MASINA HOSPITAL TRUST,MUMBAI vs. SALIL MISHRA- CIT (EXEMPTIONS), MUMBAI

The learned CIT(E) erred in N holding that the Appellant has committed specified violation under clause (f) of the Explanation to section 12AB of the Act since it received an interest free loan from Shapoorji Drilling Enterprises Pvt. Ltd. which violates section 186(7) of the Companies Act, 2013. 10. In holding so, the learned CIT(E) failed to appreciate that there was no such violation under clause (f) of the Explanation as Companies Act is not a specified law under clause (f) read with section 12AB(1)(b)(i)(B); that in any event there was no violation of section 186(7) of the Companies Act, 2013; nor is there any order or direction or decree by any Court to this effect; without prejudice to the above, even if there was such a violation, the same was not committed by the Appellant; and the same was in any event not relevant for deciding the Appellant's application for regularisation of its provisional approval under section 80G of the Act. 11. The order passed by the learned CIT(E) is in gross violation of the principles of natural justice. 12. The Appellant craves leave to add, alter, modify or amend any ground(s) of appeal.” ITA 3378/Mum/2025 “1. On the facts and in the circumstances of the case and in law, the learned CIT(E) erred in passing the impugned order dated 24 April 2025 under section 12AB(4) of the Act cancelling the Appellant's registration under section 12A with retrospective effect from 28 May 2021 2. The learned CIT(E) erred in holding that payment of interest to Shapoorji Pallonji Company Private Limited resulted in violation of sections 11, 12 and 13 of the Act. 3. The learned CIT(E) failed to M appreciate that the lender companies were not specified persons under section 13(3) of the Act 4. Without prejudice to the above, the learned CIT(E) failed to appreciate that even if the payment of interest resulted in violation of sections 11, 12 and 13 of the Act, the same could not have been a valid ground to cancel the Appellant's registration under section 12A as it is not a 'specified violation' in terms of the Explanation to section 12AB of the Act

The learned CIT(E) erred in holding that the expenditure incurred by the Appellant was not for the purpose of achieving its objects 6. Without prejudice to the above, M the learned CIT(E) failed to appreciate that in terms of the Explanation to section 12AB, it is the application of income to purposes other than the objects, that constitutes a 'specified violation', and not the application of loan. 7. The learned CIT(E) erred in holding that the Appellant had contradicted its stand on the utilization of loan raised by it, without appreciating that it was always the case of the Appellant that a part of the loan was used for paying the outstanding rent, and the other part was used for its objects and incidental expenses for carrying out its objects. 8. The learned CIT(E) erred in N.. holding that the Appellant has committed specified violation under clause (f) of the Explanation to section 12AB of the Act since it received an interest free loan from Shapoorji Drilling Enterprises Pvt. Ltd. which violates section 186(7) of the Companies Act, 2013 9. In holding so, the learned CIT(E) failed to appreciate that there was no such violation under clause (f) of the Explanation as Companies Act is not a specified law under clause (f) read with section 12AB(1)(b)(i)(B); that in any event there was no violation of section 186(7) of the Companies Act, 2013; nor is there any order or direction or decree by any Court to this effect; and, without prejudice to the above, even if there was such a violation, the same was not committed by the Appellant. 10. Without prejudice to any of the above, the learned CIT(E) erred in canceling the Appellant's registration under section 12A retrospectively with effect from 28 May 2021. 11. The order passed by the learned CIT(E) is in gross violation of the principles of natural justice 12 The Appellant craves leave to add, alter, modify or amend any ground(s) of appeal” Brief facts of the case are as under: 2. It is submitted that assessee has been serving since 1907 and was established as one of the oldest charitable institution in 5 ITA No.3377 & 3378/Mum/2025; A.Y. 2026-27 Masina Hospital Trust

