that assessee is carrying on the activities of medical relief for eradication and education of HIV AIDS patients the assessee is entitled to the registration u/s. 12 AA of the income tax act as there is no finding by the learned CIT – exemption that the activities of the assessee are not genuine.
IN THE ITAT DELHI BENCH ‘C’
India HIV/AIDS Alliance
v.
Commissioner of Income-tax (Exemption), New Delhi
AND PRASHANT MAHARISHI, ACCOUNTANT MEMBER
IT APPEAL NOS. 716 AND 7210 (DELHI) OF 2017
[ASSESSMENT YEAR 2010-11]
JANUARY 23, 2019
V.K. Tulsiyan, Adv. for the Appellant. Amit Katoch, Sr. DR for the Respondent.
ORDER
Prashant Maharishi, Accountant Member .- These are the two appeals filed in the case of India HIV Alliance a company registered u/s. 25 of the Companies Act, 1956, one filed by the assessee against the order of the ld CIT (Exemption), New Delhi dated 3-10-2017, wherein the registration already granted under section 12AA of the Act has been withdrawn under section 12 AA(3) of the Act holding that assessee is not carrying on Charitable activities and second by LD Assistant Director of Income tax (Exemption) [the Ld AO] against the order of the ld Commissioner of Income tax (Appeals)- 40, New Delhi dated 26/11/2014 for AY 2010-11 where in order of the AO is set aside and assessee was held to be carrying on charitable activities.
2. In the appeal of the assessee in ITA No. 7210/Del/2017 assessee raised following grounds of appeal:—
| “1. | The ld CIT (E)’s order dated 03.10.2017 for withdrawal of registration u/s. 12AA(3) of the Income Tax Act, 1961 is illegal void since ab-initio. | |
| 2. | The ld CIT (E) erred in concluding that the activities are not charitable in nature. | |
| 3. | The ld CIT (E) erred in concluding that set-off of past deficit could be reason for denying 12AA registration. | |
| 4. | The ld CIT (E) erred in concluding that in the Assessment Year 2012-13 the assessee did not conduct any charitable, the assessee has been conducting similar nationwide activities in all the Assessment Year. | |
| 5. | The ld CIT (E) erred in relying on the orders of the AO particularly when all the orders were quashed by the ld CIT(Appeal) it was incumbent on the CIT (E) to have relied on the orders of higher appellate body than the AO. | |
| 6. | The ld CIT (E) erred in questioning the nature of activity without establishing any defect or infirmity in the expenditure and supporting.” |
3. The second appeal is filed by the revenue DCIT (Exemption) u/s. 143(3) of the act on 28/03/2013, wherein the appeal filed by the assessee against order by Assistant Director Of Income Tax (Exemption), Trust Circle-2, New Delhi dated 28/03/2013 under section 143(3) of the Act denying exemption to the assessee under section 11 and 12 of the Act is allowed by the ld CIT (A), the ld AO has raised the following grounds of appeal:—
| “1. | On the facts and in the circumstances of the case and in law, the ld CIT (A) has erred in holding that the assessee society is a chartiable organization despite the fact that the assessee society was doing business within the meaning of amended provisions of section 2(15) of the Income Tax Act, 1961. | |
| 2. | On the facts and in the circumstances of the case and in law, the ld CIT (A) has erred in allowing the exemption to the assessee u/s. 11 & 12 of the Act.” |
4. The brief facts of the case is that the assessee is a company registered under section 25 of the Companies Act,1956 and also registered under section 12AA of the Act vide certificate dated 17/7/2000. The main object of the assessee is to provide relief to persons who are suffering from HIV AIDS by providing financial, technical and managerial assistance to fasten the cure and community support to those suffering from that disease. It was further the object to advance the education of the public concerning the prevention of the above disease and to collaborate with other NGOs for the above objects.
