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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
This appeal is filed by the Revenue against the order of CIT(A)-10, Pune, dated 27-07-2016 for the Assessment Year 2011-12.
Briefly stated relevant facts of the case include that assessee is a Charitable Trust (AOP) and is engaged in running of a hospital and giving medical relief. The trust came into existence on 16-08-2004 and got registered under the Bombay Public Trust Act, 1950 on 16-10-2004. Assessee trust is registered u/s.12AA of the I.T. Act. Assessee filed its return of income on 28-09-2011 declaring Nil income after claiming exemption u/s.11 of the Act in respect of surplus of Rs.1,64,83,398/-. In the course of achieving its objects, assessee raised a multi speciality
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hospital at Ahmednagar. In accordance with the provisions of Bombay
Public Trust Act, 1950, 10% of the operational beds needs to be used
for treating the patients from the weaker sections of the society. During
the year under consideration, the trust was required to spent 2% of the
gross receipts, i.e. Rs.14,65,854/- and however, the trust spent
Rs.1,34,44,118/-. On examination of the various receipts viz, rents
received by the trust, consultation fees paid to the various
consultants/surgeons, consultation fees paid to the trustees,
investments made by the trust and the repayment of secured loan, list
of concessions given to IPD/OPD patients (weaker sections), the AO
opined that the assessee trust carried the commercial activities which
are in the nature of trade or commerce. He further, opined that giving
discounts or making remissions in the patients bill is common practice
in the medical field and mere conducting free tests during camps
organized do not constitute ‘medical relief’ within the meaning of section
2(15) of the Act. Further, the huge amount of Rs.4.62 crores is
collected on account of IPD/OPD patients and the same is attributable
to the services of Dr. B.E. Kandekar’s consultancy alone. The payment
made to Dr. B.E. Kandekar towards his professional consultancy is also
much higher and in violation of provisions of section 13(1)(c) of the Act.
Therefore, AO opined that the assessee trust has dominant intention of
the profit motive and the same constitutes the violation of the
provisions of the proviso to section 2(15) of the Act. Eventually, the AO,
rejecting the explanation given by the assessee-trust, assessed the
income of the assessee trust at Rs.1,64,83,400/- as against the Nil
income returned by the assessee trust. The taxable income is
determined at Rs.65,07,381/-.
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In the First Appellate proceedings, the CIT(A) allowed the claim of
the assessee relying on the decisions of his predecessor for the A.Yrs.
2008-09, 2009-10 and 2010-11 and also considering the fact that the
findings given by the CIT(A) were confirmed by the ITAT, Pune. For the
sake of completeness, the finding given by the CIT(A) is reproduced here
as under :
“Ground No.1 :
This ground relates to challenging the denial of exemption u/s 11 of I.T. Act. Considering alleged violation of section 13 of I.T. Act, I have considered the submission of the appellant carefully and gone through the assessment order. Admittedly, the appellant is a trust engaged in medical relief having registration u/s 12A. In fact, while denying the exemption for the year under consideration the A.O. has taken into consideration an identical reason, which was taken in preceding years, i.e. in A.Y.2008-09, 2009-10 and 2010-11. In these years, my Ld. Predecessor have allowed the appeals and those decisions were affirmed subsequently by Hon'ble I.T.A.T., Pune. The appellant has relied on those decisions in this year's appeal. Entire facts and circumstances relating to this ground are same as was available in A.Y. 2008-09, 2009-10 and 2010-11. The facts discussed by the Assessing Officer in the assessment order are similar to the facts discussed in those years and no additional evidences, whatsoever, have been brought on record to make out a case. In view of the above, it is held that the entire facts and circumstances except for the amount of exemption claimed u/s 11 are same and therefore, relying on the findings given in A.Y. 2008-09, 2009-10 and 2010-11 by my Ld. Predecessors and Hon'ble I.T.A.T., Pune, the Assessing Officer is directed to allow the exemption u/s. 11 of I.T. Act. Accordingly, ground No.1 is treated as allowed.
Aggrieved with the order of CIT(A) the Revenue is in appeal before
us with the following grounds :
“1. Whether on the fact and in the circumstances of the case and in law, the Ld.CIT(A) is justified in not appreciating the fact that the Trust had applied its immovable property and the income for the benefit of the Managing Trustee in violation of provisions of section 13(1)(c) of the Act?
Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in not appreciating the fact that the Managing Trustee had diverted the income by using Trust’s infrastructure for his private gains in violation of the provision of section 13(1)(c) r.w. sec.13(2)(b) & 13(2)(g) of the I.T. Act, 1961.”
Ld. DR for the Revenue submitted that the Ld.CIT(A) has not
appreciating the facts that the Chief Trustee Dr. B.E.Kandekar, Chief
Trustee has diverted the income of the assessee trust by using its
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infrastructure for his personal gain. The activities of the assessee trust
are in the nature of trade or commerce and the predominant object of
the assessee trust is profit motive. He, therefore, prayed for reversing
the order of the CIT(A).
