Mere denial of sec. 11 relief won’t invalidate trust registration

Mere fact that an income is not exempt under section 11 would not render Tamil Nadu Cricket Association's registration under section 12AA liable to be cancelled

The High Court held as under:

1) If a particular activity of the institution appeared to be commercial in character, and it was not dominant, then it was for the Assessing Officer to consider the effect of section 11 of the Act in the matter of granting exemption on particular head of receipt;

2) The mere fact that the said income does not fit in with section 11 of the Act would not, by itself lead to the conclusion that the registration granted under section 12AA is bad and, hence, to be cancelled;

3) Only possible enquiry under section 12AA of the Act for cancellation is to find out whether the activities of the trust are genuine or in accordance with the objects of the trust;

4) If any income arising on the activities is not in accordance with the objects of the trust, the assessee's income, at best, might not get the exemption under section 11 of the Act. But this, by itself, would not result in rejection of the registration as 'trust' under section 12AA of the Act;

5) The question as to whether the particular income qualified under section 11 of the Act or not was not the same as activity being genuine or not which was relevant for cancellation of registration;

6) Thus, the tribunal was not right in upholding the cancellation of registration under Section 12AA(3) granted to Tamil Nadu Cricket Association - TAMIL NADU CRICKET ASSOCIATION V. DIRECTOR OF INCOME-TAX (EXEMPTIONS) (2013) 40 taxmann.com 250 (Madras)

Taxability Of Anonymous Donations Received By Charitable Trusts: ITAT Explains Law

Sunder Deep Educational Society vs. ACIT (ITAT Delhi)

S. 11: Law on taxability of voluntary donations as “anonymous donations” u/s 115BBC or as “cash credit” u/s 68 in hands of charitable trust explained

The assessee, a charitable institution, received donations of Rs. 3.55 crore. It maintained a record indicating the name and address of the donors. It claimed that the said donations had been applied for charitable purposes as per s. 11 and nothing was assessable. The AO conducted a test check by sending letters to the donors. To the extent of donations aggregating Rs. 1.96 crore, the letters came back undelivered or were not replied to. The AO held that as the confirmations were not received, the said donations were “anonymous donations” and assessable to tax u/s 115BBC. He held that alternatively, the said sum was assessable as a “cash credit” u/s 68 as the identity, genuineness and credit worthiness of the alleged donors was not proved. On appeal, the CIT(A) held that the said donations could not be treated as “anonymous” u/s 115BBC though he upheld the AO’s stand that the said sum was assessable as a “cash credit” u/s 68. On further appeal by the assessee to the Tribunal HELD allowing the appeal:
(i) S. 115BBC which assesses “anonymous donations” does not apply because the assessee has maintained a record of the identity indicating the name and address of the person making the contribution;
(ii) S. 68 seeks to assess cash credits as income. However, when the non-corpus voluntary donations are already disclosed as income and applied for charitable purposes, s. 68 has no application. The fact that the complete list of donors was not filed and the donors were not produced does not mean that the assessee was seeking to introduce unaccounted money into the trust;
(iii) U/s 12(1) voluntary donations received without a direction that they shall form part of the corpus are deemed to be income derived from property held for charitable purposes and have to be applied towards the objects of the trust to the extent of 85%. If that is done, the donations are not assessable as income (Keshav Social & Charitable Foundation 278 ITR 152 (Del) followed)
See also CAG Exposes Defects In Law And Procedure Of Taxation Of Charitable Trusts, The Law And Procedure Of Taxation Of Charitable Trusts and CBDT Circular on charitable institutions and mutual organisations

Assessee engaged in running a blood bank cannot be said to be engaged in providing medical facilities so as to be entitled to exemption under section 11

[2013] 38 taxmann.com 360 (Ahmedabad - Trib.)

IN THE ITAT AHMEDABAD BENCH 'A'

Advance Transfusion Medicine Research Foundation

v.