3 It was submitted that, the assessee also took interest free loan of Rs.6,50,00,000/- from Mr. Pallonji Shapoorji Mistry during the financial year 2021-22 that was utilised for payment of lease rental of Rs.6.50crore.The assessee thus submitted that toward the payment of lease rental the loans taken from the two related parties were utilised in the following manner. S. No. Date of Loan Amount Received (Rs.) Date of Payment Particulars Amount Paid (Rs.) 1 20.03.2019 2,00,00,000 27.03.2019 Land Lease Rentals 1,71,28,543

03.2019 Land Lease Rentals 30,01,862 2 25.03.2019 2,00,00,000 25.03.2019 Land Lease Rentals 1,00,00,000

03.2019 Land Lease Rentals 1,00,00,000 3 31.12.2021 6,50,00,000 31.12.2021 Land Lease Rentals 6,40,75,224 Total 10,50,00,000

4 Based on the above submissions of the assessee the Ld. CIT(E) vide order dated 30/09/2024 denied 80G exemption on the ground that the trust took loan from related parties to provide benefit to the related parties and the same is in violation

1 In view of the above chart, the Ld. counsel for the assessee submitted that ratio of the medical relief provided to the Parsi Community is negligible. Before us, the Ld. counsel for the assessee filed a bank statement reflecting the receipt of the loan and their application for the object of the Trust which are available on Paper Book page 24 to 50. A summary of the loan transaction with their application and copy of the general ledger showing the application of the loan on expenses incurred object of the trust has been filed first time before us as additional evidence. In the case, the Ld. CIT(E) has pointed out that liability of the payment of the rent arose in the year under consideration whereas loans have been taken from AY 2018-19 onwards but the assessee has contended that loan had been availed for meeting charitable expenses of the trust in view of deficit in revenue. Since, the above documents filed are crucial and important for examining this issue of the application of the loans for incurring expenses on charitable purposes. Therefore, we admit documents as additional evidence and restore the matter back to the file of the Ld. CIT(E) for deciding the matter afresh. As far as second issue is concerned, the Ld. CIT(E) may also verify the percentage of the persons of Parsi Community benefited from the charitable activity of the assessee and decide the issue in accordance with law.” 3.1 Accordingly, in the remand proceedings for 80G registration, the Ld.CIT(E) called for relevant details and additional evidences as per the direction of this Tribunal. The Ld.CIT(E) after considering the submission observation and held as under: “6. In its submission made on 26.03.2025, at point no. II(F), the assessee has also referred to the provisions of section 13(1)(c) of the Act which is reproduced for reference: "Section 13(2)(c) clearly stipulates that a violation occurs only when amounts paid to related parties are in excess of what may be reasonably paid for such services." In this regard, it is stated that the assessee Trust has taken a very conservative interpretation to its favor. In order to understand the provision of section 13(2)(c), the same is reproduced below: 13(2): Without prejudice to the generality of the (provisions of clause (c) and clause (d)] [Substituted by Act 11 of 1983, Section 7, for certain words (w.r.e.f. 1.4.1983) ] of sub-section (1), the income or the property of the trust or institution or any part of such income or 9 ITA No.3377 & 3378/Mum/2025; A.Y. 2026-27 Masina Hospital Trust property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub- section (3), (c): if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; The above section states that a violation of section 13(1)(c) occurs if any amount is paid by way of salary, allowance or otherwise out of the resources of the trust or institution for services rendered by that person to such trust when amounts paid to related parties are in excess of what may be reasonably paid for such services. Thus, the above section will come into play only when the related person is paid for services rendered by him/her to such Trust. In the present case, the related party is receiving interest from the assessee Trust for loans provided by it to the assessee Trust. Providing interest bearing loans to assessee Trust cannot be considered as rendering services to the Trust. In view of this, this objection raised by the assessee Trust at point no. II(F) is hereby rejected. 7. Thus, it is concluded that the submission during the set-aside proceedings has been made as an afterthought as the assessee has merely tried to spread the loan amounts backward upto FY 2012-13, so as to give it an impression of loan being utilized for charitable purposes whereas it has been found from its own submission during the 80G approval proceedings that the loan was actually taken from FY 2018-19 for the purpose of paying land lease rental. The assessee has also admitted during the ongoing proceedings that a major portion of the loan is utilized for paying lease rental only, however, to give it a color of charitable work, it has included that a part of loan amount being utilized for charitable purposes which is grossly incorrect. Under such circumstances, it is concluded that the claim made by the assessee that it has utilized loan amount payment towards salaries, medicines, capital assets and others for meeting medical and related expenses as per the objects of the Trust is only a far-fetched imagination and fabricated submission made by the assessee. 7. Further, the cancellation proceedings initiated against 12A registration vide show-cause notice dated 14.01.2025 (as discussed in 10 ITA No.3377 & 3378/Mum/2025; A.Y. 2026-27 Masina Hospital Trust para 2 above) has been concluded vide order under section 12AB(4) of even date as below: "In view of the totality of facts on records, I find that the claim made by the assessee in its submission dated 27.01.2025 that the loans were taken due to financial constraint faced by the assessee and to discharge its charitable activities is completely false and fraudulent claim. I also find that the assessee Trust Masina Hospital has applied trust's fund for the benefit of its related party by way of paying substantial amount of interest on loan taken from its related party. It is clearly admitted in the audited financial statements of the assessee that Shapoorji Pallonji and Company Private Limited is one of the related parties and as per section 13(1)(c) r.w.s 13(3) of the Income tax Act, the transaction which has taken place between the assessee and the related party is clearly in violation of sections 11 and 12 of the Act Further, the assessee Trust has entered into a transaction with Shapoorji Drilling Enterprises Pvt. Ltd. which is also in violation of section 186(7) of the Companies Act, 2013. This amounts to further violation made by the assessee Trust within the meaning of clause (f) of Specified Violations defined in Explanation to section 12AB(4) of Income tax Act. Therefore, in exercise of power vested u/s 12AB(4) of the Income tax Act, the registration u/s 12A of the Act in the case of the assessee Trust namely Masina Hospital is hereby cancelled with effect from the date of registration 1.e. 28.05.2021." 8. Thus, based on the facts and discussion made in point nos. 4 to 7 and in view of the cancellation of 12A registration as mentioned in para 7 above, the application for regularization of approval u/s 80G of the Act in the case of the assessee Trust is hereby rejected for the aforementioned reasons.” 4. In the meantime, the Ld.CIT(E) issued show cause notice dated 14/01/2025 calling upon the assessee as to why the 12A registration should not be cancelled with retrospective effect. In exercise of the power vested u/s.12AB(4)(a) of the Act, in response to the said notice the assessee filed its submission as under: “1. A detailed note on the actual activities conducted by your organization since AY 2018-19 along with substantiating evidence in 11 ITA No.3377 & 3378/Mum/2025; A.Y. 2026-27 Masina Hospital Trust terms of documents, photos, videos, media reporting, or any other evidence that you may choose to submit in this regard. 2. Kindly furnish yearly proof of expenses on the above activities (along with documentary evidence like details of recipients, Payment receipts, acknowledgment, bills, etc) supported by Bank Statement showing the above expenses. 3. A self-certified copy of your Trust Deed/MoA as the case may be (if written in vernacular language please submit a notarized copy translated in English). 4. A copy of your audited Income & Expenditure account, balance sheet and or profit & loss account with all Annexures from AY 2018-19 to AY 2024-25. 5. A copy of your provisional Balance Sheet and Income & Expenditure Statement of FY 2024-25 upto September 2024. 6. Kindly provide details of yearly donation, funds or any other income received by the assessee along with bank statement from AY 2018-19 upto September 2024. 7. Details regarding donations received from outside India as per the validity of approval granted under FCRA Act from AY 2018-19 till date. 8. Whether any proceedings against your organization for infringement of any other law in force has been initiated/completed by the relevant authority? Please furnish a notarized affidavit to the effect with complete details duly affirmed by the Managing Trustee/Director, as the case may be. 9. Kindly furnish the KYC of all the Trustees/Directors/Key Persons of your organization.” 4.1 The Ld.CIT(E) after perusing the submissions of the assessee, observed and held as under: “10. Thus, it is concluded that the submission during the cancellation proceedings has been made as an afterthought as the assessee has merely tried to spread the loan amounts backward upto FY 2012-13, so as to create a false impression of loan being utilized for charitable purposes. Whereas it has been found from its own submission during the 80G approval proceedings that the loan was actually taken from FY 2018-19 for the purpose of paying land lease rental. The assessee has 12 ITA No.3377 & 3378/Mum/2025; A.Y. 2026-27 Masina Hospital Trust also admitted during the ongoing proceedings that a major portion of the loan is utilized for paying lease rental only, however, to give it a colour of charitable work, it has included that a part of loan amount being utilized for charitable purposes which is grossly incorrect. Under such circumstances, it is concluded that the claim made by the assessee that it has utilized loan amount payment towards salaries, medicines, capital assets and others for meeting medical and related expenses as per the objects of the Trust is only a far-fetched imagination and fabricated submission made by the assessee. 11. The whole discussion comes back to the fact that the assessee has taken interest bearing loans from its related party to pay lease rental. However, as concluded in the 80G rejection order dated 30.09.2024, the question remains as to what is the rationality behind taking the interest-bearing loan prior to the actual payment year and paying huge interest from its fund when the purpose of the assessee trust is to do charitable activities and the money used for paying interest could have been utilized for other charitable purposes? Now another plausible fact is added to this question is that the interest is paid by the assessee to its related party during the time when it was already facing a financial deficit, as admitted by the assessee itself in its submission dated 27.01.2025. When a charitable trust is facing financial deficit to discharge its charitable activities, it is a matter of ordinary prudence that such Charitable entity would not opt for taking a loan for a cause which would arise only in future, but would certainly start incurring interest as soon as the loan is taken adding more stress to its situation of financial deficit. Thus, it is concluded that the loan was taken by the assessee Trust from its related party with the only intention to benefit the related party by way of payment of interest. It is again reiterated for reference that the need to pay lease rental arose only from 18.01.2022 as per the order issued by the Collector's office regarding payment of rent as admitted by the assessee itself in its submission made on 19.09.2024 during the 80G proceedings. Conclusion: In view of the totality of facts on records, I find that the claim made by the assessee in its submission dated 27.01.2025 that the loans were taken due to financial constraint faced by the assessee and to discharge its charitable activities is completely false and fraudulent claim. I also find that the assessee Trust Masina Hospital has applied Trust funds for the benefit of its related party by way of paying substantial amount of interest on loan taken from its related party. It is 13 ITA No.3377 & 3378/Mum/2025; A.Y. 2026-27 Masina Hospital Trust clearly admitted in the audited financial statements of the assessee that Shapoorji Pallonji and Company Private Limited is one of the related parties and as per section 13(1)(c) r.w.s 13(3) of the Income tax Act, the transaction which has taken place between the assessee and the related party is clearly in violation of sections 11 and 12 of the Act. Further, the assessee Trust has entered into a transaction with Shapoorji Drilling Enterprises Pvt. Ltd. which is also in violation of section 188(7) of the Companies Act, 2013. This amounts to further violation made by the assessee Trust within the meaning of clause (f) of Specified Violations defined in Explanation to section 12AB(4) of Income tax Act. Therefore, in exercise of power vested u/s 12AB(4) of the Income tax Act, the registration u/s 12A of the Act in the case of the assessee Trust namely Masina Hospital is hereby cancelled with effect from the date of registration i.e. 28.05.2021.” Aggrieved by the order passed by Ld.CIT(E) cancelling 12A registration and rejection order of 80G in remand proceeding the assessee is in appeal before this Tribunal. The Ld.Sr.Counsel reiterated the arguments reproduced here in above to support the claim of assessee trust granting registration u/s.80G of the Act. 5. The Ld.Sr.Counsel submitted that, object of the trust is to provide medical facility and surgical advice, treatment and aid to all patients irrespective of caste, creed or religion, requiring medical attention and or rehabilitation in the said hospital. It is submitted that, the assessee exists solely for philanthropic purposes and not with the purpose to earn profit. 5.1 He submits that the assessee receives donation every year which is utilised to provide medical service to the poor every year. The donation received was irregular and was inadequate to serve the purpose. The Ld.Sr.Counsel drew our attention to the submissions reiterated in the order of cancellation of 12 A registration passed by Ld.CIT(E) wherein, assessee filed details to prove that it was in deficit since past many years, and hence had 14 ITA No.3377 & 3378/Mum/2025; A.Y. 2026-27 Masina Hospital Trust to borrow loan to continue to provide medical relief as well as payment of lease rentals. 5.2 He submitted that, the loan was taken from Shapoorji Pallonji and Company Pvt. Ltd. amounting to Rs. 7,96,00,000/- at interest of 11.5%. He submitted that the loan was utilised by the assessee as per the table reproduced in the preceding paragraph 2.1 herein above. 5.3 The Ld.Sr.Counsel emphasised that, the loan taken between 2012 to 2015 were utilised to meet basic expenses of the trust, such as payment of salary to the staff, pharmacy bill payment, employee provident fund while capital assets and other payment required to be made by the trust for smoothly carrying out medical expenses. 5.4 He submitted that, during 2019 the assessee had to pay Rs.4crore towards lease rental and subsequently in December, 2021 sum of Rs.6,50,00,000 was paid as lease rental. He submitted that Rs.6,50,00,000/- was received as loan from Mr. Pallonji Shapoorji Mistry which was an interest free loan. The Ld.Sr.Counsel submitted that, the challan of payment of Rs.10,50,00,000/- towards lease rental have annexed with paper book. 5.5 The Ld.Sr.Counsel submitted that, in respect of the interest charged at Rs.11.5% on loans obtained from Shapoorji Pallonji &Company Pvt. Ltd. was reasonable and adequate as no amount of interest paid on such loan was in excess of what would have been otherwise payable. The Ld.Sr.Counsel submitted that, section 13 states that the trust can enter into a transaction with relative party, and if the amount received by the persons

