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Facts
The assessee trust sought approval under Section 80G. The Ld. CIT(E) rejected the application, citing that a large loan taken from a related party at interest was not for genuine charitable purposes but for deploying excess funds, and also questioned the limited benefit provided to a specific community.
Held
The Tribunal noted that the loan was taken long before the rent payment liability arose, suggesting it was not solely for that purpose and potentially served the related party's interest by earning interest income. The Tribunal also observed the need to verify the charitable activities for the Parsi community.
Key Issues
Whether the loan taken from a related party at interest was for a genuine charitable purpose or a violation of Section 13(2)(a) of the Act, and whether the trust's activities primarily benefited a specific community.
Sections Cited
80G, 13(2)(a), 186(7)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
This appeal by the assessee is directed against order dated 30.09.2024 passed by the Ld. Commissioner of Income-tax (Exemptions), Mumbai [in short ‘the Ld. CIT(E)’] rejecting the application of the assessee seeking approval u/s 80G of the Income- tax Act, 1961 (in short ‘the Act’).
Masina Hospital Trust 2 ITA No. 5366/MUM/2024
Briefly stated, facts of the case are that the application of the , facts of the case are that the application of the , facts of the case are that the application of the assessee seeking approval approval u/s 80G(5)(iii) of the Act u/s 80G(5)(iii) of the Act was filed in prescribed Form No. 10AB of the Income prescribed Form No. 10AB of the Income-tax Rules, 1962 (in short tax Rules, 1962 (in short ‘the Rules’) but rejected by rejected by Ld. CIT(E) by way of impugned order by way of impugned order for the following reasons : the following reasons :
(i) The loan of Rs.14,45,00,000/ Rs.14,45,00,000/- including loan of Rs.7,95,00,000/ including loan of Rs.7,95,00,000/- bearing interest @ 11.5% bearing interest @ 11.5% from specified persons claimed to have claimed to have taken for the purpose of paying rent of Rs.10.42,09,62 the purpose of paying rent of Rs.10.42,09,62 the purpose of paying rent of Rs.10.42,09,629/- liability, was actually deployment of the excess fund by the related party i.e. deployment of the excess fund by the related party i.e. deployment of the excess fund by the related party i.e. M/s Shapoorji Pallonji & Company Pvt. Ltd. M/s Shapoorji Pallonji & Company Pvt. Ltd. trust with intention to trust with intention to earn interest income, t n interest income, therefore, the transaction was was in violation of provision of section 13(2)(a) of the provision of section 13(2)(a) of the Act.
(ii) The assessee trust was having assessee trust was having one of the object for providing object for providing services to a particular particular community only.
3. The detailed finding of the Ld. CIT(E) is reproduced as under: he detailed finding of the Ld. CIT(E) is reproduced as under: he detailed finding of the Ld. CIT(E) is reproduced as under:
“7.In its submission, the assessee has submitted that the loan 7.In its submission, the assessee has submitted that the loan 7.In its submission, the assessee has submitted that the loan was taken from was taken from its related party i.e. M/s. Shapoorji Pallonji and its related party i.e. M/s. Shapoorji Pallonji and Company Pvt. Ltd. for the purpose of payments of the Land Lease Company Pvt. Ltd. for the purpose of payments of the Land Lease Company Pvt. Ltd. for the purpose of payments of the Land Lease Rental Payments of Plot no. 549, 552 amounting to. Rs. Rental Payments of Plot no. 549, 552 amounting to. Rs. Rental Payments of Plot no. 549, 552 amounting to. Rs. 10,42,08,629/ 10,42,08,629/- (Rs. 1,59,80,849 + 8,82,27,780) respectivelyin (Rs. 1,59,80,849 + 8,82,27,780) respectivelyin response to orders dated response to orders dated 18.01.2022 of the Collector's office, 18.01.2022 of the Collector's office, Mumbai. The assessee has also submitted the details of total Mumbai. The assessee has also submitted the details of total Mumbai. The assessee has also submitted the details of total interest paid by it in its submission dated 25.09.2024 which is interest paid by it in its submission dated 25.09.2024 which is interest paid by it in its submission dated 25.09.2024 which is reproduced below: below: Masina Hospital Trust Interest on loan from M/s Shapoorji Pallonji & Comp Interest on loan from M/s Shapoorji Pallonji & Comp Interest on loan from M/s Shapoorji Pallonji & Company Pvt. Ltd. FY Particular Interest Amount (in Interest Amount (in TDS Rs.) 2018-19 Interest on loan 44,64,185 44,64,185 2,91,849
Masina Hospital Trust 3 Interest on loan 2019-20 43,56,904 43,56,904 1,96,680 Interest on loan 2020-21 91,42,500 91,42,500 5,27,961 Interest on loan 2021-22 91,42,500 91,42,500 8,18,191 Interest on loan 2022-23 91,42,500 91,42,500 9,14,250 Interest on loan 2023-24 91,42,500 91,42,500 4,49,258 Total 4,53,91,089 4,53,91,089 31,97,189 From the above table, it can be seen that the assessee has been From the above table, it can be seen that the assessee has been From the above table, it can be seen that the assessee has been paying interest to M/s. paying interest to M/s. Shapoorji Pallonji and Company Pvt. Ltd. Shapoorji Pallonji and Company Pvt. Ltd. since FY 2018 since FY 2018-19 and total interest paid till FY 2023 total interest paid till FY 2023-24 is Rs. 4,53,91,500/ 4,53,91,500/-. However, the order from the Collector's office . However, the order from the Collector's office regarding payment of rent was issued on 18.01.2022. The regarding payment of rent was issued on 18.01.2022. The regarding payment of rent was issued on 18.01.2022. The assessee took the loan from its related party way back in FY assessee took the loan from its related party way back in FY assessee took the loan from its related party way back in FY 2018-19 whereas the need to pay th 19 whereas the need to pay the rent arose only from e rent arose only from 18.01.2022 as stated by the assessee itself in its submission 18.01.2022 as stated by the assessee itself in its submission 18.01.2022 as stated by the assessee itself in its submission made on 19.09.2024. There does not appear any rational behind made on 19.09.2024. There does not appear any rational behind made on 19.09.2024. There does not appear any rational behind taking such a huge amount of loan in FY 2018 taking such a huge amount of loan in FY 2018-19 or before for a 19 or before for a purpose which would arise only after 3 purpose which would arise only after 3-4 year 4 years i.e. from 18.01.2022 and which kept incurring a hefty amount of interest for 18.01.2022 and which kept incurring a hefty amount of interest for 18.01.2022 and which kept incurring a hefty amount of interest for the assessee trust. the assessee trust. For a charitable entity like the assessee's, it For a charitable entity like the assessee's, it cannot be justified to make expenses in the form of interest cannot be justified to make expenses in the form of interest cannot be justified to make expenses in the form of interest payment on loans which is to be used for rent pa payment on loans which is to be used for rent payment in future yment in future course of time whereas the same money could be utilized on course of time whereas the same money could be utilized on course of time whereas the same money could be utilized on charitable purpose.It is noticeable that total loan taken by the charitable purpose.It is noticeable that total loan taken by the charitable purpose.It is noticeable that total loan taken by the assessee trust for the purpose of paying rent is Rs. 14,45,00,000/ assessee trust for the purpose of paying rent is Rs. 14,45,00,000/ assessee trust for the purpose of paying rent is Rs. 14,45,00,000/- (Rs. (Rs. 7,95,00,000/ 7,95,00,000/- interest interest bearing bearing at at 11.5% 11.5% and and Rs. 6,50,00,000/ 6,50,00,000/- interest free) whereas the total rent to be paid by interest free) whereas the total rent to be paid by the assessee is Rs. 10,42,08,629/ the assessee is Rs. 10,42,08,629/-as per assessee's response as per assessee's response dated 23.09.2024 summarised at para no. 4.It is again beyond dated 23.09.2024 summarised at para no. 4.It is again beyond dated 23.09.2024 summarised at para no. 4.It is again beyond logic to understand why the assessee would undertake loan logic to understand why the assessee would undertake loan logic to understand why the assessee would undertake loan amount more than the amount of outstanding rent to be paid, if its t more than the amount of outstanding rent to be paid, if its t more than the amount of outstanding rent to be paid, if its purpose was only for payment of outstanding rent. The assessee purpose was only for payment of outstanding rent. The assessee purpose was only for payment of outstanding rent. The assessee kept paying interest on the said loan (part of the loan which was kept paying interest on the said loan (part of the loan which was kept paying interest on the said loan (part of the loan which was interest bearing) whose purpose was to pay the outstanding rent interest bearing) whose purpose was to pay the outstanding rent interest bearing) whose purpose was to pay the outstanding rent in due period. It is also pertinent to mention that this loan is n due period. It is also pertinent to mention that this loan is n due period. It is also pertinent to mention that this loan is repayable on demand i.e. without any time bound return repayable on demand i.e. without any time bound return repayable on demand i.e. without any time bound return provision.It proves that the related party i.eM/s. Shapoorji Pallonji provision.It proves that the related party i.eM/s. Shapoorji Pallonji provision.It proves that the related party i.eM/s. Shapoorji Pallonji and Company Pvt. Ltd. Has deployed its excess funds in the Trust and Company Pvt. Ltd. Has deployed its excess funds in the Trust and Company Pvt. Ltd. Has deployed its excess funds in the Trust with an intention to earn interest income. th an intention to earn interest income.
