Loading judgment…
No AI summary yet for this case.
Before: SHRI S.V. MEHROTRA & MS. SUCHITRA KAMBLE
1 ITA NO. 1225/DEL/2015
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘B’ NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I.T.A .No.-1225 /DEL/2015 (ASSESSMENT YEAR-2010-11)
Institute of Haematology vs ADIT (E) 11/6B Trust Circle-II Shanti Chambers, Pusa Road, New Delhi New Delhi AAAT14267P (RESPONDENT)
(APPELLANT)
Appellant by Sh. T. R. Talwar, Adv. Respondent by Sh. Amrit Lal, Sr. DR,
Date of Hearing 10.12.2015 Date of Pronouncement 14.01.2016
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 29/12/2014 passesd by the Ld. CIT (A) 40, New Delhi. 2. The grounds of appeal are as follows:-
“1. In denying the exemption u/s 11& 12 of the Income Tax Act when the assessee trust is registered u/s 12A & also registered u/s 80G of the IT Act and when there was compliance with objects of the trust by using the income
2 ITA NO. 1225/DEL/2015
for charitable purposes and the trust having been exempted in the past. 2. In not restricting the addition to Rs.2,22,000/- being the interest on the advances given to the specified persons in violation of the provisions of Section 13(1) (d) r.w.s. S 13 (3) and S 11 (5) of the IT Act and taxing it at the maximum marginal tax as provided u/s 164(2) of the Act and in not allowing the exemption u/s 11 to the other income when the same has been actually applied for charitable purposes. 3. In denying the exemption to the entire income of the trust u/s 11 & 12 of the Income Tax Act which has been actually applied for charitable purposes and the trust having been exempted in the past. WITHOUT PREJUDICE TO THE ABOVE. 4. In making an addition of Rs.2,22,000/- towards notional income of interest on amounts given out of its capital and reserves, if the exemption u/s 11 & 12 of the IT Act has been denied.”
The assessee is a charitable trust registered u/s 12A on 29/6/1999 of the I.T Act, 1961 and also registered under Section 80G of the Act on 07.08.2009 for the A.Y. 2010-11. The assessee is involved in pathology for the test of blood and urine etc. and is doing the same at the subsidized rates. The assessee was claiming the benefit of exemption u/s 11(1) as a charitable trust and as such the assessee was required to follow all the terms and conditions of Section 11, 12, 12A, 12AA & 13 etc. As per these sections the assessee was required to invest its corpus funds or the capital fund in the specified assets as provided u/s 11(5) but there was violation
3 ITA NO. 1225/DEL/2015
of this provision as the assessee had given the interest free loans of Rs.18,39,778/- to the relatives of the managing trustee (Shri Divya Bhushan Lal) and the details of loans are as under:-
Sl Name Amount Relation No. 1. Mrs. Neha Lal 6,00,000/- Wife of one of the trustee 2. Mr. Anirudh Lal 5,00,000/- Son of one of the trustee 3. Mr. Anuj 5,50,000/- Son of one of the trustee 4 Mr. Narender Pal 1,89,778/- Total 18,39,778/-
The A.O has found that there is violation of Section 11 (5) r.w.s 13 (1) (d) and has accordingly denied the exemption u/s 11(1). The A.O has also made the addition of notional interest of Rs.2,22,000/- for the interest free loans given to relatives of the managing trustee. The A.O has also made the estimated disallowance of 10% of the expenses of Rs.3,41,964/- vide the order of the A.O.
The assessee filed appeal against the order of the A.O before CIT(A). The assessee was claimed the benefit of exemption u/s 11(1) being a charitable trust but as per the CIT(A), the assessee was not doing any charity to the public at large under the meaning of
4 ITA NO. 1225/DEL/2015
Section 11(1) of the Income-tax Act. The CIT(A) dismissed the contention of the assessee related to exemption u/s 11(1) as provided u/s 13(1D) and confirmed the order of the Assessing Officer. The CIT(A) further held that the estimated disallowances @ 10% out of the total expenses are concerned the same has been made on estimated basis without any valid reasons and accordingly the same was deleted.
The Ld. AR submitted that Section 11 & 12 provides exemption from tax to the income of a charitable trust/ institution under specified terms and conditions. Section 13 with the heading “Section 11 not to apply in certain cases” provides certain exceptions to Section 11 with the purpose to deprive a religious or charitable trust of exemption inter alia where its income from the property held under a trust (S. 13 (1) (a), or any income thereof (b), or if any part of such income or any property of the trust (c) or any funds of the trust etc (d) are used or applied for the benefit of the specified persons. In other words, section 11 exempts the income of the trust from taxation but Section 13 provides taxability of certain incomes of the trust if these were not applied or used for the fulfillment of the objects of the trust maybe either u/s 13(1)(c) of u/s 13 (1) (d) of IT Act, that part of the income of the trust would be brought to tax and taxed at the maximum marginal rate as per the proviso to Section 164 (2) of IT Act.
