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Income Tax Appellate Tribunal, CHANDIGARH BENCH ‘B’, CHANDIGARH
Before: SHRI SANJAY GARG, JUDICAL MEMBER & SMT.ANNAPURNA GUPTA
Per Annapurna Gupta, Accountant Member:
The above appeal has been preferred by the assessee against the order of the Commissioner of Income Tax (Appeal)- 2, Jalandhar (in short CIT(A) dated 07.09.2018 relating to assessment year 2015-16 passed u/s 250(6)) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’).
A.Y. 2015-16 Page 2 of 29
It was pointed out that the primary issue involved in the present appeal related to denial of exemption of income from taxation, to the assessee, as a charitable entity, claimed u/s 11 of the Act. Referring to the facts of the case as noted in the assessment order it was pointed that the assessee society was established by the Punjab Government on 07.07.1994 and registered under the Registration of Societies Act XXI of 1860 by the Registrar of Firms and Societies, Punjab, Chandigarh vide No.916 dated 10.10.1994. That the assessee’s application for grant of registration u/s 12A of the Act as a charitable entity for the purpose of availing exemption, as per the provisions of section 11 of the Act, was initially rejected by the Ld.CIT-II, Jalandhar w.e.f. 2004-05 vide order dated 23.12.2013, which order was cancelled by the ITAT vide its order dated 29.09.2015 holding that the Ld.CIT had no powers for cancelling the registration. In this backdrop the assessment proceedings for the impugned year were undertaken, during the course of which the AO noted from the financial statement of the assessee society that it had earned income only by way of interest on FDRs and the expenditure incurred were related to administration expenses only. He, therefore, noted that the assessee had carried out no charitable activity, as listed in its objects, and accordingly proposed withdrawing exemption u/s 11 of the Act. A show cause notice was issued to the assessee, A.Y. 2015-16 Page 3 of 29 in response to which detailed reply was filed by the assessee stating that it had indulged in its stated objects and was maintaining Medical College in Jalandhar and had also expended in medical projects in the state. The AO after considering the reply filed by the assessee rejected all the contentions of the assessee holding that the assessee was not running any hospital but in fact had leased out the land and hospital building to another society which in turn was running and maintaining the hospital. That it had incurred no expenditure worth its while on the running of the hospital, nor had earned anything from the same. He further noted that the assessee had been earning huge surplus from year to year and was accumulating the same for utilization in the charitable objects of the society in future as allowed by the provisions of section 11(2) of the Act. Noting the same the AO held that the primary object of the assessee society, therefore, appeared to be profit making only. He accordingly, held that the assessee was not eligible for exemption u/s 11 of the Act and taxed the surplus generated during the year by the assessee amounting to Rs.5,02,35,799/- in the status of Association of Persons( AOP). Further the AO added back the amount accumulated by the assessee in assessment year 2010-11 for utilization in the next five years as per the provisions of section 11(2) of the Act amounting to Rs.60,65,97,152/- for the reason that neither had A.Y. 2015-16 Page 4 of 29 the assessee accumulated the same for a specified purpose as required by law, nor utilized it for any specific purpose. He further noted that the assessee had made advances to two parties M/s HSCC, Noida and M/s PHSC amounting to Rs.1,69,77,290 and Rs.82,20,88,469/-, which were not in the modes prescribed for charitable entities as per law u/s 11(5) of the Act and thus violated the provisions of section 13(1)(d) of the Act. He, therefore, held that since the assessee had not fulfilled the condition for exemption it was not entitled to the same also. Accordingly, the income of the assessee was assessed at Rs.65,68,32,951/- after making addition to the nil income returned by the assessee, the surplus earned during the year amounting to Rs.5,02,35,799/- and the amount accumulated in assessment year 2010-11 found to have remained unutilized, amounting to Rs.60,65,69,152/-.
3. Aggrieved by the same, the assessee carried the matter in appeal before the Ld.CIT(A) who upheld the order of the AO denying the exemption u/s 11 of the Act. Accordingly, the taxation of the surplus generated during the year in the status of AOP amounting to Rs.5,02,35,799/- was upheld. As for the addition made by the AO on account of non-utilization of the accumulated surplus pertaining to the assessment year 2010- 11, the Ld.CIT(A) deleted the same noting the fact that the assessee had been denied exemption on the same in the said A.Y. 2015-16 Page 5 of 29 year also which had been confirmed in appeal by the Ld.CIT(A) and, therefore, taxing the accumulated surplus in the impugned year would tantamount to double addition.
Aggrieved by the same the assessee has come up in appeal before us raising the following grounds:
l. That the Worthy CIT (A) has erred in confirming the stand of Learned A.O. that the appellant society was not doing any Charitable activity during the relevant previous year and erred in making addition of Rs.5,02,35,799/- on this account ; 2. That the Worthy CIT (A) has erred in confirming the Order of A.O. in assessing the income of the appellant society in the status of AOP.
