Surplus income does not negate the charitable nature of an organization, provided funds are reinvested into charitable activities.

ORDER

PER M. BALAGANESH, A. M.:

1. The appeal in ITA No.160/AGR/2024, arises out of the order of the ld Ld. Commissioner of Income Tax (Exemption), Bhopal [hereinafter referred to as „ld. CIT(E)” in short] dated 28.02.2024.

2. The only issue to be decided in this appeal is as to whether the ld. Commissioner of Income Tax (Exemptions) (hereinafter referred as “ld CIT(E) in short) was justified in rejecting the application for grant of registration u/s 12AB of the Act in the facts and circumstances of the instant case.

3. We have heard the rival submissions and perused the material available on record. The assessee is a charitable society and was granted provisional registration. The assessee made an application in the prescribed format seeking permanent registration u/s 12AB of the Act. The ld CIT(E) passed an order in Form 10AD rejecting the application seeking permanent registration of the assessee on the ground that the assessee does not possess the registration for running charitable activities of hospital. The ld CIT(E) also relied on the decision of the Hon’ble Supreme Court in the case of New Noble Educational Society Vs. DCIT in Civil Appeal No. 3795/2014 in support of his contention. The assessee is a registered charitable society under the MP Society Registrikaran Adhiniyam, 1973 w.e.f. 10.05.2022. The primary object of the assessee society is to promote healthcare. The assessee applied for provisional registration u/s 12A(1)(ac)(vi) of the Act on 11.03.2022 by filing Form 10A. Provisional registration was granted in Form 10AC for AYs 2022-23 to 2024-25 w.e.f. 18.03.2022. On 29.09.2023, the assessee filed Form 10AB for final registration u/s 12A(1)(ac)(iii) of the Act.

4. It is not in dispute that assessee had filed its return of income together with audit report in Form 10B and audited balance sheet. The assessee for the year ended on 31.03.2022 had stated that a sum of Rs. 66,51,422/- has been applied for charitable purposes during that year and had also set apart a sum of Rs. 96,87,641/- in terms of Section 11(2) of the Act to be applied in future. The various receipts derived by the assessee in the form of dialysis receipts, xray receipts, interest receipts etc were applied for meeting out the charitable activities and all these facts are evidenced from audited balance sheet as well as income and expenditure account for the years ended 31.03.2021, 31.03.2022 and 31.03.2023. On perusal of the detailed paperbook filed by the assessee from time to time, we find that the details of loans and advances given by the assessee were sought for and the same were duly furnished. From the balance sheet as on 31.03.2022, the ld CIT(E) observed that assessee had advanced loans to the members of the Governing Council of the assessee society and to The Central Park Hotel which was sought to be considered as amounts diverted for non charitable purposes. The assessee explained that the society had executed a formal agreement with The Central Park Hotel, Gwalior for acquisition of land for a consideration of Rs. 1.80 crores in order to construct a new Hospital for which an advance payment was made. Due to less liquidity with the assessee, the assessee requested the office bearers of the society to make payment to The Central Park Hotel for remaining amounts. Accordingly, HUFs of the office bearers made payments to The Central Park Hotel on behalf of the assessee. Subsequently, during the FYs 2021-22 and 2022-23, the assessee paid back monies to HUF which were reflected in loans and advances. Hence, effectively loans were earlier borrowed by the assessee which were repaid and no fresh loans were given to these parties as alleged by the ld CIT(E). From the above, it could be seen that advance made to The Central Park Hotel is for acquisition of new hospital. Accordingly, we have no hesitation to hold that assessee had not diverted its funds for non-charitable activities by advancing to parties who are related either to the office bearers