D.C.I.T, CIRCLE -1 (EXEMPTION), , CHANDIGARH vs. GURUDWARA SHAHEED BABA NIHAL SINGH, JALANDHAR`

आदेश/ORDER PER BENCH:

The above cross appeals, by the assessee and the

Revenue, have been filed against the order of learned

Commissioner of Income Tax (Appeals)-2, Jalandhar dated

30.8.2018 passed u/s 250(6) of the Income Tax Act, 1961

(hereinafter referred to as ‘Act’), relating to assessment year

2014-15.

2 . T h e a s s e s s e e h a d m o v e d a n a p p l i c a t i o n b e f o r e u s

s e e k i n g f u r t h e r t i m e t o f i l e P a p e r B o o k . B u t a f t e r

g o i n g t h r o u g h t h e f a c t s o f t h e c a s e a n d o n h e a r i n g t h e

c o n t e n t i o n s o f b o t h t h e p a r t i e s , i t w a s f o u n d t h a t t h e

m a t t e r n e e d e d t o b e c o n s i d e r e d f u r t h e r b y t h e C I T( A )

f o r b r i n g i n g o u t c e r t a i n f a c t s b e f o r e a d j u d i c a t i n g t h e

i s s u e a t h a n d . Th e a d j o u r n m e n t a p p l i c a t i o n f i l e d b y

t h e a s s e s s e e w a s , t h e r e f o r e , r e j e c t e d .

3 . O n g o i n g t h r o u g h t h e f a c t s o f t h e c a s e a s f i n d

m e n t i o n i n t h e a s s e s s m e n t o r d e r a n d t h e o r d e r o f t h e

C I T( A ) , i t w a s n o t e d t h a t t h e i s s u e r e l a t e d t o d e n i a l o f

g r a n t o f e x e m p t i o n u / s 1 1 o f t h e A c t t o t h e a s s e s s e e .

Th e a s s e s s m e n t o r d e r n o t e s t h a t t h e a s s e s s e e i s a

3 ITA No.1382 & 1398/Chd/2018 A.Y.2014-15

t r u s t a n d r e g i s t e r e d u / s 1 2 A o f t h e A c t a n d r u n s

G u r u d w a r a Ta l h a n S a h i b . Th e A O n o t e d t h a t t h e

a s s e s s e e w a s a w h o l l y r e l i g i o u s t r u s t . H e f u r t h e r

n o t e d t h a t d u r i n g t h e i m p u g n e d y e a r , t h e a s s e s s e e

h a d m a d e a d o n a t i o n o f R s . 5 1 , 5 0 , 0 0 0 / - t o s i s t e r

s o c i e t y S a h e e d B a b a N i h a l S i n g h C h a r i t a b l e H o s p i t a l

a n d c l a i m e d t h e s a m e a s a p p l i c a t i o n o f i t s i n c o m e .

Th e A O h e l d t h a t t h e d o n a t i o n m a d e t o t h e h o s p i t a l

w a s n o t i n p u r s u a n c e t o i t s o b j e c t s o f c a r r y i n g o u t

r e l i g i o u s a c t i v i t i e s a n d f u r t h e r w a s f o r t h e b e n e f i t o f a

p e r s o n w h i c h w a s r e l a t e d t o t h e a s s e s s e e t r u s t . H e ,

t h e r e f o r e , h e l d t h a t f o r b o t h t h e r e a s o n s t h e d o n a t i o n

s o m a d e c o u l d n o t b e t r e a t e d a s a p p l i c a t i o n o f i t s

i n c o me b o t h u n d e r p r o v i s i o n s o f s e c t i o n 1 1 o f t h e A c t

b e i n g n o t f o r r e l i g i o u s p u r p o s e a n d a l s o u / s 1 3 ( 1 ) ( c )

r e a d w i t h s e c t i o n 1 3 ( 3 ) o f t h e A c t s i n c e i t w a s f o r t h e

b e n e f i t o f a r e l a t e d p e r s o n . H e a c c o r d i n g l y d e n i e d t h e

e x e m p t i o n u / s 1 1 o f t h e A c t t o t h e e n t i r e i n c o m e o f

t h e a s s e s s e e t r u s t . Th e s u r p l u s e a r n e d b y t h e

a s s e s s e e t r u s t w a s a c c o r d i n g l y s u b j e c t e d t o t a x w i t h

t h e a s s e s s e e b e i n g t r e a t e d i n t h e s t a t u s o f

‘ A s s o c i a t i o n o f P e r s o n s ’ ( A O P ) .

