Operation Blessing India,, Hyderabad vs Department Of Income Tax

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respect to relief of poor, the Ld. CIT(A) is not justified in directing the AO to allow the expenses claimed by the assessee as application of income ujs. 11 of the Act".

2. Briefly stated, assessee is a company registered u/s 25 of the Companies Act and is also registered u/s 12A of the Income Tax Act, 1961. Assessee filed return of income on 27.7.2011 claiming exemption u/s 11 of the Income Tax Act.

3. Assessee submitted before the Assessing Officer that it had filed form No.24A (1) 1.9.05.2009 with the Ministry of Corporate Affairs for expansion of the main objects, that the application was rejected on 06.01.2011 on grounds of non remittance of fees, that no fees were required to be paid by the assessee and therefore, the rejection for this reason was unjustified, that the assessee had filed a fresh form No.24A to the Registrar of Companies on 26.02.2014 for amendment to the objects of the company and that the amended objects were approved on 05.03.2014.

4. Assessee also submitted that its main object was to carry on charitable activity for relief of the poor and the disabled and also carry out relief work in respect of other persons affected by natural calamities and that there was no case for undertaking activities in violation of the objects.

5. The Assessing Officer noted that the very fact that the assessee had applied to the authority concerned for modification of its objects showed that it was aware of the limitations of its objects in the context of the activities being carried out by it. The

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Assessing Officer also noted that the registration uls 12A had been granted based on the MOA approved by the Registrar of Companies, that any changes in the objects in the MOA became operative from the date of such approval by the authorities concerned, and it was only when the modified objects were intimated and approved by the DIT (Exemptions) and that these modified objects can be implemented or works undertaken in pursuance of such modified objects for availing exemption u/s

11. The Assessing Officer also observed that the assessee had not submitted the details or evidence for expenditure on activities undertaken in places affected by natural calamities and since the expenditure was not in accordance with the objects mentioned in the MOA, these expenses were not allowable as application of income u/s 11.

6. In the course of the appellate proceedings, the AR suhmitted that the interpretation of the objects made by the Assessing Officer was erroneous, that the assessee was permitted to undertake any kind of charitable activity for relief of poor and the disabled and that in respect of others i.e. persons who were not poor or who were not disabled, it could carry out the relief work where such persons were affected by natural calamities. The AR also submitted that the activities of the assessee and the objects had been examined by the DIT(Exemptions) on two occasions in the context of the Renewal of Exemption uls 80G. The AR also submitted that it had been granted exemption u/s 11 for all preceding years from A Y 2000-01 to 2010-11 under similar facts and circumstances and the principle of consistency, as propounded in the case of Radhasoami Satsang vs. CIT [1992)

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193 ITR 321 (SC) and in the case of DIT(Exemptions) vs. Escorts Cardiac Disease Hospital Society [2008) 300 ITR 75 (Del) would apply in the present case.

7. The CIT (A) observed that the relevant clause in the objects of the assessee which read as follows:

""to carry on any social work or relief work for helping the poor, disabled or others affected by natural calamities...."

8. The CIT (A) further relying on the decision in the case of Escorts Cardiac Diseases Hospital Society 300 ITR 75 (Del.) held that since there is no material change in the activities of the assessee since its inception in A.Y 2000-01 and the assessee's claim of exemption u/s 11 had been allowed under identical circumstances, directed the AO to allow the expenses as application of income in accordance with section 11. Aggrieved, the Department is in appeal before us.

9. The ld DR pointed out that the assessee has not been able to produce the bills and vouchers of expenses claimed on medical camps and rehabilitation consequent to floods and also documentary evidences were not produced for expenditure incurred with respect to relief of the poor and hence the CIT (A) had wrongly directed the AO to allow the expenses claimed by the assessee as application u/s 11 of the Act.

10. The ld Counsel for the assessee relied on the order of the CIT (A). The ld Counsel for the assessee also clarified that the company would undertake any kind of charitable activities for

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relief of the poor and the disabled. Further in respect of others i.e. persons not poor or disabled it would carry out relief work where such persons are affected by natural calamities. The ld Counsel further submitted that since there was no change in facts and circumstances from August 1988-89 till 1997-98, the Revenue must follow a consistent pattern and when the Department has granted the benefit of section 10(22)A and 11 of the Act earlier, it cannot be permitted to change its opinion without any change in the circumstances. The ld Counsel relied on the order of the CIT (A).

11. We heard both the parties. The AO during the scrutiny proceedings thoroughly examined the objects of the assessee company. The AO held that on examining the application of income vis-à-vis the objects of the company, it was observed that the assessee company has not applied its income as per the objects as enumerated at Para 3 in the AO's order, which is as follows:

1. To establish and run in any part of India colleges or schools where general, scientific, commercial, engineering be imparted to the students orally or through post for advancement and propagation of education and learning.

2. Establishment, maintenance and support of libraries,' museums and reading rooms and distribution of books etc., for advancement of education and knowledge in general and for this purpose hold, arrange and organize meetings, lectures, talks, discussions, seminars, symposia, conferences, competitions, research and study visits, tours, excursions, exhibitions, debates, cinema, audio-visual programmes, the artistic

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performances and other cultural activities, sports and games.

3. To establish and maintain Hospitals, medical investigation and research establishments or institutions, in India for affording facilities of medical relief to the poor, the sick and the suffering, especially in the rural areas.

4. To carryon any social service work or relief work for helping the poor, disabled or others affected by natural' calamities, either by itself or in co-operation with any other organizations.

5. To attain the main objects, the company shall raise funds by undertaking printing and publishing of books and other literature, through production and telecast of message oriented Audio Video cassettes, by making feature' films, documentary films, Television serials and Episodes for advancement of culture and knowledge and shall undertake export of the same to other interested institutions abroad."

12. In response to the show cause notice the assessee filed a reply dated 6.3.2014 stating as follows:

"It is relevant to note that on 19.05.2009, the assessee company had fuly filed Form No.24A with the Ministry of Corporate Affairs, duly filing the relevant documents and seeking approval for the proposed expansion of the main objects of the Company, duly including the Charitable Activities enunciated in 1 above. Consequent to the filing of the application, inspite of repeated follow up with the Regional Director, there was no response on the Application. On 6th January, 2011 the application was rejected. The application was rejected on the grounds of non-remittance of fees".

13. AO observed from the reply dated 6.3.14 that it can be inferred that the assessee company had come to know of the benefit of the object with respect to the activities in MOA in the

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month of May, 2009 and submitted proposal for addition of objects to the MOA through the concerned authority of Ministry of Corporate Affairs wherein the assessee company had added a few objects to the already existing objects. AO further observed that the assessee company was well aware of the limitation of the objects of the company to carry out its activities in the way it is being with respect to objects cited earlier at Para 3. Having come to know of its limitation the assessee company had applied to the concerned authority to modify and add additional objects in the month of May, 2009 which was ultimately rejected in January, 2011. It was the conclusion of the AO that the assessee was not confident of the activities in relation to the objects existing and therefore had made efforts for addition of new objects. Further the AO in the course of assessment proceedings vide order sheet entry dated 08-012014, the Authorised Representative of the assessee was asked to submit the details of the places, where the activities are conducted, affected by natural calamities as per the objects. The case was adjourned to 17-01-2014. However, the AR has appeared on 21-01-2014 and filed note on medical camps and rehabilitation consequent to floods but no proof has been furnished to that effect. The case was adjourned to 27-01-2014 asking the assessee to produce bills & vouchers and books of account. However, on the said date there was no compliance and on 06-03-2014 the AR appeared and filed reply to show cause letter discussed above and amended objects as approved by ROC. From the delay of 40 days, caused by the AR, it was inferred that as there is no other option/ reply to the said query, the assessee company had filed a fresh Form No.24A to the Registrar of the Companies on 26-02-2014 requesting for

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approval of amendment to the objects of the Company and the same was approved on 05-03- 2014 as per the certificate filed by the AR obtained from R& A Associates Companies Secretaries. In the show-cause letter issued, the assessee company was asked to submit all the copies relevant documents for expenditure incurred with respect to relief of the poor affected by natural calamities. The assessee company had not submitted any such details of the work undertaken or the amount spent in places affected by natural calamities along with the letter submitted on 06-03-2014

14. With respect to the defects pointed out by the AO that the company was not able to submit any details of the work undertaken or the amounts spent in places affected by natural calamities the assessee is unable to give a reason for the same which is satisfactory even before us. We notice that through the show cause letter issued the AO had asked the assessee company to submit all copies relevant documents for expenditure incurred with respect to the relief to the poor affected by natural calamities which was not responded by the assessee, hence we deem it fit to restore the issue to the file of the AO and give one more opportunity to the assessee to produce the same to the satisfaction of the assessing authority who shall decide the issue in accordance with law.

15. The AO also had come out with a point that the assessee company was granted registration u/s 12A of the Act, based on MOA approved by the Registrar of Companies and any change in the objects of the MOA as per the Companies Act became

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operative from the date of such approval given by the concerned authorities for Corporate Affairs and approval is given prospectively and therefore it is only when modified objects are intimated and approved by the DIT (E) that these modified objects can be implemented and the works can be undertaken in pursuance of the objects. Hence the AO was of the view that the expenditure which was not in accordance with the object mentioned in the MOA is to be disallowed. Since we have remitted the issue with respect to the application of income u/s 11 in order to give an opportunity to the assessee to produce the necessary details before the AO, the AO shall also examine the issue with respect to the change in the objects of MOA as per the Companies Act and the date of approval by the DIT (E) of the modified objects as this fact is relevant for the implementation in pursuance of the objects and also in deciding whether expenditure is allowable when it is not in accordance with the objects mentioned in the MOA as on that date.

15. In the result, Revenue's appeal is allowed for statistical purposes.

Order pronounced in the Open Court on 3rd July, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 3rd July, 2015.

Vnodan/sps

Copy to:

1. Dy. Director of Income Tax (Exemptions)-III Hyderabad

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2. Operation Blessing India, H.No.2-80, Survey No.60 & 61, Kandlakoya,NH 7 Hyderabad

3. CIT(A) -IV Hyderabad

4. DIT (Exemptions) Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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