ACIT(E), CIRCLE-1(1), NEW DELHI vs. JAMIA HAMDARD, NEW DELHI

Date of Hearing : 26.08.2021 Date of Pronouncement : 16.11.2021 ORDER This appeal filed by the Revenue is directed against the Order dated 30.11.2017 of the Ld. CIT(A)-40, Delhi, relating to the A.Y. 2013-2014.

2 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. “On the facts and in the circumstances of the case and in law, whether Ld CIT(A) is not correct in directing the AO to allow exemption u/s 10(23C)(vi) of the Act whereas the assessee has violated the spirit of section 10(23C)(vi) r.w.s 11(5) and 13(l)(c) of the Act, providing interest free advances.”

3 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. 3.1. During the course of assessment proceedings, the Assessing Officer noted that the balance sheet of the assessee showed recoverable amounts as sundry debtors to the tune of Rs. 49,62,34,354/- (last year balance being Rs. 21,39,70,672/-). He, therefore, asked the assessee to explain the said debtor amounts. With regard to the nature of the said amounts given to various units it was, inter alia, submitted by the assessee that sometimes the amount of expenditure of the units is paid by Jamia Hamdard to be recovered from them which have been shown as recoverable from these units. It was also submitted that all the units belong to Jamia Hamdard but the accounts of the units are maintained separately for internal control purposes.

3.2. However, the AO was not satisfied with the submissions made by the assessee. He noted that the recoverable amount had increased by an amount of Rs.28,22,63,682/- as compared to last year and the assessee had not made any efforts to recover the said sundry recoverable amount of Rs.21,39,70,672/-. It was also noted that no explanation has been given as regards

4 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. why the advances were made to sister organisations when the entire control and management of the financial affairs lied with the assessee. Following were held to be sister organisations: i. Hakim Abdul Hameed Centenary Hospital ii. Hamdard Institute of Medical Sciences iii. Scholar House iv. Self Financing Scheme 3.3. The Assessing Officer further noted that on the said advance/recoverable amounts, no interest had been earned by the assessee nor any effort was made to recover the old balances prior to making fresh advances to the tune of Rs.28,22,63,682/- during the year. He noted that students and patients who were the ultimate beneficiaries are charged for the smallest bit of facility like hostel security, coaching academy security, caution money security, dressing, medicines and test etc. He noted that the beneficiaries of the entire edifice of charity are the students who are studying for a fee in the College and the patients were treated for a cost in the assessee controlled hospital.

5 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. He also noted that the basic tenet of section 2(15) seems to have taken a backseat and the assessee is only concerned with financial jugglery of accounts. He observed that the particular account of sundry debtors is only a device to drain the money out of the financial system of the organisation clandestinely and to which the assessee has no cogent and plausible reasoning. The AO also noted that if a charitable institute is carrying on business and during the course of running a business it has advanced money to certain persons or bodies including connected organisations, the basic fundamental of charity cannot be ignored. According to the AO the reason for advancing spare money and showing it in the form of sundry debtors has to be with some reason and purpose and a mere accounting entry is not sufficient to fulfill the requirements of the statute as enshrined by sections 11, 12 and 13 read with section 10(23C)(vi). The AO relied on the decision of the Hon'ble Delhi High Court in the case of Director of Income Tax (Exemptions) vs. Charanjiv Charitable Trust decided on 18.03.2014 wherein a similar situation of unexplained

6 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. advances was discussed. Relying upon the said decision, he held that advances of institution/trust money without a valid reason to unknown persons shall not be treated as application or accumulation of such trust/institution money as per Section 11(l)(a) or section 11(5) read with section 13. The AO further noted that not making any effort to recover those advances is misuse of trust/institution funds which have been kept out of taxation for the charitable purpose as per section 11. He observed that advances have swelled enormously and there was no legal document to show or to bind the taker of advance who ultimately became a sundry debtor in the books of account.

3.4. On the issue of chargeability, the AO relied on the decision of Hon’ble Bombay High Court in the case of DIT(E) vs. Mafatlal Gagalbhai Foundation Trust [249 ITR 533 (Bom)] wherein it was held that section 164(2) refers to the relevant income which is derived from property held in the trust wholly for charitable and religious purposes and if such income consists of several portions, exempt as well as taxable, the portion which is exempt is to be left out and the 7 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. portion which is not exempt is charged to tax as if it is the income of the association of persons. Relying upon the amendment by way of insertion of a proviso by the Finance Act, 1984 as per which in cases where the whole or any part of the relevant income is not exempt under section 11 or section 12 because of the contravention of section 13(l)(d), the AO held that the maximum marginal rate shall be charged on such income or part thereof, as the case may be. He held that only nonexempt income portion would fall in the net of tax as if it was the income of an association of persons. It was also held by the High Court that as per the proviso to section 164(2), it has, inter alia, been laid down that in cases where the whole or part of the relevant income is not exempt by virtue of section 13(l)(d), tax shall be charged on the relevant income or part of the relevant income at the maximum marginal rate.

3.5 The A.O. held that the assessee had, by keeping the money of the institution invested in its connected concerns, violated the spirit of section 11(5) read with section 13(l)(c) and, therefore, liable to be taxed on the 8 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. amount of Rs.28,45,49,635/-being the amount gone out of the purview of the protection under section ll(l)(a) since this part of money had been taken out of circulation of the institute without any reason by the assessee. He held that the assessee has violated the spirit of section 10(23C)(vi) read with section 11(5) and section 13(l)(c) and, therefore, the assessee is liable to be charged to tax under section 164(3)(b) on an amount of Rs.21,52,55,659/- at the maximum marginal rate.

3.6 In appeal, the ld.CIT(A) directed the AO to allow benefit of exemption u/s 10(23C)(vi) by observing as under:-

“5.1.1 The Assessing Officer has denied exemption under section 10(23C)(vi) by holding that the assessee has kept money of the institution invested in its connected concerns and has violated the spirit of section 11(5) read with section 13 (l)(c) [incorrectly referred to as section 13(l)(e)] by relying upon the order of the Hon'ble Delhi High Court in the case of Director of Income Tax (Exemptions) vs Charanjiv Charitable Trust. The Assessing Officer has held that advances were given to sister concerns like Hakim Abdul Hameed Centenary Hospital, Hamdard Institute of Medical Sciences, Scholar House and Self Financing Scheme. The appellant has, inter alia, submitted that it is compiling separate records for its departments like Hakim Abdul Hameed Centenary Hospital, Hamdard Institute of Medical Sciences, Scholar House and Self Financing Scheme for better management of financial appraisal and control purposes. Self financing courses

9 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. are run by the University under general and self financing scheme with the understanding that earning of SFS scheme shall be utilised for development purposes of Jamia Hamdard. It is also been mentioned that these are departments/faculties of the appellant University and are an integral part of it and that these departments have no separate legal status or entity but are named to identify them with their area of activity. It has further been submitted that the entire receipts collected in these units are being declared in the income tax return of the appellant Institute year on year basis and expenditure of those units are being made as a part of the total application of income of the appellant. It has also been submitted that the Medical Council of India has accorded its approval to pursue and conduct MBBS course in the name of the appellant and not in the name of Hakim Abdul Hameed Centenary Hospital, Hamdard Institute of Medical Sciences. 5.1.2 I have considered the assessment order and the submissions of the appellant. Since exemption has been denied by holding that money has been advanced to sister organizations, the first issue to be decided is whether Hakim Abdul Hameed Centenary Hospital, Hamdard Institute of Medical Sciences, Scholar House and Self Financing Scheme are sister organisations as held by the Assessing Officer or are departments/units of the appellant University. In this regard, the following facts are note worthy : i. From the audited accounts it is seen that the accounts of these activities are finally merged in the main balance sheet and Income & Expenditure account. It is also seen that all the grants received are also accounted for in the common balance sheet and the auditors have commented upon the same in Schedule 25 which is schedule annexed to and forming part of the Balance Sheet. ii. As per the statement of income and application for the year under consideration, income from all these entities are taken for the purpose of gross receipts and all expenses for the purpose of application. This itself

10 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. shows that these are not separate entities but are departments/ faculties which are under the control of the appellant University. iii. The Medical Council of India has given approval for establishment of new medical college by Jamia that University under section 10A of the Indian Medical Council Act, 1956 for the academic year 2012-13 in which it is clearly been mentioned that approval is given for setting up of "Hamdard Institute of Medical Sciences and Research, New Delhi" by Jamia Hamdard, New Delhi. 5.1.3 From aims and objects given in the Memorandum of Association it is seen that one of the aims and objects of the appellant society is to provide facilities for education, teaching, training and research in humanities, medicine, science, technology etc. Further, from the prospectus it is seen that Administration of the appellant consists of one chancellor, one Vice Chancellor, one registrar, one controller of examinations & admissions and deans of various faculties and Medical Superintendent/Director of Hakim Abdul Hameed centenary hospital and also been/ principle of Hamdard Institute of Medical Sciences and Research. All the shows that the entities is perceived to be sister organisations are nothing but units/departments of the appellant. 5.1.4 As regards the advances given, from the details submitted it is also noted that most of the advances given are on account of bank guarantee, grant receivable from Hamdard National Foundation, LTC advance, medical advance imprest account, TDS recoverable, pay and allowances of staff of Scholar House etc. This shows that this said advances were against expenditure towards the aims and objects of the appellant. It is also seen that the accounts are running in nature. As is apparent from the information bulletin and prospectus, self-financing scheme is nothing but a category under which students are enrolled in limited nos. Scholar House is a convention Centre. In addition, the Assessing Officer has brought nothing on record to show how these entities i.e.,

11 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi.

Hamdard Institute of Hakim Abdul Hameed Centenary Hospital, Hamdard Institute of Medical Sciences, Scholar House and Self Financing Scheme are sister concerns. 5.1.5 As regards reliance placed on the decision of the Hon'ble Delhi High Court it is to be noted that in that case, advances had been given to a separate legal entity which was covered under section 13(3). As mentioned above, there is no finding as to how these entities were covered under section 13(3) to enable invoking of section 13(l)(c). 5.1.6 As is apparent from above, the entities considered to be sister concerns are not in fact sister concerns but are faculties/departments of the appellant University and do not have any separate legal entity. Even otherwise, the appellant has claimed exemption under section 10(23C)(vi) and as such the provisions of section 13 are not applicable in the case of the appellant. This is apparent from the fact that the marginal rate to section 13 reads as "Section 11 not to apply in certain cases." Further, section 13(1) reads as under: "(1) Nothing contained in section 11 or 12 shall operate so as to include from the total income of the previous year..." 5.1.7 As regards the violation of the provisions of section 11(5), as is clear from the discussion above, the advances pertain to expenditure for meeting the aims and objects of the appellant society and pertain to its own units. Hence, such advances cannot be hit by the provisions of section 11(5). 5.1.8 In view of the discussion above, the denial of exemption under section 10(23C)(vi) read with section 11(5) and section 13(l)(c) cannot be sustained. 5.1.9 As regards the ground raised by the appellant by the revised ground of appeal No. 5, the proviso to section 143(3) very clearly lays down that no order making an assessment of the total income or loss of any University or other educational institution

12 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. referred to in section 10(23C)(vi) without giving effect to the provisions of section 10 can be made unless the Central Government or the prescribed authority, as the case may be, has been intimated of the contravention made with respect to the provisions of the said section and the approval granted to such University or other educational institution has been rescinded. No such action has been taken by the Assessing Officer and the appellant continues to be approved under section 10(23C)(vi). In view of the said provision also, the denial of exemption by the Assessing Officer cannot be sustained.”

3.7. Accordingly, the Ld. CIT(A) allowed the exemption claimed by the under section 10(23C)(vi) of the I.T. Act, 1961.

(a) HAHCH Rs.18,52,81,757/- (b) HIMC Rs.2,64,02,962/- (c) Jamia Hamdard Rs.7,28,64,916/- (d) Total increase in Sundry Debtors during the year

15 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. = Rs.28,45,49,635/- (e) Taxable amount as per discussion : 28,45,49,635/- (-) Rs.6,92,93,976/- = Rs.21,52,55,976/- 7.1 We find, the ld.CIT(A) allowed the claim of exemption u/s 10(23C)(vi), the reasons of which have already been reproduced in the preceding paragraphs.

7.2 We do not find any infirmity in the order of the CIT(A) on this issue. We find, the AO, in the order passed u/s 143(3) of the Act for AY 2011-12, dated 28th February, 2014, copy of which is placed at pages 8 and 9 of the paper book, has allowed the claim of exemption u/s 10(23C)(vi) of the Act. Similarly, the AO, in the order passed u/s 143(3) dated 11th February, 2015 for AY 2012-13, has, again, allowed the claim of exemption u/s 10(23C)(vi). We find, in the assessment year 2015-16, the AO observing that balance sheet of the assessee showed recoverable amount as sundry debtors to the tune of Rs.50,48,21,832/-, rejected the claim of exemption u/s 10(23C)(vi) and the ld.CIT(A), vide order dated 1st March, 2019, following his order for AY 2013-14,

16 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. allowed the claim of exemption u/s 10(23C)(vi) by observing as under:-

17 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi.

18 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi.

7.3 We find, the Revenue accepted the above order of the CIT(A) and did not challenge the same before the Tribunal. We further find the AO, in the order passed u/s 143(3) of the Act dated 29th December, 2018 for AY 2016-17, has also allowed the benefit of exemption u/s 10(23C((vi) of the Act by observing as under:-

19 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi.

7.4 In view of the above consistent view of the AO for AYs 2011-12, 2012-13 and 2016-17 and the order of the CIT(A) for AY 2015-16 allowing the claim of exemption which was denied by the AO under identical circumstances and the Revenue, having accepted the order of the CIT(A) by not filing any appeal before the Tribunal, we accept the contention of the ld. Counsel for the assessee that in view of the rule of consistency, the claim of exemption u/s 10(23C)(vi) cannot be denied to the assessee. We, therefore, uphold the order of the CIT(A) on this issue and the ground raised by the Revenue is dismissed.

20 ITA.No.918/Del./2018 Jamia Hamdard, New Delhi. 8. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open Court on 16.11.2021.