5. For assessment year 2010-11, the return was filed on 28-1-2011 claiming exemption under section 11 and 12 of the Act. The ld AO was of the view that the assessee is not in the field of education, medical relief or relief to poverty but is carrying on ‘object of general public utility’ as per section 2(15) of the Act. He further noted that assessee has received a grant from international HIV AIDS Alliance, UK and other agencies of Rs. 391074038/-. On receipt of grant, for implementation of projects, assessee also charges management fees from its donor agencies and therefore AO was of the view that activity of charging fee in lieu of execution of projects for donor agencies is like a business activity wherein service charges are taken for rendering services to the donor. Therefore, AO held that assessee is not carrying on any object other than object of general public utility. He further held that assessee is separately charging the donor for salaries of its staff as human resource expenditure, training infrastructure etc and management fee is also charging over and above this. He further held that excess of income over expenditure itself indicates that there is a profit component in the activity of the execution of the projects. Therefore, he held that assessee is covered by the provisio to section 2(15) of the Act and claim of the assessee being a charitable institution was rejected. Ld AO mentioned that in the order that a proposal for withdrawal of registration under section 12AA of the Act has already been sent to the CIT (Exemption) also. Accordingly, he determined the gross total income of the assessee of Rs. 392676839/- and granted deduction for expenditure of Rs. 336269357/- and depreciation of Rs. 786653/- and determined the taxable income of the assessee at Rs. 55620829/- against the returned income of the assessee at Rs. Nil by order under section 143(3) of the ACT on 28-3-2013.
6. Assessee aggrieved with the order preferred appeal before the ld CIT (A)-40, New Delhi who allowed the claim of the assessee vide para number 4.4 of his order as under:—
“4.4 I have considered the order of the AO and the submission of the assessee and I find considerable merit in the submission of the assessee that the assessee is involved in social work and charitable activity within the meaning of Section 11(1) of the IT Act as the assessee is involved in the HIVB/AIDS awareness programmes and provides financial and medical help to the poor and HIC/AIDS patients as discussed earlier in Para 4.2. It is apparent from the submissions of the assessee that the assessee is not involved in any trade, commerce and business activity as the assessee is involved in spreading the awareness about the HIV/AIDS among the people and the assessee is also involved in medical help to the poor and HIV/AIDS patients, care and counseling to the HIV/AIDS patients and as such the assessee is involved in charitable activity and apparently comes under the head relief to the poor and medical help which comes within the meaning of the charitable purposes u/s. 2(15) of the IT Act. There is also merit in the submission of the assessee that the facts and circumstances of the case of the earlier AY 2009-10 are the same in which the exemption u/s. 11(1) has been allowed by the ld CIT (A) and as such the same should be followed on the principle of consistency. After considering all the facts and circumstances of the case, I am of the view that there is no proper jurisdiction in the order of the ld AO for denying exemption u/s. 11(1) to the assessee and accordingly the appeal of the assessee is allowed.”
7. Aggrieved with the order of the ld CIT (A), ld AO is in appeal before us.
8. Based on a proposal for withdrawal of registration under section 12AA of the Act sent by the ld AO on 15/12/2011, the ld CIT (Exemption) issued notice on 15/3/2007 for withdrawal of registration. The ld CIT after hearing the arguments and the written submission of the assessee vide para 4 to 6 of his order 3-10-2017, concurred with the finding of the ld AO and held that the activities carried out by the applicant are in the nature of contractual work which cannot be considered as a charitable activity. He further held that the assessee is not involved directly into the conduct of charitable activities under section 2(15) of the Act but such activities are in the nature of business or profession. He further held that the assessee has incurred administrative expenditure which is known as application of income but in relation to the execution of the project sanction to it by various agencies. Therefore, registration under section 12AA of the Act originally granted to the assessee was withdrawn vide order dated 3-10-2017. Against this order assessee is in appeal.
9. In view of the above facts the only issue that requires to be adjudicated in both the appeals is that whether activities carried on by the assessee trust are for charitable purposes as defined u/s. 2 (15) of the act and not business and profession. If it is held that assessee is engaged in charitable activities then whether proviso to section 2(15) of the Act applies to the assessee or not and the third issue is that whether the benefit of u/s. 11 and 12 of the Act is allowable to the assessee.
