Date : 05.10.

2013
Before the Commissioner of Income Tax (Appeals)
Varanasi
Re. : Appeal No. 28/2012-13 relating to A.Y. 2010-11
M/s Vivek Sewa Samiti,
Madauli, Manduadih,
Varanasi (UP) - 221103
PAN : AABTV0679B

Appellant

V/s
Dy. Commissioner of Income Tax,
Circle 3,
Varanasi

Respondent

Subject : Written Argument - II

Sir,
Kindly refer page 99 of Paper Book wherein the additional Grounds of Appeal has been taken
by the Appellant quoted here under:

1. Because it is fully explained that the Gross Receipt of assessee from Hospital is below
Rs. 1 crore & therefore it is exempt u/s 10(23c)(iiiae). The learned Assessing Officer
has erred & acted illegally in neither applying this provision nor considering the
same.
and the appellant further begs to state as under :

1. That the appellant is wholly and exclusively serving the persons suffering from illness
and therefore comes within the category of the Provision of Section 10(23C)(iiiae) of
the Act, quoted is hereunder :
(iiiae) any hospital or other institution for the reception and treatment of persons suffering
from illness or mental defectiveness or for the reception and treatment of persons during
convalescence or of persons requiring medical attention or rehabilitation, existing solely
for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts
of such hospital or institution do not exceed the amount of annual receipts as may be
prescribed63; or]

Kindly refer the Circular No. 11 of 2008 dated 19.12.2008 is quoted hereunder :
EXEMPTION UNDER SECTION 11 IN CASE OF ASSESSEE CLAIMING BOTH TO
BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANISATIONS
CIRCULAR NO. 11/2008, DATED 19-12-2008
Definition of Charitable purpose under section 2(15) of the Income-tax Act, 1961

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Section 2(15) of the Income Tax Act, 1961 (Act) defines charitable purpose to include the
following:(i) Relief of the poor
(ii) Education
(iii) Medical relief, and
(iv) the advancement of any other object of general public utility.
An entity with a charitable object of the above nature was eligible for exemption from tax
under section 11 or alternatively under section 10(23C) of the Act. However, it was seen
that a number of entities who were engaged in commercial activities were also claiming
exemption on the ground that such activities were for the advancement of objects of
general public utility in terms of the fourth limb of the definition of charitable purpose.
Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which
states that the advancement of any other object of general public utility shall not be a
charitable purpose if it involves the carrying on of
(a) any activity in the nature of trade, commerce or business; or
(b) any activity of rendering any service in relation to any trade, commerce or business;
for a cess or fee or any other consideration, irrespective of the nature of use or application,
or retention of the income from such activity.
2. The following implications arise from this amendment
2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three
limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently,
where the purpose of a trust or institution is relief of the poor, education or medical relief, it
will constitute charitable purpose even if it incidentally involves the carrying on of
commercial activities.
2.2. Relief of the poor encompasses a wide range of objects for the welfare of the
economically and socially disadvantaged or needy. It will, therefore, include within its ambit
purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or
children, small and marginal farmers, indigent artisans or senior citizens in need of aid.
Entities who have these objects will continue to be eligible for exemption even if they
incidentally carry on a commercial activity, subject, however, to the conditions stipulated
under section 11(4A) or the seventh proviso to section 10(23C) which are that
(i) the business should be incidental to the attainment of the objectives of the entity,and
(ii) separate books of account should be maintained in respect of such business.
Similarly, entities whose object is education or medical relief would also continue to be
eligible for exemption as charitable institutions even if they incidentally carry on a
commercial activity subject to the conditions mentioned above.

3.The newly inserted proviso to section 2(15) will apply only to entities whose
purpose is advancement of any other object of general public utility i.e. the fourth
limb of the definition of charitable purpose contained in section 2(15). Hence, such
entities will not be eligible for exemption under section 11 or under section 10(23C)
of the Act if they carry on commercial activities. Whether such an entity is carrying
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on an activity in the nature of trade, commerce or business is a question of fact which

will be decided based on the nature, scope, extent and frequency of the activity.
3.1. There are industry and trade associations who claim exemption from tax u/s 11
on the ground that their objects are for charitable purpose as these are covered under
any other object of general public utility. Under the principle of mutuality, if trading
takes place between persons who are associated together and contribute to a common
fund for the financing of some venture or object and in this respect have no dealings
or relations with any outside body, then any surplus returned to the persons forming
such association is not chargeable to tax. In such cases, there must be complete
identity between the contributors and the participants.
Therefore, where industry or trade associations claim both to be charitable
institutions as well as mutual organizations and their activities are restricted to
contributions from and participation of only their members, these would not fall
under the purview of the proviso to section 2(15) owing to the principle of mutuality.
However, if such organizations have dealings with non-members, their claim to be
charitable organizations would now be governed by the additional conditions
stipulated in the proviso to section 2 (15).
3.2. In the final analysis, however, whether the assessee has for its object the
advancement of any other object of general public utility is a question of fact. If such
assessee is engaged in any activity in the nature of trade, commerce or business or
renders any service in relation to trade, commerce or business, it would not be
entitled to claim that its object is charitable purpose. In such a case, the object of
general public utility will be only a mask or a device to hide the true purpose which
is trade, commerce or business or the rendering of any service in relation to trade,
commerce or business. Each case would, therefore, be decided on its own facts and
no generalization is possible. Assessees, who claim that their object is charitable
purpose within the meaning of Section 2(15), would be well advised to eschew any
activity which is in the nature of trade, commerce or business or the rendering of any
service in relation to any trade, commerce or business.

2. That the Clause I of this circular clearly indicate that any assessee may seek
exemption from tax u/s 11 or alternatively u/s 10(23C) (iiiae) of the Act. Since
exemption u/s 11 has been cancelled by the Ld CIT Varanasi, even though the
assessee is entitled u/s 10(23C)(iiiae) of the Act, as explained in para 1.

3. That kindly refer para 2 (1) of the circular wherein it has been clearly explained that
the amendment u/s 2(15) is not applicable to the charitable activity, i.e. medical relief
& also has clarified that incidental commercial activity cannot hit the exemption u/s
10(23C) (iiiae) or section 11 of the Act.

4. That the assessee is a society & the books of a/c maintained by the assessee are not
covered u/s 44AA & 44AB of the Act .
And to examine the books of a/c in view of these provisions is un-warranted & untenable, the reason is that in carrying out the charitable activity there is so much
pilferage & wastage which cannot be accounted for and it is the reason that for
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purposes of charitable activity the Parliament has made the provision of section
12A(1b) of the I.T. Act, quoted here under:(b) where the total income of the trust or institution as computed under this Act
without giving effect to 50[the provisions of section 11 and section 12 exceeds the
maximum amount which is not chargeable to income-tax in any previous year], the
accounts of the trust or institution for that year have been audited by an accountant
as defined in the Explanation below sub-section (2) of section 288 and the person in
receipt of the income furnishes along with the return of income for the relevant
assessment year the report of such audit in the prescribed form 51 duly signed and
verified by such accountant and setting forth such particulars as may be prescribed.]
And this provision only relies on the report of CA in Form 10B and since the CA has
verified the accounts and expenses there can be no disallowance or addition.

5. That to examine the books of account in view of section 2(12A), 44AA & 44AB of
the I.T. Act, amounts to excess committed by the Assessing Officers against the
charitable institution.

6. (a) That so far as the provision of section 10(23C)(iiiae) is concerned it does not
prescribe any kind of books of account to be maintained, it simply says that the total
receipt must not exceed against medical relief Rs. 1 crore, whereas the receipt from
this activity is only Rs. 9641441/- and in this way the income of the assessee is
entitled for exemption u/s 10(23C)(iiiae) of the Act.
(b) That this provision provides the blanket exemption, the relevant portion from the
commentary of Sampath Iyengars Volume 1 page 1910 is quoted here under:Exemption for medical institution under clause (iiiac), (iiiae), and (via) Any
hospital or other institutions for treatment of illness or mental defectiveness or
treatment during convalescence requiring medical attention or rehabilitation solely for
philanthropic purposes and not for purpose of profit is exempt of wholly or
substantially funded by the Government under clause (iiiac). If not so funded, it
would be exempt, if annual receipts do not exceed the prescribed limit, which is Rs. 1
crore as prescribed under Rule 2BC. If the limit is exceeded, approval from prescribed
authority under clause (via) would be required. The prescribed authority is Chief
Commissioner or Director General (Exemptions) vide Rule 2CA.
(c) That the assessee further rely on the decision of Bombay High Courts in case of
Beach Candy Hospital Trust v/s CCIT (Bom) 322 ITR 246.

7.
It is therefore prayed that the income of the assessee from Medical relief must be declared
covered u/s 10(23C)(iiiae) of the I.T. Act, and exempt from taxation.
For Appellant
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