INCOME TAX ACT, 1961

Section 11 Section 101

Charitable trust - Exemption under section 11 - Assessee earning surplus -

Petitioner was the Parivar Seva Sanstha, an organisation registered under the Societies Registration Act, 1860. It claimed to be a non-governmental, not-for-profit organisation rendering reproductive welfare and health care services including family planning services. It ran and managed 32 clinics Pan India and was engaged in the activities of population control, medical relief, social marketing of contraceptives, mass level programmes, the education of youth in family planning, and other societal measures in the aforesaid areas. For the financial years 2004-05, 2013-14, 2015-16, 2017-18 and 2018-19, the petitioner had an excess of income over expenditure and the respondent would urge that this straight away dis-entitles the petitioner to the exemption sought. Held: Court, however, of the categoric view that the mere fact that a surplus had been generated for some periods would not stand in the way of the entitlement of the petitioner to the exemption sought if it satisfied other parameteres and tests to establish its eligibility. This is, however, the sole, substantial basis upon which the petitioner is denied the benefit of exemption, apart from the authority raising certain apprehensions in regard to non-compliance with the directions of the DIT in the order granting exemption from Income Tax. Needless to say, the petitioner is required to satisfy the authority that all conditions imposed by the income-tax authorities have been strictly complied with by it. The grant of exemption to the clinic run by the Sanstha at Defence Colony, New Delhi would also support the position that the activity carried on by the organisation had been accepted to be charitable in nature, subject, of course, to the examination of accounts and deployment of surplus earned, if any, for each financial period in question to satisfy the test of pre-dominant activity carried on by the organisation. Though profit earning should not be the dominant object of the institution, there is no bar to it being a mere incident of its operations. To hold that there should be a bar on the earning of profits would only serve to make the institution unviable. The provision for exemption in the Delhi Act specifically provides for this situation in the imposition of the condition that 'such society is supported wholly or in part by voluntary contributions, (and) applies its profits, if any, or other income in promoting its objectives and does not pay any dividend or bonus to its members' that that clinic had earned a surplus in some years is not material per se for the grant of exemption, what remains is for the respondent to verify specifically the avenues into which the surplus generated for those had been ploughed. Grant of exemption from income-tax have also been complied with, scrupulously. The impugned order was set aside to be redone, in the light of the directions as above and the writ petition was allowed.

Relied:Govel Trust v. The Commissioner and Others [Order, dated 13-11-2019 in W.P. No. 6014 and 6015 of 2018], Court dated 10-5-1994 in W.P. No. 3235 of 1985 and 23-1-2009 in W.P. Nos. 14414 and 14415 of 1999, Municipal Corporation of Coimbatore v. Govindasamy Naidu Hospital (K.G. Hospital) by its Govindasamy Naidu Trust (2004) 2 L.W. 146 and S.N.R. Sons Charitable Trust, Coimbatore v. CIT, Coimbatore City Municipal Corporation, Coimbatore (1993) 10 WLR 769, Sundaram Medical Foundation v. CIT, Corporation of Chennai (2017) 7 MLJ 802 and Indian Chamber of Commerce v. CIT, West Bengal (ii) Calcutta 1976 (1) SCC 324, CIT v. Surat Art Silk Association 121 ITR 2 (SC).

REFERRED : Velammal Educational Trust v. State of Tamil Nadu & Ors. (Batch) (2017 SCC Online Madras 37345.

FAVOUR : In petitioner favour.

A.Y. :

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