SETH RAMDAS NATHUBHAI DHARMADAYA VISHWASTA NIDHI,,PUNE vs. INCOME-TAX OFFICER,(EXEMPTIONS) -1,, PUNE

आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM :

This appeal preferred by the assessee emanates from the order of the Learned Commissioner of Income-tax (Appeals), dated 19-03-2018 for the Assessment Year 2011-12 as per the following grounds of appeal :

“1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held that the claim of exemption u/s. 11 denied by the AO and that confirmed by the first appellate authority is unjustified, unwarranted, and not in accordance with the provisions of law. The claim of the appellant be held as allowable. The appellant be granted just and proper relief in this respect.

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section 13(2)(c) RWS 13(1 )(c) of the Act, that vehicle (Mercedes Benz) purchased for Rs.89,00,000/- by the Trust and foreign travelling expenses amounting Rs.3,77,238/-incurred for attending seminar and conference at UAE is not misutilization of the funds of the trust within the meaning of section 13(2) of the Act. The appellant be granted just and proper relief in this respect.

denial of exemption u/s.11 of the Act by the Assessing Officer (AO) and

as confirmed by the CIT(A) since there is violation of section 13(2)(c)

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r.w.s. 13(1)(c) of the Act and the related issues. In ground No.5, the

assesee has contested the additions made on capital gains and similarly

in ground No.6 the assessee prays for allowance of claim of unabsorbed

expenses and depreciation from earlier years against the income so

assessed.

registered under the Bombay Public Trust Act, 1950 vide No.E1150,

Pune dated 13-10-1987. The assessee is registered u/s.12A of the Act

vide registration No.4597 dated 21-06-1989. The assessee trust was

formed with various aims and objects mainly to set up a hospital in the

name of “Seth Ramdas Shah Memorial Hospital and Research Centre”

in Pune. For the year under consideration, the assessee had shown direct

income in the form of gross hospital receipts at Rs.2,10,951/- and

indirect income at Rs.73,64,84,002/- and, in this way, the credit side

total of Income and Expenditure account was at Rs.73,66,94,952/-.

After claim of direct and indirect expenses at Rs.30,68,12,295/- the net

income over the expenditure was arrived at Rs.42,98,82,657/-.

had issued a show cause notice to the assessee asking to justify the

payment made to trustees, being interested persons in view of the

provisions of section 13(3) of the Act and therefore, provisions of

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section 13(1)(c)(ii) r.w.s.13(2) of the Act were attracted. The details of

payment to such trustees were as follows :

Name of Trustee Payment in Rs. Nature of payment Mr. Vikram Chavan 1,20,00,000/- Salary to Managing Trustee Ms. Pratima Vikam 12,00,000/- Salary to Secretary Chavan Total payment of the 1,32,00,000/- trustees

Therefore, the ld.AO asked the assessee that in view of provisions of

section 13(1)(c) r.w.s.13(2)(c) of the Act, the assessee needs to justify

the reasonableness of the amount paid to Mr. Vikram Chavan and Ms.

Pratima Vikram Chavan as mentioned in the above stated table. In the

show case notice, the AO also required the assessee to explain that in the

light of provisions of section 13(2)(c) the assessee has not furnished the

reasonableness of the amounts paid to these persons vis-à-vis the

services performed by them as compared to the Fair Market Value. The

ld. AO also issued a show cause asking the assessee to justify purchase

of Mercedes Benz vehicle worth Rs.89.00 lakh and the corresponding

vehicle expenses at a time specially when the entire hospital of the

assessee was auctioned in August, 2010. There has been also

expenditure incurred on foreign tour of the Managing Trustees under the

head “Business Promotion” expenses of Rs.3,77,238/- and the AO had

also sought information from the assessee regarding the justification for

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such foreign tour expenses and why it should not be treated as mis-

utilization of the funds of the trust within the meaning of section 13(2)

of the Act.

before the ld. Joint Commissioner of Income Tax (JCIT). In the said

order, the ld. JCIT held that the AO has correctly invoked the provisions

of section 13(1)(c) of the Act in respect of the payment of salary to Mr.

Vikram Chavan. The JCIT also observed in the order u/s.144A of the

Act that there was no justification for purchase of Mercedes Benz car

and the same was for personal benefit of the Managing Trustee and

similarly the foreign tour undertaken by Mr Vikram Chavan and Ms.

Pratima Vikram Chavan (Ms.Pratima Chavan) was not in furtherance of

the objects of the trust and it was for the personal benefit of the trustee in

infringement to section 13 of the Act.

before the ld. AO for each of the issues for which the AO had issued the

show cause notice to the assessee and this finds place in the assessment

order. From Para D.3, the ld. AO has decided on the issue of

reasonableness of salary paid to the Managing Trustee and the Trustee

Secretary. The ld. AO observed looking at the salary payment schedule

for F.Y. 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11, specifically

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for F.Y. 2006-07 and 2009-10, the salary paid to Mr. Vikram Chavan as

Managing Trustee and Ms. Pratima Chavan as the Trustee Secretary has

been at the rate of 70% and 35% of the gross receipts of the hospital.

Even for F.Y. 2010-11 it was very much disproportionate and the ld. AO

held that there has been an infringement of section 13(1)(c)

r.w.s.13(2)(c) of the Act. In this regard, the ld. AO examined the facts

of the assessee’s case and observed that the salary of the Managing

Trustee has gone up and there is no nexus with the hospital receipts.

The hospital of the trust was auctioned during the year on 13-08-2010

due to default in payment of loan of the bank. However, this has not

affected the payment of remuneration to the Managing Trustee and the

Trustee Secretary. It was seen that the payment of remuneration

continued even when the main activity of the trust of running a hospital

has stopped. That regarding reasonableness and justification of payment

of remuneration, it was argued during the hearing before the AO that the

Managing Trustee had advanced a loan to the Trust at the rate of 8%

whereas he has sustained the interest on loan at the PLR but the AO did

not accept this argument because, on one hand, the Managing Trustee

seems to help the trust by providing loan but at the same time he was

drawing unreasonable salary from the sinking coffers of the trust. The

ld. AO also observed that the rate of interest of 8% per annum was

voluntarily offered to be taken by the Managing Trustee in the

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applications made before the Charity Commissioner and therefore there

was no nexus for advancing such loans and the salary taken by the

Managing Trustee. The AO rightly refuted the explanation of the

assessee that the Managing Trustee has sustained losses in payment of

interest for the loan and if this loss is considered then payment of salary

of Rs.10.00 lakhs per month would be justifiable. It was also stated by

the AO that for F.Yrs. 2012-13 and 2013-14 there has been no payment

of interest but still huge salary has been paid to the Managing Trustee.

