M/S. PUBLIC HEALTH TECHNOLOGIES TRUST,NEW DELHI vs. ITO(E), NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F”: NEW DELHI BEFORE SHRI S.K.YADAV, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 6550/Del/2014

Public Health Technologies ITO(E), Trust, New Delhi Vs. U-103, Chaitanya Apartment, Kh. NO. 1053, Kapashera, New Delhi PAN:AACTP4655L (Appellant) (Respondent)

Assessee by : Sh. Salil Agrawal, Adv Sh. Shailesh Gupta, CA Revenue by: Sh. OP Meena, CIT DR Date of Hearing 10/1/2017 Date of pronouncement 12/01/2017

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT (Exemptions), New Delhi dated 29.09.2014 wherein on an application made by the assessee for registration u/s 12AA of the Income Tax Act was rejected. 2. The assessee has raised the following grounds of appeal:- 1. (a) That the Ld. AO has acted arbitrarily, whimsically and on presumptive basis, contrary to the principles of natural justice and provisions of law, in conducting the assessment/registration proceedings and framing the assessment, a guess work without applying the mind independently and framing the assessment mechanically, and the same stands vitiated being bad in law and liable to be quashed. 1. (b) That the Ld. AO has passed the order without there being any basis for the same and the assessment order so passed is bad in law and void ab-initio. 2. That the Ld. AO has mis-conducted the proceedings and has not followed the procedures laid down in the Act, but has conducted the proceedings in a predetermined, biased manner with the sole intention of rejecting the Exemption without affording proper and just opportunity to the appellant.

Page 2 of 8 3 That the main objective of our Trust is to provide Medical Relief to the poor masses & the same is covered under Public Charitable purpose. 4. That the main objective of our Trust is to provide our Device Swasthya Slate Tab to every nook & corner of the country for the benefit of the poor & the Common Man.” 3. On reading of the grounds of appeal filed by the assessee raising four grounds of appeal, It is apparent, that only grievance of the assessee is rejection of its application u/s 12AA of the Income Tax Act. 4. Brief facts of the case is that the assessee is a charitable trust formed by one Shri Kanav Kahol by deed of declaration of trust 6.012.2013 as a settler for carrying out following objects:

i. To promote, organize and support activities undertaken for providing medical relief to the marginalized community, especially to the economically and socially weaker sections of people ii. To promote education in general and more particularly to advance the education of the public in general on" health care, conduct workshops and training facilities for nurses, healthcare workers etc and to increase the general awareness of public on the same. iii. To provide medical relief to the poor and needy through cheaper diagnostic and healthcare apparatus by developing and providing affordable healthcare products, solutions, including technology, diagnostic tools and other products for charitable purposes, through study, evaluation, research and development through its endeavours and linkages with Public Health Foundation of India, to develop and provide affordable healthcare products, solutions, including technology, diagnostic tools and other products for charitable purposes through study, evaluation, research and development through its endeavours and linkages with Public Health Foundation of India iv. To develop products and solutions that would empower and enable the grassroots level health workers in India and in similarly placed countries for the benefit of India, to ensure access and affordability of modern healthcare technology to the economically and socially weaker sections of people v. to undertake, organize, assist, promote, support and /or co-ordinate all activities aimed at creating and stimulating an awareness to address the increasing health challenge faced by India vi. to evolve, devise, undertake implement, promote, participate, support and/or coordinate the strategy and plan through the help of various individuals, corporate houses, bilateral and multilateral agencies, institutions, universities, associations, international and national bodies and countries, non-governmental organizations, governments including government departments, federal organization, state governments, provincial and municipal bodies, government undertaking of India and other countries focusing on but not limited

Page 3 of 8 to creating higher standards of public health addressing capacity, driving health oriented research, consultancy and affordable technology initiative for shaping public health policies in India and other countries, offering customized programs and solutions to approach public healthcare needs as allowed under laws of India vii. to open, found, establish, promote, set-up, maintain, assist, support and, or help in setting up, running and, or maintaining of libraries, research centers, laboratories and information services to promote and facilitate the objectives of the trust as allowed under laws of India viii. to undertake, organize, establish, promote, setup, maintain, assist, support and/or - facilitate study courses, workshops, conferences, lectures, internships and other similar activities in furtherance of the trust as allowed under laws of India ix. the objects of the trust hereby created shall be for charitable purposes for public at large as outlined above and shall be maintained and administered as such within the territory of India without and distinction or discrimination as to caste, creed, religion, nationality, color, race, gender or status.”

