SWASTHYA SEWA SANSTHAN,KOLKATA vs. I.T.O.WARD-1(3)(EXEMPTION), KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA (BEFORE SRI SANJAY GARG, JUDICIAL MEMBER & SRI RAJESH KUMAR, ACCOUNTANT MEMBER) I.T.A. No. 363/Kol/2020 Assessment Year: 2017-18 Swasthya Sewa Sansthan.................................................................................................Appellant [PAN: AABTS 5230 R] Vs. Commissioner of Income Tax (Exemption), Kolkata……….................................Respondent Appearances by: Sh. Akkal Dudhewala, A/R, appeared on behalf of the Assessee. Sh. Dinesh Sawmkie, CIT, appeared on behalf of the Revenue. Date of concluding the hearing : January 4th, 2022 Date of pronouncing the order : February 9th, 2022 ORDER Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the appellant Trust against the order dated 27.02.2020 of the ld. Commissioner of Income Tax (Exemption) [hereinafter referred to as ld. ‘CIT(E)’] passed u/s 263 of the Income Tax Act, 1961 (hereinafter the ‘Act’) and whereby he, exercising his revision jurisdiction, has set aside the assessment order dated 22.08.2019 with the direction to the Assessing Officer (hereinafter the ‘AO’) to compute income of the appellant Trust without allowing exemption u/s 10(23C)(iiiae) of the Act. 2. The brief facts of the case are that the appellant Trust is a society formed on 29.03.1984 and as per Clause 4 of the Memorandum of Association, the society is established for the objects and purposes stated in Clause 3 solely for philanthropic purposes and not for purpose of profit. The appellant Trust is running a medical dispensary wherein it is providing free medical treatment to the patients. For the year under consideration, the appellant Trust derived gross total income of Rs. 68,95,677/- from dividend, interest, profit on sale of mutual fund. However, there was no income earned from the medical treatment given in the aforesaid dispensary run by the appellant Trust as the same has been provided to the patients free of cost. The assessee

2 I.T.A. No. 363/Kol/2020 Assessment Year: 2017-18 Swasthya Sewa Sansthan. society incurred an amount of Rs. 8,41,319/- on the running of dispensary and after claiming deduction of other miscellaneous expenses, has declared a surplus of Rs. 60,54,658/-. The ld. CIT(E) noted that although, there was no receipt from the dispensary, still the assessee first claimed the surplus as exempt u/s 10(23C)(iiiae) of the Act. He, in this respect framed the following points for consideration:

i) Whether in the absence of any receipt from any hospital or other institution for the reception and treatment of persons suffering from illness, the allowability of exemption u/s 10(23C)(iiiae) of the Act is prima facie, erroneous and prejudicial to the interest of the Revenue.

ii) Whether ‘other income’ of a philanthropic entity is eligible for deduction u/s 10(23C)(iiiae) of the Act.

iii) Alternatively, since the surplus of income over expenditure is far in excess of 15% of the total receipts for consecutive financial years, whether the assessee exists for profit. The Trust is prima facie existing for profit as per the decision of the Hon’ble Supreme Court in the case of Visvesvaraya Technology University [(2016) 68 taxmann.com 287].

2.1. He, therefore observed that the action of the AO in allowing exemption u/s 10(23C)(iiiae) of the Act was prima facie found to be erroneous and prejudicial to the interest of the Revenue. He accordingly initiated proceedings u/s 10(23C)(iiiae) of the Act and show-caused the appellant Trust. The appellant Trust vide its letter dated 21.12.2018 replied as under:

“i. The assessee society is running a medical institution being a dispensary located at 102, Muktaram Babu Street, Kolkata. Doctors from both Allopathy and Homoeopathy disciplines visit the Medical Institution at fixed time and number of patients averaging 50 patient approx per day are provided treatment for illness. Such Medical consultancy is absolutely free of charge and medicines are also given free of cost to patients as prescribed by doctors. ii. In the assessment order passed u/s 143(3) of the Act dated 22.08.2019, the AO has duly allowed us exemption of Rs. 68,95,677/- u/s 10(23C)(iiiae) of the Act after verifying the details and submissions made by us in the course of assessment proceedings. iii. The jurisdiction u/s. 263,on the ground that there is no receipt from any hospital or other medical institution is beyond jurisdiction. iv. We are doing the above activities on charitable basis, without charging any fees from any patient, it is quite natural that there is no income from such activities in our accounts for the year under consideration. v. The cost of providing such medical help free of cost to poor and needy people is recouped from income earned from investments made by us. The sole objects and purpose of making such investment is to apply income thereof for charitable purposes for providing medical

3 I.T.A. No. 363/Kol/2020 Assessment Year: 2017-18 Swasthya Sewa Sansthan. help to poor and needy people in fulfilment of our objects. The income earned from investments is not applied for any purpose other than the purpose stated above. No part of income or investments or assets of the society is ever applied for the benefit of the beneficiaries or trustees or key managerial personnel of the society. The surplus of the society is not distributed among the members and is ploughed back in the institution. vi. The provisions of section 10(23C)(iiiae) do not provide for spending of a certain percentage of income during the year. The surplus of investment income over the expenditure is being accumulated for spending in future years for the objects and purposes of the society like building of hospital nursing home or any other similar medical institution. If the exemption granted by the provisions of section 10(23C)(iiiae) is not allowed, it will jeopardize our charitable objects and will deprive the general public in getting free medical services.” 2.2. After considering the reply of the appellant Trust, the ld. CIT(E) observed that there was no receipt from the dispensary and therefore, there was no nexus between the income and the expenditure. He observed that the AO ought to have examined whether the society was existing solely for philanthropic purposes and whether the claim u/s 10(23C)(iiiae) of the Act was allowable. The appellant society had incurred only 12% of the receipts for philanthropic purposes and accumulated 88% of its receipts. He observed that it was a case of no enquiry by the AO. He, thereafter relying upon various case laws, held that since there was no nexus between income earned and the dispensary run by the appellant society, the society was not eligible for exemption u/s 10(23C)(iiiae) of the Act. He, accordingly directed the AO to disallow the exemption u/s 10(23C)(iiiae) of the Act.

“[10. Incomes not included in total income.—In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— (23C) any income received by any person on behalf of— (iiiae) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed.]” 4.1. A perusal of the above relevant provision of the Act would show that there is no requirement under the aforesaid provision that the income/receipt of the Trust/Society

4 I.T.A. No. 363/Kol/2020 Assessment Year: 2017-18 Swasthya Sewa Sansthan. should come from the charitable/philanthropic activity itself. The only requirement is that the hospital/institution should exist solely for philanthropic purposes and not for purposes of profit and the aggregate annual receipt of such hospital/institution should not exceed the amount of annual receipt as may be prescribed, which is Rs. 1 crore for the relevant assessment year under consideration. Admittedly, the income of the institution for the assessment year under consideration was less than Rs. 1 crore. There was no allegation that the institution/appellant Trust exist for any other purposes. There is no allegation that the institution/appellant Trust is existing for any purpose of profit, or is doing any activity for the purpose of profit. As per the facts on the file, the appellant Trust is running a dispensary wherein the doctors from both Allopathy and Homoeopathy discipline of medicine visit the dispensary and the treatment is free of charge and even medicines are also given free of cost to patients. There is no denial of the fact that the appellant Trust is running the dispensary purely on philanthropic purposes. Since, the aforesaid medical treatment is given free of charge, hence there is no question of earning of any income from such activity. As observed above, there is no requirement of provision Section 10(23C)(iiiae) of the Act that the income should be earned from such philanthropic activity, rather it is otherwise that the institution/Trust has done such an activity purely for charitable/philanthropic purposes and under such circumstances expectation of income from such activity will be against the spirit of the aforesaid statutory provision. There is no allegation that the institution is doing any activity other than the aforesaid medical dispensary. The annual income of the appellant Trust is out of the interest income from the investment has been made of surplus lying with it. However, there is no allegation that such surplus is applied for any purpose other than the charitable activity. Now, the only allegation is that the appellant Trust has applied only 12% of its receipts and accumulated 88%. We find that under the provision of Section 10(23C)(iiiae) of the Act, there is no limit prescribed for application of receipts and accumulation of receipts. Therefore, the appellant Trust is within its rights to accumulate the receipts as per its requirement. It had been explained by the assessee Trust to the ld. CIT(E) that the surplus of investment was being accumulated for spending in future years for the objects and purposes of the Trust like building of hospital, nursing home or any other similar medical institution.

5 I.T.A. No. 363/Kol/2020 Assessment Year: 2017-18 Swasthya Sewa Sansthan. 5. In our view, all the conditions as prescribed u/s 10(23C)(iiiae) of the Act, have been fulfilled by the appellant Trust and there is no allegation that the appellant Trust is involved in any other activity for profit or does not exist for philanthropic purposes. Even in this case, all the facts are on the file, therefore there was no need for any further investigation by the AO as alleged by the ld. CIT(E). 6. In view of the above discussion, the action of the ld. CIT(E) in directing the AO to disallow the exemption granted u/s 10(23C)(iiiae) of the Act was not justified. The impugned order of the ld. CIT(E) is, therefore quashed. 7. In the result, the appeal of the appellant Trust stands allowed. Order is pronounced in the open court on 09.02.2022. Sd/- Sd/- [Rajesh Kumar] [Sanjay Garg] Accountant Member Judicial Member Dated: 09.02.2022 Bidhan (P.S.) Copy of the order forwarded to: 1. Swasthya Sewa Sansthan, 5th Floor, Birla Building, 9/1, R.N. Mukherjee Road, Kolkata-700 001. 2. Commissioner of Income Tax (Exemption), Kolkata. 3. CIT(A)- 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. (sent through mail)