INDIAN MEDICAL ASSOCIATION,NEW DELHI vs. ADIT (E), NEW DELHI

1. This is assessee’s appeal against the order dated 24.2.2014 passed by the ld. CIT(A) in appeal no. 241/2013-14 relating to AY 2010-11.

2. The assessee had filed return of income declaring Nil income. AO has observed that the Society in the relevant assessment year was registered u/s 12A of the Income-tax Act, 1961 on 27.6.1974 and u/s 80G vide registration

no. 1436 dated 31.8.2009, which was valid from 2010-11 to 2012-13. The AO noticed as under:

2. The main objects of the society are to promote and advance medical science and to promote improvement of public health and medical education in India. The activities of IMA included holding of periodical meetings/ conferences of the members and the medical profession in general, to publish and circulate official journals, conduct educational campaigns in India, encourage medical research etc. 2.1. The AO further observed as under: “The activities carried out by IMA can be regarded as falling within the scope of general public utility. It is seen that during the assessment year 2010-11, the assessee is in receipt of income of Rs. 9.53 crores from various sources. On examination of details of the above it is seen that some of the receipts are arising out of commercial transaction with outsiders who are non-members of lMA. 'A discussion of some of these is done in the succeeding paragraphs.

Since all of the above agreements are drawn along similar lines, for the purpose of analysis, the agreement with Mis. Pepsico is hereafter referred to. Some of the salient features of the Agreement include: - In lieu of endorsing the products of the company, the IMA is paid a consideration . - As per the agreement, upon endorsement of the attributes of the products by the IMA, the company acquires the right to use and reuse the same in various media, on products packaging, at points of sales/display etc. (Clause-5) This includes projecting IMA name, representation, acronym, IMA logo, certification statements, testimonial or any other representation mutually agreed between the company and the IMA. - On its part, the company makes certain CLAIMS with respect to its products while IMA endorse the product packaging and claims made by the company.(Clause-3.1 to 3.3) - Clause 4 of the said deals with agreement CONSIDERATION/PAYMENT Terms, The total consideration (Rs. 1.38 crore in case of MIs Pepsico) is to be paid over a period of3 years with Rs. 46 Lacs paid during year under consideration. - In lieu of this, IMA grants MIs. PEPSICO exclusive non-sub licensable right to use attributes together with the manufacture, distribution and sale of its specified products (Clause-5.1) . - Further, on perusal of the agreement between the two it is seen that there is also a clause of exclusivity (C1ause-8.4), which stipulates that the IMA is NOT to. provide similar services for any captivities products . - Clause-8.6 of the agreement lays down that the status of the parties is that of contracting parties with respect to each other.

Further, Clause-Si l? of the agreement prohibits public disclosures of the existence or terms or conditions of the same by IMA without prior written consent of MIs Pepsico. Thus on perusal of the various clauses of above agreements it is seen that the same are outright commercial in nature.” 2.2. In the backdrop of these facts the AO concluded that the proviso to section 2(15) was attracted. He determined the total income of assessee at Rs. 2,68,06,291/- as under: Computation of Income:- a) Total income as per Statement of Computation 9,53,34,183/- Less: b) Rental income from M/s C.K. Associates Delhi for annual lease of property considered Separately (-) 66,00,000/- Less: c) Rental income from letting of IMA Building At Kolkata considered separately (-) 11,29,408/- Income from above (a-b-c) 8,76,04,775/- a) Application of income as shown in statement of computation 6,71,30,672/- b) Less: Capital expenditure (-) 9,20,602/- Expenses (a)-(b) 6,62,10,070/- (i) Net taxable income under this head 2,13,94,705/- Income under head ‘House Property’ 66,00,000/- Add: (Mentioned above) 11,29,408/- Less: Deduction u/s 24(1) 30% of the above (-) 23,18,822/- (ii) Net Income from House property 54,10,586/- Total Income for AY 2010-11, assessed at (i+ii) 2,86,06,291/-

3. Ld. CIT(A) confirmed the AO’s action, inter alia, observing that the assessee was earning income from commercial activities and as such the income was taxable and at the same time the assessee was not doing any charitable activity at all within the meaning of section 2(15) and was not eligible for any exemption u/s 11. Aggrieved, the assessee is in appeal before us and has taken following grounds of appeal:

“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals)[(CIT(A)] is bad both in the eye of law and on facts.

2. On the facts and circumstances of the case, the learned CIT(AL has erred both on facts and in law in confirming the action of the AO in making assessment at an income of RS.2,68,06,291/- as against NIL income declared by the assessee. 3(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in denying the benefit of Section 11 of the Act. (ii) That the denial of exemption has been made despite the assessee being engaged in the charitable activities and also registered under Section 12A of the Act. 4(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the denial of exemption made by the AO by wrongly invoking the provision of Section 2(15) of the Act. (ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in denying the exemption by misinterpreting the facts of the case.

5. Without prejudice to the above and in the alternative the learned CIT(A) has erred both on facts and in law in rejecting

the' contention of the assessee that income of the trust is otherwise not taxable on the basis of principle of mutuality. 6. That the appellant craves leave to add, amend or alter any of the grounds of appeal

.”

4. At the time of hearing ld. counsel for the assessee submitted that for AY 2009-10, Tribunal vide has held that assessee was eligible for exemption u/s 11 of the Act. He submitted that the facts of the present case are identical to the facts of the preceding year.

2. To maintain the honour and dignity and to uphold the interest of the medical profession and to promote co-operation amongst the members thereof 3. To work for the abolition of compartmentalism in medical education- medical services and registration in the country and thus to achieve equality among all members of the profession. " 7.2. The methods for attaining the objects in sub-clause set out in page 53 to 54 are reproduced hereunder:- IV. METHODS "For the attainment and furtherance of these objects, the Association may-

DR has also canvassed that the mere fact that the assessee has received financial support from the Ministry of Health and Family Welfare which fact it has been submitted does not mean that it is performing a charitable activity. On considering the judicial precedent cited we find that the Hon'ble High Court took into consideration in the facts of the ITPO that prime land was made available to the assessee to facilitate its objects of providing space on rent etc. for promotion of trade wherein the assessee a apart from selling tickets etc was also providing food & beverage outlets and providing for water, electricity etc in the facts of the present case admittedly financial support is also provided to the assessee trust whose activities have not been assailed to be contrary to the aims and objects and we find that mobilizing resources towards its aims and objects that too within the methods enshrined by the trust deed which are ploughed back by the society towards its aims & objects to our minds does not cause any grievance to the Revenue. It goes without saying that financial support from the Ministry of Health and Family Welfare to the assessee necessarily would be based on the functions performed by the said trust and would necessarily be monitored at each and every step and stage with adequate checks and balances and would not be allowed to be frittered away carelessly. Accordingly considering the judicial precedent cited and the arguments of the parties before the Bench and the peculiar facts and circumstances of the case which we have brought out in great detail in the earlier part of this order, we hold that the departmental grounds have no merit and deserve to be dismissed”. 5.1. No change in facts and circumstances of the case, as compared to preceding year in assessee’s case, have pointed out by either of the parties.

Therefore, consistent with the view taken by the Tribunal in assessee’s own case for preceding year i.e. AY 2009-10, we delete the addition of Rs.

2,68,06,291/- made by the AO and confirmed by the ld. CIT(A) by invoking provisions of section 2(15) of the Income-tax Act.