10. The learned authorized representative firstly assailed the order of the learned Commissioner Of Income Tax (Exemption) submitting that the proposal for withdrawal of registration u/s. 12 A of the income tax act has been submitted by the learned Assistant Director Of Income Tax (Exemption), New Delhi on 15/12/2011 however the learned CIT (exemption) has passed an order on 3/10/2017 after a gap of almost 6 years. He submitted that such a late order passed by the learned CIT itself makes the order not sustainable. With respect to the object of the trust he submitted that according to the memorandum and articles of Association of the assessee it is to provide relief to persons who are suffering from HIV AIDS by providing financial, technical and managerial assistance to foster the care and community support of those suffering from HIV/AIDS. The trust also advances the education of the public concerning the symptoms, prevention and consequences of HIV AIDS through improved HIV prevention efforts by creating awareness to gender, sexual health and sexuality. The assessee is also collaborating with local non-governmental organization to carry out operations, research, policy and advocacy initiatives for the purpose of the above disease and it is also developing and improving methods of prevention of HIV AIDS and its treatment. He further stated that the assessee received grant from Global Fund to carry out these activities. He further stated that the grant agreement was an end result of the country proposal submitted by the National AIDS control Organization which is a division of the Ministry of health and family welfare, government of India to the global fund. The grant was also received with a specified purpose to reduce HIV-related morbidity and mortality in adults and children and mitigate the impact of HIV on children and woman headed households, prevention testing and counseling, care and support for the chronically ill and widening access to treatment and expand access to counseling and testing et cetera. He therefore submitted that the trust is carrying on the object of medical relief. He further stated that the human resource expenditure is the cost pertaining to the fee paid to medical staff, counselor and medical officers. He also referred the infrastructure and equipment expenditure which is a cost for setting up centers for antiretroviral therapy. He also referred that the training expenditure are incurred for the recruitment as per the standardized training and CV developed by the agency adhering to World Health Organization guidelines. On the commodities and product expenditure he stated that these expenditure referred to antiretroviral drugs and health products. With respect to the planning and administration expenditure he stated that these are the program implementation and administration costs incurred by the assessee. On the basis of the above object he stated that it is abundantly clear from the above that the assessee is carrying on the activity of medical relief. He also referred to the audited accounts of the assessee. In view of this he submitted that the assessee is carrying on the activity of the medical relief which is classified as a charitable activity under section 2 (15) of the income tax act. He further stated that the learned assessing officer as well as the learned Commissioner of income tax (exemption) has not brought on any material to show that the assessee is not carrying on the activity of the charitable nature in the form of medical relief. He further stated that in case of a charitable trust the activities are carried out either through donation or through grant in aid received from the various agencies. He stated that merely receiving the grant does not make an activity of the trust non-charitable. He further stated that in the income tax act there is no bar in receiving grant from the various other organizations for carrying on the activities of the trust which a charitable in nature. He further stated that the provisions of section 2 (15) of the act inserted with effect from 01/04/2009 does not apply to the trust as assessee is not carrying on the object of the general public utility but carrying on the activities of the medical relief. In view of the above submission he stated that the order of the learned assessing officer in not granting the exemption provided under sections 11 and 12 of the income tax act to the assessee are against the provisions of the law, which has been set aside by the ld CIT (A).
11. On the appeal of the assessee reiterating the same arguments He stated that the learned CIT (Exemption) has merely followed what has been stated by the learned assessing officer which has already been negated by the order of the learned CIT – A in assessee’s case for earlier years to wherein it has been held that the assessee is not carrying on the object of the general public utility and the proviso to section 2 (15) of the income tax act does not apply to the assessee. Therefore he submitted that the order of the learned CIT – A may be upheld and the order of the learned CIT – exemption passed withdrawing the registration already granted to the trust u/s. 12 AA of the income tax act may be quashed.
12. The learned departmental representative vehemently submitted that the assessee is receiving the grant and is carrying on the business activity as it is charging management fees for the various projects and therefore it cannot be held to be an activity for charitable purposes. He therefore relied upon the order of the learned assessing officer as well as the order of the learned CIT exemption and submitted that the both the orders may be upheld.
13. We have carefully considered the rival contention and perused the orders of the lower authorities. Undisputed fact shows that the assessee is a registered charitable institution under section 25 of the companies act 1956 holding registration u/s. 12 A of the income tax act vide order dated 17/7/2000 and also enjoys the benefit under section 80 D of the income tax act wide order dated 11/9/2006. The main object of the appellant for which it has been formed are to provide relief to the persons who are suffering from HIV/AIDS by providing financial, technical and managerial assistance to foster the care and community support of those suffering from that disease. It further advances the education of the public concerning the symptoms, prevention and consequences of that disease through improved HIV prevention efforts by creating awareness to gender, sexual health and sexuality. It is also collaborating with local non-government organization to carry out operations, research, policy and advocacy initiatives and also developing and improving methods of prevention of HIV AIDS. During the course of assessment proceedings the learned AO held that the assessee is carrying on the business activity as the assessee’s proposal for getting grant comprising management free from the donors. On appeal before the learned CIT – A he allowed the assessee the benefit of section 11 and 12 of the income tax act holding that assessee is existing for charitable purposes as prescribed u/s. 2 (15) of the act and proviso to that section does not apply to the assessee. Meanwhile on the proposal sent by the learned assessing officer to the learned CIT exemption, he withdrew the recognition granted to the assessee for registration u/s. 12 AA of the income tax act holding that the assessee is carrying on the activity for the purposes of the profit and is not a charitable organisation not carrying on the charitable activities as specified under section 2 (15) of the income tax act. The learned CIT exemption was mainly guided by the finding of the learned assessing officer that assessee is separately charging the donors for salary to its staff in components of human resources expenses, training and infrastructure and equipments and along with the management fee over and above the running cost. Therefore assessee is carrying on the business activity and falling into the last limb of provisions of section 2 (15) of the income tax act. According to the provisions of section 2 (15) which defines the ‘ charitable purpose’ which includes relief to the poor, education, yoga, medical relief along with many other objectives and also the advancement of any other object of general public utility. On looking at the object of the assessee as well as the activities of the assessee, it is apparent that assessee is carrying on the activities for the purpose of eradication of HIV AIDS disease. Therefore the purpose of the assessee is charitable falling into category of ‘medical relief’. The proviso of section 2 (15) of the act only applies to the objects of general public utility and not to the medical relief. In view of this we are of the opinion that assessee is carrying on the charitable activities of medical relief falling u/s. 2 (15) of the act. Further merely because the assessee receives the grant and also implement the project on behalf of the various organisation for eradication of HIV/AIDS, its activities does not become a business activity or non charitable. Further for the purpose of implementation of each of the project, it charges the management fees to defray all other expenditure and administrative cost of the assessee. Merely charging the management fees does not make the activity of the medical relief of the assessee as business activity. The learned CIT – A has also given the similar finding in para number 4.4 of his order for assessment year 2010 – 11 wherein he has followed his order for assessment year 2009 – 10 dated 2/1/2014. Further in para number 4.2 of his order where he has recorded the fact that the foreign global fund the donor to the assessee gives 85% of the donation to the government of India for the HIV AIDS which runs the AIDS program in the name of National AIDS control Organisation and it is only about 15% of the total donations which are given to other societies for awareness and treatment to the poor HIV AIDS patients. It is also the fact he has recorded that the assessee spends the whole amount through various societies and trust and the assessee is also running its own project for the welfare of the HIV and AIDS patients. Further it is also the fact that assessee is a section 25 company under the companies act 1956 which cannot carry on any business activities. In view of the above facts it is apparent that assessee assessee is existing for and is carrying on the charitable activities in the form of medical relief for HIV and AIDS patient and the awareness about the disease. In view of the above facts we confirm the order of the learned CIT – A for assessment year 2010 – 11 and dismiss the appeal of the revenue in ITA number 716/del/2015.
14. As we have already held that assessee is carrying on the activities of medical relief for eradication and education of HIV AIDS patients the assessee is entitled to the registration u/s. 12 AA of the income tax act as there is no finding by the learned CIT – exemption that the activities of the assessee are not genuine. Same is not the case of the learned departmental representative also. In view of this we cancel the order passed by the learned CIT – exemption dated 3/10/2017 cancelling the registration already granted to the assessee by passing an order u/s. 12 AA (3) of the income tax act 1961 on 3/10/2017 and direct the ld CIT (E) to restore the registration of the trust u/s. 12AA of the act, we alos direct learned assessing officer to grant benefit of section 11 and 12 of the income tax act to the assessee. In the result appeal of the assessee in ITA number 7210/del/2017 is allowed.
15. In view of this the appeal of the revenue is dismissed and appeal of the assessee is allowed.
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