ADIT (Exemption), Ahmedabad*

G.C. Gupta, VICE-PRESIDENT
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER

IT Appeal No. 399 (Ahd.) of 2013
[ASSESSMENT YEAR 2009-10]

SEPTEMBER  20, 2013 

Section 2(15), read with sections 11 and 13, of the Income-tax Act, 1961 - Charitable purpose [Medical relief - Blood bank] - Assessment year 2009-10 - Assessee, registered under section 12AA, was engaged in running a blood bank - During year, it had entered into transaction of sale of fresh frozen plasma (FFP) with its associated concern - Assessing Officer noticed that assessee had supplied FFP to patients at higher price and held that assessee was not eligible for deduction under section 11 as it had granted concessional benefit to its associated concern - Whether since assessee was not an educational institution and it also could not be said to be a hospital or medical institution as it was not engaged in dispensing medical facility, assessee was not entitled to exemption under section 11 and, thus, no interference with order of Assessing Officer was called for - Held, yes [Para 15] [In favour of revenue]

FACTS

■		The assessee, a company registered under section 12AA, had entered into transaction of sale of fresh frozen plasma (FFP) with its associated concern and during the year it had supplied FFP to said concern.
■		The Assessing Officer found that the assessee had supplied FFP to patients at higher price and had also charged service charges from patients which were not charged to the said concern. The Assessing Officer was, thus, of the view that since the assessee had provided concessional benefit to its associated concern it was not eligible for deduction under section 11.
■		The Commissioner (Appeals) upheld the order passed by the Assessing Officer.
■		On second appeal:

HELD

■		As per sub-section (6) of section 13 a trust running an educational institution or a medical institution or a hospital shall not lose the benefit of exemption of any income other than the value of benefits of educational or medical facilities provided to the specified persons, solely on the ground that such benefits have been provided to specified persons. It should be noted that the sub-section covers, (i) only those trusts running an educational institution or a medical institution or a hospital; (ii) the benefit extends only in respect of educational or medical facilities and not any other facility. In the present case, it is an undisputed fact that assessee has entered into transactions with the related concerns. It is also a fact that it cannot be said that the assessee is an educational institution and cannot be said to be a hospital or medical institution as it is not engaged in dispensing medical facility though it is engaged in running a blood bank. [Para 15]
■		Considering the totality of facts, the assessee cannot be considered to be engaged in providing medical facilities so as to be entitled to exemption of income. In view of the aforesaid facts, there was no reason to interfere with the order of the Assessing Officer. [Para 15]

Yog trust is tax exempt; its main object is to impart training in Yoga, for education and curing of diseases

The predominant object of imparting Yoga training through well structured Yoga shivirs is to provide medical relief and impart education, which fall under the category of charitable objects defined under section 2(15).

The Tribunal held as under:

1) Yoga can be safely accepted as a system that fits into the definition of medical relief. As a science it is a well recognized system of medicine, which has therapeutic effects in treating serious ailments;

2) The predominant objective of the assessee-trust was to provide medical relief through Ayurveda and propagation of Yoga for the purpose of curing various diseases;

3) Any form of educational activity involving imparting of systematic training, to develop the knowledge, skill, mind and character of students is to be regarded as 'education', covered under section 2(15);

4) Thus, imparting of Yoga training through well structured Yoga shivirs would fall under the category of imparting education, which is one of the charitable objects defined under section 2(15);

5) The various other objectives of assessee-trust were merely ancillary to its main object, which was to provide medical relief and impart education and would not in any way constitute objectives of general public utility;

6) The proviso to section 2(15) applies only to trusts falling in the last limb of the definition of charitable purpose, that too if such trust carries on commercial activities in the nature of business, trade or commerce. The said proviso does not apply to a trust providing education and medical relief. Thus, revenue was not justified in refusing the exemption claimed by assessee-trust under sections 11 and 12 - DIVYA YOG MANDIR TRUST V. JCIT (2013) 37 taxmann.com 227 (Delhi - Trib.)