BHARAT CHARITABLE HOSPITAL SOCIETY ,KOTTAYAM vs. CIT (EXEMPTION), KOCHI AT TVM, KOCHI

The facts of the case in brief are that the assessee, a charitable trust registered u/s.12AA of the Act, is running a hospital at Kottayam, Kerala. It filed it’s return of income for the relevant year on 14/3/2018at nil income, claiming deduction u/s. 11 at Rs. 5049.62 lacs, i.e., the entire income, being surplus as per it’s income and expenditure account. It was during the assessment proceedings found to have paid salary (atrs. 99.71 lacs) to some doctors who were also it’s trustees, denoted by symbol (t), as under, and which was at an increase over that paid to other doctors: Bharat Charitable Hospital Society vs. CIT (Exemptions) Name of the Doctor Nature of Payment Amount (Rs.) Dr. Vinod Viswanathan (t) Professional Fee Rs.26,72,100/- Dr. A.N. Viswanathan Professional Fee Rs.6,30,000/- Dr. Rajesh Menon (t) Professional Fee Rs.39,03,898/- Dr. B. Srekumarn (t) Professional Fee Rs.33,94,500/- Smitha Viswanathan Professional Fee Rs.3,84,000/- The Assessing Officer (AO) inferring the same to be in excess, disallowed 30% thereof, i.e., Rs. 29.91 lacs, and assessed the income, vide order u/s. 143(3) dated 24/12/2019, though at nil, with the said disallowance. The assessee appealed there- against before the first appellate authority under the Act on 18/01/2020. It was subsequently show caused u/s. 263 of the Act. The ld. Pr. CIT was of the view that the AO had gone wrong in making the addition for Rs. 29.91 lacs. Once section 13(1)(c), reproduced hereunder in its relevant part, is attracted, no exemption u/s. 11 could be allowed: Section 11 not to apply in certain cases 13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof— (a) (b) (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof— (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3): Provided that ……: Provided further that ….; (emphasis, supplied) (the provisos being applicable only to a Trust established prior to the commencement of the Act, as was a common ground before us, have no application). Bharat Charitable Hospital Society vs. CIT (Exemptions) He, accordingly, set aside the assessment and restored the matter to file of the AO to redo the assessment after allowing the assessee an opportunity of being heard in the matter. Aggrieved, the assessee is in appeal before us.

The assessee’s case before us was two-fold: (a) that the impugned order is without jurisdiction inasmuch as the assessee had, prior to the issue of notice u/s. 263 by the ld. Pr. CIT on 16.02.2022, proposing to exercise the power u/s. 263 of the Act, filed an appeal before the first appellate authority on 18.01.2020, which is in fact pending disposal even to date; (b) The second ground assails the revision as the payees under reference are qualified and established professionals in the medical field, working for the assessee for long, payment to whom would not therefore be covered u/s.13(1)(c) of the Act.

We have heard the parties, and perused the material on record.We find little merit in the assessee’s case, which we elaborate upon ground-wise. 4.1 Explanation(c) to section 263 contemplates exclusion of revisionary jurisdiction in respect of matters that had been subject to consideration and decision by the first appellate authority. On 16/2/2022, i.e., the date notice u/s. 263 was issued by the revisionary authority, there had been no adjudication by the first appellate authority, admittedly outstanding even as on the date of the hearing. That is, even presuming the subject matter to be the same, and which is apparently not the case. This is as the order by the ld. Pr. CIT concerns itself with the consequence of the invocation of s. 13(1)(c) r/w. s. 13(3), while the assessee disputes the applicability of the said provision itself, i.e., claims sec. 13(1)(c) to have been, in the facts and circumstances of it’s case, wrongly invoked. And which in fact brings us to the assessee’s second objection.

4.2 The second ground itself endorses the assessment as being erroneous. This is as the AO had admittedly not undertaken any exercise in coming to the conclusion that the payment to the doctor-trustees was in excess. He merely inferred so on the basis of the payment made to the doctor-trustees being in a sum higher than that to other 3 Bharat Charitable Hospital Society vs. CIT (Exemptions) doctors working for the assessee-trust. Experience and professional standing could vary significantly across different doctors. Only the like can be compared with the like. The impugned payments would therefore warrant being compared with the remuneration of doctors with similar professional standing, i.e., in terms of qualification and experience. Where he indeed finds it as so, so that s.13(1)(c) is attracted, inasmuch as a benefit, at the expense of the charitable institution, has been extended to a specified person/s, the same would exclude any benefit u/ss. 11 & 12 of the Act, which would accordingly not apply. There is no question in such a case of making a disallowance for the amount considered as paid in excess, allowing benefit u/s.11 for the balance, as would be the case qua a s. 37(1) disallowance, where, as in the instant case, the rendering of the services is not in doubt. This is the second error committed by the AO, clearly prejudicial to the interest of the Revenue, even as the former was to that of the assessee, and which forms the subject matter of it’s appeal.

For the reasons afore-stated, the impugned order has our approval. So, however, we make it clear that the AO shall, in the set-aside proceedings, undertake proper enquiry in the matter, and issue definite findings of fact. There is no ambiguity in the law in the matter, so that the matter boils down to determination of facts and decide on the terra firma thereof, i.e., of the facts found, on the basis of the material adduced before him, or otherwise collected by the AO, and of which the assessee is put to notice. The AO shall, needless to add, complete the assessment within the time frame provided by law. We decide accordingly.