DCIT, Coimbatore V. Smt. V.Muthulakshmi, Coimbatore

ITA 1328/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58108 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 12-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Charitable institution; Diversion of income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO.930(MDS)/2010 ASSESSMENT YEAR: 2006-07 SMT. V.MUTHULAKSHMI, PROP. VIKRAM HOSPITAL, VENKATASWAMY RD., R.S. PURAM, COIMBATORE. PAN ACSPM7238E. VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE IV, COIMBATORE. (APPELLANT) (RESPONDENT) AND ITA NO.1328(MDS)/2010 ASSESSMENT YEAR 2006-07 THE DEPUTY COMMISSIONER SMT.V.MUTHULAKS HMI, OF INCOME-TAX, VS. PROP. VIKRAM HOSPITAL, CENT.CLE.III, COIMBATORE. COIMBATOR E. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.VIJAYARAGHAVAN, ADVOCAT E DEPARTMENT BY : SHRI SHAJI P JACOB, IRS, COMM ISSIONER OF IT DATE OF HEARING : 12 TH MARCH, 2012 DATE OF PRONOUNCEMENT : 16 TH MARCH, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THESE ARE TWO - - ITA 930 & 1328 OF 2010 2 CROSS APPEALS, FILED BY THE ASSESSEE AND THE REVENU E. THE RELEVANT ASSESSMENT YEAR IS 2006-07. THESE APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME- TAX(APPEALS)-II AT COIMBATORE, PASSED ON 30-3-2010 AND ARISE OUT OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3 ) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE SMT. V.MUTHULAKSHMI IS THE PROPRIETRIX OF M/S.VIKRAM HOSPITAL AT COIMBATORE. SHE IS ALSO ONE OF THE TRUSTEES OF DR. P.G.V.CHARITABLE TRUST. THE ASSESSEE FILED HER RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON A LOSS OF ` 13,01,733/-, ALONGWITH AGRICULTURAL INCOME OF ` 9,50,820/-. 3. THE ASSESSEE HAD, IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, MADE INVESTMENTS IN WIND ELECTRICITY GENERATOR (WEG) TO THE EXTENT OF ` 3,85,00,000/-. THE ASSESSEE STATED BEFORE THE ASSESSING AUTHORITY THAT THE WEG WAS AN ASSET OWNED BY FIVE CO-OWNERS INDIVIDUALLY. THE FIVE CO- OWNERS ARE THE ASSESSEE HERSELF, HER HUSBAND DR. - - ITA 930 & 1328 OF 2010 3 P.G.VISWANATHAN AND THEIR CHILDREN DR. V.ARUNA, DR. V.ANJANA AND MR.V.VIKRAM. ACCORDING TO THE ASSESSEE, HER SH ARE IS 50% AND THE SHARES OF DR. P.G.VISWANATHAN, DR. V.ARUNA AND DR. V.ANJANA ARE 12% EACH AND THAT OF MR.VIKRAM IS 14%. 4. ON THE BASIS OF THE ABOVE EXPLANATION THAT WEG WAS A PROPERTY OWNED BY CO-OWNERS, THE ASSESSEE AS WELL AS THE OTHER CO-OWNERS CLAIMED THE DEDUCTION OF DEPRECIATI ON ALLOWANCE ON A PRO RATA BASIS. THE ASSESSING OFFICER REJECTE D THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON A FRACTIONAL BASIS BY HOLDING THAT WEG IS OWNED BY AN ASSOCIATION OF PERSONS (AOP ) CONSISTING OF THE SO CALLED CO OWNERS INCLUDING THE ASSESSEE HERSELF. 5. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER FOUND THAT M/S. PGV CHARITABLE TR UST, WHICH IS CONTROLLED BY THE ASSESSEE, HAS RECEIVED AN AMOUNT OF ` 40,05,867/- AS A RESULT OF THE SURGERIES CARRIED O UT IN HER PROPRIETRIX HOSPITAL M/S. VIKRAM HOSPITAL. ACCORDI NG TO THE ASSESSEE, THE SAID SUM IS NOT THE INCOME OF THE HOS PITAL, BUT THE - - ITA 930 & 1328 OF 2010 4 RECEIPT OF THE TRUST. THE ASSESSEE EXPLAINED THAT THE TRUST IS IDENTIFYING POOR AND DESERVING PATIENTS WHO NEED ME DICAL CARE INCLUDING SURGERY AND BRINGS THEM TO M/S. VIKRAM HO SPITAL FOR TREATMENT. WHERE SUCH POOR PATIENTS ARE IDENTIFIED AND SPONSORED BY M/S.PGV CHARITABLE TRUST, M/S. VIKRAM HOSPITAL IS CHARGING ONLY 50% OF THE NORMAL CHARGES, AS ACCORDI NG TO THE ASSESSEE, THE ENTIRE ACTIVITIES WERE CHARITABLE IN NATURE. THE ASSESSEE EXPLAINED THAT SURGERIES AND OTHER SERVICE S ARE RENDERED BY M/S. VIKRAM HOSPITAL ON A PURELY CHARIT ABLE BASIS AND 50% OF THE NORMAL EXPENSES COLLECTED FROM THE P OOR PATIENTS ARE TAKEN IN THE ACCOUNT OF THE TRUST, BEC AUSE THE EFFORTS ARE MADE BY THE TRUST IN THE NATURE OF CHARITABLE A CTIVITIES TO EARN THAT MUCH OF AMOUNT AS A RESULT OF SERVICES RENDERE D TO THE POOR PEOPLE. 6. THIS POSITION WAS ALSO NOT ACCEPTED BY THE ASSESSING AUTHORITY. HE HELD THAT EVEN THOUGH AT A CONCESSIONAL RATE, THE SERVICES ARE RENDERED BY THE HOSPITAL AND , THEREFORE, THE COLLECTION FROM SUCH CONCESSIONAL SERVICES, FORMS P ART OF THE INCOME OF THE HOSPITAL AND IT CANNOT BE TREATED AS THE INCOME OF - - ITA 930 & 1328 OF 2010 5 THE CHARITABLE TRUST. THE ASSESSING OFFICER HELD T HAT THE ASSESSEE IS THE PROPRIETRIX OF M/S.VIKRAM HOSPITAL AND BY THIS ARRANGEMENT SHE IS IN FACT DIVERTING HER INCOME TO THE TRUST. HE, THEREFORE, TREATED THE SUM OF ` 40,05,867/- AS THE INCOME OF THE ASSESSEE HERSELF. 7. IN FIRST APPEAL THE COMMISSIONER OF INCOME- TAX(APPEALS) HELD THAT THE WINDMILL PARTS WERE PURC HASED IN THE NAME OF M/S.VIKRAM HOSPITAL AND ALL THE BILLS RELAT ING TO THE COST OF ERECTING THE WINDMILL WERE ISSUED IN THE NAME OF M/S.VIKRAM HOSPITAL AND ALSO MONEY WAS PAID THROUGH THE HOSPIT AL ACCOUNT. HE OBSERVED THAT ALL THE CORRESPONDENCE WITH FINANC IAL INSTITUTIONS SEEKING CREDIT FACILITIES WERE FILED B Y MRS. MUTHULAKSHMI, WHO IS THE PROPRIETRIX OF M/S.VIKRAM HOSPITAL. THE TERM-LOAN ALLOWED BY THE STATE BANK OF INDIA WAS AL SO SANCTIONED IN THE NAME OF M/S.VIKRAM HOSPITAL. ALL THE CORRESPONDENCE WITH THE STATE ELECTRICITY BOARD AND ALSO THE POWER PURCHASE AGREEMENT WITH THE STATE ELECTRICITY BOARD HAVE BEEN ENTERED WITH M/S.VIKRAM HOSPITAL. HE ALSO FOU ND THAT ALL THE PAYMENTS MADE BY THE ELECTRICITY BOARD AUTHORIT IES TOWARDS - - ITA 930 & 1328 OF 2010 6 PURCHASE OF POWER WERE IN THE NAME OF M/S.VIKRAM HO SPITAL. IN THE LIGHT OF THE ABOVE EVIDENCES, THE COMMISSIONER OF INCOME- TAX(APPEALS) HELD THE WEG IS NOT A PROPERTY OWNED B Y CO- OWNERS, BUT IT IS THE SOLE PROPERTY OF THE ASSESSEE MRS. MUTHULAKSHMI, WHO IS THE PROPRIETRIX OF M/S.VIKRAM HOSPITAL. ACCORDINGLY, HE REJECTED THE CONTENTION OF THE ASSE SSEE IN CLAIMING FRACTIONAL DEPRECIATION. HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE ELIGIBLE ENTIRE DEPRECIATION I N THE HANDS OF MRS. MUTHULAKSHMI AS A DEDUCTION , AS SHE HAS BEEN HELD TO BE THE OWNER OF THE WEG. REGARDING THE OTHER ADDITION OF ` 40,05,867/-, THE COMMISSIONER OF INCOME-TAX(APPEAL S) FOUND THAT THE SAID AMOUNT WAS RIGHTLY EARNED BY THE TRUS T THROUGH THE CHARITABLE ACTIVITIES CARRIED ON BY IT. HE FOUND T HAT THE SURGERIES AND SERVICES WERE GIVEN FREE OF COST BY M/S.VIKRAM HOSPITAL TO THE POOR PATIENTS SPONSORED BY THE TRUST. BUT THE TRUST IS COLLECTING A CONCESSIONAL CHARGE AT 50% OF THE REGU LAR RATE AS A SOURCE OF REVENUE TO CARRY ON ITS OTHER CHARITABLE ACTIVITIES. HE, THEREFORE, FOUND THAT ALL THE ACTIVITIES NECESSARY FOR EARNING THE SAID AMOUNT OF ` 40,05,867/- WERE RENDERED BY THE TRUST AS PART OF ITS CHARITABLE ACTIVITIES AND, THEREFORE, THE AD DITION CANNOT BE - - ITA 930 & 1328 OF 2010 7 SUSTAINED IN THE HANDS OF THE ASSESSEE. THE ADDITI ON WAS ACCORDINGLY DELETED. 8. NOW, THE ASSESSEE HAS COME ON APPEAL AGAINST TH E FINDING OF THE COMMISSIONER OF INCOME-TAX(APPEALS) THAT THE WEG IS NOT A PROPERTY OWNED BY CO-OWNERS, BUT IT IS OWNED BY THE ASSESSEE HERSELF. 9. THE REVENUE HAS COME IN APPEAL ON TWO GROUNDS. FIRST ONE IS THAT THE ASSESSEE HAS CLAIMED ONLY 50% OF THE ELIGIBLE DEPRECIATION AND, THEREFORE, THE COMMISSIO NER OF INCOME-TAX(APPEALS) OUGHT NOT HAVE GRANTED 100% DEP RECIATION. THE OTHER ISSUE RAISED BY THE REVENUE IS THAT THE C OMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DELETING THE AD DITION OF ` 40,05,867/-. 10. WE HEARD SHRI SHAJI P JACOB, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E AND SHRI R.VIJAYARAGHAVAN, THE LEARNED COUNSEL APPEARIN G FOR THE ASSESSEE. AS FAR AS THE ISSUE OF OWNERSHIP OF THE WEG IS - - ITA 930 & 1328 OF 2010 8 CONCERNED, WE ARE INCLINED TO AGREE WITH THE FINDIN G ARRIVED AT THE COMMISSIONER OF INCOME-TAX(APPEALS). THE ASSES SEE, MRS.V.MUTHULAKSHMI, IS THE