DCIT(EXEMPTIONS)-1(1), MUMBAI, MUMBAI vs. ADITYA BIRLA FOUNDATION, MUMBAI

4 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation section 13(2)(a) and (b) of the Act on the ground that the hospital building and staff quarters belonging to the trust had been made available for use by a concern in which the trustees and their relatives were substantially interested, without charging adequate rent. He further held that Aditya Birla Health Services Ltd. had an incentive to increase its profits by paying lower lease rent to the assessee trust, resulting in lower income available to the trust for charitable purposes and higher profits to the lessee company. The Assessing Officer also observed that the approval granted by the Charity Commissioner for leasing out the hospital property did not validate the lease rent from the perspective of the Income- tax Act. 9. In the earlier assessment year, reference had been made to the District Valuation Officer to ascertain the fair market rent of the hospital property and staff quarters. The District Valuation Officer determined the annual fair rental value at Rs. 6,62,36,208/-. Relying on the said valuation, the Assessing Officer in both the years under consideration adopted notional rent in place of the actual rent received by the assessee from Aditya Birla Health Services Ltd. and alleged that the assessee had charged inadequate rent from a related concern. 10. In addition, the Assessing Officer recorded adverse observations regarding the genuineness of the activities of the trust and alleged that the entire arrangement of leasing out the hospital to a group concern was a colourable device and a scheme of tax planning, whereby corpus donations were collected

5 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation from group concerns, hospital property was constructed, and thereafter leased to a related entity at low rent. 11. For both the years under consideration the assessments were completed u/s 143(3) of the Act. The year-specific details are summarised in the following table: Particulars A.Y. 2016–17 A.Y. 2017–18 Date of filing return of 04.10.2016 31.10.2017 Income Date of assessment order 27.12.2018 25.12.2019 u/s 143(3) Rent declared by assessee Rs. Rs. 4,20,00,000/- 4,09,11,870/- Rent adopted by AO Rs. Rs. 6,62,36,208/- 6,95,48,018/- Total income assessed Rs. Rs. 4,01,44,154/- 3,77,73,813/- 12. The assessee preferred appeal before CIT(A) in case of both the years. The CIT(A) after considering the assessment orders and the submissions of the assessee, held that the assessee had not violated the provisions of section 13(2)(b) read with section 13(3) of the Act. He recorded a finding that Aditya Birla Health Services Ltd. could not be regarded as a concern in which the specified persons had substantial interest in the manner contemplated by section 13(3).The CIT(A) further held that the Assessing Officer was not justified in adopting notional rent in place of the actual rent received by the assessee and that the substitution of actual rent by the fair rent estimated by the District Valuation Officer was not permissible.

6 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation 13. On these findings, the CIT(A) held that denial of exemption under section 11 of the Act was not justified and accordingly deleted the additions made by the Assessing Officer and allowed the assessee’s claim of exemption under section 11 for both the years.

Grounds of Appeal in ITA 7608/MUM/2025 for A.Y. 2016–17

7 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee’s claim of exemption of Rs. 29,33,333/- being the interest income accrued but not received during the previous year when as the assessee followed the mixed system of accounting i.e. cash system for receipts and mercantile system for expenses without appreciating the fact that the assessee is a company registered u/s 25 of the Companies Act, 1956 and was statutorily required to follow mercantile system of accounting. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee’s claim without appreciating that the auditor in its report in accounting policies and notes to accounts has specifically mentioned that the foundation follows mercantile system of accounting and recognizes income and expenditure on accrued basis except leave encashment liability which is accounted on payment basis. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee’s claim of accumulation of income u/s 11(1)(a) without appreciating the fact that in the return of income & form 10B, deficit has been claimed leaving no scope of accumulation u/s 11(1)(a) of the I.T. Act. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to allow assessee’s claim of accumulation of income u/s 11(1)(a) without appreciating that once the assessee was hit by section 13(1)(c) and 13(2)(a) & (b) of the Act, exemption u/s 11 of the Act, including benefit of exemption u/s 11(1)(a) could not be allowed. 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee’s claim of expenditure amounting to Rs. 27,69,586/- without appreciating the facts that the assessee had violated the provisions of section 13 by making lease rent to ABHSL wherein trustees are substantially interested and hence the assessing officer had denied the exemption u/s 11 to the assessee. 9. The appellant craves leave to add, amend, alter vary and/or withdraw any of the grounds of appeal.

