The Tax Publishers2020 TaxPub(DT) 4590 (Mad-HC)


Section 11 Section 101

The mere fact that a surplus had been generated for some periods it would not stand in the way of the entitlement of the petitioner to the exemption sought if it satisfied other parameters and tests to establish its eligibility.

Charitable trust - Exemption under section 11 - Charitable activities vis-a-vis application of proviso to section 2(15) -

Petitioner is the Parivar Seva Sanstha, an organisation registered under the Societies Registration Act, 1860 on 11-9-1978. It claims to be a non-governmental, not-for-profit organisation rendering reproductive welfare and health care services including family planning services. It runs and manages 32 clinics Pan India and is 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. It states that it works in close association with, and under the guidance of the relevant Ministry of Government of India and the concerned State Governments. The contraceptives that it distributes as part of its social marketing initiatives are provided by the Ministry of Health and Family Welfare (GOI). The question that arises in this writ petition is : whether the petitioner was entitled to exemption from the payment of property tax in terms of the Madras City Municipal Corporation Act, 1919 ('Act') that extends an exemption for various categories of organisations and activities under section 101 thereof. The petitioner, in response to demands of property tax in the year 2002 had communicated with the Corporation/respondent seeking the benefit of exemption from property tax. The demands, however, continued, as a result that the petitioner filed a formal representation staking its claim for exemption. Court directed the CIT, specifically, to hear the petitioner and pass an order on the grant or otherwise of exemption within a period of eight weeks from date of receipt of a copy of that order. In respect of hospital at Theni, Allinagaram, the CIT has himself accepted the request for grant of exemption. The demands of property tax raised by the Coimbatore Corporation, came to be challenged by the Trust and had come to be decided by this Court in favour of the Trust, confirmed by the Supreme Court in Special Leave Petition. 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.