4 ITA No.1382 & 1398/Chd/2018 A.Y.2014-15

4 . T h e L d . C I T( A ) o n c o n s i d e r i n g t h e e n t i r e f a c t s o f

t h e c a s e h e l d t h a t t h e d i s a l l o w a n c e o f e x e m p t i o n w a s

t o b e r e s t r i c t e d o n l y t o t h e e x t e n t o f a p p l i c a t i o n o f

i n c o me i n v i o l a t i o n o f i t s s t a t e d o b j e c t s a n d p u r p o s e

f o r w h i c h i t w a s s e t u p . Th e r e l e v a n t f i n d i n g s o f th e

C I T( A ) a t p a r a s 4 . 2 t o 4 . 9 o f t h e o r d e r a r e a s u n d e r :

“4.2 1 have gone through the assessment order passed by the AO and submissions made by the appellant and find that an amount of Rs. 51,50,000 paid as donation to a hospital for medical relief has been disallowed by the AO. Further, I find that AO has also disallowed the claim of exemption of surplus/income of Rs. 1,07,58,847 u/s 11 of the IT Act on the ground that provisions of section 13(l)(c) r.w.s. 13(3) of the 1.T. Act have been violated. It is seen from the order that the claim of exemption of income u/s 11 of the IT Act has been disallowed by the AO on the ground that receipts of the trust have not been utilized for the purposes for which it was setup. AO has assessed income of the trust as an AOP. 4.3 During the course of examination of books of accounts it was found by the AO that funds have been diverted and an amount of Rs. 51,50,000 has been transferred to its sister society, which is engaged in activities other than religious purposes. It is stated that these funds have been utilized for meeting salary/professional fee paid to employees/doctors. It was held by the AO that income has not been applied by the appellant towards the religious & charitable purposes for which it has been setup. The utilization of funds was held to be not for the purposes for which it has been formed. 4.4 AO has stated that funds have been utilized by the Shaheed Baba Nehal Singh Charitable Hospital which is a sister concern of the appellant society and it is a closely held society. AO has further placed reliance on the decision of Hon'ble Punjab & Haryana High Court which was decided in favor of the Department in the case of St. Francis Convent School vs. CBDT 67DTR 2, wherein it was held that this type of diversion of money cannot be accepted as an

5 ITA No.1382 & 1398/Chd/2018 A.Y.2014-15

application of funds by the trust. Accordingly, AO has treated the payment of Rs.51,50,000 as the amount covered under section 13(l)(c) r.w.s. 13(3) and held that it cannot be treated as an application of income u/s 11(1) of the IT Act. This amount was added to the surplus income declared by the appellant and was brought to tax at the maximum marginal rate of taxation. Further, the surplus income of Rs.1,07,58,847 declared by the appellant as exempt u/s 11 of the I.T. Act was disallowed and taxed in the capacity of an AOP. 4.5 The appellant has stated that religious activities and medical services are an important aspect of religion and may be treated as religious activity. The appellant has also contended that it was under the belief that service to humanity in the form of medical services being rendered are part of religion, ft is submitted that hospital is also registered u/s 12A of the I.T Act and is an independent trust. The appellant, has also reliance on certain judicial decisions on this issue to support its contentions. It is stated that claim has been accepted m A.Y. 2012-13 under scrutiny by the AO. 4.6 The appellant has further submitted that there is no justification in taxing the surplus income of Rs. 1,07,58,847 on the ground of applying section 13(3) of the I.T Act. It is submitted that provisions of section 13 can be invoked only to the cases where section 11 does not apply and in the present case, both the trusts are registered, having separate PAN but common trustees. The appellant has placed reliance on judicial decisions to support its contentions that claim of exemption cannot be disallowed on the ground of having common trustees. The appellant has also submitted that appeal for the preceding year i.e. A.Y. 2013-14 was disallowed by the undersigned vide order dated 25.05.2017 on the ground that no submissions were filed by the appellant. 4.7 Having considered the material available on record, 1 find that appellant has been able to bring on record sufficient material to support its contentions with regard to the claim of exemption of income u/s 11 of the I.T Act cannot be denied on the ground that donations have been made to the sister trust which do not fall within the purview of the activities of the trust. The contentions of the appellant that claim may be disallowed to the extent of violations, if any, made in the light of judicial decisions cited has been considered and

6 ITA No.1382 & 1398/Chd/2018 A.Y.2014-15

found to be correct. 1 have gone through the decision of Hon'ble ITAT Delhi bench in the case of Puran Chanel Dharmarth Trust 04.05.2018 and also in the case of Time Centre for Medial & Management studies dated 31.05.2018 on this issue and find force in the contentions of the appellant. 4.8 Further, 1 find that appellant has made donations to the other society (related to the appellant society) having different objectives which are not religious in nature and thereby violated the purposes for which it was set up. The appellant has not been able to justify that activities carried out by the other trust are religious in nature and therefore, I hold that AO was justified in disallowing the claim made on this account. I have also gone through the order passed by the under signed in the case of the appellant, cited above, and find that order was passed in the absence of any meaningful representation being made by the appellant. I find that in fact no submissions were filed by the appellant and therefore, appeal was decided on the basis of material available on record in that year. 4.9 The facts in the present year are different as the appellant has been able to bring on record sufficient material to justify its contentions duly supported with judicial decisions on these issues. Thus, in view of these facts, I hold that AO was not justified in holding that appellant has contravened the provisions of section 11 of the IT Act by spending the amount on payment of salaries to the employees of the associate/sister society which is engaged in non-religious activities. AO is being directed to allow the claim of exemption of surplus income u/s 11 of the I.T. Act and tax the amount of Rs. 51,50,000 which had been contributed for the purposes not related to the activities of the trust and thus, cannot be treated as an application of income.” 5 . A g g r i e v e d b y t h e s a m e b o t h t h e a s s e s s e e a n d t h e

R e v e n u e h a v e c o m e u p i n a p p e a l b e f o r e u s , w i t h t h e

a s s e s s e e c h a l l e n g i n g t h e d i s a l l o w a n c e o f e x e m p t i o n

u / s 1 1 o f t h e A c t t o t h e e x t e n t o f i n c o m e a p p l i e d b y

7 ITA No.1382 & 1398/Chd/2018 A.Y.2014-15

w a y o f d o n a t i o n t o i t s s i s t e r c o n c e r n a m o u n t i n g t o

R s . 5 1 , 5 0 , 0 0 0 / - , r a i s e d i n t h e f o l l o w i n g g r o u n d s :

“1. Regarding addition of Rs. 51,50,000/-: 1.1The learned CIT(A) has erred in holding that the medical relief is charity and is not covered under religious activities. 1.2That the learned CIT (A) is erred in holding that the medical relief is not part of the objects of the Society. 1.3The CIT(A) has erred in holding that service of humanity as per religion preaching does not cover medical relief. 1.4The learned CIT(A) has erred and has failed to give his comments that why he differs with various judicial pronouncements given by the appellant to hold that the religion and charity are one. 1.5The learned C1T(A) has erred in confirming addition of Rs. 51,50,000/- by holding that amount spent on hospital is not related to the activities of the trust. 1.6The learned CIT(A) has failed to adjudicate on the contention that the AO has failed to hold consistency as this expenditure has been accepted in years prior to A.Y. 2013-14 and has even been accepted in the A.Y. 2015-16 and 2016- 17. 1.7The learned CIT(A) has erred in confirming the addition of Rs. 51,50,000/- being the donation/support given to the Hospital being run by the other society. The AO has accepted this donation in the year subsequent to the year under appeal 2. The appellant craves leave to alter, to amend, to add, or to delete any or all the grounds of appeal on or before the final hearing.” 6 . T h e R e v e n u e i n t u r n h a s c h a l l e n g e d t h e a c t o f t h e

L d . C I T( A ) i n r e s t r i c t i n g t h e d i s a l l o w a n c e t o

R s . 5 1 , 5 0 , 0 0 0 / - a s a g a i n s t t h e d e n i a l o f e x e m p t i o n b y

8 ITA No.1382 & 1398/Chd/2018 A.Y.2014-15

t h e A O t o t h e e n t i r e s u r p l u s g e n e r a t e d b y t h e a s s e s s e e

r a i s i n g t h e f o l l o w i n g g r o u n d s b e f o r e u s :

“i. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in allowing the claim of the exemption under section 11 of the IT. Act on the surplus without appreciating the fact that the diversion of money had resulted in giving benefit to specified person under section 13(3) of the Act and therefore the provisions of section 13(l)(c) were applicable. ii. That on the facts and circumstances of the case, the Ld. CIT (A) has erred in law in deleting the exemption claimed on the surplus and upholding disallowance of exemption under section 11 only to the extent of diversion when section 13(l)(c) clearly states nothing contained in section 11 and 12 will operate so as to exclude from the total income "any income" thereof if "any part of such income" is applied directly or indirectly for the benefit of persons specified in section 13(3). iii. That the appellant craves to leave, add or amend the grounds of appeal on or before the appeal heard and disposed off.” 7 . F r o m t h e p e r u s a l o f t h e o r d e r s o f t h e a u t h o r i t i e s

b e l o w , i t i s c l e a r t h a t t h e d i s a l l o w a n c e h a s b e e n m a d e

b y t h e A O o f t h e a m o u n t o f R s . 5 1 , 5 0 , 0 0 0 / - d o n a t e d b y

t h e a s s e s s e e t o i t s a l l e g e d s i s t e r c o n c e r n S h a h e e d

B a b a N i h a l S i n g h C h a r i t a b l e H o s p i t a l w h i c h h a d

u t i l i z e d t h e a m o u n t f o r m a k i n g p a y m e n t o f s a l a r i e s t o

i t s d o c t o r s . Th e f a c t t h a t t h e a s s e s s e e i s w h o l l y a

r e l i g i o u s t r u s t i s a n a d m i t t e d f a c t . Th e d i s a l l o w a n c e

h a s b e e n m a d e f o r t w o r e a s o n s :

9 ITA No.1382 & 1398/Chd/2018 A.Y.2014-15

1 ) Th e a m o u n t d o n a t e d t o i t s s i s t e r c o n c e r n w a s n o t f o r t h e p u r p o s e f o r w h i c h t h e a s s e s s e e t r u s t w a s s e t u p i . e . i t w a s n o t f o r t h e p u r p o s e o f a n y r e l i g i o u s a c t i v i t y b e i n g d o n a t i o n m a d e t o h o s p i t a l .

2 ) Th e d o n a t i o n w a s m a d e t o a r e l a t e d c o n c e r n w h i c h h a d b e n e f i t e d b y s a i d d o n a t i o n a n d , t h e r e f o r e , t h e p r o v i s i o n s o f s e c t i o n 1 3 ( 1 ) ( c ) r e a d w i t h s e c t i o n 1 3 ( 3 ) o f t h e A c t w e r e a t t r a c t e d .

