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Facts
The assessee trust, running a hospital, received a corpus donation with a direction that interest earned should be used for medical assistance to patients recommended by the donor. The Assessing Officer (AO) added a portion of the expenditure for medical assistance as income, which was confirmed by the CIT(A). The AO also charged interest u/s 234D.
Held
The Tribunal held that the amount spent on medical assistance, as per the donor's direction, should have been reduced from the expenditure eligible for application, not added to the total income. Therefore, the assessee's computation of total income as nil was correct.
Key Issues
Whether expenditure incurred as per donor's specific direction from interest income on corpus donation is to be treated as income or reduced from expenditure for charitable purposes. Whether interest u/s 234D is leviable in such a case.
Sections Cited
250, 13(3), 234D, 11, 154, 11(1)(a), 11(A)(B)
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Before: SHRI RAHUL CHAUDHARY & SMT. RENU JAUHRI
सुनवाई की तारीख / Date of Hearing 06.03.2025 घोषणा की तारीख/Date of Pronouncement 27.03.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- This appeal has been filed by the assessee against the orders of the Learned Commissioner of Income-tax (Exemption), Mumbai [hereinafter referred to as “CIT(E)”] dated 22.11.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2017-18.
2. The assessee has raised the following grounds of appeal:
A.Y. 2017-18 Mandke Foundation “(A) DISALLOWANCE OF EXPENSES OF RELATED PARTY ADDED TO THE TOTAL 1 On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of the Assessing Officer considering the application of income to the extent not allowable u/s 13(3) amounting to Rs. 6,90,226 as income of the Appellant and thereby adding to the income The Appellant submits that the amount of expenditure in relation to party covered under section 13(3) of the Act ought to be reduced from the total expenditure on the objects of the Trust and should not be considered and added as income 2 On the facts and circumstances of the case, the Learned CIT(A) erred in confirming the action of the Assessing Officer stating that the addition made by the Assessing Officer is not subject to matter of rectification order. Your Appellant submits that the action of the Assessing Officer in adding the application of income amounting to Rs. 6,90,226 as income and not reducing the expenditure eligible for application is a mistake apparent from records and the same ought to be reduced (B) CHARGING OF INTEREST U/S. 234D OF THE ACT 3 On the facts and circumstances of the case, the Learned CIT(A) erred in confirming the action of the Assessing Officer charged u/s 234D interest Your appellant submits that the said interest is wrongly charged and the Assessing Officer be directed to delete the interest charged.”
Although the assessee has taken as many as four grounds of appeal
, the only substantive issue involved is regarding adding the amount of Rs. 6,90,226/- (which was not allowable u/s 13(3) of the Act.) instead of reducing the same from expenditure.
4. Brief facts of the case are that the assessee trust is engaged in running a Multi-specialised Hospital and has filed its return for AY 2017-18 on 24.10.2017 declaring nil income. The assessee had received corpus donations of Rs. 1 cr. from the Estate of Rajiv Shah Shah during FY 2012-13. The donor had given this amount with the direction that out of interest income earned on Rs. 1 cr., medical assistance should be given to the patients recommended by the donor. Accordingly, the assessee had kept this amount in a fixed deposit and out of the A.Y. 2017-18 Mandke Foundation interest income, the medical cost of referred patients was being recovered and the balance income remained part of the gross receipts. Since the donor was a specified person as per the definition of u/s 13(3) of the Act, the AO asked the assessee to furnish details of interest income earned on the donation of Rs. 1 cr. and the amount of expenses claimed on account of medical assistance given as per the direction of the Estate of Rajiv Shah. The assessee submitted that against the interest income of Rs. 9,36,201/-, it had treated patients for Rs. 6,90,026/- as per the directions of the donor. Accordingly, Ld. AO held that the exemption u/s 11 to this extent is not allowable and recomputed the total income as under:
Income from other sources 617,82,69,223/- Add Benefit u/s 13(3) as above 6,90,026/- Less: Amount spent on object of the trust 613,58,49,362/- Less: Accumulations u/s 11(1)(a) to the extent of 4,24,19,861/- income Total Income 6,90,226/- 5. Subsequently, Ld. AO issued a notice u/s 154 seeking to charge interest u/s 234D of the Act. In response to this notice, the assessee submitted the amount of Rs. 8,90,260/- should have been reduced from the extent of the object of the trust and should not be added to the total income as has been done by the Ld. AO. In case, the computation is revised as above the question of charging interest u/s 234 will not be there. He accordingly requested the re- computation of the income as under:
Sr No. Particulars Amount 1. Aggregate of Income referred to in sections 11 617,82,69,223 and 12 Derived During The Previous year (A)
Deductions i. Amount applied to Charitable or Religious 613,58,49,362 Purposes in India during the Previous Year Less : Benefit u/s 13(3) 6,90,026 Balance Exp-eligible deductions (B) 613,51,59,336 Net Income (A)-(B) 4,31,09,887 Amount accumulated or set apart for 4,31,09,887 application to Charitable or Religious Purposes to the extent it does not exceed 15% of Income Derived from Property 11(1)(A)/11(A)(B) – 15% of 617,82,69,223 = 92,67,40,383 but restricted to net income Total Income Nil
Vide order u/s 154 dated 13.03.2024, Ld. AO rejected the assessee’s contentions and proceeded to charge interest u/s 234D taking the assessed income at Rs. 6,90,266/-.
Aggrieved with the order of Ld. AO, the assessee preferred an appeal before Ld. CIT(A). Vide order dated 22.11.2024, the appeal has been dismissed on the ground that the addition made by the Ld. AO is not the subject matter of the rectification order. Hence, the issue cannot be adjudicated in the appeal against the order u/s 154 of the Act.
Ld. AR has submitted copies of the rectification applications dated 03.11.2020 and 11.08.2021 vide which a request for correction of computation of total income was made. However, these applications were not disposed of by the Ld. AO instead by issuing a notice u/s 154 dated 05.03.2024, he sought to A.Y. 2017-18 Mandke Foundation charge interest u/s 234D of the Act. The assessee again submitted the revised calculation income and requested for requisite modification in the computation made by the Ld. AO in the assessment order. However, Ld. AO rejected the assessee’s contentions vide order u/s 154 on 13.03.2024. Ld. AR, therefore, submitted that the assessee’s contention ought to have been considered on merits by the Ld. CIT(A). On the other hand, Ld. DR relied on the orders of the lower authorities.
We have considered the rival submissions and perused the material placed before us. Admittedly, the assessee has been receiving interest income since AY 2013-14 on the corpus donation of Rs. 1 cr. made by the Estate of Rajiv Shah with the direction to meet out the expenditure of medical assistance to be given in cases recommended by the donor. Accordingly, the assessee has been debiting such expenditure from the interest income received on Rs. 1 cr. in each year and the balance amount is taken into account in the gross receipts. During the year under consideration, the assessee has received interest income of Rs. 9,36,201/- on Rs. 1 cr. deposit out of which a sum of Rs. 6,90,026/- has been spent for treatment of patients recommended by the donor. Accordingly, the amount of Rs. 6,90,026/- has been spent on the direction of the person specified u/s 13(3) and therefore exemption u/s 11 to this extent is not allowable. Accordingly, the income and its applicable for charitable purpose had to be computed by reducing this amount from the amount applied to A.Y. 2017-18 Mandke Foundation charitable/religious purposes during the year instead of adding it to the total income as has been done by the Ld. AO. We, therefore, hold that the action of the Ld. AO to adding the application of income as per the directions of the donor amounting to Rs. 6,90,226/- was not in order and the same had to be reduced from the expenditure eligible on account of the application. Accordingly, the assessee’s computation reproduced in Para 5 hereinbefore, is correct and therefore total income is rightly computed as nil. Hence, this ground is allowed in favour of the assessee.
The ground regarding charging of interest u/s 234D is consequential and therefore does not require adjudication.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 27.03.2025.