8 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation Grounds of Appeal in ITA 7608/MUM/2025 for A.Y. 2017–18

9 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation 6. The appellant craves leave to add, amend, alter vary and/or withdraw any of the grounds of appeal. 15. The learned Authorised Representative (AR) made submissions before us in accordance with the grounds of appeal and reiterated the contentions raised before the lower authorities. He supported the impugned orders of the CIT(A) and prayed that the issues be decided in favour of the assessee in terms of the respective grounds. On Grounds relating to Denial of exemption under section 11 and lease rent issue (Ground No. 1 to 3 in both the years) 16. The learned AR submitted that the issue relating to denial of exemption under section 11 on the ground that Aditya Birla Health Services Ltd. is a related party within the meaning of section 13(3) and that the lease rent charged is not adequate, is a recurring issue starting from A.Y. 2011–12. It was submitted that in assessee’s own case, the CIT(A) in earlier years as well as the Co-ordinate Bench have consistently held that Aditya Birla Health Services Ltd. is not a related party within the meaning of section 13(3) and that the provisions of section 13 are not attracted. It was further submitted that once section 13 is not attracted, the question of substituting actual rent by notional rent does not arise. It was accordingly contended that the issue is squarely covered in favour of the assessee by the orders of the Tribunal in earlier years and, therefore, the orders of the CIT(A) for the years under appeal do not call for any interference.

10 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation On Grounds relating to Interest income accrued but not received (Ground Nos. 4 and 5 for Assessment Year 2016–17) 17. The learned AR submitted that interest income of Rs. 29,33,333/- pertaining to earlier year was received during A.Y. 2016–17 and was offered to tax on receipt basis, as the assessee had consistently followed cash system for interest income. It was submitted that the Co-ordinate Bench in earlier years had held that interest is taxable on accrual basis but had simultaneously issued directions to avoid double taxation of the same income. It was contended that if interest income is to be taxed on accrual basis in earlier year, then the same interest income offered on receipt basis in A.Y. 2016–17 should be excluded, so that there is no double taxation. On other Consequential Grounds (Accumulation and allowance of expenditure) 18. The learned AR submitted that the remaining grounds relating to accumulation of income under section 11(1)(a) and section 11(2) and allowance of expenditure towards the objects of the trust are purely consequential to the main issue of allowability of exemption under section 11. It was contended that if the main grounds relating to exemption under section 11 are decided in favour of the assessee, then the consequential grounds are also required to be allowed.

11 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation 19. The learned Departmental Representative, on the other hand, relied upon the orders of the Assessing Officer in case of both the years. Findings on Grounds relating to Denial of exemption under section 11 and lease rent issue (Ground No. 1 to 3 in both the years) 20. We have carefully considered the rival submissions, perused the material available on record, and examined the assessment orders, the impugned orders of the Commissioner of Income-tax (Appeals), and the documents placed before us. 21. The principal issue arising for adjudication in both the assessment years is whether, on the facts and in the circumstances of the case, the assessee trust is liable to be denied exemption under section 11 of the Income-tax Act, 1961, on the ground that it has violated the provisions of section 13(1)(c) read with section 13(2)(a) and (b) by leasing its hospital building and staff quarters to Aditya Birla Health Services Ltd., allegedly a related concern, at an inadequate rent, and whether the Assessing Officer was justified in substituting the actual rent received by a notional rent based on the report of the District Valuation Officer. 22. On perusal of the assessment orders, it is evident that the Assessing Officer proceeded on the premise that Aditya Birla Health Services Ltd. is a concern in which the trustees of the assessee trust and their relatives are substantially interested

12 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation within the meaning of section 13(3) of the Act and that the lease rent charged by the assessee was not adequate. On this basis, the Assessing Officer invoked section 13(1)(c) and section 13(2)(a) and (b), denied exemption under section 11, adopted the fair rent estimated by the District Valuation Officer in place of the actual rent received, and taxed the income of the assessee at the maximum marginal rate under section 164(2). The Assessing Officer further recorded that the activities of the trust were not genuine and characterised the leasing arrangement as a colourable device. 23. On perusal of the orders of the CIT(A), we find that the CIT(A) has examined in detail the shareholding pattern of Aditya Birla Health Services Ltd. and the list of trustees of the assessee trust. The CIT(A) recorded a categorical finding that the trustees of the assessee trust, namely Mrs. Rajshree Birla, Mr. B. L. Shah and Mr. Ashwin Kothari, together held only 30 shares out of a total share capital of 50,000 shares of Aditya Birla Health Services Ltd., which was far below the statutory threshold contemplated for attracting section 13(3). On this factual foundation, the CIT(A) concluded that Aditya Birla Health Services Ltd. is not a related concern within the meaning of section 13(3) of the Act and that the provisions of section 13(1)(c) and section 13(2)(a) and (b) were not attracted. The CIT(A) further held that the Assessing Officer was not justified in substituting the actual rent received by the assessee with notional rent based

13 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation on the District Valuation Officer’s report and, consequently, allowed the claim of exemption under section 11.