5 ITA NO. 1225/DEL/2015
The Ld. AR further submitted that the assessee trust is registered u/s. 12A of the Income Tax Act vide dated 29.06.1999. It is also registered u/s 80G by letter dated 07.08.2009 for the period Assessment Year 2010-11 to 2012-13. As regards the denial of exemption u/s. 11 of the Act, the Ld. AR submitted that the charging of concessional rates does not take away the charitable character of the institution as 85% of the entire receipts are applied for charitable purposes and / or any surplus accruing thereto is ploughed back to carry out the charitable activities as envisaged in its trust deed. The trustees do not get any profit or any benefit from the trust in the form of any salary, perks or any concession. The trust is providing free, concessional / subsidized rates, to the needy in the form of medical relief as per the data given at pages 16-25 of the paper book submitted. The activity of the trust falls under the first three limbs of Section 2(15) which is given under board circular no. 11/2008 dated 19.12.2008 (2009) 308 ITR (ST) 5. The Ld. AR relied upon the case of ITO V. Kaushalya Medical foundation (2009) 31 SOT 119 (Mum.)(Tri.) and PIMS Medical and Education Charitable Society V. CIT (2013) 56 SOT 522/150 TTJ 891 (Chd.) wherein it has been held that it is not necessary that the medical relief should be entirely free, and no fee be charged for services and that the exemption u/s. 11 &12 cannot be denied on this account.
The Ld. AR also relied upon ITPO V. DG IT (Exemptions) (2015) 371 ITR 333 (Delhi) wherein it was held as under:
6 ITA NO. 1225/DEL/2015
Definition of “Charitable Purpose” in Section 2(15) – Amendment of Section 2 (15) by Finance Act, 2008 – Validity of Amendment – Amendment to be read down – Primary and dominant object of institution to advance General Public Utility – Income generated by commercial activities incidental – Charitable Institution entitled to Exemption. Exemption u/s. 11 & 12 cannot be denied to the assessee as it is carrying on medical relief in compliance with the objects of the trust for charitable purposes and such trust has been exempted in the past.
The Ld. DR relied upon the Assessment Order and CIT(A)’s order.
We have perused all the records and heard the submissions of both the parties. During the course of assessment proceedings the Assessing Officer noticed that the trust had given interest free loan to persons amounting to Rs. 20,39,778/- in violation of the provision of section 13(1)(d) r.w.s Section 13(3) and Section 11(5) of the Income Tax Act, 1961 and, thus worked out an addition of Rs. 2,22,000/- to the returned income of the trust. On this account, the Assessing Officer, denied exemption under Section 11 & 12 for the Assessment Year 2010-11 and assessed it as an AOP. He also disallowed 10% of the expenses claimed amounting to Rs. 3,41,964/- on adhoc basis. The CIT(A) while deleting the adhoc addition of Rs. 3,41,964/- in expenses, confirmed the denial of exemption under Section 11 and 12 as done by the Assessing
7 ITA NO. 1225/DEL/2015
Officer. As regards the denial of exemption u/s. 11 it is submitted that the assessee’s activities is related to that of a hospital where medical tests are carried out for giving medical relief to the poor or disadvantaged either free or at a concessional /subsidized rates. The charging of concessional rates does take away the charitable character of the institution. The reliance of the Hon’ble Delhi High Court judgment in case of ITPO V. DG IT (Exemptions) (2015) 371 ITR 333 (Delhi) is relevant in this particular case. The said judgment held that “the expression “charitable purpose” is not to be construed in a vacuum but in the specific context of Section 10(23C)(iv) which specifically deals with income received by any person on behalf of, inter ala, an institution established for charitable purposes. Therefore, the meaning of the expression “charitable purposes” has to be examined in the context of Section 10(23C)(iv). The expression has a reference to income. Because it is only when such an institution has an income that the question of not including that income in its total income would arise. Therefore, merely because an institution, which otherwise is established for a charitable purpose, receives income that would not make it any less a charitable institution.” In the present case the Assessing Officer as well as the CIT(A) has ignored this aspect that the assessee’s main activity of providing medical facility at the subsidies rate does amount to charitable purpose. Thus Ground No. 1 and 3 are allowed in favour of the Assessee.
As regards the Second ground, it is admitted that the assessee has violated the provisions of Section 13(1)(d) r/w/s Section 13(3)
8 ITA NO. 1225/DEL/2015
and Section 11(5) of the Income Tax Act, 1961 and added income of Rs. 2,22,000/- has to be taxed at the maximum marginal rate of tax as per the provision of Section 164(2) of the Income Tax Act, 1961 as per the various case laws submitted separately, which have also held that the denial of exemption should only be to the extent of income which was violative of Section 13(1) (d) and not the total denial of exemption u/s. 11. The same has to be taxed as the same is not related to the charitable purpose under Section 11 and 12 of the Act.
In result, the appeal of the assessee is partly allowed.
The order is pronounced in the open court on 14th of January, 2016.
Sd/- Sd/- ( S. V. MEHROTRA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 14/01/2016 *R. Naheed* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI
9 ITA NO. 1225/DEL/2015
Date 1. Draft dictated on 10.12.2015 PS 2. Draft placed before author 11.12.2015 PS 3. Draft proposed & placed before .01.2016 JM/AM the second member 4. Draft discussed/approved by .01.2016 JM/AM Second Member. 5. Approved Draft comes to the PS/PS Sr.PS/PS 14.01.2016 6. Kept for pronouncement on .01.2016 PS 7. File sent to the Bench Clerk PS 14.01.2016 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.