BREACH CANDY HOSPITAL TRUST, MUMBAI V. ACIT (E) - 1(1), MUMBAI

ITA 1719/MUM/2023

AI Insights

Breach Candy Hospital Trust appealed against the order of the CIT(A) which denied their claim for exemption under section 10(23C)(via) and confirmed the non-consideration of gratuity provisions as an application of income. The Tribunal noted that the CIT(A) had dismissed the appeal without following the directions of the Bombay High Court, which had granted interim relief to the assessee. The Tribunal restored the issue to the assessing officer to allow the claim of exemption as directed by the High Court. Regarding the gratuity provisions, the Tribunal directed the assessing officer to allow the claim of gratuity expenses of Rs.376,236 and to verify the claim for Rs.238,387. The Tribunal also addressed the issue of carry forward of deficit, directing the assessing officer to consider the rectification application filed by the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130149 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-08-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2023
• Other Referred Cases: Apeejay Education Trust Vs. ACIT, Bharat Earth Mover Vs. CIT, Anandilal& Ganesh Poddar Society Vs. DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S. SRINIVASU
• Keywords: Competent authority
• Section: 11; 143(3); 12A; 10B; 13; 10(23C)

Judgement Text

P a g e | 1 ITA No.1719/Mum/2023 Breach Candy Hospital Trust Vs. ITO Exemption Ward (1)(1) IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No.1719/Mum/2023 (A.Y. 2009-10) Breach Candy Hospital Trust, 60A, Bhulabhai Desai Road, Cumballa Hill S.O, Mumbai – 400026 Vs. Income Tax Officer, Exemption Ward (1)(1) 506, 5 th Floor, Piramal Chamber, Lalbaug, Parel Mumbai – 400012 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAATB0214D Appellant .. Respondent [ Appellant by : Shri Fenil Bhat Respondent by : S. Srinivasu Date of Hearing 10.08.2023 Date of Pronouncement 30.08.2023 आदेश / O R D E R Per Amarjit Singh (AM): This appeal filed by the assesse is directed against the order passed by the ld. CIT(A) NFAC, dated 21.03.2023 for A.Y. 2009-10. The assesse has raised the following grounds before us: Exemption under section 10(23C)(via) 1. The learned CIT(A) erred in denying the claim of the appellant for grant of exemption under section 10(23CX(via) of the Act. 2. The learned CIT(A) erred in not following the directions of the Hon'ble Bombay High Court to grant exemption under section 10(23CXvia) pursuant to ad-interim relief granted to the appellant vide order dated 17 January 2011. The learned CIT(A) ought to have followed directions of Hon'ble Bombay High Court. Provision for gratuity to be treated as ‘application of income’ P a g e | 2 ITA No.1719/Mum/2023 Breach Candy Hospital Trust Vs. ITO Exemption Ward (1)(1) 3. The learned CIT(A) erred in confirming the action of the learned AO of not considering the provision for gratuity of Rs.6,14,623 as an application of income. 4. The learned CIT(A) ought to have appreciated that only the amount of Rs.6,14,623 has been claimed as application of income which comprises of Rs2,38,387 relating to amount paid to employees during the year and Rs.3,76,236 relating to the provision for gratuity. 5. The learned CIT(A) erred in holding that the appellant claims the contribution to gratuity fund as well as provisions created as application of income. The leaned CIT(A) ought to have appreciated that only the provision for gratuity of Rs.3,76,236 is claimed as application of income and not the contribution to the gratuity fund. 6. The leaned CIT(A) erred in holding that provision created on the basis of actuarial valuation is nothing but an estimation of contingent liability. 7. The learned CIT(A) ought to have appreciated that provision for gratuity made reflects amount irretrievably earmarked and allocated towards its obligation for its employees and hence, should be considered as application of income. 8. Without prejudice to the above and in any event, the learned AO be directed to allow a deduction of staff gratuity in the year in which the payment is made by the appellant. Excess-application of income 9. The learned CIT(A) erred in observing that the appellant submitted before the learned AO that it is not claiming the carry forward of deficit to subsequent years based on the erroneous observation of the learned AO. 10. The learned CIT(A) ought to have directed the learned AO to determine the excess of the application over the income of Rs.9,56,79,899 as deficit for the year to be carried forward for set-off in the subsequent years. General 11. Each one of the above grounds of appeal is without prejudice to the other. 12. The appellant reserves the right to add, alter or amend each one of the above grounds of appeal.” 2. Fact in brief is that assesse filed its return of income on 30.09.2009 along with income and expenditure account, balance sheet and audit report in the form 10B declaring total income of Rs.nil. The assesse trust is registered as a charitable organization with DIT(E) Mumbai u/s 12A and with Charity Commissioner Mumbai. The P a g e | 3 ITA No.1719/Mum/2023 Breach Candy Hospital Trust Vs. ITO Exemption Ward (1)(1) assessee trust was running a hospital. The case of the assessee was subject to scrutiny assessment and assessment u/s 143(3) of the Act was completed on 28.12.2011. Further fact of the case are discussed while adjudicating ground of appeal filed by the assesse. Ground No. 1 & 2: Denying the claim of assesse for grant of exemption us/ 10(23C) of the Act: 3. In the assessment order at para 2 the AO has mentioned the main object of the assessee trust as under: “a. Creating and maintaining hospital for philanthropic purposes and not for the purpose of profit. b. To provide medical facilities for treatment of diseases to persons of all community. c. To promote, maintain and run medical research centre or centres at Mumbai. d. To maintain hospital for all forms of surgical and medical cases including infectious diseases and mental cases.” At para 3.1 of the order the assessing officer stated that assesse trust was granted exemption u/s 10(22A) of the Act for the year 1970-71 to 1995-96. Thereafter CBDT vide order dated 10.04.2003 had granted approval to the trust u/s 10(23C) of the Act for the year 1999-2000 to 2001-02. During the course of assessment the assessing officer has considered the alternate claim of the assessee u/s 11 of the Act against the same assessee has filed appeal before the ld. CIT(A). 4. The ld. CIT(A) has dismissed the claim of assesse for providing exemption u/s 10(23C) of the Act on the ground that this matter was pending for adjudication before the Hon’ble Bombay High Court, therefore, following the rule of consistency the claim of the assesseewsa dismissed. 5. During the course of appellate proceedings before us the ld. Counsel submitted that after insertion of Sec. 10(23C)(via) of the Act., P a g e | 4 ITA No.1719/Mum/2023 Breach Candy Hospital Trust Vs. ITO Exemption Ward (1)(1) the assessee was initially granted approval for assessment year 1999 to 2000 to 2001 -02 by the CBDT vide order dated 10.04.2003. Thereafter the Chief Commissioner vide consolidated order dated 30.03.2009 for assessment year 2002-03 to 2010-11 had rejected the renewable application of the assessee. Thereafter the assesse filed writ petition before the Hon’ble Bombay High Court and Hon’ble Bombay High Court vide order dated 24.08.2009 remanded the matter back to the file of the competent authority to reconsider the matter. However, again vide order dated 15.04.2010 the competent authority rejected the renewable application of the assesse. The assesse challenge the same before the Hon’ble Bombay High Court in writ petition no. 2462 of the 2010. The Hon’ble Bombay High Court vide order dated 17.01.2011 granted an interim relief to the assesse and directed the Income Tax Authority to complete the assessment on the basis that application u/s 10(23C)(via) of the Act has been approved. However, the assessing officer vide order u/s 143(3) dated 12.12.2011 has simply rejected the claim of the assessee u/s 10(23C) of the Act by adjudicating the claim u/s 11 of the Act which was the alternative claim of the assessee. Therefore, ld. Counsel vehemently contended that AO be directed to process and allow the claim of assessee u/s 10(23C) (via) of the Act as per the direction of the Hon’ble Bombay High Court. On the other hand, the ld. DR supported the order of lower authorities. 6. Heard both the side and perused the material on record. Without reiterating the facts as elaborated above the assessing officer has passed assessment order u/s 143(3) of the Act on 12.12.2011 and without any discussion rejected the claim u/s 10(23C) of the Act. The assesse has placed in the paper book the copies of order of the Hon'ble Bombay High Court's orders granting/continuing the ad-interim relief in terms of prayer (d) in writ petition no. 2462 of 2010 as under: P a g e | 5 ITA No.1719/Mum/2023 Breach Candy Hospital Trust Vs. ITO Exemption Ward (1)(1) “a) Order dated 17 January 2011 b) Order dated 13 June 2011 c) Order dated 25 April 2014 d) Order dated 16 December 2021 We have also perused these orders wherein the Ad-interim relief in terms of prayer clause15(d)of the writ petition no. 2462 of 2010 was further was granted. The extract of the prayer at clause 15(d) is as under: “(d) That pending the hearing and final disposal of the present Petition, the Respondents be: (i) restrained from giving effect to the order dated 15th April 2010 (Exhibit 'U' hereto) or to bring the surplus earned by the Petitioner to tax under the Act, and (ii) complete assessments and all other proceedings under the Act on the basis that the Petitioners applications under section 10(23C)(via) are approved.” We find that inspite of the direction given by the Hon’ble Bombay High Court as referred above the ld. CIT(A) in his order dated 21.03.2023 has incorrectly dismissed the ground of appeal of the assessee holding that matter is pending before the Hon’ble Bombay High Court without following the direction of the Hon’ble High Court as mentioned supra in this order. Therefore, we restore this issue to the file of the assessing officer to allow the claim of the assessee u/s 10(23C) (VIA) of the Act in accordance with the direction of the Hon’ble Bombay High Court. Therefore, both these ground of appeal of the assessee are allowed for statistical purposes. Ground No. 3 to 8: 7. During the course of assessment on the perusal of the detail filed AO noticed that assessee has claimed gratuity of Rs.614,623/- on the expenditure side of its income and expenditure account. The AO P a g e | 6 ITA No.1719/Mum/2023 Breach Candy Hospital Trust Vs. ITO Exemption Ward (1)(1) further stated that the aforesaid amount was comprised of amount of Rs.376,236/- being balance between opening provision of gratuity as on 01.04.2008 and closing provision of gratuity as on 30.03.2009. Other amount was pertained to the different between the gratuity paid during the year and the earning of amount along with Tata AIG amounting to Rs.238,387/-. On query the assessee explained that the provision for gratuity made was based on actuarial valuation. The assessing officer was of the view that these were provision only therefore the same cannot be treated as application of income therefore, the claim of expenditure towards gratuity of Rs.614,623/- was not allowed. 8. Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. 9. During the course of appellate proceedings before us the ld. Counsel submitted that assessee had incurred staff gratuity expenditure amounting to Rs.614,623/-. The assessee ever year creates provision of gratuity on the basis of actuarial valuation in accordance with accounting standard 15 issued by the institute of Chartered Accountant of India. The gratuity fund is administrated through group gratuity schemes with Tata AIG Life Insurance Company Ltd. The ld. Counsel further submitted that assessee has not claimed deduction on both provisions of gratuity liability as well as premium paid to the Tata AIG. The ld. Counsel submitted that no deduction is claimed on contribution made to Tata AIG. On the other hand, the ld. D.R supported the order of lower authorities. 10. Heard both the sides and perused the material on record. During the year under consideration the assessee has claimed gratuity expenditure to the amount of Rs.614,623/-. The assessee explained P a g e | 7 ITA No.1719/Mum/2023 Breach Candy Hospital Trust Vs. ITO Exemption Ward (1)(1) that it create provision of gratuity on the basis of actuarial valuation in accordance with Accounting Standard 15 issued by the institute of Chartered Accountant of India. The assessee charged gratuity to income and expenditure account on the basis of ascertained liability at the same time an amount equivalent to the provision is attributed to the group gratuity policy of Tata AIG Life Insurance Company Ltd. The contribution made to Tata AIG Policy is not claimed as deduction. Upon the actual retirement or an unfortunate death of an employee, withdrawal is made from the policy and if there is a deficit in as much as liability to pay gratuity is more than the fund available under the policy, the deficit/balance amount is paid by the assessee out of its own account and only the deficit/balance amount is claimed an application of money. During the year under consideration the assessee has incurred gratuity expenses of Rs.614,623/- which comprised of Rs.376,236/- being the difference between closing provision of gratuity and opening provision of gratuity in accordance with the valuation determined by the actuarial valuation. The second component of Rs.238,387/- was the difference between the actual gratuity liability arose in the year under consideration amounting to Rs.42,43,008/- and the fund available in gratuity policy with Tata AIG Life Insurance Company Ltd. amounting to Rs.40,04,612/-. In this regard, the ld. Counsel has also referred the judicial pronouncements of ITAT Kolkata in the case of Apeejay Education Trust Vs. ACIT (2021)130 taxmann.com 436 and also referred the decision of Hon’ble Supreme Court in the case of Bharat Earth Mover Vs. CIT (245 ITR 428) and decision of ITAT in the case of Anandilal& Ganesh Poddar Society Vs. DCIT (ITA No. 5962/Mum/2019 dated 03.08.2021). After considering the aforesaid fact we observe that assessee has clearly established that an amount of Rs.376,236/-is an ascertained liability which is determined every year on the basis of actuarial P a g e | 8 ITA No.1719/Mum/2023 Breach Candy Hospital Trust Vs. ITO Exemption Ward (1)(1) valuation and the assessing officer has not brought any material on record to prove contrary to the claim of the assessee.Therefore we consider that decision of ld. CIT(A) is unjustified and direct the AO to allow the claim of gratuity expenses of Rs.376,236/-. In respect of the other component of the gratuity expenses of Rs.238,387/- being the difference between the actual gratuity liability and the fund available in gratuity policy with Tata AIG Life Insurance Company Ltd., the assessee claimed that it has not claimed any amount as application of its income on the contribution made with Tata AIG Life Insurance Company Ltd. and the amount of Rs.238,387/- is the actual liability paid over and above the amount withdrawn from the Tata AIG Policy. Considering the submission of the assessse we restore this limited issue to the file of the assessing officer for examination and verification that assessee has not claimed deduction of premium paid as contribution towards Tata AIG Policy and if it found to be correct that assessee has not claimed any deduction of premium paid then the claim of gratuity expenditure being deficit amount received from Tata AIG of Rs.238,387/- is to be allowed as deduction. Therefore, ground no. 3 to 8 of the appeal are allowed for statistical purposes. Ground No. 9 & 10: Denial of carry forward deficit amounting to Rs.956,79,899/- set off in subsequent year: 11. During the course of appellate proceeding before us the at the outset the ld. Counsel submitted that assesse has filed a rectification application before the assessing officer seeking carry forward of deficit. The Ld.Counsel also submitted that the ld. CIT(A) wrongly observed that assesseeis had not pressed this issue before the assessing officer. 12. During the course of appellate proceedings the assessee submitted that it is entitled to carry forward its deficit on account of P a g e | 9 ITA No.1719/Mum/2023 Breach Candy Hospital Trust Vs. ITO Exemption Ward (1)(1) excess application of the income over the income earned of the trust from its activities determined on the basis of principal laid down by the Hon’ble Bombay High Court in the decision of CIT(A) Vs. Institute of Banking Personnel Section (IBPS) (264 ITR 110). In view of the above facts and findings we direct the assessing officer to consider the claim of the assessee as per the rectification application already filed at the earliest. Therefore, this ground of appeal of the assesse is allowed for statistical purposes. 13. In the result, the appeal of the assesee is allowed for statistical purpose. Order pronounced in the open court on 30.08.2023 Sd/- Sd/- (Aby T Varkey) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 30.08.2023 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.