The ld. AO held that the trust has paid the entire due with interest of Mr.

Vikram Chavan, i.e. Managing Trustee after the auction of the property

and thereafter also the payment of huge salary when actually no

charitable work has been done is therefore misappropriation of trust

funds. It was clearly brought out by the AO that there was no

reasonableness regarding the payment of salary to the Managing Trustee

and the assessee was not able to prove the justification for such payment

and whether at all the Managing Trustee was doing any activities in

furtherance of the objects of the trust, and rather it was observed that the

excess and unreasonable salary paid to him drained the coffers of the

trust. This is so when the hospital of the trust was auctioned during the

year but the payment of remuneration to the said Managing Trustee and

the Trustee Secretary were not affected and it continued irrespective of

the fact that the main activity of the trust of running a hospital had

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stopped. The process of auction of the property was commenced by

virtue of notice u/s.13(2) of the Securitization and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002 dated

23-01-2009. Thereafter, the possession over the mortgaged hospital

property was taken by Bank of Maharashtra. The trust hospital was

auctioned on 13-08-2010 for total consideration of Rs.68,00,00,000/-.

After repayment of loan of Bank of Maharashtra and the Trustee Mr.

Vikram Chavan, there was surplus of Rs.13.00 crore which was

deposited in FDR with State Bank of Mysore. It was observed by the

AO that the same remuneration continued to be paid to the trustee

thereafter as well in the F.Yrs. 2012-13 and 2013-14. In F.Y. 2012-13,

the assessee trust had no income other than interest on FDR but still

salaries to these trustees at Rs.1.32 crore were paid. In this way, the

coffers of the trust were drained out by the trustees for their personal

benefits. The remuneration of the trustees were excessive and

unreasonable as compared to the services which they have performed in

the context of the provisions of section 13(2)(c) of the Act. The ld. AO

also verified the fact that prior to August, 2008 Mr. Vikram Chavan was

paid salary at Rs.2.00 lakh per month which was increased to Rs.10.00

lakh per month without any reasonableness and justification. The ld.

AO considered the payment of Rs.2.00 per month as salary as reasonable

and the remaining amount of Rs.96.00 lakhs were held to be excessive

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and unreasonable thereby infringing the provisions of section 13 of the

Act. The said amount was disallowed as not deductible u/s.40A(2)(b)

r.w.s.37(1) of the Act while computing the business income of the

assessee.

Trustee Mr. Vikram Chavan, the assessee tried to built up a case by

submitting the contribution made by Mr. Vikram Chavan in setting up

the hospital of the trust and referring to various degrees obtained by him

including program completed regarding Hospital Management from

Indian Institute of Management. It was also submitted that the said

Managing Trustee was a man of experience regarding running a hospital

and he was devoting 14 hours a day since 2004 and further receiving

unsecured loan of Rs.15.00 crore @15% per annum by the trust by

giving Personal Guarantee to the Bank of Maharashtra and the said loan

was granted after due permission from the Charity Commissioner vide

order dated 12-04-2006 and these were the fundamental basis regarding

the explanation forwarded by the assessee for making the huge salary

payment to the managing trustee. The assessee has also tried to justify

that even after the sale of the hospital of the assessee trust the services of

the Managing Trustee, i.e. Mr. Vikram Chavan was required since he

was the key person of the trust having full knowledge about the activities

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carried on by the trust since 1987 till date. It was also argued that the

Managing Trustee has disputed the sale transaction by the Bank of

Maharashtra under SARFASI Act and preferred appeal before the Debt

Recovery Tribunal which was further referred to the Debt Recovery

Appellate Tribunal, Mumbai and which was still pending before the said

Tribunal. It was also contended by the assessee that the Board of

Trustees after considering the devotion of the Managing Trustee Mr.

Vikram Chavan had increased his salary from Rs.2.00 lakh per month to

Rs.10.00 lakh per month w.e.f. 01-08-2008. The ld. CIT(A) vide para

No.6.3.2.2 supporting the view of the Assessing Officer observed that

the assessee trust cannot link and adduce its argument of personal

guarantee given for taking loan with interest by the Managing Trustee or

anyone whosoever, with that of the payment of salary to justify the

unreasonableness of such payment of salary. The ld. CIT(A) further

held that if the contention of the assessee are to be accepted then that

would vitiate the very purpose of the provisions of section 13 of the Act.

The restrictions imposed in the said section are not only to be followed

in letter and spirit but the same are deterrent in the nature for a Public

Charitable Trust which are created for the benefit of public at large and

for the said cause its entire income is held as exempt, provided the Laws

and Rules governing the trust under the Act are strictly followed by the

said Trust/Institution. The ld. CIT(A) gives a categorical finding that the

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assessee has failed to defend such huge unreasonable salary paid to the

Managing Trustee at Rs.10.00 lakh per month even after the fact that the

hospital for which such payment was scheduled as per the Trust Deed

and decided in the meeting of the Board of Trustees to be paid had

ceased its working and totally stopped after the auction sale of the same

due to non-payment of loan taken. The ld. CIT(A) held that when the

fact is after the auction of the hospital when there was no charitable

activity performed by the trust and since the hospital was the only source

of the trust for doing charitable activity and when this itself had stopped

working after the auction and more so when the trust ceased to have any

control on the hospital after the auction sale, then it cannot be said from

any reasonable parameter that the salary of Rs.10.00 lakh per month paid

to the Managing Trustee was justified. The ld. CIT(A) also supported

the observations of the AO that litigation before various forums like

Debt Recovery Tribunal and Appellate Tribunal if any would be argued

by the counsels appointed by the trust and not by any employee or the

Managing Trustee. Similarly, the assessee cannot take plea of making

such huge salary payment to Mr. Vikram Chavan merely because he had

absolute knowledge about the affairs of the trust right from the creation

of the hospital till it was auctioned. Infact it is the counsel of the

assessee trust who has to prepare the brief for litigation if any with the

help of the assessee trust. The ld. CIT(A) upheld the view of the ld. AO

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upholding the violation of provisions of section 13(2)(c) r.w.s.13(1)(c)

of the Act. The ld. CIT(A) in his conclusion observed an important fact

also appearing at para D 3.4 of the assessment order wherein it has been

clearly held that even after the auction sale of the hospital the salary

payment which used to be made earlier has not been reduced, which

even continued till date and further in the resolution passed in the

meeting of Board of Trustees “no basis for quantifying the salary @

Rs.10.00 lakh per month had been given”.

payment of salary to Managing Trustee Mr. Vikram Chavan and perused

the relevant material on record. We observe the facts are that here is a

case where the Managing Trustee is being given unreasonable and

excessive salary which was increased from Rs.2.00 lakh per month to

Rs.10.00 lakh per month and the Revenue authorities have examined the

resolution passed by the Board of Trustees regarding this increase and

therein also the reasons have not been brought out stating the

justification and reasonableness of such increase in the salary of the

Managing Trustee given the fact that the property of the trust has been

auctioned and the said trust was doing charitable activity from the

hospital only and after the said hospital was taken over by the Bank of

Maharashtra and auctioned, the assessee trust did not had any control

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thereafter with the operations of the said hospital. Irrespective of the

auction sale of the hospital, the Managing Trustee continued to receive

the same salary and it was definitely not for advancement of any

charitable activity of the trust. When the hospital itself has been

auctioned from which the charitable activities were being performed, in

such, scenario, the assessee could not explain the justification and reason

for payment of such huge salary even after the period of auction and

whether at all these payments were in furtherance of any charitable

activity. The various explanations that has been put forward by the

assesse trying to justify the payment of salary has been with regard to

the association of the Managing Trustee from the very beginning of the

trust, the qualification of the Managing Trustee, the fact that he has

ensured loan for the trust by giving his Personal Guarantee and even

after auction sale and taking over of the hospital by Bank of

Maharashtra, the Managing Trustee had filed appeal before the Debt

Recovery Tribunal etc., has all been verified and examined by both the

ld. AO and the ld. CIT(A) and we do not find any infirmity with the

reasoning forwarded by the Revenue authorities. The exemption u/s.11

can be claimed “in respect of income derived from property held under a

trust wholly for charitable or religious purposes, to the extent to which

such income is applied to such purposes in India, and where any such

income is accumulated or set apart for application to such purposes in

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India. . . . . . . . .”. Therefore, the essential ingredient in claiming

exemption u/s.11 requires that the property held under trust should be

involved in charitable activities and this provision is subject to section

13 of the Act. The Finance Act, 1970 has changed the frame of the

former section 13 and has further widened the scope of the ban therein.

Section 13(1)(c) as substituted and newly re-numbered in 1970 we.f.

01-04-1971 provides that a charitable or religious trust or institution

created or established on or before 01-04-1962 shall forfeit the

exemption u/s.11 if any part of its income ensures to the benefit of any

of the interested persons or any part of its income or property

irrespective of the date of its creation or establishment used and applied

by or for the benefit of any such interested person during any part of the

previous year. What section 13(1)(c) (ii) does is to fetter the exemption

provided by section 11 and to deny it to the assessee who have used or

applied their income for the benefit of any interested person referred to

in section 13(3) of the Act. We also observe that w.e.f. 01-04-1971

provisions of section 13(2) was also inserted to provide that the income

or the property of a trust shall be considered to have been used or

applied for the benefit of the author, founder etc., under certain

circumstances therein enumerated. If any of such circumstances is found

to exist, the benefit of section 11 shall not be available to the income of

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the trust and one such circumstances is the payment of excessive or

unreasonable salary out of the reserves of the trust.

(2003) 259 ITR 280, the Hon’ble Apex Court observed that where the

assessee a charitable institution has lent the substantial amount of money

to the extent of Rs.70.00 lakh to its founder without adequate security

and interest, the assessee lost the benefit of exemption from tax u/s.11 of

the Act as it fall within the mischief of the provisions of section

13(1)(c)(ii) r.w.s. 13(2)(d) and 13(3)(a) of the Act. In the case of Action

for Welfare and Awakening in Rural Environment Vs. DCIT (2003) 263

ITR 13, the Hon’ble Andhra Pradesh High Court held that the finding of

fact recorded by the AO and confirmed by the First Appellate Authority

and the Tribunal to the effect that the assessee has violated the

provisions of section 13(1)(c)(ii) r.w.s. 13(2)(b) and section 13(3)(c)

gave rise to no question of law. The Hon’ble Delhi High Court has held

in the case of CIT Vs. Shriram Memorial Foundation (2004) 269 ITR 35

(Delhi) that the violation of provisions of section 13(1)(c) r.w.s. 13(2) is

essentially a question of fact to be determined on basis of factual

analysis.

or reasonableness in paying Rs.10.00 lakh per month to the Managing

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Trustee even when trust property, i.e. hospital has been auctioned and

sold and the Bank of Maharashtra has taken possession of the said

property. There were no charitable activities that was performed during

the year by the assessee trust for which they can claim that they have

paid such salary to the Managing Trustee. Whatever explanations has

been given by the assessee in defending this issue has already been

analysed by the Revenue authorities in their respective orders and here is

a case where there is violation of the provisions of section 13(1)(c)

r.w.s.13(2)(c) and correctly the exemption u/s.11 has been denied to the

assessee trust on this issue. When there is no charitable activity

conducted by the trust after the acquisition by the Bank of Maharashtra

and sale of auction of the hospital, then there does not arise any need for

the payment of salary at such huge rate to the Managing Trustee. That

even in the Board of Directors decision, the Revenue has rightly

observed that no reason has been specified as to why the salary of the

Managing Trustee was increased from Rs.2.00 lakh per month to

Rs.10.00 lakh per month. All throughout, such salaries have been paid

to the Managing Trustees from the assessee’s trust account for no reason

when there was no charitable activity shown by the trust and therefore, it

cannot be said that such payment was made in furtherance of any

charitable objects of the trust. We do not find any infirmity therefore

with the findings of the ld. CIT(A) nor with the findings of the ld. AO

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and we hold that the Revenue authorities were correct in denying

exemption u/s.11 in respect of violation of the provisions of section

13(1)(c) r.w.s.13(2) of the Act and the disallowance of the excess and

unreasonable salary paid to the Managing Trustee is hereby upheld.

assessee requiring justification for payment of salary to Ms. Pratima

Chavan as Trustee Secretary when infact the hospital work itself has got

discontinued due to the auction of the same. It was replied by the

assessee that the Senior Trustee Dr. Deepak Kirpekar who was looking

after the Marketing and Administration of the hospital of the trust did

not impart his duties for the benefit of the hospital run by the trust and

therefore, his services were terminated vide letter dated 03-05-2008.

The ld. AO in this regard observed that on perusal of 26AS statement of

Dr. Deepak Kirpekar, he had received professional fees for rendering of

professional services as a Doctor. Therefore, the version of assessee that

services of Dr. Deepak Kirpekar who was looking after the Marketing

and Administration of the hospital was terminated did not seem to be

correct proposition to the AO. The assessee was also not able to justify

before the ld. AO as to the specific work attended by the Trustee

Secretary, i.e. Ms. Pratima Chavan regarding the payment of salary to

her post auction sale. The ld. AO further observed that the process of

auction of hospital was commenced in the F.Y. 2008-09, i.e. 23-01-2009

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whereas Smt. Pratima Chavan was appointed on August 2008. The

public auction notice was published in the Newspaper on 24-05-2010.

For the auction, the registered Sale Deed was executed on 18-08-2010

and the possession of the hospital was handed over to the buyer. Even

before, some of the employees resigned on 15-07-2010. There were

hardly any receipts of the hospital for the year under consideration. It

has been stated that the Trustee Secretary Ms. Pratima Chavan was

appointed as Director (Marketing Services). During the year under

consideration, there was no question of Marketing and rendering

services and thus for her job profile, there was no working after the

auction of the hospital. The ld. AO, therefore, held the payment of

salary to the Trustee Secretary upto 15-07-2010, on which date all the

employees of the trust had resigned, at Rs.3,50,000/- which was held as

reasonable and the remaining amount of Rs.8,50,000/- the ld. AO held as

infringement of the provisions of section 13(1)(c) of the Act. This

amount, therefore, was disallowed and added to the total income. The

ld. CIT(A) at para No.6.3.4 gives a specific finding that neither before

the AO nor before him the assessee could prove or establish as to what

necessitated such huge payment of salary to the Trustee Secretary Ms.

Pratima Chavan when all other employees had either resigned or their

services were terminated before the auction sale of the hospital. The ld.

CIT(A) further held that the contention raised by the assessee at the First

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Appellate stage that Ms. Pratima Chavan had her expertise and

experience in Training and Hospital administration, these were nothing

but self-explanations in order to defend the unreasonable and excessive

payment of salary to her. Infact, the hospital had ceased its operation

and totally stopped after the auction sale of the same on 18-08-2010.

When all employees had resigned or their services were terminated from

the assessee trust, there was no basis for retaining the services of Ms.

Pratima Chavan, Trustee Secretary of the trust. Before the Bench also,

the ld. AR failed to establish the reason for payment of such

unreasonable and excessively huge salary to the Trustee Secretary when

the hospital of the trust itself ceased to exist and operate after the auction

sale on 18-08-2010. Admittedly, all other employees have also resigned

or their service were terminated. The observations of the ld. CIT(A) that

when this has happened then what was the reason for continuing the

services of the Trustee Secretary Ms. Pratima Chavan when infact with

the auction sale of the hospital there were no charitable activities left for

the assessee trust to be performed and when there has been no activities

then what could have been the functions of the Trustee Secretary

demanding such huge payment of salary to her. These payments do not

commensurate to the services rendered by the Managing Trustee and the

Trustee Secretary who are the interested persons u/s.13(3) of the Act.

Both the ld. AO and the ld. CIT(A) has in detail demonstrated that

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whatever activities have been stated to have performed by them were

only in paper but nothing in reality and the ld. AR could not produce any

document/evidence to refute the facts brought out by the Revenue

authorities on record. We do not find any infirmity with the findings of

the ld. CIT(A) on this issue also and therefore, the addition made in

respect of excess salary paid to the Trustee Secretary, i.e. Pratima

Chavan and as disallowed and added to her total income, is upheld.

Hon’ble Allahabad High Court in the case of Vijeta Educational Society,

Lucknow in ITA No.132/2006 judgment dated 17-08-2011 wherein the

Hon’ble High Court upheld the action of the AO in concluding that the

assessee while giving interest free loan to one Mr. C.P. Singh had

violated the provisions of section 13(1)(c) of the Act and have also given

loan without any adequate surety which was in violation of section

13(2)(a) of the Act. In these circumstances, the Hon’ble Court held that

the AO had rightly denied exemption to the assessee u/s.11 of the Act.

We, therefore, hold that the excess payment of salary paid to the

Managing Trustee as well as Trustee Secretary has been in violation with

section 13(1)(c) r.w.s. 13(2)(a) of the Act and the Department had

rightly denied the exemption u/s.11 of the Act to the assessee trust.

21 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

16-11-2010 even after when the hospital has been auctioned and sold on

18-08-2010, it has been held by both the ld. AO and the ld. CIT(A) that

in the facts and circumstances there has been mis-utilization of the trust

fund/income for the personal benefit of the Managing Trustee and the

Trustee Secretary. The ld. AO had observed that after auction sale of the

hospital on 18-08-2010 there was virtually no activities remained to be

done by the trust since the only way the trust was doing charitable

activity was through the said hospital and once that was auctioned on

18-08-2010, thereafter, there was no charitable activities that was

performed by the trust. At this point of time, there were only five

employees of the trust apart from the two interested persons u/s.13(3) of

the Act, i.e. Mr. Vikram Chavan and Ms. Pratima Chavan. Therefore,

there was no justification for purchase of Mercedes Benz car at a cost of

Rs.89.00 lakh and incurring expenditure on fuel at Rs.2,46,096/- when

infact the receipts of the hospital for the year were only Rs.2,10,951/-

and that the assessee was not able to prove whether this vehicle which

was purchased after the auction sale was used in furtherance of any

charitable activity of the trust or not. The assessee also could not

produce the log book of the vehicle to substantiate before the department

regarding the utilization of the vehicle for the objects of the trust. The

hospital of the trust was auctioned for non-payment of banks due’s and

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therefore, the trust had destroyed its reputation as a defaulter in repaying

the bank loan and thereafter there was no possible justification in

making such substantial expenses towards the cost of the Mercedes Benz

car. It was also observed by the ld. AO that this Mercedes Benz car was

sold during F.Y. 2011-12 relevant to A.Y. 2012-13 after an accident that

had occurred and the Managing Trustee in his individual capacity had

again purchased another Mercedes Car worth Rs.86.00 lakh and used the

same for his purpose. The Revenue authorities in their respective

findings have in detail examined the entire facts on this issue and have

held that the reasoning given by the assessee for purchase of this vehicle

is absolutely baseless and devoid of merits. The CIT(A) has held that it

is unwanted proposition to purchase a costly car on

16-11-2010 when the auction sale of the hospital was itself done on

18-08-2010. Therefore, it signifies that the vehicle was not purchased

for furtherance of any charitable activity or the objects of the trust. The

assesee was also not able to prove that the vehicle was used for

furtherance of any charitable activity of the trust. When the receipts of

the hospital for the year was Rs.2,10,951/- then purchasing the vehicle

worth Rs.89.00 lakh and incurring fuel expenses at Rs.2,46,096/- is

nothing but mis-utilization of the trust funds/income for the benefit of

the interested persons, i.e. Mr. Vikram Chavan, Managing Trustee and

Ms. Pratima Chavan, Trustee Secretary and accordingly the ld. CIT(A)

23 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

upheld the disallowance of exemption u/s.11 invoking the provisions of

section 13(2) r.w.s. 13(1)(c) of the Act.

requirement for purchase of the Mercedes Benz car even after the

auction sale of the hospital. The ld. AR also failed to substantiate by any

document or evidence whether the said vehicle was used for any

furtherance of the charitable objects of the trust. Admittedly, when this

vehicle was purchased the auction sale of the hospital has already been

taken place. It is further the fact that through this hospital only the trust

was performing its charitable activity. When this hospital was sold,

thereafter, there was no need to purchase any vehicle so to say that it was

for furtherance of the charitable objects of the trust. The assessee also

failed in every stage to reasonably explain the purchase of the vehicle

and the running cost of such vehicle vis-à-vis the charitable objects of

the trust. We, therefore, uphold the decision of the ld. CIT(A) in

disallowing the exemption u/s.11 invoking the provisions of section

13(1)(c) r.w.s. 13(2) of the Act.

Tour both by Mr. Vikram Chavan, Managing Trustee and Ms. Pratima

Chavan, Trustee Secretary respectively amounting to Rs.3,77,238/- as

observed by the ld. AO in para Nos. 6.1. to 6.3.5 of the assessment

order. The ld. CIT(A) on this issue had held at para No.6.3.6 that there

24 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

was no necessity of incurring such expenditure on account of Foreign

Tour when the assessee trust had stopped running of the hospital due to

transfer of the same to the buyer on auction sale vide sale deed dated 18-

08-2010. The ld. CIT(A) further held that whatever submission was

placed before him was reiteration of the submissions already made

before the AO and accordingly he held that these expenses were incurred

for personal tour of the said two interested persons of the trust covered

u/s.13(3) of the Act. The same was nothing but diversion of trust

fund/income within the provisions of section 13(1)(c) r.w.s.13(2) of the

Act as the amount was paid by way of “otherwise” for their benefits

which has apparently no nexus with the furtherance of the objects of the

trust as claimed by the assessee. The assessee was also not able to

furnish any evidence in respect of certain payments and VISA stamping

of UAE and in the documents concerned the profession of Mr. Vikram

Chavan was mentioned as a “Businessman” which has nothing to do

with the charitable activities of the trust and was concerned in the

“Trading activity” other than Medical field. Even before the ld. CIT(A),

the assessee could not produce any evidence to demonstrate that this

foreign tour undertaken by Mr. Vikram Chavan, Managing Trustee and

Ms. Pratima Chavan, Trustee Secretary, after the hospital activities

ceased to exist due to sale of the hospital on auction sale, was carried out

for furtherance of the charitable objects of the trust. Accordingly, the ld.

25 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

CIT(A) upheld the denial of exemption u/s.11 for violation of section

13(2)(c) r.w.s.13(1)(c) for the diversion of trust income for the benefit of

persons covered u/s.13(3) of the Act as made by the AO.

placed before the subordinate authorities. However, he could not justify

the reasons for undertaking of the foreign tour in furtherance of the

objects of the trust by the Managing Trustee and the Trustee Secretary.

Admittedly, the trust hospital has been sold through auction and

therefore, there is no reasonableness involved in incurring the expenses

on foreign tour by saying that the same was to further the charitable

objects of the trust. We further observe that, in the decision of Vijeta

Educational Society (supra), the Hon’ble High Court has held that in

view of section 13(1)(c) even if only part of income was directed to be

applied for the benefit of specific person, then it would render the entire

income of the trust or charitable institution liable to tax. Further, the

legislature, however, also creates a fiction and enumerates in clause (a)

to (h) of sub-section (2) of section 13 the list of circumstances in which

the income shall be deemed to have been used or applied for the benefit

of specified person. These clauses encompasses various types of benefit

such as by way of interest free loans, loans without security, permission

or license to use land or other property without charging adequate

26 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

recompense, excessive payment for services, sale of property for

identical consideration and investment of trust fund in concern

belonging to specified person or in which he has substantial interest.

Reverting to the facts of the present case, there has been payment of

excessive salary to the Managing Trustee Mr. Vikram Chavan, there has

been payment of excessive salary to the Trustee Secretary Smt. Pratima

Chavan, and the trust funds have been used in activity where these

interested persons were only benefitted, has already been observed in the

preceding paragraphs with the purchase of high end Mercedes Benz car,

undertaking foreign tour, all these were nothing but for the benefit of the

said interested persons. Noting has been done in this regard so to say

that it was for the furtherance of the objects of the trust or it was for

serving any charitable purpose of the trust. We do not find any infirmity

with the findings of the ld. CIT(A) and the AO that due to violations of

section 13(2)(b)/ r.w.s. 13(1)(c) of the Act for making payment of

excessive salary to the Managing Trustee and the Trustee Secretary and

further due to mis-utilization of trust funds for purchase of Mercedes

Benz car and undertaking foreign tour by them, the benefit of exemption

u/s.11 has been denied. Once the assessee ceased to get the exemption

u/s.11, income of the assessee was required to be computed following

the various charging provisions of the Act. Ground Nos. 1 and 2 of the

assessee are dismissed.

27 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

to have allowed the claim of the assessee to the extent of income from

activities in compliance with the provisions of section 11, 12 and 13 of

the Act and that the AO ought to have charged the tax at Minimum

Marginal Rate (MMR) only on the alleged income which infringe

section 13 of the Act. In this regard, the assessee has placed detailed

written submission before the CIT(A) which is on record. The ld.

CIT(A) after considering the assessment order and the submissions of

the assessee held as follows :

“7.3 I have perused the submission of the appellant regarding its contention that when there was violation of the provision of section 13(1)(c) or 13(1)(d) of the Act, the maximum marginal rate of income tax will apply only to that part of the income which has forfeited exemption under the said provisions and not to the entire income. I find that the appellant trust has diluted the provisions of section 13(1)(d) and sections 13(2) r.w.s. 13(1)(c) of the Act for making an unwarranted claim. It is seen from the quoted submission that while deciding the cases. (i) DIT (Exemption) V/s Sheth Mafatlal Gagalbhai Foundation Trust (2001) 249 ITR 533 (Bom); (ii) CIT V/s Fr. Mullers Charitable Institutions 363 ITR 230 (Kar.) and (iii) CIT Vs. Working Women’s Forum [2015] 53 taxmann.com 85 (Mad), the Hon’ble Courts clearly had taken the view that only respect of the violation of section 13(1)(d) of the Act for non depositing of funds / income as per the specified modes as prescribed u/s 11(5) of the Act, the denial of exemption should be restricted to the portion of the income/receipt which has been earned out of such investments in non-specified modes. This violation of section 13(l)(d) has nothing to do with the violation of section 13(l)(c) of the Act. The violation of section 13(l)(c) r.w.s. 13(2) of the Act is only for diversion of income / funds of the trust for the benefit of the interested persons as provided in section 13(3) of the Act and that too for various nature of violations as prescribed u/s 13(2)(a) to 13(2) (h) of the Act. Therefore, if any fund / income is applied / incurred for the benefit of such persons and not for objects of the trust as prescribed in the trust

28 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

deed, the same would tantamount to diversion of income / fund for the benefits of the said interested persons and entire income/ receipts shall forfeit the exemption, barring allowing the administrative or establishment expenses. It may clearly be seen from the citations relied upon by the appellant that the said cases had fully dealt with the violation of section 13(l)(d) due to investment of Trust fund to the non- specified modes other than as specified in section 11 (5) of the Act. The said decisions had decided that for such violation in respect of deposits to modes other than as specified in section 11(5), only the income pertaining to such investments would be qualified for denial of exemption u/s. 11 of the Act and in respect of other income, the appellant would be entitled to get the benefit of exemption u/s. 11 of the Act. There is no iota of connection of the interested persons u/s 13(3) of the Act which could attract infringement of section 13(l)(c) with that of the provisions of section 13(l)(d) of the Act. The benefit of exemption u/s 11 was denied in the case of the appellant due to violation under section 13(l)(c)/13(2) and, therefore, such partial disallowance in no case is permitted under the Act. In other words, in case of violation u/s 13(l)(c) r.w.s 13(2)(a) to (h), the assessee is to forfeit the benefit of exemption u/s 11 of the Act of its entire income barring the Administrative Expenses for earning the income and running the trust, which are only to be allowed. The application of income towards the objects of the trust and also the capital expenditure shall be denied. In connection with my aforesaid contention, it is pertinent to mention the very purpose of substituting the new section 13 by the Finance Act, 1970, w.e.f., 1st April, 1971. It is not necessary to quote extensively the objects and reasons for substituting the new section 13. However, relevant para may be reproduced from the objects and the reasons for the purposes as below:- “Under one of the proposed amendment, all charitable or religious trust or institutions created or established after 31st March, 1962, will be denied the benefit of exemption from Income Tax if any part of their income or property enures or is, during the previous year, applied directly or indirectly for the benefit of the author, founder, substantial contributor or relative has substantial interest. In the case of the trust or institutions created or established before the 1st April, 1962, the exemption from tax will be denied if their income is applied for the benefit of the author, founder, etc., otherwise than in compliance with a mandatory term of the trust or a mandatory rule governing the institution.” 7.4 The above clearly states the purpose for enactment of new section 13 of the Act. Reference may also be made in certain judicial decisions wherein the total exemption u/s.11 & 12 of the Act was denied by the AO for infringements of provisions of section

29 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

13(2)/13(l)(c), which were also confirmed by the Hon’ble Courts. The same are as below : 1. Kanhya Lai Punj Charitable Trust Vs. DIT (Exemption), Delhi, 297 ITR 66 (Del) a) Once the exception u/s. 11 &12 is withdrawn for violation of section 13(l)(c)/ 13(3) /13(2), all the receipts of the trust either by voluntary contribution or income derived from its property would be an income of the trust in the normal course and is chargeable to tax. b) Money advanced without charging interest to interested persons, there is violation u/s. 13(3)/13(l)(c)/13(2)(a) of the Act. The Trust is not entitled to exemption u/s. 11.

In this case, a part of the trust income was being used directly or indirectly for benefits of its Founders and Managing Directors. It was held that the Trust was not entitled to exemption u/s. 11 Or Sec. 10(22) of the Act.

In this case, the assessee Trust had granted interest free loan to its Manager without any surety. The Court held that the same was within the mischief of violation of section 13(l)(c)/13(2)(a). Therefore, entire income of the trust was liable to be taxed even if

30 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

only part of income was applied for the benefit of the specified person u/s. 13(3). 6. CIT Vs. Audh Educational Society , 202 Taxman 166 (All) In this case advance was given to the interested person (Treasurer) as prescribed u/s. 13(3) of the Act without any security. No details of interest rate were given. The Hon’ble Court held that there violation of section 13(3)/13(l)(c) and hence the society was not entitled to exemption u/s. 11 7. CIT Vs. Rattan Trust, 227 ITR 256 (SC) Proviso to section 13 of the I.T. Act and section 21A of the WT Act lays down that exemption will not be denied if part of the income is applied for benefit of a person referred to section 13(3) of the Act, if such use for application is in compliance to mandatory terms of the Trust which was created before 1.4.1962. The said mandatory terms in Trust deed should have existed before 01.04.1962. Any subsequent amendment of Trust Deed in this regard would not help the assessee to entitle it exemption u/s. 11 of the Act. 7.5 The above case otherwise says that the Trust willlose the benefit of exemption u/s. 11 of the Act, in totality if there was any diversion of income to the benefit of the interested persons u/s. 13(3) of the Act.

7.6 In view of above, I do not find any merit in the claim of the appellant regarding partial disallowance of its income as claimed in the letter dated 20/12/2017, thereby restricting the maximum marginal rate u/s. 164(2) of the Act on such amount pertaining to which violation was established u/s. 13(2) r.w.s. 13(l)(c) of the Act. The appellant is required to be taxed at the maximum marginal rate u/s. 164(2) of the Act on its income as has rightly been done by the AO in the assessment order. No interference in AO’s order is called for. The issue raised without mentioning any ground in the letter dated 20/12/2017 and ground No.3 is, therefore, rejected, thereby confirming the findings of the Assessing Officer.”

out the purpose of substituting new section 13 by the Finance Act, 1970

w.e.f. 01-04-1971. The purpose was that all charitable or religious trust

31 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

or institution created after 31-03-1962 will be denied the benefit of

exemption from income tax “if any part of their income during the

previous year applied directly or indirectly for the benefit of the author,

founder,. . . . . . . . or for the benefit of any concern in which such author,

founder has substantial interest”. The exemption from tax will be denied

if the income of the trust is applied for the benefit of the author, founder

etc. This proposition was further emphasized by the CIT(A) through

various pronouncements which finds place in his order and in totality in

all these decisions it has been held that if there is any diversion of

income of the trust for the benefit of interested person u/s.13(3) of the

Act in such a case, the benefit of exemption u/s.11 will be disallowed.