SOLE PROPRIETRIX OF M/S. VIKRAM HOSPITAL. M/S.VIKRAM HOSPITAL IS THE PROPRIETOR OF THE WEG. THIS IS EVIDENT FROM THE RECORDS RELATING TO SETTING UP OF THE WEG. THE NECESSARY PERMISSIONS WERE OBTAINED IN THE NAME OF M/S.VIKRAM HOSPITAL. ALL THE PURCHASES WERE MADE I N THE NAME OF M/S.VIKRAM HOSPITAL. ALL THE BILLS WERE ISSUED IN THE NAME OF M/S.VIKRAM HOSPITAL. ALL THE PAYMENTS WERE MADE BY M/S.VIKRAM HOSPITAL. A LOAN WAS AVAILED FROM STATE BANK OF INDIA TO FINANCE THE PROJECT AND THE LOAN WAS GRANT ED IN THE NAME OF M/S.VIKRAM HOSPITAL. THE TAMIL NADU ELECTRICITY BOARD HAS ENTERED INTO AN AGREEMENT FOR THE PURCHASE OF POWER AND THE SAID AGREEMENT HAS BEEN ENTERED INTO BETWEEN THE EL ECTRICITY BOARD AND THE ASSESSEE IN HER CAPACITY AS THE OWNER OF M/S. VIKRAM HOSPITAL. IN OTHER WORDS, THE AGREEMENT IS BETWEEN THE ELECTRICITY BOARD AND M/S.VIKRAM HOSPITAL, WHEREIN M/S.VIKRAM HOSPITAL HAS ACTED AS THE SOLE OWNER OF THE WEG. T HE TAMIL NADU ELECTRICITY BOARD HAS MADE PAYMENTS FROM TIME TO TIME FOR PURCHASE OF ENERGY AND ALL THOSE PAYMENTS HAVE BEEN MADE TO - - ITA 930 & 1328 OF 2010 9 M/S.VIKRAM HOSPITAL. THE ONLY CONTRIBUTION STATED TO HAVE BEEN MADE BY THE OTHER CO-OWNERS IS THAT SECURITIES WERE OFFERED BY THEM TO THE STATE BANK OF INDIA FOR RELEASING LOAN IN THE NAME OF M/S.VIKRAM HOSPITAL. 11. WE FIND THAT THE OFFERING OF SECURITIES OF THE HUSBAND AND THE CHILDREN OF THE ASSESSEE IS NOT SO RELEVANT IN DECIDING THE OWNERSHIP OF THE WEG. ALL THE EVENTS, RIGHT FRO M CONCEIVING THE IDEA OF WEG TILL THE COMPLETION OF THE PROJECT, HAVE BEEN DOCUMENTED THROUGH THE HANDS OF M/S.VIKRAM HOSPITAL . FOR ALL LEGAL PURPOSES WEG IS OWNED BY M/S.VIKRAM HOSPITAL. THE WEG HAS BEEN CONSTRUCTED IN THE LAND BELONGING TO T HE ASSESSEE HERSELF. AS FAR AS THE IMMOVABLE PROPERTY IS CONCERNED, THE OWNERSHIP IS NOTHING BUT LEGAL OWNER SHIP. IN THE PRESENT CASE, THE ASSESSEE, MRS.V.MUTHULAKSHMI, AS THE PROPRIETRIX OF M/S.VIKRAM HOSPITAL, IS THE LAWFUL O WNER OF THE WEG. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS R IGHTLY HELD THAT THE ASSESSEE IS THE SOLE OWNER OF THE PRO PERTY. - - ITA 930 & 1328 OF 2010 10 12. THE CONTENTION OF THE REVENUE THAT THE OWNERSH IP SHOULD BE HELD IN THE NAME OF AN ASSOCIATION OF PER SONS (AOP) CANNOT BE ACCEPTED BECAUSE THERE WAS NO SUCH AOP IN EXISTENCE. WHEN A CASE OF CO-OWNERSHIP ITSELF IS D EMOLISHED IN THE PRESENT CASE, THERE CANNOT BE A CASE OF AN AOP IN THE ABSENCE OF ANY CONSENT BETWEEN THE PERSONS. 13. THEREFORE, WE HOLD THAT THE ASSESSEE IS THE SO LE OWNER OF THE PROPERTY AND ALSO HOLD THAT THERE IS N EITHER CO- OWNERSHIP NOR AOP AND THE PROPERTY BELONGS TO THE A SSESSEE. 14. REGARDING THE CONTENTION OF THE REVENUE ON THE QUANTUM OF DEPRECIATION ALLOWED BY THE COMMISSIONER OF INCOME-TAX(APPEALS) IN THE HANDS OF THE ASSESSEE, W E FIND THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) WAS EXPLAIN ING ONLY THE INEVITABLE CONSEQUENCE OF A LAWFUL AND APPROPRI ATE FINDING. IF AN ASSET IS USED FOR CARRYING ON OF A BUSINESS, THE OWNER OF THE ASSET IS ENTITLED TO CLAIM DEPRECIATION. IN THE PR ESENT CASE THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS CATEGORICAL LY HELD THAT THE ASSESSEE IS THE SOLE OWNER OF THE ASSET. THEREAFTER IT IS - - ITA 930 & 1328 OF 2010 11 A STATUTORY CONSEQUENCE THAT THE ASSESSEE IS ENTITL ED FOR THE WHOLE OF THE DEPRECIATION DUE ON THE ASSET. THE CO MMISSIONER OF INCOME-TAX(APPEALS) HAS NOT DONE ANYTHING MORE. WHAT HAS BEEN DIRECTED BY HIM TO GRANT THE ENTIRE DEPRECIATI ON TO THE ASSESSEE, IS ONLY A STATUTORY CONSEQUENCE. THE ABO VE STATED STATUTORY CONSEQUENCE IS AUTOMATIC ON THE FINDING A RRIVED AT ON THE QUESTION OF OWNERSHIP OF THE ASSET. WE DO NOT FIND ANY MERIT IN THE ARGUMENT RAISED BY THE REVENUE. 15. NOW, REGARDING THE QUESTION OF ` 40,05,867/-, EARNED BY PGV CHARITABLE TRUST, WE FIND NO DISPUTE ON THE FACTS STATED. THE TRUST IS IDENTIFYING THE POOR AND DESE RVING PATIENTS TO UNDERGO SURGERY AND OTHER MEDICAL TREATMENT IN M/S. VIKRAM HOSPITAL. THE TRUST IS A REGISTERED CHARITABLE TRU ST. THE IDENTIFICATION OF POOR PATIENTS AND ARRANGING FOR T HEIR TREATMENT IN M/S.VIKRAM HOSPITAL ARE ALL PARTS OF CHARITABLE ACT IVITIES CARRIED ON BY THE TRUST. THE SURGERY AND OTHER SERVICES AR E RENDERED TO THESE POOR PATIENTS IN M/S.VIKRAM HOSPITAL FREE OF COST. THE TRUST IS CHARGING FROM THE BENEFICIARIES 50% OF THE NORMA L FEES OF THOSE HOSPITAL SERVICES. WE HAVE TO SEE ALL THESE ACTIVITIES AS A - - ITA 930 & 1328 OF 2010 12 WHOLE AND NOT IN PIECEMEAL. WHEN THESE ACTIVITIES ARE VIEWED IN A WHOLESOME WAY, WE FIND THAT BY CHARGING HALF OF T HE NORMAL RATE, THE TRUST IS ARRANGING FOR THE TREATMENT OF P OOR PEOPLE AS PART OF ITS CHARITABLE ACTIVITIES. THEREFORE, IT I S NOT POSSIBLE TO HOLD THAT THIS IS A DIVERSION OF INCOME OF M/S.VIKR AM HOSPITAL. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS RIGHTLY DELETED THE ADDITION OF ` 40,05,867/- IN THE HANDS OF THE ASSESSEE. 16. IN RESULT, THE APPEALS FILED BY THE ASSESSEE A S WELL AS BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 16 TH OF MARCH, 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 16 TH MARCH, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.