14 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation finding but tried to make out of the case that the shareholder list of ABHSL may be obtained and thereafter further examination can be done. In this regard we are of the opinion that there is no such case made out by the Assessing Officer in the assessment order. He has simply made a presumption without actually analyzing the facts. It is settled law that mere presumption is not sustainable. (…) And as regards the issue of substitution of rent, the Co-ordinate Bench observed:

15 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation same reasoning as in earlier years without bringing any fresh material on record. 28. In our considered view, therefore, the CIT(A) has correctly appreciated the facts on record, applied the law properly, and followed the binding precedent of the Tribunal in assessee’s own case. We find no infirmity in the conclusion of the CIT(A) that the provisions of section 13 are not attracted and that the assessee is entitled to exemption under section 11. Consequently, the action of the Assessing Officer in denying exemption under section 11 and in adopting notional rent in place of the actual rent received is not legally sustainable. 29. Thus, respectfully following the binding decision of the Co- ordinte Bench in assessee’s own case for earlier assessment years and in the absence of any distinguishing facts brought on record by the Revenue, we uphold the orders of the CIT(A) on this issue for both the assessment years under consideration. Findings on Ground Nos. 4 and 5 for A.Y. 2016–17 (Interest income accrued but not received) 30. We have carefully considered the rival submissions and perused the material available on record. The issue arising for adjudication under Ground Nos. 4 and 5 for Assessment Year 2016–17 is whether the interest income of Rs. 29,33,333/-, which had accrued in the immediately preceding year and was received during the year under consideration, is liable to be taxed again in

16 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation A.Y. 2016–17, and if so, whether suitable adjustment is required to avoid double taxation of the same income. 31. On perusal of the assessment order, it is evident that the Assessing Officer proceeded on the basis that, since the assessee’s accounts are maintained on mercantile basis, interest income is required to be brought to tax on accrual basis and not on receipt basis. Accordingly, the interest income was considered for taxation on accrual basis without granting any corresponding relief in respect of interest income already offered to tax on receipt basis by the assessee. 32. On perusal of the order of the CIT(A), we find that the CIT(A) has followed the view taken in earlier years that interest income is taxable on accrual basis. However, the specific grievance raised before us is not with regard to the principle of taxation of interest on accrual basis, but with regard to the consequence thereof, namely, the risk of double taxation of the same interest income. 33. It is an admitted position on record that the assessee had been consistently offering interest income to tax on receipt basis. It is also not in dispute that, in assessee’s own case for A.Y. 2011–12 and A.Y. 2012–13, the Co-ordinate Bench held that interest income is required to be taxed on accrual basis. At the same time, the Co-ordinate Bench issued a specific direction to avoid double taxation of the same income. The relevant finding of the Co-ordinate Bench in A.Y. 2011–12, as relied upon before us, reads as under:

17 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation 13. In this view of the matter the Assessing Officer is correct principally in holding that the assessee is required to account for the interest on accrual basis. However, we note that the assessee is accounting for the interest on receipt basis. Hence, assessee must have accounted for the interest of earlier year which has been received during the year on receipt basis. Hence, by this change of method of accounting the assessee’s income would include interest income of earlier year received during this year as well as interest income accrued for the year. This will amount to taxing more interest income than that what is legitimately taxable for this year. Hence we are of the opinion that from the interest accrued for the year the interest income of earlier year which had accrued in earlier year but were accounted for on receipt basis during this year should be reduced. The resultant figure should be added to the income of the assessee. 34. From the above extract, it is evident that while upholding the principle that interest income is taxable on accrual basis, the Co-ordinate Bench has categorically directed that, in the year of transition, suitable adjustment must be made so that interest income of earlier year, which is brought to tax on receipt basis in the current year, is reduced from the interest accrued for the current year, so as to avoid taxing the same income twice.

18 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation 36. In our considered view, once the Co-ordinate Bench has already laid down the principle in assessee’s own case that interest is taxable on accrual basis but that double taxation of the same income must be avoided, the same direction is required to be applied while adjudicating the present ground. The Revenue has not brought on record any material to controvert the factual assertion of the assessee that the interest income of Rs. 29,33,333/- offered on receipt basis in A.Y. 2016–17 pertains to accrual of an earlier year. 37. Therefore, respectfully following the binding decision of the Co-ordinate Bench in assessee’s own case for earlier years, we hold that if interest income is assessed on accrual basis for the relevant year, then the interest income of Rs. 29,33,333/- pertaining to earlier year, which has already been offered to tax on receipt basis in A.Y. 2016–17, is required to be excluded from the taxable income of A.Y. 2016–17, so as to avoid double taxation of the same income. 38. Accordingly, Ground Nos. 4 and 5 for Assessment Year 2016–17 are allowed for statistical purposes, with a direction to the Assessing Officer to verify the computation and grant appropriate relief by reducing the interest income of Rs. 29,33,333/- from the taxable income of A.Y. 2016–17, in terms of the above observations. 39. The remaining grounds relating to accumulation of income and allowance of expenditure are consequential in nature and do

19 ITA No. 7608 & 7609/Mum/2025 Aditya Birla Foundation not survive independently once the assessee is held to be entitled to exemption under section 11. These grounds, therefore, also stand decided in favour of the assessee.

Order pronounced in the open court on 05.02.2026.

Sd/- Sd/- (AMIT SHUKLA) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 05/02/2026 Dhananjay, Sr.PS

आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. संबंधधत आयकर आयुक्त / The CIT(A) 3. 4. आयकर आयुक्त(अपील) / Concerned CIT धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 5. 6. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai