chembur, Mahim, Mulund, Santacruz and Vashi located in Mumbai and Navi Mumbai. The hospital is not a specialty hospital as it is catering to every section of the society. The five dispensaries are specializing in homeopathy. The medicine are not sold commercially and the rates are very low and 12) Regarding the second condition of maintaining separate books of accounts for claiming exemption Under Section 11(4A) of the Act, it is argued on behalf of the appellant that the appellant/assessee is maintaining separate books of accounts for its earning from the dispensaries and hospital and the said separate accounts was duly submitted before the Ld. AO as well as Ld. CIT(A) appeal but both of them has failed to notice that the said requirement is already fulfilled as per the requirement of Section 11(4A) of the Act. We have glanced through the paper books of the appellant and it is noticed that in the schedule B, Income and Expenditure account 13) From the above discussion it became crystal clear that the assessee has maintained separate books of accounts of the alleged business activity of running dispensary and hospitals and the activity carried out is incidental to the main objective of the assessee /appellant and as such benefit of Section 11 (1) cannot be denied. Therefore, both the Ground no. 1 and 2 are decided in favour of appellant. In view of decision of Ground no. 1 and 2 given in favour of the appellant/assessee, the decision on Ground no. 3 and 4 pales into insignificance and stands disposed off accordingly.

14) Hence, the income of ₹ 1,03,87,60 is not liable to be added as business income of the appellant and is accordingly held entitled 15) For the above reasons the appeal of the appellant is allowed in above terms.

Order pronounced in the open court on 13.05.2024.