On the other hand, Ld. Counsel for the assessee filed the copy of
the order of Pune Bench of the Tribunal in the assessee’s own case for
the A.Yrs. 2008-09, 2009-10 and 2010-11. He submitted that the
grounds (Ground Nos. 1 and 2) raised by the assessee trust in this
appeal are identical in those assessment years too and they were
already adjudicated by the ITAT, Pune in favour of the assessee.
Therefore, Ld. Counsel prayed for dismissing the appeal filed by the
Revenue being devoid of any merit.
We heard both the sides and perused the orders of the Revenue
and the decision of the Tribunal in ITA Nos. 1683/PN/2012,
130/PN/2013 and 2123/PN/2013, decided on 08-04-2015. We find
the Tribunal decided the issue in favour of the assessee by holding as
under :
“17. The first aspect of the issue raised before us is whether there is non-fulfillment of conditions prescribed in section 2(15) of the Act. As per the definition of charitable purposes in section 2(15) of the Act, the recognition has been given to the activities of providing relief to the poor, education, medical relief and advancement of any other object of general public utility to be a activity for charitable purpose. Proviso has been inserted by the Finance Act, 2008 under section 2(15) of the Act w.e.f. 01.04.2009, under which, it has been provided that in case of advancement of any other subject of general public utility shall not be charitable, if it involves carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to such trade, commerce or business for a cess, fees, or any other consideration. The restriction clause by way of proviso to section 2(15) is with regard to advancement of any other subject of general public utility i.e. the fourth clause of section 2(15) of the Act in respect of the activity of providing relief to the poor, education and medical relief. There is no restrictive covenant in the said proviso under section 2(15) of the Act in respect of providing relief to poor, education and medical relief. In other words, where the assessee trust is engaged in activities within the framework of law to pursue its objectives and in turn receives charges for rendering the services in furtherance of its activities, it cannot be said that the trust is not charitable. It has been laid down by various legal
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propositions that where the predominant object of the trust or institution is to carry out the activities for charitable purposes and not to earn profit, it would not lose its character of being for charitable purpose, merely because some profit arises from the activity. The CBDT in its Circle No.11, dated 19.12.2008 had clarified that where the purpose of trust or institution is relief of the poor, education or medical relief, it would constitute charitable purpose, even if incidentally involves carrying on the commercial activities. In view thereof, where the assessee was engaged in carrying on the activities for attaining the objects of providing medical relief to people at large and surplus was generated from hospital activities for doing charitable work in the hands of the assessee, does not establish the case of the Assessing Officer that it was not engaged in charitable activities. Further, the assessee trust was established for the purpose of granting medical relief and the activities having been carried out as per the terms of settlement and the said activities having been recognized as charitable under the provisions of the Act, even recognition given by the Bombay Public Trust Act and also by the registration granted under section 12AA of the Act, we find no merit in the order of Assessing Officer, in this regard.
We find that similar ratio was laid down by Delhi Bench of the Tribunal in Addl. Director of Income Tax (Exemption) Vs. Manav Bharati Child Institute & Child Psychology (supra), that merely because there was some surplus in the activities carried on by the society, the same would not dis-entitle to claim exemption under section 11 and 12 of the Act. Similar proposition has been laid down by the Delhi Bench of the Tribunal in ITO Vs. Dharamshila Cancer Foundation & Research Centre (supra), wherein it has been laid down that the profitability is not the sole criteria to judge the charitable nature of a society and where the Assessing Officer has failed to take into consideration that income was only applied for the purpose of charity, there was no justification in non- grant of benefit under section 11 of the Act. The Hon’ble Kerala High Court in CIT Vs. Pulikkal Medical Foundation (P) Ltd. (supra) had also laid down similar proposition that merely because the assessee was running a hospital on commercial lines, it would not be dis-entitled to the exemption under section 10(22) of the Act. The learned Authorized Representative for the assessee had made a reference to the ratio laid down by Pune Bench of the Tribunal in in Parkar Medical Foundation Vs. DCIT (supra). However, on the perusal of order, we find that though reference was made to the various submissions made by the assessee, even with regard to the assessee trust running the hospital on commercial basis and its effect, but the said issues have not been adjudicated as registration under section 12A of the Act was allowed to the assessee on other issues. It was further held that the Assessing Officer while assessing the income in the hands of charitable trust, has the power to deny exemption to the extent it is covered under section 13(1)(c) of the Act. Accordingly, we find no merit in the reliance placed upon by the learned Authorized Representative for the assessee.
The Hon’ble Supreme Court in CIT (Addl) Vs. Surat Art Silk Cloth Manufacturers Association (supra) had also laid down the proposition that for the accomplishment of object or means to carry out the object, it is not necessary that it should not involve any activity for profit, in cases, where the predominant object of the trust is to carry out the activity for charitable purposes and not to earn profit. Further, it was held that the trust would not lose its character of a charitable purpose merely because some profit arises from the activities. Reference was made to the exclusionary clause applicable at that time and it was held that the same does not require that the activity must be carried on in such a manner that it does not result in any profit.
