Income

Tax Free Income Of Baba's :--

The Income-Tax Appellate Tribunal (ITAT) has given tax exempt Status to Baba Ramdev’s Patanjali Yogpeeth (a public charitable trust). The Delhi bench of the tribunal ruled that Patanjali Yogpeeth involves providing medical relief and its camps impart education, and since both 'medical relief ' and 'imparting education' fall within the meaning of charitable purpose it can be granted the Income Tax exempt status under sections 11 and 12 of the Income Tax Act. “The finding of Income Tax authorities that propagation of Yoga by Patanjali Yogpeeth does not qualify as medical relief or Imparting of education is not justified,” stated the Income Tax Appellate Tribunal in its order.

The Income Tax Appellate Tribunal in its order also referred to the 2006 amendment in the Income Tax  Act which specifically inserted `yoga’ within the definition of `charitable purpose’. The tribunal also ruled that corpus donations aggregating to Rs 45.98 crore received by Patanjali Yogpeeth, predominantly for construction of cottages under its Vanprasth Ashram Scheme (which provides accommodation to those attending residential yoga courses), were capital receipts not liable to Income Tax. Such donations included land donated, whose market value was pegged by Income Tax authorities at Rs 68 lakh. The Income Tax Appellate Tribunal, in its order, pointed out that “Corpus donations are not taxable, even in circumstances where the trust is not eligible for Income Tax exemption”.

Patanjali Yogpeeth is one of the largest yoga institutes in India. Named after the Rishi Patanjali, it is Baba Ramdev’s flagship project. Its purpose is to practise and research and develop yoga and ayurveda, as well as manufacture ayurvedic medicines. Acharya Balkrishna is the General Secretary of Patanjali Yogpeeth. He had entered India’s richest 100 club with $2.7 billion net-worth owing to his 97% stake in Patanjali Ayurved Limited.

“With revenue of $780 million, Patanjali sells everything from herbal toothpastes and cosmetics to noodles and jams. Though Ramdev holds no shares in Patanjali, he is the Company’s de facto brand ambassador, while Balkrishna runs operations. Among much else, Balkrishna also oversees 5,000 Patanjali clinics, the Patanjali University and a yoga and Ayurveda research institute. He says that Patanjali’s profits are donated to various trusts and charities,” Forbes had mentioned.

“The finding of Income Tax authorities that propagation of yoga by Patanjali Yogpeeth does not qualify as medical relief or imparting of education is not justified,” the Income Tax Appellate Tribunal stated in its order.

The order also made references to the 2006 amendment in the Income Tax Act under which " yoga"  was specifically inserted within the definition of "charitable purpose".

The tribunal also said: “Corpus donations are not taxable, even in circumstances where the trust is not eligible for Income Tax exemption."

The ruling skews the playing field in favour of one player and may result in monopolistic tendencies in the Indian market.

Not only does Baba Ramdev use his "yogic" credentials to sell everything from noodles to skinny jeans, his Yogpeeth is the peg on which his FMCG empire hangs, and his brand value pretty much rests. Ramdev's Yogpeeth, unlike a regular public charitable trust, is the portal to the yoga guru's consumer goods company worth several thousand crores. So, a tax break to Patanjali Yogpeeth is government largesse at its unethical and nepotistic worst.

With one company getting tax benefits, how can it be a level playing field? Moreover, it is no secret that demonetisation hurt major FMCG players badly including sector leaders such as Hindustan Unilever Ltd (HUL) and Nestle — two of the biggest names in the industry. It took a very toll on almost all companies in the December quarter.

Baba Ramdev’s mega fast moving consumer goods (FMCG) firm, Patanjali recently collaborated with e-commerce platforms to expand the reach of its products. The Yoga guru also declared his plan to continue Patanjali as a non-governmental organization (NGO). However, what if Patanjali was a regular company that falls under the ambit of corporate tax?

Corporation tax is a tax levied on the net income of the company. Businesses, both private and public, which are registered in India under the Companies Act 1956, are liable to pay corporate tax currently pegged at 30%. Finance Minister Arun Jaitley in his last Union Budget talked about lowering corporate income tax to 25% in a span of four years for companies registering annual revenue of Rs 50 crore or less. The announcement is yet to be put in practice.

Founded in 2006, Haridwar-based Patanjali Ayurved clocked an annual revenue of Rs 11,561 crore in the financial year end of March 2017. Revenue registered for the financial year 2015-16 was Rs 6,000 crore and Rs 2,007 for the fiscal before that.

The Centre’s total collected tax revenue in the last financial year was Rs 17,60,000 crore. Had Patanjali been paying corporate tax, government revenues would have been close to 17,23,000, an increase of roughly 0.6 percent coming from a single organisation.

However, tax experts explained that there are exemptions and rebates that firms get from tax authorities on account of income generation source shown.

Further, it will be wrong to assume that Patanjali does not pay any tax at all. The basic difference between an NGO and a regular company is non-levy of corporate income tax because an NGO is not supposed to make profits on account of it being a holding company.

“Patanjali is a holding company. Smaller companies under it pay all the taxes for production of ultimate sale of products. Further, Patanjali also pays all other taxes such as service tax etc.,” explained DK Srivastava, chief economic expert, EY, a consultancy.

The Baba Ramdev and Acharya Balkrishna-led FMCG company has products across 50 categories such as pantry staples, groceries, nutrition, skin care and toiletries, with haircare and oral care products being the best sellers.

The NGO has currently partnered with eight e-commerce firms, including Amazon, Flipkart, Paytm Mall, Bigbasket, Netmeds, Grofers and Gurugram-based 1mg.

In addition to being available on the above sites, products will also be sold on Patanjali’s own online marketplace – patanjaliayurved.net.

“At present, Patanjali has an annual production capacity of Rs 53,000 crore,” claimed Baba Ramdev in January 2018.

As claimed by Baba Ramdev during a press conference, Patanjali has created an ecosystem that is capable of settling up to 1.5 million orders every day. The latest move to launch its own e-commerce operations is reportedly aimed at increasing online sales to around 15% of the company’s total sales.

Why is Patanjali exempted from paying taxes?

Simply put the news is blown out of proportion, people must understand that the Pantanjali Products which they sell through Patanjali Ayurved Limited is different from the one in the news i.e Patanjali Yogpeeth.

Though you still might ask whats the difference, the later has been created as a Charitable trust and also has registered itself as a Charitable trust under Income Tax Act, Finance Bill 2015 included the Teaching or Training or any work related to Yoga in the list of Charitable activities.

So, is the FMCG Products income of Pantanji exempt ? NO.

The sales income are rightly taxed, as the Company is already being subject to Income Tax.

The contention of the department was that they were not imparting any education or medical relief for which they were originally registered for, and hence the exemption under Yoga as to be denied.

The Delhi branch of the tribunal held that yoga provides medical relief and and camps also providing education can be exempt under sections 11 and 12 of the Income Tax Act.

Though the profit after tax is given to the Trust, its given it as corpus. Corpus is not taxable defacto under the IT Act. This was also upheld by ITAT.

The media so as to make headlines had made the news as such the income from Patajali products are being exempt from tax instead of the Yoga Institution.

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Thanks & Regards, 

Saurabh Jain

Android Developer

AeroSoft Corp

E: alfa.sourabh@gmail.com

E: sourabhjain.alfa@gmail.com

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