The Revenue has already established that there has been a violation with

regard to section 13(2) r.w.s.13(1)(c) of the Act and we have also

examined in the preceding paras justifying the stand of the Revenue for

denial of exemption u/s.11 of the Act to the assessee trust. We are of the

considered view therefore that the assessee is required to be taxed at

Maximum Marginal Rate u/s.164(2) of the Act on its income as had

been held by the ld. CIT(A). We, therefore, do not find any infirmity

with the findings of the ld. CIT(A) in this regard which is therefore

upheld. Ground Nos. 3 and 4 of the assessee are dismissed.

32 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

under the head capital gains. The assessee disputes the computation of

long term capital gain of Rs.1,57,64,680/- and short term capital gain of

Rs.29,77,91,095/-.

20.1 The brief facts on this issue are that as noticed from para G.2

regarding computation of long-term capital gains in respect of Hospital

sold on auction, the AO asked the assessee to justify the opening WDV

as on 01-04-2010 shown by the assessee trust in the balance sheet at

Rs.1,86,12,000/- in respect of the land. The assessee submitted that the

impugned land was purchased much before 01-04-1981 and trust had

received the land as donation towards corpus fund on 17-08-1998 and

hence the assessee was not in possession of the purchase deed. The value

appearing in the balance sheet was considered as the market value of the

trust in the year 1998. The AO noticed that the property was auctioned

by the Bank of Maharashtra during this year, which consisted of land as

well as hospital building / equipments etc. As the value of the land as on

01-04-1981 was not known either by the assessee or the AO, the AO had

issued a notice u/s. 133(6) of the Act to the Joint District Registrar

(Valuation Wing) on 20-03-2014 for furnishing the rate per sq.ft, for the

year 1989 in respect of above property and total value of the property for

the said year and further the rate per sq.ft, for the year 2010 along with

the total value of the property for the said year. The AO found from the

33 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

information brought on record that as per ready reckoner rate available

as on 01-01-1989, for per sq.mtr of land at Gokhale Nager Road, Shivaji

Nagar, Pune was Rs.2,500/- per sq.mtr. As per Circular of Town

Planning & Valuation Division dated 03/10/1989, the value for the year

1981 was to be adopted @ 40% of the value as on 01-01-1989. The AO,

thereafter, adopting the said rate, had computed the cost of land as on

01/04/1989 as below

S.No. Description Open land admeasuring 40000 Sq.ft, in Gokhale Nagar Road, Pune (3717 1. SM) 2. Value as on 01.01.1989 as per Assistant Director, Town Planning, Valuation Division, Pune is Rs.2500/- per sq. mtr. (i.e. Rs.232 per sq. ft) 3. Value as on 01.04.1981 is being adopted @ 40% of the value as on 01.01.1989 4. Value of the land determined as on 01.04.1981 @ Rs.93/- per sq.ft X 400000/- = Rs.37,20,000/-. 5. Indexed cost of acquisition (FY 2010-2011) Rs.37,20,000/- X 711/100 = Rs.2,64,49,200/-.

20.2 The AO, similarly, found that the value of the land as on

01-01-2010 was Rs.4,22,13,880/- as per the procedure of valuation

for the purpose of stamp duty adopted by the State Govt., thereby

working the same as below :

S.No Description . 1. Value as on 01.01.2010 as per Asstt. Director, Town Planning, Valuation Division, is Rs. 13,300/- per Sq.mtr (i.e. Rs.1236 per Sq.ft) (Area 3717.47 sq.mt) 2. Value as on 01.01.2010 is being adopted as under: For first 2000 sq.mtr. (90% of Rs.13,300/ ) i.e. (2000 X .9 + 1717.47 X .8) 13300= Rs.4,22,13,880 3. Value of the land determined as date of sale : Rs.4,22,13,880/-

34 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

20.3. The AO, thereafter, in para G.2.4 had worked out the

income from Long term capital gains in respect of the said land

portion as below :

S.No. Description Amount in Rs. 1. Rs.4,22,13,880/- Sales consideration adopted as per para G.2.3 2. Less: Indexed Cost of acquisition Rs.2,64,49,200/- 3. Long Term Capital Gain Rs.1,57,64,680/-

20.4. Accordingly, in para G.2.5, short term capital gains in

respect of Depreciable asset was computed by the AO as

below:-

S.No. Description Amount in Rs. 1. Sales consideration adopted (Rs.68,00,00,000/- Rs.63,77,86,120/- minus Rs.4,22,13,880/-) 2. Less: Opening WDV of assets of same block (33,99,95,025) excluding Vehicle WDV and Land WDV 3. Short Term Capital Gain chargeable to Tax 29,77,91,095

20.5. In the computation of total income at page no.25 of the

assessment order, the total income was computed by the AO at

Rs.28,66,11,047/- and taxed the same at the normal rates and the income

of Rs. 1,19,22,193/- which had violated the provision of section 13 of

the Act was taxed at the maximum marginal rate u/s. 164(2) of the Act.

The total taxes and interest payable was determined at

Rs. 12,94,61,945/- and thereafter giving credit to prepaid taxes of

Rs.5,71,816/-, the net tax demanded at Rs. 12,88,90,130/-.

35 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

20.6. The assessee had also submitted detailed written submission on the

issue before the ld. CIT(A) which finds place in his order. The ld.

CIT(A), after considering the assessment order and the submissions of

the assessee on the issue of capital gains, upheld the findings of the ld.

AO by observing that the assessee had referred to the provisions of

section 11(1A) of the Act for taxing income from capital gain of a

charitable trust transferring a capital asset held for charitable purpose

contending that if the consideration is invested in acquiring another new

capital asset it would qualify for exemption, since it is deemed to have

been applied for charitable purposes and further that there is no

provision for computing the period of holding in case of trust and

therefore, the sale of asset by the trust cannot be distinguished between

long term capital gain and short term capital gain. Thereafter, the ld.

