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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI SS VISWANETHRA RAVI & SHRI JAGADISH
O R D E R PER JAGADISH, A.M : Aforesaid four appeals filed by the assessee for Assessment Years (AYs) 2011-12 to 2015-16 arises out of the common order of Learned Commissioner of Income Tax (Appeals)-2, Madurai [hereinafter “CIT(A)”] dated 23.09.2019.
The facts in all the four appeals of the assessee are identical and common grounds have been raised in all the appeals, all the appeals are decided by the common order. For brevity , we shall take up the to 3076/Chny/2019 :- 2 -: the assessment year 2011-12 as lead case. The grounds raised by the assessee for A.Y 2011-12 are as under:
“1. The Order of the Learned Commissioner of Income Tax (Appeals) is contrary to the law, facts and circumstances of the case.
2. The Commissioner of Income Tax (Appeals) erred in holding that continuation of registration u/s. 12A is a pre-requisite for granting exemption u/s. 11 and 12 of the Income Tax Act, 1961. Section 12A which deals with conditions for applicability of section 11 and l2 stipulate that on an application made by the trust, the trust should be registered under section 12AA. It does not stipulate that the registration u/s. 12AA should be in force.
3. The Commissioner of Income Tax (Appeals) erred in holding that appellant has published the price list in its website and has enabled facilities such as online placement of or orders for supply of products. These are factually incorrect and not supported by any material.
4. The Commissioner of Income Tax (Appeals) erred in observing in para 5 of the order that arguments made by the appellant were similar to those made before the Hon'ble ITAT in the appeal against the order of cancellation of registration of registration u/s. 12A of the Income Tax Act, 1961. The appellant had explained how the visionary had drafted the objects of the deed and how it was implemented till date, which details were not discussed in the order of the Hon'ble ITAT dated 11/05/201 1. 5 The Commissioner of Income Tax erred in ignoring that the working model of the appellant was not appreciated by the Tribunal while dismissing the appeal against cancellation of registration u/s.12A of the Income Tax Act, 1961. 6. Generation of surplus alone, would not make an entity a business entity. Any Business is carried on for the benefit of shareholders/stakeholders. In the case of the appellant, none of the trustees are benefited out of the surplus. Even the assessing officer has not made any allegations that the surplus is being misused by the trustees. The allegation that the donations are made to other trusts, Where there are common trustees also do not merit consideration. As the trusts to which donations were made also enjoy exemption under Income Tax Act, 1961 and have been subject to regular scrutiny by the department. Therefore, denial of exemption on the ground of surplus being generated is invalid in the eyes of law.
Without prejudice to the above, 7. The Commissioner of Income Tax (Appeals) erred in ignoring the to 3076/Chny/2019 :- 3 -: submissions made on excluding Rs.11,65,89,634/- from the total income of the appellant. This amount can be added only u/s. 11 and if the Commissioner of Income Tax (Appeals) takes a view that provisions of section 1I and 12 will not apply in the absence of registration u/s. 12A, then this amount of Rs.l1,65,89,634/ - cannot be brought to tax in the Asst. Year 2011-12.
For these and such other grounds that may be permitted to be raised during the For Aurolab Trust hearing of the appeal.”
Ground No.1 is general in nature hence, no adjudication is required.
4. Grounds No.2 to 6 are against confirming the denial of exemption u/s. 11 & 12 of the Income-tax Act, 1961 (hereinafter “the Act”) by Ld Assessing Officer on the ground that the assessee does not have registration u/s. 12AA of the Act.
The brief facts of the case are that the assessee is a trust, which was registered u/s. 12AA of the Act. The Trust was promoted by the trustee of M/s. Govel Trust, Madurai which runs the famous Aravind Eye Hospital at Madurai and in five other stations in Tamilnadu. The trust is managed professionally by competent professionals and the activity of the trust has published in the website is as under:
"Aurolab, the manufacturing division of Aravind Eye Hospital, supplies high quality opthalmic consumables at affordable prices to developing countries. Since its inception in 1992 as a non-profit charitable trust, Aurolab has set up manufacturing facilities to produce; Intra Ocular Lenses (10Ls), Suture needles, to 3076/Chny/2019 :- 4 -:
Pharmaceuticals and Surgical Blades (Instruments Division)"
The assessee trust registration u/s. 12AA of the Act was cancelled by CIT -1 Madurai , vide order C.No.464/57/CIT-I/92-93 dated 30.12.2010 as under:
The trust manufactures and sells ophthalmic products in a systematic and organised manner. There is no element of charity in this activity. The institution claims that it provides medical relief by making high quality medical products at affordable prices. The institutions sells its medical products not only in India but abroad also. it promotes its products systematically by offering incentive to the dealers, making advertisement, etc. By no stretch of imagination, this activity can be medical relief falling squarely within the ambit of charity. There are no beneficiaries to the trust. In the absence of beneficiaries, the organisation cannot assume the color of trust. The buyers i.e. the trust's clients are medical stores and hospital with whom the trust is doing business by selling its product and offering discount to domestic dealers based on their turnover. The activities of the institution are neither intended for charitable/ medical relief nor for general public utility but purely a commercial venture with profit motive and the arguments of the tenuous and liable to be rejected. The Hon'ble Supreme Court has held in the case of yogirai Charity Trust Vs. CIT (1976) 103 ITR 777, that where there are various objects of the trust, which are all independent objects and even if one of these objects cannot be described as a charitable purpose, the claim of the entire trust for exemption has to fall. In the case of the assessee-trust, of the five objects, while the object clause (e) fails to be a charitable one, for the way it is performed, the rest of the four objects (a) to (d) would not be of any help to the assessee-trust, for the reason that nothing was performed. Taking into consideration all the above facts, i am of the considered opinion that the trust does not deserve exemption u/s 11(1) (a) of the IT Act. Accordingly, the registration granted u/s 12 A of the IT Act is hereby cancelled.
The assessee has filed appeal against cancellation of registration, which was dismissed by this Bench vide ITA to 3076/Chny/2019 :- 5 -:
No.135/Mad/2011 dated 11.05.2011. The assessee has filed appeal before Hon’ble Madras High Court, which is pending before the Hon’ble High Court. The A.O in the assessment order has recomputed the income without providing exemption and benefit u/s. 11 & 12 of the Act as the assessee does not have registration required u/s. 12A of the Act for A.Y 2011-12.
The Ld. AR has submitted that the assessee has been granted registration on 09.10.1992 u/s. 12A of the Act and the activity of the trust continues to remain the same. The Ld AR has further submitted that subsequently after cancelling the registration on 30.12.2010, Ld. CIT on application made on 07.04.2022, has granted registration u/s. 12AA of the Act from A.Y 2022-23 to 2026-27 based on the same trust deed. The Ld. AR thus argued that as the trust deed remains the same, the activity of the assessee-trust is charitable and assessee is eligible for the benefit u/s. 11 & 12 of the Act. The Ld. AR further argued that based on the cancellation of registration, the A.O had reopened the assessment for A.Y 2004-05 and 2007-08 and the Hon’ble Madras High Court has cancelled the assessment order in the Writ Petition vide W.P No.12067 to 12070 of 2011 dated 23.01.2019 holding that the exemption cannot be denied to the petitioner for and to 3076/Chny/2019 :- 6 -: up to the A.Y 2010-11 on the sole ground of cancellation of the cancellation of the certificate of registration.
8. The Ld. DR, on the other hand, has argued that the assessee trust registration u/s. 12AA of the Act has been cancelled by the Ld. CIT , Madurai from 30.12.2010 and the same has been upheld by Hon’ble ITAT. The Ld. DR has submitted that the assessee does not have registration u/s.12AA of the Act for the relevant assessment years , the A.O has correctly disallowed the claim of exemption u/s. 11 & 12 of the Act. The Ld. DR has supported the order of Ld. CIT(A).
As regard to assesse’s argument that , the Ld. CIT has granted registration w.e.f A.Y 2022-23 for five years, the Ld. DR submitted that the assessee has obtained registration u/s 12AA as per new Rule 17A of Income Tax Rule by furnishing incorrect information that it has a valid registration and the certificate of registration the Form-10AC in Column (r) specifically mentions that the registration and the unique registration number has been instantly granted and if at any point time it is noticed that form for registration has not been duly filled in by not providing fully or partly or by providing false or incorrect information or documents required to be provided under sub rule (1) or (2) of Rule 17A are by not applying with the requirements of sub Rule
(3) or (4) of the said rule, the registration and unique registration shall to 3076/Chny/2019 :- 7 -: be cancelled and the registration and URL shall be deemed to have never been granted or issued. The Ld. DR has submitted that they are in process of getting the registration cancelled w.e.f 2022-23 to A.Y 2026-27 which was instantly granted by filing incorrect information.
The Ld. DR has also drawn the attention of Writ Petition of Hon’ble Madras High Court vide WP Nos.12067 to 12070 of 2011 order dated 23.01.2019 in which the Hon’ble High Court has observed that act of cancellation of registration will operate from the date of cancellation of the order i.e., 30.12.2010.
We have heard the rival submissions, and perused the materials available on record. The A.O has not allowed the exemption u/s. 11 & 12 of the Act as the assessee does not have registration u/s. 12AA of the Act. The Ld. CIT(A) has upheld the assessment order holding that as the assessee does not have registration u/s. 12AA of the Act, which is prerequisite for claim of exemption u/s. 11 @ 12 of the Act the assessing officer has correctly denied exemption under those sections and determined the income on normal commercial principles. It is undisputed fact that the assessee does not have registration for A.Ys 2011-12 to 2014-15 u/s. 12AA of the Act. The Ld. CIT has cancelled the registration vide order dated 30.12.2010, which has been affirmed by this Bench. Section 12 A(1)(a) clearly stipulates that the provisions to 3076/Chny/2019 :- 8 -: of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless such trust or institution has made an application for registration and such trust or institution is registered u/s 12AA. As the assessee trust does not have registration under section 12AA , the leaned CIT(A) has correctly confirmed the order of Assessing Officer denying the claim of exemption under section 11 or 12 of Act. Hence, these grounds of appeal of assessee are dismissed.
11. Ground No.7 is against not excluding sum of Rs. 11,65,89,634/- unutilized set apart amount of A.Y 2005-06 offered in the return of income while denying the exemption under section 11 of Act by the Ld A.O . in the computation of income .
The Ld. AR has submitted that the assessee has unutilized set apart amount carried forward from A.Y 2005-06 amounting to Rs. 11,65,89,634/- and offered as income while claiming exemption under section 11. The Ld. AR has contended that as the exemption u/s. 11 of the Act has been denied by the Assessing Officer , addition amounting to Rs. 11,65,89,634/- could not be brought to tax during A.Y 2011-12 as it can be added only u/s 11 of the Act.
The Ld. DR, on the other hand, has submitted that the assessee in A.Y 2005-06 has set apart Rs. 11,65,89,634/- and the same has to 3076/Chny/2019 :- 9 -: been remain unutilized for next five years and therefore, the same is to be added in the 6th year as the assessee has already claimed benefit in A.Y 2005-06.
We have heard the rival submissions, and perused the materials available on record. We are of the opinion that the assessee has already claimed benefit of unutilized set apart amount of Rs. 11,65,89,634/- in A.Y 2005-06. Assessee itself has included the unutilized amount in the return of income and the assessing Officer has computed income accordingly. Hence, this ground of appeal of assessee is dismissed.
The Ld. AR during the course of hearing has pointed out the computation of income made by A.O in the assessment order where the A.O has started the computation from total receipt rather than net profit. The assessee has pointed out the following as under:
Assessment Actual Net profit as Reference from The erroneous References Years per the return of the return of figure from which in the income (from which income for the the assessing Assessment the Assessing net profit officer has re- Order for the Officer ought to computed the total erroneous have computed the income computation total income) 2011-12 Rs. 23,75,08,792/- Page No.2 of the Rs. 42,81,85,097/- Page No.16 Additional of the Paperbook-III relevant and page no.6 of assessment the assessment order order for that relevant AY. to 3076/Chny/2019 :- 10 -:
2012-13 Rs. 36,28,33,595/- Page No.39 of Rs. 39,07,86,713/- Page No.10 the additional of the paperbook-III relevant and Page No.3 assessment of the relevant order. assessment for the relevant assessment year 2013-14 Rs. 33,93,05,176/- Page No.47 of Rs. 35,91,48,022/- Page No.4 of the Additional the relevant Paperbook-III Assessment Order 2014-15 Rs. 51,06,15,062/- Page No.61 of Rs. 50,80,15,094 Page No.3 of the Additional the relevant Paperbook-III Assessment Order.
The Ld. AR relied upon the decision of ITAT in the case of Kingston Educational Trust vs. DCIT in where the Bench has held that the A.O is required to compute the correct income.
The Ld. DR, on the other hand, has contended that the assessee has not raised this ground either before A.O or before Ld. CIT(A) and neither in the grounds of appeal before ITAT and therefore, the same may be rejected. The Ld. DR referred to the return of income filed by the assessee in which the assessee in part-B of total income has taken the figure of Rs. 42,81,85,097/- and the A.O has started his computation on the basis of figure in return of income in A.Y 2010-11. Similar is the case the other Assessment Year also. to 3076/Chny/2019 :- 11 -:
We have heard the rival contentions, and perused the materials available on record. The assessee has submitted a copy of profit and loss account for AY 2011-12 as per which the net profit has been shown at Rs. 23,75,08,792/-. The assessee has contended that it has wrongly mentioned the figure in the return of income. The taxing authorities exercise the quasi judicial power and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from the assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. We therefore, direct the A.O re-compute the income on the basis of profit and loss account submitted during the course of assessment. In view of the above, the appeal filed by the assessee in for A.Y 2011-12 is partly allowed.
We find that the identical issue is involved in assessee’s appeal for A.Ys 2012-13, 2013-14 & 2014-15 also and accordingly, our adjudication above in A.Y 2011-12 is mutatis mutandis applies therein also. Hence, these appeals in 3075 & 3076/Chny/2019 are also partly allowed. to 3076/Chny/2019 :- 12 -:
In the result, all the appeals filed by the assessee are partly allowed.
Order pronounced on 21st August, 2024. (यस यस िव"ने" रिव) (जगदीश) (Jagadish) (SS Viswanethra Ravi) लेखा लेखा सद"य लेखा लेखा सद"य सद"य /Accountant Member सद"य सद"य / Judicial Member "याियक "याियक सद"य "याियक "याियक सद"य सद"य चे"ई/Chennai, "दनांक/Dated: 21st August, 2024. EDN/-