3. That the Worthy CIT (A) has failed to appreciate that the Assessment order of learned A.O. is vague with regard to para 5.1 of the order in which A.O. at one place mentioned the withdrawal of exemption u/s 10(23C)(vi) and at other place registration under Section 12AA was denied.
4. That the Worthy CIT (A) erred in confirming that the appellant society was doing business during the relevant previous year.
5. That the worth CIT (A) failed to appreciate that the appellant society was carrying on its Charitable activities through another Charitable trust registered under Section 12AA in Public Private Partnership; 6. That the Worthy CIT (A) failed to appreciate that the Learned A.O. has allowed the deduction u/s 11 to the assessee society in assessment order u/s 143(3) for AY 2013- 14 and the facts of the case of AY 2015-16 are absolutely similar to that of AY 2013-14.
7. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.”
A.Y. 2015-16 Page 6 of 29
The assessee has also raised additional grounds before us vide letter dated 15.02.2019 as under:
1. That the Ld. A.O erred in holding that the provisions of Section 11(2) of the Income Tax Act,1961 were not followed by the appellant society during the relevant previous year for setting apart Rs,3,45,850477- . That the Learned A.O failed to appreciate that the purpose of accumulation was clearly mentioned in Form 10 filed. That the worthy CIT (A) has not given any findings on the issue when the purpose of accumulation was written as for the objects of the society" in Form 10.
2. That the Worthy CIT (A) has omitted to adjudicate the ground 9 raised by the appellant in Form no. 35 "That Ld. AO erred in holding that the appellant society has made violations of section 13(1)(d) r.w.s 11(5) of the income tax act 1961." And Vide letter dated 01.07.2019 as under:
2. That the Income tax demand of Rs.24,50,96712/= was recovered from the bank accounts of the society during the relevant Financial Year 2014-15 may be allowed as application of income.” 6. The original grounds raised by the assessee are against the denial of exemption u/s 11 of the Act resulting in taxation of its surplus amounting to Rs.5,02,35,799/- in the status of AOP. The additional grounds, we find are against the denial of benefit of accumulation of income as per section 11(2) of the Act, the denial of treatment of income tax paid during the year as amount utilized for the purpose of charity and the non adjudication by the Ld.CIT(A) of the ground raised
by the assessee regarding AO’s finding of violation by the assessee of the conditions prescribed for charitable entities u/s 13(1)(d) r.w.s. 11(5) of the Act resulting in denial of exemption u/s 11. A.Y. 2015-16 Page 7 of 29 of the Act. The additional grounds as is evident are relevant only if the assessee is held to be entitled to grant of exemption u/s 11 of the Act. Therefore, it is pertinent to adjudicate the main grounds raised by the assessee first before dealing with the additional grounds.
We have heard both the parties and have also carefully perused the orders of the Ld.CIT(A) and the AO. We have noted from the same that primary reason for denial of exemption u/s 11 of the Act is the categorical finding of fact, affirmed by the Ld.CIT(A), that the assessee was not carrying out any charitable activity whatsoever and the basis for arriving at this finding are as under:
1) The income and expenditure account of the assessee does not reveal any income earned from the charitable activity, nor does it reveal any expenditure incurred for the same. That the annual income reflected in the said financial statement pertains to interest earned on FDRs and lease income, which cannot be attributed to earning from charitable activity and the expenditure pertains to being in the nature of administrative expenses.
2. That in any case the assessee cannot be said to be carrying out its stated objects of running of medical college/hospital in Jalandhar since it is itself not running the medical college/hospital constructed or A.Y. 2015-16 Page 8 of 29
built by it but on the contrary has leased it out to a third private party.
Besides the aforesaid reasons, it has also been held that the assessee is only indulging in making profit out of development activities and, therefore, for the aforesaid reasons since the assessee is not indulging in any charitable activities it is not entitled to exemption u/s 11 of the Act.
Before us the Ld.Counsel for the assessee has countered all the above contentions of the authorities below, while the Ld. DR has vehemently supported the order of the Ld.CIT(A). We shall be taking and dealing with each of such factual findings of the Revenue while denying the exemption.