It is noted that the Ld.CIT(E) cancelled 12A registration granted to the assessee on 28/05/2021 by observing violation under clause (f) or specified violation defining under explanation to section 12AB(4) of the Act. Clause (f) under the Specified Violation in Section 12AB(4) reads as under: (f) the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub- section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality. 6.1. The phrase ‘Compliance with other laws’ refers to a specific ground for the cancellation of a registration of a trust. A trust that is found guilty of not complying with any other relevant law will have its tax-exempt status cancelled. ‘Compliance with other laws’ refers to the obligation of trusts to adhere to additional legal and regulatory requirements beyond the primary laws governing trusts. 6.2. It is noted that the Ld.CIT(E) invoked caluse (f) as the assessee took loan from Shapoorji Palonji Drilling enterprise Pvt. Ltd which was in violation of section 186(7) of the Companies Act, which in turn violated clause (f) of the specified violation. It also necessary to peruse the requirement under section 186(7) of the Companies Act, that reads as under: Section 186: Loan And Investment by Company ……. (7) No loan shall be given under this section at a rate of interest lower that the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan.

3. Section 186(7) of the Companies Act, 2013, mandates that any loan given by a company must not bare interest rate lower than the prevailing yield of one-year, three-year, five-year, or ten- year government securities that is closest to the loan’s tenor. This rule ensures that companies charge a minimum rate of interest on their loans to protect their financial interests and is a part of the stricter regulations for inter-corporate loans, investments, and guarantees. It is noted that this provision is designed to prevent companies from extending loans at below-market rates, ensuring a reasonable return and safeguarding the company’s financial health. From the above it is clear that section 186(7) is a necessary compliance to be made by a company and not by Trust. 6.4. In our view the loan transaction against which interest is paid by the assessee to the related party does not fit into the clause (f) invoked by the Ld.CIT(E) by reading the said provisions of companies Act into section 12AB(1)(b)(i)(B). section 12AB(1)(b)(i)(B) reads as under: 12AB…. (1)…. (b)….. (i)…… (B) the compliance of such requirements of any other law for time being in force by the trust or institution as are material for the purpose of achieving its objects. 6.5. On perusal of the above provision, read with section 186(7) of Companies Act 2013, it is noted that compliance under the 18 ITA No.3377 & 3378/Mum/2025; A.Y. 2026-27 Masina Hospital Trust said section is to be done by the company who gave loan to the assessee under the Companies Act 2013.The section has nothing to do with any compliance by the trust that is receiving such loan. In any event, in the present fact of the case the Shapoorji Palonji & Co. Pvt. Ltd had charged interest @ 11.5% against the loan to the assessee. Therefore, it cannot be said that there is any violation of the said section. 6.6. In so far as interest payment to related party is concerned, the assessee paid interest @11.5% to the company. The assessee in the remand proceeding of the 80G application had submitted before the Ld.CIT( E) that, the interest was paid at the prevailing market rate during the relevant period of 2012-2019 that ranged between 13% to 18%, being the SBI lending rate. 6.7. If at all, rate at which the interest if charged is found to be not as per the section 186(7), it has to be considered in case of Shapoorji Palonji & Co. Pvt. Ltd., based on relevant provisions applicable under Companies Act 2013. 6.8. In respect of applicability of section 13(2) (c ) is concerned, the section stipulates the a violation occurs when amounts paid to related party is in excess of what may be reasonably be paid for the services. The section does not prohibit a normal transaction between the trust and the person referred to under section 13(2) (c) of the Act. We therefore, do not find any force in the cancellation of 12A under the said clause (f) of specified violation under Explanation to sub clause (4) of section 12AB.