CIT(A) at para 7.3 held that the submissions of the assessee are devoid

of merits. The benefit of exemption u/s.11 of the Act had been denied to

the assessee trust for violation of the provisions of section 13(2)

r.w.s.13(1)(c) of the Act for diversion of the income of the trust for

benefit of the interested persons u/s.13(3) of the Act. In such

circumstances, the AO had to compute the income of the assessee in the

status of normal AOP, without considering the assesee’s income, be it a

hospital receipt as income from business and be it sale of land and

36 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

hospital as income from capital gains, thereby invoking the respective

charging provisions of the Act. The ld. AO has done exactly the same

and there was no deviation from the principles of computation of total

income with regard to the respective charging provisions of the Act. The

AO had computed income from short term capital gain and long term

capital gain on account of sale of property in the form of land and

hospital after strictly following the provisions of the Act. The addition

was, therefore, upheld.

us that the hospital property of the assessee trust was auctioned at

Rs.68.00 crore by the lender Bank of Maharashtra. After the repayment

of outstanding loan of Rs.28,88,38,998/-, the Bank of Maharashtra

returned the balance amount after withholding Rs.2.00 crore to the

assessee. After paying of the bank loan and other liability, the excess

Rs.13.00 crore was invested in fixed deposit with State Bank of Mysore.

The construction of the hospital building and acquisition of various

machinery was made by taking loan from banks and Managing Trustee

after taking necessary approval of the charity commissioner. Hence,

repayment of such loan is regarded as application of the income for

charitable purpose.

37 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

that admittedly the assessee trust has been denied exemption u/s.11 of

the Act for violation of the provisions of section 13(2) r.w.s.13(1)(c) of

the Act for diversion of the trust funds for benefit of interested persons

u/s.13(3) of the Act. We have already examined during the course of

this order that whether it is excess payment of salary to the Managing

Trustee Mr. Vikram Chavan, whether it is excess payment of salary to

the Trustee Secretary Ms. Pratima Chavan, whether it is purchase of

Mercedes car and its running expenses and whether going on foreign

tour have neither been for charitable purposes or in furtherance of

charitable objects of the trust. We have observed that nothing has been

proved by the assessee that these were done in furtherance of the

charitable objects of the trust rather the Department has extensively

verified the facts and we are convinced as held by us in the preceding

paras that there has been mis-utilization of funds of the trust for benefit

of interested persons and the trust has not performed any charitable

activity or any activity in furtherance of charity to justify its claim for

exemption u/s.11 of the Act. When there is violations of provisions of

section 13 and there has been mis-utilization of trust funds only for

benefit of interested persons of the trust, the exemption u/s.11 has been

rightly denied to the assessee trust. It is in this factual scenario the ld.

CIT(A) had held that the assessment has to be done regarding the

38 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

assessee as normal AOP and the charging provisions of the Act has to be

applied. Therefore, the AO has applied while computing the income of

the assessee as AOP from short term capital gain and long term capital

gain on account of sale of property in form of land and hospital strictly

following the provisions of the Act. This finding of the ld.CIT(A) is

well reasoned based on the facts of the case. However, before us, the

assessee has submitted that they had taken loan from bank and from

Managing Trustee for construction of hospital building and acquiring

various machinery following due procedure of law and therefore,

repayment of such loan is to be regarded as application of income for

charitable purposes. This requires detailed factual verification at the

level of the AO to see and verify the contention of the assessee vis-à-vis

the facts of the case. In the interest of justice, we set-aside the order of

the ld. CIT(A) on this issue and remand the matter to the file of AO for

re-adjudication while complying with the principles of natural justice.

Ground No.5 is allowed for statistical purposes.

unabsorbed expenses and depreciation from earlier year against the

income so assessed should be allowed. In this regard, it is the contention

of the assessee that the income derived from the trust property has also

got to be computed on commercial principles. If commercial principles

are applied, then adjustment of expenses incurred by the trust for

39 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

charitable and religious purposes in the earlier year against the income

earned by the trust in the subsequent year will have to be regarded as

application of income of the trust for charitable and religious purposes in

the subsequent year in which adjustment has been made having regard to

the benevolent provisions contained in section 11 of the Act and that

such adjustment will have to be excluded from the income of the trust

u/s.11(1A) of the Act.

the funds have been utilized for the benefit of interested persons of the

trust and that there has been no activity of charitable nature performed

by the trust. The charitable objects for which the trust has been formed,

ceased to exist after the sale of the hospital and taken possession by the

buyer. Whatever expenses were incurred namely, the excess salaries

paid to the Managing Trustee and Trustee Secretary etc., are all

application of the trust funds for the personal benefit of the interested

persons. Therefore, the exemption u/s.11 of the Act has been rightly

denied to the assessee and the assessee has been assessed as AOP by the

department. In such background, the sanctity and validity of the

argument forwarded by the assessee as aforestated does not come into

picture. This is because there has to be some activity done by the

charitable trust so as to further the charitable objects of the trust. In this

case, the only charitable activity that was performed by the assessee was

40 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

through the hospital which itself was auctioned and sold as per sale deed

dated 18-08-2010. Thereafter, the trust has incurred huge expenses in

form of payment of excessive salary, purchase of high end vehicles,

foreign tour of the Managing Trustee and Trustee Secretary and none of

these activities are held to be for the charitable purposes for which the

assessee trust has been formed. Therefore, it is difficult at this stage by

this Bench to analyse the argument of the trust that the expenses incurred

for charitable and religious purpose in earlier year against the income

earned by the trust subsequent year will have to be regarded as

application of the income of the trust for charitable or religious purposes.

To our understanding, when there has been no activity for charitable

purposes conducted by the assesse trust, this argument on the very face

of it does not have any legal basis for its sustenance. However, since

income-tax is a Welfare Legislation in the interest of justice, this issue

may be examined by the ld. AO. In view thereof, we set-aside the order

of the ld. CIT(A) on this issue and remand the same to the file of ld. AO

for re-adjudication while complying with the principles of natural

justice. Ground No.6 is allowed for statistical purposes. Grounds of the

assessee are partly allowed for statistical purposes.

41 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

statistical purposes.

Order pronounced in the Open Court on 14th December, 2022.

Sd/- Sd/- (R.S.SYAL) (PARTHA SARATHI CHAUDHURY) VICE PRESIDENT JUDICIAL MEMBER पुणे Pune; �दनांक Dated : 14th December, 2022 Satish

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT(A) -Concerned 4. The Pr.CIT concerned िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “B” / 5. DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 6.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

42 ITA No.928/PUN/2018 Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

Date 1. Draft dictated on 05-12-2022 Sr.PS 2. Draft placed before author 13-12-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.