8 . V i s - à - v i s t h e f i r s t c h a r g e o f t h e R e v e n u e t h a t t h e

a p p l i c a t i o n w a s n o t f o r i t s s t a t e d p u r p o s e s , t h e f a c t s

e m a n a t i n g f r o m t h e r e c o r d , w e f i n d a r e n o t s u f f i c i e n t

t o e s t a b l i s h t h i s c h a r g e . U n d i s p u t e d l y , t h e a m o u n t

w a s p a i d t o t h e h o s p i t a l w h i c h h a d a l s o b e e n g r a n t e d

r e g i s t r a t i o n u / s 1 2 A o f t h e A c t . Th e c o n s i s t e n t

p l e a d i n g o f t h e a s s e s s e e b e f o r e t h e A O a n d t h e C I T( A ) ,

w e f i n d , h a s b e e n t h a t t h e d o n a t i o n w a s m a d e w a s i n

c o n s o n a n c e w i t h i t s s t a t e d r e l i g i o u s o b j e c t s w h i c h

i n c l u d e d s e r v i c e t o h u m a n i t y a n d h u m a n i t a r i a n

p u r p o s e . I n t h i s b a c k d r o p , w e f i n d , t h e f a c t s r e l a t i n g

t o t h e h o s p i t a l n e e d f u r t h e r i n v e s t i g a t i o n w h e t h e r i t

w a s b e i n g r u n o n p u r e l y c h a r i t a b l e l i n e s w i t h v e r y l o w

f e e s o r n o f e e s b e i n g c h a r g e d f r o m p a t i e n t s o r

10 ITA No.1382 & 1398/Chd/2018 A.Y.2014-15

o t h e r w i s e . S i n c e i t i s o n l y t h e n i t c a n b e s a i d t h a t t h e

d o n a t i o n m a d e b y t h e a s s e s s e e w a s i n f u r t h e r a n c e o f

i t s r e l i g i o u s o b j e c t i v e s o f s e r v i n g h u m a n i t y .

9 . A s f a r t h e d e n i a l o f e x e m p t i o n f o r t h e r e a s o n t h a t

b y v i r t u e o f t h i s d o n a t i o n a r e l a t e d p e r s o n o f t h e

a s s e s s e e h a d b e e n b e n e f i t e d , t h e L d . D R h i m s e l f

p o i n t e d o u t t h a t t h e r e i s n o f i n d i n g o f f a c t a s t o h o w

t h e h o s p i t a l w a s r e l a t e d t o t h e a s s e s s e e s o c i e t y i n

t e r m s o f t h e d e f i n i t i o n s o p r o v i d e d u / s 1 3 ( 3 ) o f t h e

A c t . I n t h e a b s e n c e o f t h i s e s s e n t i a l f a c t t h e

a p p l i c a b i l i t y o f s e c t i o n 1 3 ( 1 ) ( c ) o f t h e A c t c a n n o t b e

e n f o r c e d .

1 0 . F o r t h e a f o r e s a i d r e a s o n s w e c o n s i d e r i t f i t t o

r e s t o r e t h e i s s u e b a c k t o t h e C I T( A ) t o a d j u d i c a t e t h e

i s s u e a f r e s h a f t e r b r i n g i n g o u t a l l r e l e v a n t f a c t s o n

r e c o r d a s p o i n t e d a b o v e a n d a n y o t h e r f a c t s

c o n s i d e r e d n e c e s s a r y b y h i m f o r a d j u d i c a t i n g t h e

i s s u e a t h a n d . N e e d l e s s t o a d d t h e a s s e s s e e b e

g r a n t e d a d e q u a t e o p p o r t u n i t y o f b e i n g h e a r d a n d t h e

i s s u e t h e r e a f t e r b e d e c i d e d i n a c c o r d a n c e w i t h l a w .

11 ITA No.1382 & 1398/Chd/2018 A.Y.2014-15

Order pronounced in the Open Court.

Sd/- Sd/- �दवा �संह अ�नपूणा� गु�ता (DIVA SINGH ) (ANNAPURNA GUPTA) �याय�क सद�य/Judicial Member लेखा सद�य/Accountant Member �दनांक /Dated: 20th August, 2019 *रती* आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar