M/s Insitute of Haeemaology, New Delhi V. ADIT(E), New Delhi

ITA 1225/DEL/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2812 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 1
• Assessment Year: 2010-2011
• Appeal Filed On: 03-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSESD
• Keywords: Charitable institution; Benefit of exemption
• Section: 80G; 12A; 12AA; 12

Judgement Text

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 KAMBL E, JUDICIAL MEMBER I.T.A .NO.- 1225 /DEL/2015 (ASSESSMENT YEA R-2010-11) INSTITUTE OF HAEMATOLOGY 11/6B SHANTI CHAMBERS, PUSA ROAD, NEW DELHI AAAT14267P (APPELLANT) VS ADIT (E) TRUST CIRCLE-II NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER 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 INC OME 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 I NCOME 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 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 PER SONS 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 W HEN 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 TR UST HAVING BEEN EXEMPTED IN THE PAST. WITHOUT PREJUDICE TO THE ABOVE. 4. IN MAKING AN ADDITION OF RS.2,22,000/- TOWARDS N OTIONAL INCOME OF INTEREST ON AMOUNTS GIVEN OUT OF ITS CAPI TAL AND RESERVES, IF THE EXEMPTION U/S 11 & 12 OF THE IT AC T HAS BEEN DENIED. 2. 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 URI NE ETC. AND IS DOING THE SAME AT THE SUBSIDIZED RATES. THE ASSESS EE 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 A ND CONDITIONS OF SECTION 11, 12, 12A, 12AA & 13 ETC. AS PER THESE S ECTIONS THE ASSESSEE WAS REQUIRED TO INVEST ITS CORPUS FUNDS OR THE CAPITAL FUND IN THE SPECIFIED ASSETS AS PROVIDED U/S 11(5) BUT T HERE WAS VIOLATION 3 ITA NO. 1225/DEL/2015 OF THIS PROVISION AS THE ASSESSEE HAD GIVEN THE INT EREST FREE LOANS OF RS.18,39,778/- TO THE RELATIVES OF THE MANAGING TRU STEE (SHRI DIVYA BHUSHAN LAL) AND THE DETAILS OF LOANS ARE AS UNDER: - SL NO. NAME AMOUNT RELATION 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/- 3. THE A.O HAS FOUND THAT THERE IS VIOLATION OF SEC TION 11 (5) R.W.S 13 (1) (D) AND HAS ACCORDINGLY DENIED THE EXE MPTION U/S 11(1). THE A.O HAS ALSO MADE THE ADDITION OF NOTIONAL INTE REST OF RS.2,22,000/- FOR THE INTEREST FREE LOANS GIVEN TO RELATIVES OF THE MANAGING TRUSTEE. THE A.O HAS ALSO MADE THE ESTIMA TED DISALLOWANCE OF 10% OF THE EXPENSES OF RS.3,41,964/ - VIDE THE ORDER OF THE A.O. 4. THE ASSESSEE FILED APPEAL AGAINST THE ORDER OF T HE A.O BEFORE CIT(A). THE ASSESSEE WAS CLAIMED THE BENEFIT OF EXE MPTION 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 ESTIMATE D DISALLOWANCES @ 10% OUT OF THE TOTAL EXPENSES ARE CONCERNED THE SAM E HAS BEEN MADE ON ESTIMATED BASIS WITHOUT ANY VALID REASONS A ND ACCORDINGLY THE SAME WAS DELETED. 3. THE LD. AR SUBMITTED THAT SECTION 11 & 12 PROVID ES EXEMPTION FROM TAX TO THE INCOME OF A CHARITABLE TR UST/ 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 T O DEPRIVE A RELIGIOUS OR CHARITABLE TRUST OF EXEMPTION INTER AL IA 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 P ROPERTY OF THE TRUST (C) OR ANY FUNDS OF THE TRUST ETC (D) ARE USED OR A PPLIED FOR THE BENEFIT OF THE SPECIFIED PERSONS. IN OTHER WORDS, S ECTION 11 EXEMPTS THE INCOME OF THE TRUST FROM TAXATION BUT SECTION 1 3 PROVIDES TAXABILITY OF CERTAIN INCOMES OF THE TRUST IF THESE WERE NOT APPLIED OR USED FOR THE FULFILLMENT OF THE OBJECTS OF THE TRUS T 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 MAXI MUM MARGINAL RATE AS PER THE PROVISO TO SECTION 164 (2) OF IT AC T. 5 ITA NO. 1225/DEL/2015 4. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE T RUST IS REGISTERED U/S. 12A OF THE INCOME TAX ACT VIDE DATE D 29.06.1999. IT IS ALSO REGISTERED U/S 80G BY LETTER DATED 07.08.20 09 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 T HE CHARITABLE CHARACTER OF THE INSTITUTION AS 85% OF THE ENTIRE R ECEIPTS ARE APPLIED FOR CHARITABLE PURPOSES AND / OR ANY SURPLUS ACCRUI NG THERETO IS PLOUGHED BACK TO CARRY OUT THE CHARITABLE ACTIVITIE S 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 C ONCESSION. 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 U NDER 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 FO UNDATION (2009) 31 SOT 119 (MUM.)(TRI.) AND PIMS MEDICAL AND EDUCAT ION CHARITABLE SOCIETY V. CIT (2013) 56 SOT 522/150 TTJ 891 (CHD.) WHEREIN IT HAS BEEN HELD THAT IT IS NOT NECESSARY T HAT THE MEDICAL RELIEF SHOULD BE ENTIRELY FREE, AND NO FEE BE CHARG ED 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 (EXEMPTIO NS) (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 A MENDMENT AMENDMENT TO BE READ DOWN PRIMARY AND DOMINANT OB JECT OF INSTITUTION TO ADVANCE GENERAL PUBLIC UTILITY INC OME GENERATED BY COMMERCIAL ACTIVITIES INCIDENTAL CHARITABLE INSTI TUTION ENTITLED TO EXEMPTION. EXEMPTION U/S. 11 & 12 CANNOT BE DENIED TO THE ASSESSEE AS IT IS CARRYING ON MEDICAL RELIEF IN COM PLIANCE WITH THE OBJECTS OF THE TRUST FOR CHARITABLE PURPOSES AND SU CH TRUST HAS BEEN EXEMPTED IN THE PAST. 7. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND CIT(A)S ORDER. 8. WE HAVE PERUSED ALL THE RECORDS AND HEARD THE SU BMISSIONS OF BOTH THE PARTIES. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE TRUST HAD GIVEN INTEREST FREE LOAN TO PERSONS AMOUNTING TO RS. 20,39,778/- IN VIOLATIO N OF THE PROVISION OF SECTION 13(1)(D) R.W.S SECTION 13(3) A ND SECTION 11(5) OF THE INCOME TAX ACT, 1961 AND, THUS WORKED OUT AN AD DITION OF RS. 2,22,000/- TO THE RETURNED INCOME OF THE TRUST. ON THIS ACCOUNT, THE ASSESSING OFFICER, DENIED EXEMPTION UNDER SECTION 1 1 & 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 DELETIN G THE ADHOC ADDITION OF RS. 3,41,964/- IN EXPENSES, CONFIRMED T HE DENIAL OF EXEMPTION UNDER SECTION 11 AND 12 AS DONE BY THE AS SESSING 7 ITA NO. 1225/DEL/2015 OFFICER. AS REGARDS THE DENIAL OF EXEMPTION U/S. 11 IT IS SUBMITTED THAT THE ASSESSEES ACTIVITIES IS RELATED TO THAT O F A HOSPITAL WHERE MEDICAL TESTS ARE CARRIED OUT FOR GIVING MEDICAL RE LIEF TO THE POOR OR DISADVANTAGED EITHER FREE OR AT A CONCESSIONAL /SUB SIDIZED RATES. THE CHARGING OF CONCESSIONAL RATES DOES TAKE AWAY T HE CHARITABLE CHARACTER OF THE INSTITUTION. THE RELIANCE OF THE H ONBLE 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 O F SECTION 10(23C)(IV) WHICH SPECIFICALLY DEALS WITH INCOME RE CEIVED BY ANY PERSON ON BEHALF OF, INTER ALA, AN INSTITUTION ESTA BLISHED FOR CHARITABLE PURPOSES. THEREFORE, THE MEANING OF THE EXPRESSION CHARITABLE PURPOSES HAS TO BE EXAMINED IN THE CONTEXT OF SECT ION 10(23C)(IV). THE EXPRESSION HAS A REFERENCE TO INCOME. BECAUSE I T IS ONLY WHEN SUCH AN INSTITUTION HAS AN INCOME THAT THE QUESTION OF NOT INCLUDING THAT INCOME IN ITS TOTAL INCOME WOULD ARISE. THEREF ORE, 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 ASSESSEES MAIN ACTIVITY OF PROVIDING MEDICAL FACILITY AT THE SUBSIDIES RATE DO ES AMOUNT TO CHARITABLE PURPOSE. THUS GROUND NO. 1 AND 3 ARE ALL OWED IN FAVOUR OF THE ASSESSEE. 9. AS REGARDS THE SECOND GROUND, IT IS ADMITTED THA T 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 A DDED INCOME OF RS. 2,22,000/- HAS TO BE TAXED AT THE MAXIMUM MARGI NAL RATE OF TAX AS PER THE PROVISION OF SECTION 164(2) OF THE INCOM E 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 TAX ED AS THE SAME IS NOT RELATED TO THE CHARITABLE PURPOSE UNDER SECT ION 11 AND 12 OF THE ACT. 10. IN RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14 TH OF JANUARY, 2016. SD/- SD/- ( S. V. MEHROTRA) (SUCH ITRA 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 THE SECOND MEMBER .01.2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. .01.2016 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 14.01.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON .01.2016 PS 7. FILE SENT TO THE BENCH CLERK 14.01.2016 PS 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.