It is evident from the above It is evident from the above-mentioned facts and discussion that mentioned facts and discussion that the intention of the trust behind taking the loan was not to pay the the intention of the trust behind taking the loan was not to pay the the intention of the trust behind taking the loan was not to pay the rent liability but to apply the funds of the trust for the benefits of rent liability but to apply the funds of the trust for the benefits of rent liability but to apply the funds of the trust for the benefits of its related party in the form of payment of interes its related party in the form of payment of interest on the loan. t on the loan. Even if it is agreed that the actua purpose of the loan taken from Even if it is agreed that the actua purpose of the loan taken from Even if it is agreed that the actua purpose of the loan taken from the related party is to pay the outstanding rents as per the above the related party is to pay the outstanding rents as per the above the related party is to pay the outstanding rents as per the above- mentioned table no. 1 and 2, there is no apparent rationality mentioned table no. 1 and 2, there is no apparent rationality mentioned table no. 1 and 2, there is no apparent rationality
Masina Hospital Trust 4 behind taking the said loan 3 behind taking the said loan 3-4 years prior to the actual payment o the actual payment year and paying huge interest from its fund when the purpose of year and paying huge interest from its fund when the purpose of year and paying huge interest from its fund when the purpose of the assessee trust is to do charitable activities and the money the assessee trust is to do charitable activities and the money the assessee trust is to do charitable activities and the money used used used for for for paying paying paying interest interest interest could could could have have have been been been used used used for for for charitable purposes. purposes.”
We have heard rival submissions We have heard rival submissions of the parties and perused of the parties and perused the relevant materials on record the relevant materials on record. The first issue in dispute is . The first issue in dispute is regarding the violation of section 1 regarding the violation of section 13(2) of the Act which prescribe 3(2) of the Act which prescribe that where any property where any property or income of the trust is applied for t income of the trust is applied for the benefit of the related party, t benefit of the related party, the assessee is not entitled for benefit of he assessee is not entitled for benefit of registration including 80G of the Act. registration including 80G of the Act. On verification of the facts it On verification of the facts it is found that the assessee trust obtained loan of Rs.7,95,00,000/- is found that the assessee trust obtained loan of Rs.7,95,00,000/ is found that the assessee trust obtained loan of Rs.7,95,00,000/ bearing interest @ 11.5% from bearing interest @ 11.5% from M/s Shapoorji Pallonji & Company M/s Shapoorji Pallonji & Company Pvt. Ltd. and loan of Rs.6,50,00,000/ nd loan of Rs.6,50,00,000/- from individual Mr. Pal from individual Mr. Pallonji. The contention of the assessee that there was a deficit in the The contention of the assessee that there was a deficit in the The contention of the assessee that there was a deficit in the financial of the assessee since 2018 financial of the assessee since 2018-19 and therefore, such loan 19 and therefore, such loan were taken to comply the comply the the order of the District Collector for the order of the District Collector for making rent payment of Rs.10,42,08,629/ g rent payment of Rs.10,42,08,629/- within stipulated within stipulated period. There was no option with the assessee otherwise then to period. There was no option with the assessee otherwise then to period. There was no option with the assessee otherwise then to take a loan and since it was a loan from a company under the take a loan and since it was a loan from a company under the take a loan and since it was a loan from a company under the provisions of the section 186(7) of the Companies Act, 2013, it provisions of the section 186(7) of the Companies Act, 2013 provisions of the section 186(7) of the Companies Act, 2013 could not have been given interest free to the trust therefore, e been given interest free to the trust therefore, e been given interest free to the trust therefore, interest was charged at the market rate. The funds were obtained interest was charged at the market rate. The funds were obtained interest was charged at the market rate. The funds were obtained for the charitable need of the trust and there was no intention of for the charitable need of the trust and there was no intention of for the charitable need of the trust and there was no intention of taking loans for the purpose of benefiting to its related party. The taking loans for the purpose of benefiting to its related party. The taking loans for the purpose of benefiting to its related party. The assessee provided a detailed financial position of the deficit since ssee provided a detailed financial position of the deficit since ssee provided a detailed financial position of the deficit since assessment year 2018 assessment year 2018-19.
Masina Hospital Trust 5 Regarding the second issue of providing Regarding the second issue of providing benefit to a particular benefit to a particular community, the assessee filed a detailed chart of the percentage of ommunity, the assessee filed a detailed chart of the percentage of ommunity, the assessee filed a detailed chart of the percentage of the ‘Parsi’ Community Community benefited since year 2019-2020 2020 onward. The relevant chart is reproduced as under: relevant chart is reproduced as under:
Year Total Admission Total Admission Parsi Patients Admissions % 2019-20 6973 245 4% 2020-21 4786 279 6% 2021-22 5751 244 4% 2022-23 8087 309 4% 2023-24 7864 177 2% 3.1 In view of the above chart, the Ld. counsel for the assessee In view of the above chart, the Ld. counsel for the assessee In view of the above chart, the Ld. counsel for the assessee submitted that ratio of the medical relief provided to the Parsi submitted that ratio of the medical relief provided to the Parsi submitted that ratio of the medical relief provided to the Parsi Community is negligible. Before us, the Ld. counsel for the assessee Community is negligible. Before us, the Ld. counsel for the assessee Community is negligible. Before us, the Ld. counsel for the assessee filed a bank statement reflecting a bank statement reflecting the receipt of the loan and the receipt of the loan and their application for the object of the Trust which are available on Paper application for the object of the Trust which are available on Pape application for the object of the Trust which are available on Pape Book page 24 to 50. A summary of the loan transaction with their Book page 24 to 50. A summary of the loan transaction with their Book page 24 to 50. A summary of the loan transaction with their application and copy of the general ledger showing the application application and copy of the general ledger showing the application application and copy of the general ledger showing the application of the loan on expenses incurred object of the t of the loan on expenses incurred object of the trust has been filed rust has been filed first time before us as additional evidence. In the case, the Ld. first time before us as additional evidence. In the case, the Ld. 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 CIT(E) has pointed out that liability of the payment of the rent arose CIT(E) has pointed out that liability of the payment of the rent arose in the year under consideration whereas loans have been taken in the year under consideration whereas loans have been taken in the year under consideration whereas loans have been taken from AY 2018-19 onwards but the asses onwards but the assessee has contended that see has contended that loan had been availed for meeting been availed for meeting charitable expenses of the trust expenses of the trust in view of deficit in revenue. Since, the above in view of deficit in revenue. Since, the above documents filed are documents filed are crucial and important crucial and important for examining this issue of the application of for examining this issue of the application of the loans for incurring expe the loans for incurring expenses on charitable purposes. Therefore, nses on charitable purposes. Therefore, we admit the documents as additional evidence and restore the we admit the documents as additional evidence and restore the we admit the documents as additional evidence and restore the Masina Hospital Trust 6 matter back to the file of the Ld. CIT(E) for deciding the matter matter back to the file of the Ld. CIT(E) for deciding the matter 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 afresh. As far as second issue is concerned, the Ld. CIT(E) may also afresh. As far as second issue is concerned, the Ld. CIT(E) may also verify the percentage of the persons of Parsi Community benefited ge of the persons of Parsi Community benefited ge of the persons of Parsi Community benefited from the charitable activity of the assessee and decide the issue in from the charitable activity of the assessee and decide the issue in from the charitable activity of the assessee and decide the issue in accordance with law. accordance with law.
In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for statistical purposes. statistical purposes.