Taking up the first contention that the income and expenditure account reflected no charitable activity carried out by the assessee, the Ld.Counsel for the assessee contended that the facts reflected in the financial statements though not denied, do not reflect the complete picture and the factum of having carried out charitable activity nor can it be culled out from the said statement alone. The Ld.Counsel for the assessee contended that reading deeply into the financial statement or even dehors it, it can be demonstrated that the assessee was indulging in its stated charitable activities. To this effect, Ld.Counsel for the assessee first drew our attention to the A.Y. 2015-16 Page 9 of 29 objects for which the assessee society had been registered and granted registration u/s 12A of the Act as a charitable entity as under:
“To established and to carry on the Administration and management of Punjab Institute of Medical Sciences’, Jalandhar. (i) To set up, establish, promote manage or associate with, any other Institution or Centre in The state of Punjab devoted to education, training, research and related infrastructure in various branches of health sciences and working for the advancement of scientific knowledge aimed at enhancing eh quality of patient care. (iii) To provide for training, instructions and research in such branches of medical education and research & to induct advanced medical knowledge and techniques into our medical education system and to set tip Punjab Institute of Medical Sciences and Jalandhar as the institute may think fit and for the advancement of learning and dissemination of knowledge and patient care in such branches; (iv) To gel affiliation to the Medical Council of India or any other affiliating agency for the award of degrees, diplomas and certificates; (v) To institute and award fellowships, scholarships, prizes and medals in accordance with the Rules and Bye - laws; (vi) To confer honorary awards or other distinctions; (vii) To fix demand and receive such fees and other charges an may he laid down in the Bye-laws made under the rules of the Society. (viii) To established, maintain and manage halls and hostels for the residence of students: (ix) To provide for the maintenance of mils of the National Cadet corps when established for the students of the Institute; (x) To create administrative, teaching/non-- teaching and ministerial and other posts under the society and make appointments there to us needed in- accordance with rules and Bye-laws; A.Y. 2015-16 Page 10 of 29
(xi) To co-operate with educational or other institutions in any part of the work having objectives wholly or partly similar to those of the society by exchange of teachers, scholars & generally in such manner as may be conductive to their common objects: (xii) To make Rules and Bye-laws for the conduct of the affairs of the society and to amend, vary or rescind them from time to lime with the approval of the state Govt./Medical Council of India. (xiii) To acquire and hold proper, provided prior approval of the Stale Govt. is obtained for the acquisition o] immovable property: (xiv) To deal with or dispose off or write off any properly or loss there in belonging to or vested in the society in such manner as the society may deem fit for advancing its objectives subject to the provision that in case of transfer and disposal of any immovable property the prior approval of the State Govt. shall be obtained; (xv) To maintain a fund to which shall be credited:- (i) all money provided by the Central and State Government: (ii) all fees and other charges received by the society; (iii) All moneys received by the society by way of grants, gifts, donations, benefactions bequests or transfers; and (iv) all money received by the society in any other manner or from any other sources (xvi) To deposit all moneys credited to the fund in such banks or to invest them in such manner as the society may, with the approval of the state Government, decide: (xvii) To meet expenses of society including expenses incurred in the exercise of its powers and discharged of its functions out of the Fund: (xviii) To prepare and maintain accounts and other relevant records and to prepare an annual statement of accounts including the balance sheet of the society in such from as may be prescribed by the Stale Government hi consultation with the Accountant General of Punjab. (xix) To forward annually to the state Government the accounts of the society as certified by the Accountant General, Punjab or any other authority as may be decided by the stale Government.
A.Y. 2015-16 Page 11 of 29
(xx) To do all such things as may be necessary incidental or conducive to the attainment of all or any of the objects of the society. (xxi) To constitute such committee or committees as it any deem fit for the disposal of any business of the institute or for tendering advice inc any matter pertaining to the Institute; (xxii) To delegate any or all of its powers to the Governing Body of the Institute or to any of the committee or committees constituted by it; 10. Referring to the same he stated that besides the activity of administration and management of Punjab Institute of Medical Sciences, Jalandhar, the other objects of the assessee society include establishing, promoting, managing and associating with other institutions in Punjab devoted to education, training, research and related infrastructure in various branches of health sciences and such related objects. He thereafter pointed out that the assessee had been indulging in all the above charitable activities. To support his contention he stated that though undeniably the assessee has leased out the Punjab Institute of Medical Sciences premises at Jalandhar to a third party but it still exercised all control over its running and management, having clearly stipulated in the agreement parameters within which the institute was to be run by the third party, thus ensuring that the institute would run on the lines of charity. That no free rein had been given to the lessor for the running of the institute but was subjected to limitation which ensured that the institute was run on charitable lines alone and further that the assessee had retained right of A.Y. 2015-16 Page 12 of 29 control over the functioning of management of the said institute. The Ld.Counsel for the assessee drew our attention to the submission made in this regard as under:
“i. That the Society (PIMS) has been monitoring the functioning of the Medical College and hospital Jalandhar being run by the PIMS Medical & Education Charitable Society in terms of Concession Agreement dated 28.8.2009. The Society staff has been reporting lo the Managing Committee of the Society about the running of the hospital & medical college at Jalandhar. It is coordinating in the manner that all the policies framed for the running of the Charitable Institution as per Concession Agreement are adhered lo. Il is further stated that administrative expenses are necessary to carry out the activities of the society. The copy of Concessionaire agreement executed between Society. PIMS Medical & Education and Charitable Society (PMEC) and State Government was produced before AO to apprise her the massive work being carried out by the assessee society in terms of management of the hospital and medical college at Jalandhar. PIMS has been operating through PMEC a medical college of 150 seats along with 500 bed hospital in terms of Concession Agreement as discussed above. The hospital and medical college has a constructed area of around 10 lacs sq yards and the same is spread in nearly 56 acres. The Main terms of the agreement like the Hospital charges are as per PGI Chandigarh rates, Medical College fees is as per Pvt. Medical College Fee Charges as applicable to Pvt. Medical Colleges of Punjab State, BPL, Patients are being treated free of cost and its expenses will be reimbursed by PIMS Society being Concessioning Authority, PMEC Society will also complete the remaining construction of Hostels, residence and Auditorium etc. The Obligations of Concessioning authority i.e. PIMS Society are mainly related to all assistance to get the approval from state govt. or other authorities, frequent inspection of the activities of concessionaire and regulate the functioning of the concessionaire as prescribed in the concession agreement. A steering committee (Chief Secretary Punjab chairman) as prescribed in the concession agreement to regulate the activities of the concessionaire and Concessioning authority and assist for approval of many activities in the hospitals or required to the concessionaire has also been in existence. The Concessioning Authority also approves the constituents (members) of concessionaire being prescribed in the concession A.Y. 2015-16 Page 13 of 29 agreement Therefore there are many such obligations and as such responsibilities etc. in the concession agreement for Concessioning authority i.e. PIMS Society Jalandhar which are being regularly undertaken by the PIMS. The part covering the above said terms and conditions in the Concessionaire agreement is being attached for your ready reference.”
2. The copy of Concession Agreement dated 28.OK.2009 has already been filed before your goodself. The main points/articles of Concession agreement where your indulgence is sought are as under ; As per the Concession Agreement the consortium. Consortium (I'SP) has formed a society named as PIMS Medical & Education Charitable Society (PMEC Society) On the direction the 21st Governing Body meeting held on 27.8.2009 the Concession Agreement was signed on 28.8.2009 amongst the Concessioning Authority (PIMS Society), the Concessionaire (PIMS Medical & Education Charitable Society) and the Confirming Party State Govt). Till dale PMEC Society has full & final payment of Rs. 131.00 crore during 2008, 2000-10 and 2010-11 including interest on delayed payment of Rs. 54044419.00 during 2009-10 and 2010- 11. The PMEC Society will also pay Annual Concession Fee from the financial year 2016-17 onward rate as stated in Article 5 of Concession Agreement. The Lease Deed was signed on 7.1.2010 and registered on 11.1.2010. The building of Medical College & Hospital has been handed over to the PMEC Society during Feb. 2010 and after issuance of Certificate of Compliance on 4.6.2010 the hospital of the institution was started. Medical College was started by the PMEC Society on 2011-12 sessions onward. The Private Player, M/s PIMS Medical & Education Charitable (PMEC) being concessionaire of the project as per the Concession Agreement Executed for the project PIMS Hospital & Medical College running PPP Mode as under 1) Will charge the same rate as applicable from time to time in PGI Chandigarh for teaching as well as General Hospital,(Article 8 clause xviii ,page 39)
A.Y. 2015-16 Page 14 of 29 2) Provisions for free treatment facilities to the Below Poverty Line (BPL) patients has been kepi, the expenses of which will borne by PIMS.(Article 18) 3) The fees will be charged from the students of the Medical College as per notifications issued by the Govt. of Punjab from time to time for "Private Medical Colleges" of the Punjab state.(article 32 ) 4) The PSP shall not use more than 5 acres of land for other related infrastructure facilities like health club, food court, attendant's inn, faculty club, wellness programs etc. 5) Minimum Requirements, Standards and Rules and Regulations for running a Medical College will be as per Medical Council of India (MCI), Quality of health care servicesl be as per Standards of Joint Commission of International (JCI). 6) Obligations of the Concessioning Authority (Article 7) 7) Obligations of Concessionaire ( Article 8) 8) Termination for Default Article 22) 9) Steering Committee to review the overall functioning of project facility with other powers and duties having two representatives of Concessioning Authority, two representatives of Confirming party and one representative of the Concessionaire (article 29) The above main ingredients of Concession agreement prove that the agreement executed in transparent manner and keeping in view the fact that the Charitable purpose and objects of the society remain intact.
The AO wrongly observed in para 5.1 (last para of page 10 of assessment order ) of her order (hat Assessee is a basically a lessor. It was further wrongly observed that the assessee has claimed exemption u/s 10(23C)(vi), has earned systematic profits. The AO has held that the assessee society is not entitled for registration granted under Section I2AA(3) as the assessee society is not existing and working for the objects for which it was created as per MOA.
The Ld.Counsel for the assessee further contended that besides the above it was also brought out to the authorities below the various other charitable activities which the assessee A.Y. 2015-16 Page 15 of 29 had been indulging in over a number of years. Our attention was drawn to the submissions made by the assessee as under:
“ii. Further (lie AO has wrongly understood that the assessee society has been carrying only one object that of "To establish and carry on the administration and management of Punjab Institute of Medical Sciences." Whereas she has herself reproduced the Objects as per MOA on page 2 of assessment order which also includes the following apart from 20 other ancillary objects" ' “To set up establish, promote, manage or associate with ,any other Institution or centre in the slate of Punjab devoted lo education training .research and related infrastructure in various branches of health sciences and working for the advancement of scientific knowledge aimed at enhancing the quality of patient care” It is submitted before your goodself that the society has incurred on expenditure on the objects of the society amounting to Rs.I11.79 crores till 35th meeting of the managing Committee on 05.05.2015.The documents evidencing the same were produced before Learned AO (Pages I-S). It was submitted before the Learned AO that apart from para i) the society had already invested Rs.150.85 cr on various projects upto 31-03-2017 as per 36llth Meeeting of managing Committee , prominent among these are upgradation & strengthening of Govt. Medical College, Patiala amount spent is nearly Rs 40 Cr, Project of setting up of Comprehensive Cancer Treatment Centre at Bhatinda amount spent is more that of Rs 20 Cr, setting up of Comprehensive Cancer Diagnostic Treatment Centre at Baba Farid University of Health Sciences, Faridkot amount spent is Rs. 21.82 Cr, Govt Dental Colleges of the state, amount spent on it is nearly 12 crore, Skill development centre in 3 state medical colleges amounting to Rs. 18.81 cr and Upgradation of Radiotherapy department of Govt, Medical College Amritsar amounting to Rs. 5.53 crore etc. Apart from above the assessee society has given Rs. 82.20 crores in the financial year 2013-14 to PHSC to be spent on health projects as per the objects of the society. The evidence in this regard is enclosed for your ready reference. (Pages 9-14 ) iii. It was further submitted before the Learned AO that the projects carried out by the Society are duly approved by the Managing/Governing Body (i.e. body of high authorities of govt and experts of health and medical educations) and its status is always discussed in the each meeting of the Governing Body. In this regard extract of agenda and A.Y. 2015-16 Page 16 of 29 proceedings of 35l Governing Body meeting dated 5.5.2015 and agenda 36th Governing Body dated 1.12.2017 (which shows the latest status and funds provided to the projects) filed before Learned AO is attached. (Pages 1-14) iv. It is also submitted that income during the year has not only been spent on the administrative expenses but also on the projects i.e. Rs 27,61,055/- {Upgradation of Govl. Dental College (GDC) Arnritsar/Patiala and Nursing College and National Level Physiotherapy ^Workshop at Govt. Medical College (GMC) Paliala). Further more than 3 crore advance to M/s HSCC (supervising agency) with the project of Nursing College & National Level Physiotherapy workshop at GMC Patiala was also adjusted. Hence the belief of AO that the society spent whole of the amount on Administrative Expenses during FY 2014-15 is wrong. Copy of ledger accounts filed before Learned AO are attached at Pages 15-18. v. In FY 2014-15 the amount on the project could not be spent due to the reason the Income Tax department had issued the bank attachment notice n/s 281. All the bank accounts and FDR accounts having balances of Rs. 29.54 crore were attached by the Income 'fax department (Pages 19- 2 1). Moreover an amount of Rs.24,50,9672/= was recovered from the bank accounts of the society/Institute by AO during FY 2014-15.This has jeopardized the spending of the Society on the objects of the society. (Copies attached at Pages 22-24). Documents evidencing the above were duly filed before Learned AO during assessment proceedings. (Pages I 9-24).”
The Ld.Counsel for the assessee thereafter contended that the findings of the Ld.CIT(A) that the assessee had been indulging in infrastructure development projects and indulging in profit making was based on the fact that it had entered into tripartite agreement as per which land had been sold by PUDA and proceeds of the same had been forwarded to the assessee.
The Ld.Counsel for the assessee contended that the Department had held the assessee as the owner of the land and liable therefore to capital gain tax on the sale of same. He pointed out A.Y. 2015-16 Page 17 of 29 that the said action of the department had been struck down by the ITAT holding that the amount received was grants. The Ld.Counsel for the assessee drew our attention to the order of the ITAT in this regard dated 31.12.2013. He contended, therefore, that this allegation of the LdCIT(A) that the assessee is indulging in profit making by development activity, therefore, stood negated by the aforesaid order of the ITAT
The Ld. DR, on the other hand, vehemently supported the order of the AO/CIT(A). Written submissions dated 28.01.2021 were referred to by the Ld. DR and contention of the Ld.CIT(A) reiterated therein that the assessee was indulging in the activity for profit motive and was earning annual rental or lease income from private individuals and itself was not carrying out any charitable activities but was only applying the money in various projects at various stations through various institutions which could at best be termed two stage application which is definitely not in the nature of charitable activity. A number of decisions were relied upon by the Ld. DR in this regard.
“1) Winsome Foundation, Chandiarh in to 525/CHD/2018, dated 12.07.2018. 2) Maharaja Ranjit Singh War Museum Society, Ludhiana Vs. CIT, Jalandhar in ITA No.259 of 2019 (O&M), decision dated 20.03.2020.
A.Y. 2015-16 Page 18 of 29
3) CIT Kottayam Vs. M/s Annadan Trust, Vechoorettu Building, Ettumanoor, Kottayam-686 632 in of 2013 delivered on 23.07.2018.” Ld.DR further pointed out that the ITAT in the case of the assessee itself pertaining to A.Y 2006-07 had after taking note of the fact that since inception in 1994 the assessee had been indulging only in construction activity and had decided to hand over functioning of its medical college and hospital to a private society to be run on PPP mode, held that the assessee was not indulging in any charitable activity and was therefore not entitled to exemption u/s 11 of the Act. Copy of the order passed by the ITAT in & 515/Chd/2009 dated 31- 12-2013 was placed before us.
We have heard the contentions of both the parties and perused the documents placed before us. The denial of exemption to the assessee society in the present case is for the reason that it was found to be not carrying out any charitable activities. Undoubtedly, the objective with which the assessee society was setup in 1994 was to establish and carry on the administration and management of Punjab Institute of Medical Sciences, Jalandhar, which the assessee claims to be carrying out through a concessionaire. Admittedly, as per the Concessionaire Agreement entered into on 28.08.2009 ,the land and building constructed by the assessee for the purpose of A.Y. 2015-16 Page 19 of 29 running the hospital has been leased out to a private party, PIMS Medical & Educational and Charitable Society, for a period of 99 years for a consideration comprising of Rs.131 crores as upfront consideration and an annual concession fee being 5% of the upfront consideration to be increased every year @ 5% beginning from the 8 t h year from the acceptance of the proposal or the entering into upfront consideration. The Ld.Counsel for the assessee has in his rejoinder dated 03.08.2021 to the written submissions filed by the Ld. DR dated 28.01.2021 stated that the assessee society had received only Rs.1/- as lease rental income during the impugned assessment year. This fact is corroborated by the financials of the assessee for the impugned year reflecting receipt of Rs. 1/- as lease rental as under:
Particular Schedule As on 31.03.2015 A INCOME In teres t Income V II 53,214,466.18 Lease Money 1.00 Misc. Income 2,912,400.00 TOT AL(A) 56,126,867.18
B EX PEN DIITURE adminis tr ative and other exp enses V III 5,891,068.00 TOT AL(B) 5,891,068.00 To excess of Income and Exp enditure transf erred to 50,235,799.18 Reserve & surplus IX
No tes to Accounts A.Y. 2015-16 Page 20 of 29
He also orally submitted before us that upfront consideration to be paid to the concessionaire was still outstanding for payment as on date.
The fact remains that it is not the assessee which is actually running the medical college and hospital but it is the private player in the concessionaire agreement who is doing it.
What is to be addressed therefore is whether the assessee can in such circumstances be said to be carrying out charitable activity, though through another party.
We are not inclined to agree with this contention of the assessee. The fact of the assessee having leased out the medical infrastructure, constructed by it over a long period of time, for 99 years, tantamounts virtually to selling the property to the private player. We agree with the Ld.CIT(A) on the same, who has rightly pointed out that in legal parlance any lease of land for 99 years amounts to sale of property. Having held so there remains no question of the assessee carrying out its stated charitable activity of running the medical college and hospital thereafter. The contention of the Ld.Counsel for the assessee that the terms of the concession agreement ensure that the medical college and hospital is run on charitable lines, is of no assistance to the assessee for strengthening its case of carrying out charitable activity on account of the fact that the A.Y. 2015-16 Page 21 of 29 medical infrastructure has been virtually sold by the assessee to a private party .How it is run will not change the fact that the assessee has virtually nothing to do with it. Nothing concrete has also been brought to our notice from the concession agreement demonstrating the right of the assessee to exercise substantial control over the medical infrastructure leased. Various case laws relied upon by the Ld.Counsel for the assessee to buttress its contention that it can be said to be carrying out its charitable activity through leasing also, all are distinguishable on account of the material fact of the lease being for a period of 99 years which dramatically changes the character of the transaction from a simplicitor lease to virtual sale.
Besides We have noted that the ITAT, in its order in the case of the assessee relating to A.Y. 2006-07 in & 515(Asr)/2009 dated 31.12.2013, had considered this fact of the assessee intending to then hand over the running of its medical facility in PPP model to a private party and noting the fact that it actually did so in 2009 when it entered into a concessionaire agreement and further noting that right from inception the assessee society had done nothing towards its stated charitable activity but indulge only in construction activity for a seemingly very long period of time, from 1994 to 2009, when it handed over its infrastructure to the A.Y. 2015-16 Page 22 of 29 concessionaire, held that it was not carrying out any charitable activity. The ITAT noted that despite the initial building being completed by 2000 nothing was done by the assessee to commence its activities of imparting medical education and running a hospital. It noted the fact that thereafter the assessee only proceeded with an expansion drive and in 2005- 06 the governing body of the assessee decided to take PPP (Public Private Partnership) mode for operationalising and managing the institute which was finally achieved in 2009.Taking note of the same the ITAT held that the intention of the assessee to operationalize the institute through PPP Mode clearly showed the motive behind spending a long period for construction of building for medical college which, it held, was clearly not for charitable purpose. The relevant findings of the ITAT in the case of the assessee for A.Y 2006-07 are as under:
“22. As per the facts narrated by the learned CITfA) in para no. 4.4 at page 20 of the impugned order, the assessee was proposed to be set up in the year 1993 by the State Government and decided to have society registered in 1994. The assessee-society got registered under Section 12AA of the Act on 01.11.2000. The assessee-trust has governing council headed by the Chief Minister and to appoint a Director of the Institute on contract basis. In 1997, the Prime Minister announced Additional Central Assistance (ACA) of Rs. 25 crores under the scheme 100% centrally sponsored schemes of the 91 five year plan Rs. 7.50 crores was received on 23.01.98; Rs. 7.50 crores was received on 5.5.2000 and the balance Rs. 10 crores was received on 10.03.2006. In 1998, an agreement was made with a contractor to construct an initial building to be used to accommodate some departments of the institute and hospital. The building was completed in 2000. In October, 1999, A.Y. 2015-16 Page 23 of 29 a master plan of Rs. 80 crores was approved and process of selecting a contractor was started. The plan proposed 150 MBBS students intake each year and an attached hospital of 1000 beds, though in a phased manner. The Society was granted registration u/s 12AA on 1.11.2000. In October, 2001 it was decided that the main source of funding would be development of around 104 acres of land purchased by PIMS from PAU for Rs. 15 crores. PUDA would develop and sell the land. In 2001, L&T was selected as the main contractor for the main building and the construction was started. In 2005-06, it was decided by the Governing Body to take the Public Private Partnership (PPP) mode for operationalising and managing the Institute. This has been finally achieved in August, 2009.
23. Keeping in view the facts narrated by learned CIT(A), it is admitted that the assessee-society has not yet started imparting medical education and the expenditure incurred during the year by the society was not for any other purpose other than setting up of the medical institute. He finally held that the expenditure incurred by the assessee-trust is for charitable purpose and the assessee-trust is entitled for exemption under Section 11(l)(a) of the Act in respect of the income applied to such construction, which has to be allowed to the assessee. i) In our view, as per the facts narrated by learned CIT(A) in the aforesaid paragraph that in the year 1998, an agreement was made with a contractor to construct an initial building to be used to accommodate some departments of the institute and hospital. The building was completed in 2000. We fail to understand that if the building, as stated by learned CIT(A), completed in 2000, then why the assessee has not taken any step to impart the medical education and to provide free medical facilities to the general public of the concerned area. Further, learned CIT(A) has allowed the exemption benefit to the assessee only on the ground that the assessee has been registered under Section 12AA of the Act, which is contrary to the law and facts on the file and are not logical. ii) As regards to the development of 104 acres of land purchased by assessee-trust from PAU for Rs. 15 crores, in the year 2001 L&T was selected as the main contractor for the main building and the construction was started in 2001. In 2005- 06, it was decided by the Governing Body to take Public Private Partnership (PPP) mode for operationalising and managing the Institute. This has been finally achieved in August, 2009. We are of the view that the motive of the assessee behind the long period for about more than 8 years spent on construction of building by the assessee-trust, is to take Public Private Partnership (PPP) mode for operationalising and managing the Institute and capitalizing more A.Y. 2015-16 Page 24 of 29 and more on the project, which they have achieved finally in August, 2009. ……………………………………………….
Keeping in view the notice dated 08.12.2008 issued by the Assessing Officer asking various questions from the assessee as well as the reply of the assessee dated 19.12.2008, which we have reproduced above, we are of the view that the assessee-trust itself admitted in its reply dated 19.12.2008 that running of medical college and other facilities on private public participation is under consideration as one of the proposal. The assessee is also of the view that there is no harm in running the medical college and other facilities on private public participation and it has become need of the hour. Keeping in view the admitted position by the assessee in reply dated 19.12,2008 reproduced above, we are of the view that the motive of the assessee in prolonging the construction work of building of medical institution, is to give the assessee trust to run the medical college and other facilities on private public participation which the assessee-trust has achieved later on. Therefore, the assessee-trust has not applied any part of its income of the year for charitable purpose. Thus, the assessee trust is not entitled for any exemption, as claimed. …………………………………………….
Keeping in view the facts and circumstances of the present case, we are of the view that the assessee has not given any explanation as to why it has not taken any step for about 8 years from 10.10.1994 to 2002 to achieve the objects of the assessee-trust and also has not given any explanation regarding any charitable activities done by the assessee during these period except to spending time in construction of building for medical institute. As per para no. 4.4 at page 20 of the impugned order as well as the reply dated 19.12.2008 filed in response to the notice dated 08.12.2008, the assessee itself admitted that in 2005-06, it was decided by the Governing Body to take Public Private Partnership (PPP) mode for operationalising and managing the Institute and this was finally achieved in August, 2009, as informed by the assessee. The intention of the assessee clearly shows the motive behind spending a long period for construction of building of medical college which is certainly not for charitable purpose to achieve the objects of the assessee-society. Secondly, if the assessee-trust was granted registration under Section 12AA of the Act, it does not mean that the assessee is automatically entitled for the exemption under Section 11 of the Act. We hold that A.Y. 2015-16 Page 25 of 29 the Assessing Officer will not be precluded from examining in detail the very object of the assessee and to give the findings in assessment order as to whether the assessee has complied with requirement of Section 11 of the Act or not, as and when assessee seeking exemption under Section 11 of the Act. The registration granted under Section 12AA of the Act to the assessee should not be the obstacle in the way of Assessing Officer at the time of completion of assessment proceedings. Therefore, the arguments advanced by learned counsel for the assessee are rejected. The citations cited by the learned counsel for the assessee in his written submission are not applicable on the facts and circumstances of the present case because the case- laws relied by him are not identical to the facts of the present case. Learned counsel for the assessee has not supplied us any decision of Hon'ble Courts on the issue in dispute, in which the assessee is incurring expenditure on construction only for a very long period, as in the present case and any court of law has given the exemption under Section 11 of the Act.”
In the background of the history of the assessee, as noted by the ITAT in its order in earlier year, as above, that the assessee had only been indulging in construction activity since its creation for a very long period of around 8-10 years, had never itself run the medical facility despite a part of it being completed in the year 2000 and had in fact earlier on decided to lease out the running of its medical facility to a private party in PPP mode, and considering the order of the ITAT in the backdrop of the aforesaid facts, holding that the assessee never intended to carry out its stated charitable activity of running the medical college and hospital, and further in view of our findings above that the assessee had virtually sold its facility by leasing it out for 99 years and having no substantial control over it, we have no hesitation in agreeing with the Ld.CIT(A) that vis a vis the medical facility being run in PPP A.Y. 2015-16 Page 26 of 29 mode the assessee cannot be said to be carrying out any charitable activity.
The other contention of the Ld.Counsel for the assessee that it had amended its objects in 2009 and included therein funding of various medical projects in Government Medical College and Hospitals in Punjab and to which effect it had contributed over the years substantial sum of money, the Ld. DR has pointed out the fallacy in this argument of the Ld.Counsel for the assessee by drawing our attention to the Memorandum of Understanding the assessee society had entered into with Baba Farid University, filed alongwith submissions of the assessee dated 9/7/2019, where the assessee has contended to have utilized its funds for medical upgradation in the hospital run by it. The Ld. DR has pointed out that it was not simplicitor funding of projects in the hospital as claimed by the assessee, but in fact in the nature of investment in the hospital. The Memorandum of Understanding, he pointed out, required revenue sharing between the assessee and Baba Farid University in the ratio 60:40 or 80:20 of the net receipts earned from the project. Submissions to this effect were filed in writing before us as under:
“8. Further, there is another unique issue in case of Assessee trust. The sums advanced to various intuitions are not even donations. A perusal of the balance sheet for the year under consideration reveals that the assessee has funded A.Y. 2015-16 Page 27 of 29 various projects, which were still pending for execution as on 31.03.2015 (Refer Page-9 of the paper book submitted by the appellant on 15.02.2019). Out of these projects, two are being executed at Faridkot, as per MOU dated 24.05.2011 entered into with Baba Farid University of Health Sciences, Faridkot. There is a clause -4 "COMMERCIAL CONSIDERTION" (Page 11 of the above paper book) which reads as under: “ In consideration of the rights, privileges and interests granted by Party 1 to Party 2 in terms of this MOU, both the parties agree to share the increase in revenue, resulted due to the development/ up-gradation & improvement at Faridkot carried out by Party 1 (hereinafter referred as "the Consideration Amount"), The consideration amount shall be shared between both the parties in 60:40 ratio. However, it is being clarified that for the purposes of revenue sharing, the base year shall be 2010-11. In addition to this, a separate account shall be maintained by Party 2 in relation to the funds released by Party 1 and the details of revenue collected from the development up gradation carried out by Party 1. All payments to Party 1 by Party 2 under this MOU shall be made in Indian currency." 8.1 The above arrangement by the assessee is absolutely businessman like with a motive to earn profit not doing any charitably activity by it.”
We have perused the documents and find the contention of the Ld.DR with regards to Revenue sharing arrangement entered into with respect to the amount invested in Baba Farid University of Health and Sciences, to be correct. Even otherwise the Ld.Counsel for the assessee was unable to contradict the same. It is clear, therefore, there is not merit in the claim of the assessee that it was indulging in charitable activities by way of funding medical projects in Government hospitals as it was nothing but a commercial transaction by the A.Y. 2015-16 Page 28 of 29
Considering the entire facts of the case, we hold, agreeing with the Revenue, that the assessee society was not indulging in carrying out any charitable activities worth its name during the year but on the contrary was only earning income by non charitable activities, earning from investments made by it in FDR’s or other medical institutes. The assessee, we hold, has therefore been rightly held to be not entitled to exemption u/s 11 of the Act. The order of the Ld.CIT(A) is, therefore, upheld.
The grounds of appeal raised by the assessee are dismissed.
22. Since we have held that the assessee society was not entitled to exemption u/s 11 of the Act, the additional grounds raised by the assessee which as we have noted above, are relevant only if the assessee society were entitled to exemption are, therefore, rendered infructuous and are not being dealt with by us.
In the result the appeal of the assessee is dismissed.