9 It is admitted position that assessee has been in financial deficit since financial year 2012-13. It was under the circumstances as the assessee was forced to take loan from related parties from the table reproduced here in above. The loans were taken from financial year 2012 to 2013 and the said to be utilised for charitable purpose. The bank statements placed in the paper book shows utilisation of loan amounting to Rs.3.95crores between 2012 to 2015. Further the bank statements also reveal payment of 10.4 crores towards the payment of lease rental. It is pertinent to know that the date of utilisation loan taken between 2012 to 2019 are identifiable from the banks statement. Therefore, the presumption drawn by the Ld.CIT(E). that the assessee took huge loans in 2018 or before for a purpose which would arise subsequently cannot be accepted. Based on the above discussion, in our view, the assessee cannot be denied registration u/s.12A of the Act. 7. In so far as, the registration under 80G being rejected is concerned, it is noted that, direction of this Tribunal vide order dated 18/02/2025 has not been followed by the Ld.CIT(E). It is noted that the Tribunal directed Ld.CIT(E) to verify percentage of of Parsi community benefited from the charitable activity carried out by the assessee. The assessee filed relevant information before the Ld.CIT(E) in remand proceedings. However, the Ld.CIT(A) failed to verify the details and proceeded on the footing that the 12A registration stands cancelled due to the violation of section 13 (2)(c) of the Act in our opinion this cannot be a reason to reject the 80G application once a direction is issued by this Tribunal.

1. We therefore once again remit this issue back to the Ld.CIT(E) to verify the claim of 80G registration as per the direction of this Tribunal vide order dated 18/02/2025 in respect of the percentage of persons belonging to the Parsi community that were benefited from charitable activity carried out by the assessee. The Ld.CIT(E) may verify this aspect in light of the ratio laid down by Hon’ble Supreme Court in case of CIT v. Dawoodi Bohara Jamat reported in(2014) 43 taxmann.com 243. Accordingly, the appeal filed by the assessee in ITA 3378/Mum/2025 stands allowed and appeal filed by the assessee in ITA 3377/Mum/2025 stands partly allowed for statistical purposes. Order pronounced in the open court on 17/10/2025 (RENU JAUHRI) Judicial Member Mumbai: Dated: 17/10/2025 Poonam Mirashi, Stenographer Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T.By order