Page 4 of 8 of general public utility and are in the nature of trade, commerce and business within the meaning of section 2(15) of the Income Tax Act. However, it was also noted that applicant though claims to be manufacturing diagnostic tools has not carried out any such activities and no such manufacturing facilities were developed. In the end, it was noted that as Mr. Kanav Kahol who is a team leader of public health foundation of India (PFHI) who transferred funds to the applicants trust when that entity received 5 million dollars development grant from Norway India partnership initiative in December 2013. Therefore, it was inferred from this financial transaction by ld CIT that the applicant trust is only going to be a trading channel for Swathya Slate and applicant trust merely will act as an agent. Hence, he held that the activities of the applicant were under the category of objects of general public utility and is in the nature of business. As the gross receipt of the assessee for the period was exceeding Rs. 1 crore he held that assessee is not eligible for registration u/s 12AA of the Act in view of the proviso to section 2 (15) of the act. He further held that when the registering authority feels that the trust is not created for charitable purposes he can refuse the registration at the threshold. He further referred to the amendment made in the provisions of section 2(15) from AY 2009-10. Ultimately, he held that while granting the registration both the objectives as well as the actual activities including the genuineness of the activities is to be seen and he held that the whole transaction does not appear to be genuine. He further held that there are no reasons as to why the PHFI choose to give advances to the trust, which was created by one of its own employees. Further, on examination of the income and expenditure account he held that Rs. 60 lakhs has been spent on administrative expenses and the opening stock and purchases are Rs. 5572960/- which has resulted in excess of income on expenditure of Rs. 5561888/-. Therefore, it was held that assessee has not done any charitable work and the only activity that is carried out was for generating of income, which cannot be held to be carrying out its Charitable objective. Therefore, he held that since the assessee has not applied any part of its income on objective stated in MOA which were claimed to be ‘charitable’ in nature assessee does not fulfill the criteria laid down u/s 12AA and 12 read with section 11 and it is premature to grant registration at this stage. Consequently, he rejected the application

Page 5 of 8 for grant of registration u/s 12AA of the assessee vide order dated 29.09.2014. Aggrieved by this the assessee is in appeal before us. 6. The ld Authorised Representative of the assessee submitted that while granting registration u/s 12AA, ld CIT cannot go on the presumption and surmises. He submitted ld CIT has inferred about the trading and manufacturing activities of the trust without evidence. He stated that trust does not have any such activities. He referred to the objects of the trust and submitted that they are charitable in nature as all the objects are related to medical relief and healthcare. He submitted that the ld CIT should have examined only the objects of the trust whether they are charitable or not. He further stated that trust was formed on 6th December 2013 and filed its application on 26.03.2014 therefore, there are no major activities undertaken by the assessee and as assessee is going to promote the Swasthya Slate in the Govt. organization it has incurred professional charges, staff salary, rent etc. and for supply to got has stock in hand. As an income, it has received grant only. None of this expenditure can be said to be spent on any other object other than the medical relief. The mere incident of excess of income over expenditure cannot lead to the fact that assessee is carrying on business. He therefore submitted that rejection of the application of the assessee by the ld CIT is erroneous. 7. The ld DR relied upon the para No. 5.1 of the order of the ld CIT (E). 8. We have carefully considered the rival contentions. Any trust or institution carrying on the object of ‘charitable purposes’ as provided u/s 2(15) is entitled to registration u/s 12A of the Income Tax Act, 1961 for claiming applicability of section 11 and 12 of the Income Tax Act. For the purpose of registration an application is required to be made in the prescribed form, manner and within prescribed time to the registering authority. On receipt of such application, the registering authority shall call for such documents, information as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust and may make further enquiries. Thereafter, after satisfying himself about the object of the trust and genuineness of the activities, he may pass the order for registering the trust or otherwise. That the ld CIT (E) in the present case has firstly held that trust has not incurred any expenditure on the object of the trust, further he has also held that neither a manufacturing facility nor a trading facility is

Page 6 of 8 established by the assessee, and held that trust is carrying on the business as trader and agent. In view of this, the assertion made by the ld CIT (E) that from financial transactions it appears that the applicant trust is only going to be a trading channel for the Swasthya Slate, is merely an inference. Hence, without looking into actual activity of the trust above inference drawn by him is premature and without evidence. Furthermore, the promotion of Swasthya Slate is the object, which falls into medical relief unless it is later on found that trust is carrying on objet of general public utility and some services or activity in the nature of trade, commerce, and business, it can be examined by the Assessing officer, and he can assess accordingly. No such evidences were brought on record at the time of refusing registration. Therefore, as it has not been established that assessee is carrying on the object of general public utility and engaged in trade, commerce, or business, when the object of the trust shows that it is established for medical relief, the application filed by the assessee cannot be rejected on this ground. Further, the decision cited by the adjudicating authority were all relating to the trust engaged in business while carrying on object of general public utility. As the adjudicating authority has not proved that assessee is not carrying on the object of medical relief but of general public utility, the reliance placed on those decisions is incorrect. Regarding the loans/ donation and grants received from the other trust can also be examined at the time of assessment along with the profit motive, if any, of the trust. Regarding the turnover of the assessee crossing threshold limit of Rs 1 cr , the issue has been clarified by CXBDT in the circular no CIRCULAR NO.21/2016 [F.NO.197/17/2016-ITA-I] as under :- CIRCULAR NO.21/2016 [F.NO.197/17/2016-ITA-I], DATED 27-5-2016 Sections 11 and 12 of the Income-tax Act, 1961 ('Act') exempt income of charitable trusts or institutions, if such income is applied for charitable purpose and such institution is registered under section 12AA of the Act. 2. Section 2(15) of the Act provides definition of "charitable purpose". It includes "advancement of any other object of general public utility" provided it does not involve carrying on of any activity in the nature of trade, commerce or business etc. for financial consideration. The 2nd proviso to said section, introduced w.e.f. 1-4-2009 vide Finance Act 2010, provides that in case where the activities of any trust or institution is of the nature of advancement of any other object of general public utility and it involves carrying on of any activity in the nature of trade, commerce or business; but the aggregate value of receipts from such commercial activities does not exceed Rs. 25,00,000/- in the previous year, the purpose of such trust/institution shall be deemed as "charitable" despite it deriving

Page 7 of 8 consideration from such activities. However, if the aggregate value of these receipts exceeds the specified cut-off, the activity would no longer be considered as charitable and the income of the trust/institution would not be eligible for tax exemption in that year. Thus an entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the aggregate value of receipts from commercial activities. The position remains similar when the first and second provisos of section 2(15) get substituted by the new proviso introduced w.e.f. 1-4-2016 vide Finance Act, 2015, changing the cut-off benchmark as 20% of the total receipts instead of the fixed limit of Rs.25,00,000/- as it existed earlier. 3. The temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 13 of the Act has been amended vide Finance Act, 2012 by inserting a new sub-section (8) therein to provide that such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1st April, 2009 and accordingly applies in relation to the assessment year 2009-10 onwards. 4. In view of the aforesaid position, it is clarified that it shall not be mandatory to cancel the registration already granted u/s 12AA to a charitable institution merely on the ground that the cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut-off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act. 5. With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted u/s 12AA may lead to a charitable institution getting hit by sub-section (3) of section 115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax-liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions.” Therefore mere crossing of the threshold limit of 1 crore does not debar the registration u/s 12AA of the act. 9. Further, as it is an obligation on the registering authority to examine the genuineness of the activities along with the object of the trust the requisite details called for should have been submitted before him. It is specifically mentioned that trust was asked to produce documentary evidence to show

Page 8 of 8 the nature of transaction and arrangement with PHFI such as MOU etc. from whom it has received huge sums and further purpose of giving huge advances to the suppliers for services was required to be explained, which assessee has failed to submit. Moreover, order of the adjudicating authority itself says that it is premature to grant registration at this stage. We are also aware that in case of any violation of the provision of the Income tax Act as applicable to this trust after granting registration, adequate safeguard are provided in provisions of section 11,12 and 13 of the act. In view of the totality of the facts and in the interest of justice, we set aside the order of the ld CIT(E) and direct him to consider the application of the assessee in accordance with provisions of section 12A of the act after affording proper opportunity to the assessee. 10. In the result, the appeal of the assessee is allowed with above direction. Order pronounced in the open court on 12/01/2017. -Sd/- -Sd/- (S.K.YADAV) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 12/01/2017 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi