In a significant ruling, the Delhi High Court has held that the collection of service charges from the donors by India HIV AIDS Alliance cannot be treated as a reason to deny the exemption under section 11 and 12 of the Income Tax Act, 1961 to charitable entities.
The department denied the exemption under Sections 11 and 12 of the Income Tax Act, 1961 to the assessee, by holding that the actual work of the assessee is to receive and simply transfer grants to other NGOs and the assessee is found to be charging service charges from its donor in various forms like management fee, etc. for execution of projects.
On appeal, the Income Tax Appellate Tribunal granted relief to the assessee by holding that the activity of the assessee was charitable in nature when the activity carried out by the assessee yielded income which is commercial in nature.
The division bench comprising Mr. Justice Manmohan and Mr. Justice Dinesh Kumar Sharmarelied on an earlier case of the assessee wherein it was held that“the Assessee is a company registered under Section 25 of the Companies Act. It gives 85% of the donation received by it to the Government of India for HIV Aids and only 15% of its total donation is given to other societies for awareness andtreatment of poor HIV Patients. The entire amount spent by the Assessee is through societies and trusts. It also runs its own project for the welfare of HIV and AIDS patients. In the above circumstances it has been held that merely because the Assessee charges management fees to defray the administrative costs it would not make its essential activity a business activity.
Relying on the above ruling, the High Court held that “Consequently, no substantial question of law arises for consideration as the questions sought to be raised in the present appeals are squarely covered by the decision of this Court. Accordingly, the present appeal is dismissed.”
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