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Now, coming to the second aspect of exemption under section 11 of the Act to the assessee, in view of violation of provisions of section 13(1)(c) of the Act. In the facts enumerated herein-in-above and also while making reference to the observations of the Assessing Officer, it has been referred to by us that the assessee trust was settled by Dr. Kandekar, managing trustee and four other as trustees. Dr. Kandekar was a cardiologist and he along with his wife made available 45,000 sq. ft. of constructed building to the trust to carry on its activities of running hospital therefrom. The assessee trust was paying monthly rental of Rs.6 lakhs to Dr. Kandekar and his wife. In addition, certain portion approximately 475 sq. ft. of the hospital premises was given to a company called Cathlab (I) Pvt. Ltd. on a monthly rental of Rs.9,500/-, which company belonged to Dr. Kandekar and his wife. A MoU was entered into between the trust and the company, as per which it was understood that the company would exclusively provide its services at concessional rates to the patients of the hospital. It has been noted by the Assessing Officer that Dr. Kandekar was carrying out a private practice before joining the hospital run by the assessee trust. The objection of the Assessing Officer was that in the return of income filed for the earlier years, he had claimed deduction for salary paid to his associated doctors and even in return filed for assessment year 2008-09, similar deduction was claimed implying thereby that Dr. Kandekar had shifted his place of private practice to the trust hospital. Further, the objection of the Assessing Officer was that he was controlling and running whole hospital and was also recipient of consultancy fees of Rs.47,08,412/- out of total consultancy fees of Rs.53,44,934/- paid to four trustees. In this regard, the Assessing Officer observed that the consultancy fess paid to Dr. Kandekar alone constitute 88%. However, the Assessing Officer also admitted that the amount of corresponding gross IPD/OPD receipts attributed to his consultancy alone in the hands of the trust were of Rs.2.32 crores, which was about 72% of the total receipts of the trust, which stood at Rs.3.22 crores.
We find no merit in the observations of the Assessing Officer in this regard that the provisions of section 13(1)(c) of the Act have been violated. Admittedly, Dr. Kandekar is the interested party as per provisions of section 13(3) of the Act are concerned. However, the financial aspects reflect that out of total receipts of the trust of Rs.3.22 crores, admittedly 72% of the said receipts at Rs.2.32 crores were attributable to services of Dr. Kandekar, against which he was paid consultancy fees of only Rs.47,08,412/-. The balance receipts were attributable to the trust as per the agreement between consultant doctors and the trust, wherein only consultancy fees was transferred to their account and the balance charges received from the patients were transferred to the account of the assessee trust. We also find no merit in the objection of Assessing Officer that Dr. Kandekar had shifted his private practice to the trust hospital. Looking at the remuneration generated by Dr. Kandekar for the assessee trust, it could not be established that he was doing any private practice at the premises of the trust hospital. Another objection of the Assessing Officer was vis-à-vis the claim of expenditure of associated doctors by Dr. Kandekar in his return of income, against his consultancy charges, it was explained by the assessee before Assessing Officer that the said associate doctors were engaged by Dr. Kandekar for looking after his patients in the trust hospital and he was paying for their services and claiming the expenditure without utilizing the services of doctors of the hospital trust. The said claim of the assessee has not been rebutted by the Assessing Officer and the contrary inference drawn in this regard, cannot be accepted. We find no merit in the objection of the Assessing Officer, where Dr. Kandekar acting as managing trustee of the assessee trust had supervise the activities of the trust and had devoted time for not only
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the medical consultancy, but also for administrative work. The assessee had also made available the services of the company Cathlab (I) Pvt. Ltd. for the patients of trust hospital at concessional rates and in such circumstances, it could not be said that the provisions of section 13(1)(c) of the Act are attracted. In any case, under section 13(2)(c) of the Act, the provision is attracted where the amount paid is in excess what may be reasonably paid for such services. The provisions of section 13(2)(c) of the Act are not to be applied where any amount is paid by way of salary, allowance or other to any interested person out of reserves of the trust or institution, for services rendered by such person to trust or institution. The clauses are attracted in case the amount so paid is in excess of what may be paid for such services. The Assessing Officer has not established the case of non-reasonableness of the amount paid to Dr. Kandekar, who was the interested party in this case and in the absence of the same, the provisions of section 13(1)(c) of the Act are not to be applied.
Considering the above, we find the CIT(A) followed the principles
of judicial discipline in compliance with the order of the Tribunal in
assessee’s own case. Thus, we uphold the order of the CIT(A) as fair
and reasonable. Accordingly, the grounds raised by the Revenue are
dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced on 03rd day of August, 2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य
पुणे Pune; �दनांक Dated : 03rd August, 2018. सतीश आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-10, Pune 4. The Pr.CIT-9, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” 5. Pune; गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार
स�यािपत �ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune