Parkar Medical Foundation, Ratnagiri V. Deputy Commissioner of Income-tax, Ratnagiri Circle , Ratnagiri

ITA 2728/PUN/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8749 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 20-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revised return
• Section: 37; 12; 11; 12A; 13

Judgement Text

आयकर अपीलीय अधधकरण “ए ” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI R.S.SYAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER आयकर अपील सं. / ITA Nos. 2726, 2727 & 2728/PUN/2017 धनधाारण वषा / Assessment Years : 2008-09, 2010-11 & 2011-12 Parkar Medical Foundation Parkar Hospital, 828, Shivajinagar, Ratnagiri-415 639 PAN : AAATP4632P .......अपीलाथी / Appellant बनाम / V/s. The Deputy Commissioner of Income Tax, Ratnagiri Circle, Ratnagiri ......प्रत्यथी / Respondent Assessee by : Shri Nikhil Pathak Revenue by : Shri S.P Walimbe सुनवाई की तारीख / Date of Hearing : 10.11.2021 घोषणा की तारीख / Date of Pronouncement : 11.11.2021 आदेश / ORDER PER CHANDRA MOHAN GARG JM: These three appeals filed by the assessee are directed against the common order of the Ld. CIT(Appeals)-2, Kolhapur dated 20.09.2017 for the assessment years 2008-09, 2010-11 & 2011-12 as per the common grounds of appeal on record. 2. Both the parties agreed that issues involved in all these appeals and facts and circumstances are similar and identical and therefore, these cases were heard together and disposed of vide this consolidated order. 2 ITA Nos.2726 to 2728/PUN/2017 A.Ys.2008-09, 2010-11 & 2011-12 3. At the very outset, the Ld. Counsel for the assessee submitted that he is only pressing Ground Nos. 1 to 4 in all these appeals and remaining grounds of the respective appeals are not pressed. Now, the effective grounds i.e. Ground Nos. 1 to 4 reads as follows : “1. The learned CIT(A) erred in holding that the appellant trust had violated the provisions of Section 13(1)(c) by paying professional charges of Rs.33,36,000/- paid to the trustees namely Dr. Alimiya Parkar and Dr. Mumtaz Parkar. 2. The learned CIT(A) erred in holding that there was no mandate in the trust deed to pay the professional charges to the above to trustees and hence, the payment thereof resulted in granting undue benefit to the trustees and hence, there was a clear violation of the provisions of Section 13(1)(c). 3. The learned CIT(A) failed to appreciate that the professional charges paid to the above two trustees were on account of the actual professional services rendered by the above two trustees and therefore, there was no question of holding that the said payment resulted in violation of section 13(1)(c) as there was no undue benefit granted by the appellant trust to the above two trustees. 4. The learned CIT(A) failed to appreciate that there was no bar for the appellant trust to pay professional charges to the trustees on account of the said persons rendering their professional services and hence, the appellant had not violated the provisions of section 13(1)(c) on account of the above referred payment.” For the sake of convenience, we would first take up ITA No. 2726/PUN/2017 for the assessment year 2008-09 for adjudication as lead case. ITA No.2726/PUN/2017 A.Y.2008-09 4. The brief facts in this case are that the assessee trust derives income from running a hospital. The return of income for the assessment year 2008- 09 was filed by the assessee on 22.09.2008 declaring total income Rs. Nil. A revised return of income was filed on 26.02.2010 declaring total income of Rs. Nil. The Assessing Officer noticed that as per Tax Audit report in Form 3CA and 3CD in respect of receipt of Rs.2,13,84,461/-. In the Audit Report in 3 ITA Nos.2726 to 2728/PUN/2017 A.Ys.2008-09, 2010-11 & 2011-12 Form 3CA and 3CD in admissible amounts u/s.43B and 37 were shown. The trust had maintained mercantile system of account and as per the Audit report professional fees of Rs.33,36,000/- was shown to be paid to the trustees. Ultimately, the Assessing Officer held that the trust is not entitled to the benefit u/s.11 & 12 of the Act, as there was violation of Section 13 of the Act and added the amount of Rs.33,36,000/- on account of professional fees to the income of the assessee. 5. The Ld. CIT(Appeals) following his decision for the assessment year 2004-05, has held that professional fees of Rs.33,36,000/- was in violation of Section 13(1)(c) of the Act and the disallowance was confirmed. 6. The Ld. Counsel for the assesse submitted that the similar issue has been dealt with by the Pune Bench of the Tribunal in assesse’s own case in ITA Nos.2724 & 2725/PUN/2017 dated 20.03.3019 and the same was decided in favour of the assessee. 7. Replying to the above, the Ld. CIT-DR placed strong reliance on the assessment order and the appellate order. However, he did not controvert that the similar issue on identical facts and circumstances has been decided by the Pune Bench of the Tribunal in assessee’s own case (supra.) in favour of the assessee and against the Revenue. 8. On careful consideration of the above submissions, we find that the Pune Bench of the Tribunal in assessee’s own case (supra.) vide Para 4 to 13 of its order on the issue has held as follows: “4. The issue raised in grounds of appeal No.1 to 4 by assessee is against denial of deduction of professional charges paid to trustees namely Dr. Alimiya Parkar and Dr. Mumtaz Parkar amounting to ₹ 4 ITA Nos.2726 to 2728/PUN/2017 A.Ys.2008-09, 2010-11 & 2011-12 6,52,748/-, applying the provisions of section 13(1)(c) of the Act. The issue raised in grounds of appeal No.5 to 8 is against denial of utilization charges paid of ₹ 75,000/- to Dr.Alimiya Parkar and ₹ 1,20,000/- paid to Dr. Mumtaz Parkar. 5. Briefly, in the facts of the case, the assessee was registered trust and was granted registration under section 12A of the Act. The case of assessee was reopened under section 147/148 of the Act. The assessee trust had two trustees viz. Mr. Almiya D. Parkar, Managing Trustee and Mrs. Mumtaz Alimiya Parkar, Secretary and Treasurer. The Assessing Officer noted that the assessee had paid salary and perquisites of ₹ 6,11,044/- and utilization charges of ₹ 1,95,000/- to two of its trustees. The assessee explained that the trust had paid professional fees to the trustees as besides looking after day-to-day activities and managing hospital as a whole, both trustees were providing professional services to the patients. The professional fees were based on case to case basis directly relating to the fees collected from the patients. The assessee also explained that it had paid professional charges to other doctors @ 100% but in case of Dr. Alimiya Parkar and Dr. Mumtaz Parkar, the same was retained upto 67%. In respect of utilization fees paid to trustees, it was explained that equipment and assets were owned by the trustees and which were utilized by the hospital, for which utilization fees was paid. The list of assets was also provided and it was pointed out that assets were not used by either of the trustees for their individual benefits. The Assessing Officer noted another professional fee paid of ₹ 6,52,748/- and in totality, the Assessing Officer did not agree with the submissions of assessee on the premise that the administrator of hospital do not have time in providing professional services. The Assessing Officer thus, held the assessee not to be entitled to the said exemption under sections 11 and 12 of the Act as there was violation of section 13(1)(c) of the Act and he disallowed sum of ₹ 14,58,792/-. 6. The CIT(A) did not allow the claim of professional charges of ₹ 6,52,748/-. The assessee had furnished details of total charges collected from the patients by hospital and the professional charges passed from the trust. The assessee had relied on clause 31 of trust deed, which states that any trustee being a doctor, shall be entitled to be paid all the usual professional fees for the time expended, business transacted in connection with the trust. Similarly, the CIT(A) denied the payment of utilization charges of ₹ 1,95,000/- to the trustees being in violation of provisions of section 13(1)(c) of the Act. 7. The assessee is in appeal against the order of CIT(A). 8. The learned Authorized Representative for the assessee pointed out that professional fees were paid to two trustees who were also doctors as per clause 31 of trust deed. The duties of managing trustee and secretary / treasurer were as per clauses 16 and 17 of trust deed. Our attention was drawn to trust deed placed at pages 80 to 103 of Paper Book. He further stated that since the two trustees had professional ability and charges were paid to them, because of the same there is no merit in disallowing the same on the ground that there was violation of provisions of section 13(1)(c) of the Act. He further stated that the provisions are attracted in case the payment is made over and above the market value of services / facilities. 9. Coming to next issue, the learned Authorized Representative for the assessee pointed out that utilization charges were also paid as per clause 7 of trust deed which is placed at page 91 of Paper Book. He pointed out that the said utilization charges were also allowable and 5 ITA Nos.2726 to 2728/PUN/2017 A.Ys.2008-09, 2010-11 & 2011-12 strongly opposed the stand of authorities below in holding that there was violation of provisions of section 13(1)(c) of the Act, wherein nobody saw whether there was violation or not. Since the charges were paid within market value of the said facilities, there is no merit in the disallowance. 10. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below. 11. We have heard the rival contentions and perused the record. The assessee was running hospital for charitable purpose. The case of assessee was taken up for scrutiny pursuant to re-assessment proceedings initiated against the assessee. In the said proceedings, the Assessing Officer noted that the trust deed had only two trustees i.e. Almiya D. Parkar, Managing Trustee and Mrs. Mumtaj Alimiya Parkar, Secretary and Treasurer. The said trust came into existence vide trust deed dated 28.03.2002. The assessee had placed copy of trust deed in the Paper Book. The trust was set up by Dr. Almiya D. Parkar to carry out hospital activities with corpus of ₹ 1000/- only. Since it was not possible for the assessee to start the hospital activity because of lack of funds, Dr. Parkar allowed the carrying on of hospital activity in the hospital building owned by them and he also allowed the entire medical infrastructure including available medical equipment and facilities to be used by the assessee trust. The hospital was being run in Ratnagiri. Dr. Almiya D. Parkar was the Chief Medical Officer and Administrator of assessee trust and even providing medical services to patients coming to hospital, in lieu thereof, professional fees were paid to him. The said professional fees were based on case to case basis directly relating to the fees collected from the patients. Similar was the position in respect of his wife Dr. M. A. Parkar. The total remuneration which is paid in the year under consideration was ₹ 6,52,748/-. The issue which is raised in the present appeal is the allowability of said professional fees paid to trustees. 12. Under section 13(1)(c) of the Act, it is provided that where any part of the income of trust enures or any part of such income or any property of the trust or the institution is, during the previous year, used or applied, directly or indirectly for the benefit of any persons referred to in sub- section (3), then such amounts are not to be allowed as deduction. The test to be applied is whether any part of income is directly or indirectly utilized for the benefit of any person referred to in sub-section (3). Admittedly, the provisions of said sub-section (3) are applicable but the issue which has to be seen is „whether the said payment is directly or indirectly for the benefit of such person‟. 13. In the present set of facts, admittedly, the managing trustee had established hospital and had even allowed the hospital to use medical facilities and equipment available in the hospital, for which utilization charges were paid, which is also second issue before us, which will be addressed in later paras. However, it is not disputed that both trustees were professionally qualified doctors, who besides looking after the administration and running of hospital, were also providing services to the hospital. The payment to them was also linked to the fees collected from the patients. The total professional charges paid to them were ₹ 6,52,748/-. In such circumstances, where the payment is made for rendering professional services to the assessee trust, it cannot be held to be for the direct or indirect benefit of trustees. We find no merit in the orders of authorities below in invoking provisions of section 13(1)(c) of the Act in the present set of facts. Accordingly, we hold that professional fees of ₹ 6,52,748/- paid to two trustees is to be allowed as deduction.” 6 ITA Nos.2726 to 2728/PUN/2017 A.Ys.2008-09, 2010-11 & 2011-12 In view of the order of the Tribunal, we are of the considered view that managing trustee had established hospital and had even allowed the hospital to use medical facilities and equipment available in the hospital, for which utilization charges were paid, which is also second issue before us, which will be addressed in later paras. However, it is not disputed that both trustees were professionally qualified doctors, who besides looking after the administration and running of hospital, were also providing services to the hospital. The payment to them was also linked to the fees collected from the patients. The Assessing Officer also not disputed that professional charges to other doctors @ 100% whereas, these managing two trustees were received only 67% of professional fees received by hospital from patients. The payment to them was also linked to the fees collected from the patients. In such circumstances, where the payment is made for rendering professional services to the assessee trust, it cannot be held to be for the direct or indirect benefit of trustees. 9. Therefore, respectfully following the order of the Tribunal dated 20.03.2019 for the assessment year 2004-05 & 2005-06 (supra.) we are inclined to hold that there is no merit in the orders of the Authorities below invoking the provision of Section 13(1)(c) of the Act in the present case. Accordingly, we hold that professional fees of Rs.33,36,000/- paid two trustees deserves to be allowed as deduction. Thus, Ground Nos. 1 to 4 raised in appeal by the assessee are allowed. 10. Ground Nos. 5 to 14 raised in appeal by the assessee are not pressed and hence, the same are dismissed. 11. In the result, appeal of the assessee in ITA No.2726/PUN/2017 for the assessment year 2008-09 is partly allowed. 7 ITA Nos.2726 to 2728/PUN/2017 A.Ys.2008-09, 2010-11 & 2011-12 ITA No.2727/PUN/2017 A.Y.2010-11 12. Since both the parties herein agreed that Ground Nos.1 to 4 raised in this appeal are similar and identical to Ground Nos.1 to 4 raised in ITA No.2726/PUN/2017 for the assessment year 2008-09, therefore, our decision rendered in ITA No.2726/PUN/2017 shall mutatis-mutandis apply in ITA No.2727/PUN/2017 for the assessment year 2010-11 also. In this case also, we allow Ground Nos. 1 to 4 raised in appeal by the assessee. 13. Ground Nos. 5 to 10 raised in appeal by the assessee are not pressed and hence, the same are dismissed. 14. In the result, appeal of the assessee in ITA No.2727/PUN/2017 for the assessment year 2010-11 is partly allowed. ITA No.2728/PUN/2017 A.Y.2011-12 15. Since both the parties herein agreed that Ground Nos.1 to 4 raised in this appeal are similar and identical to Ground Nos.1 to 4 raised in ITA No.2726/PUN/2017 for the assessment year 2008-09, therefore, our decision rendered in ITA No.2726/PUN/2017 shall mutatis-mutandis apply in ITA No.2728/PUN/2017 for the assessment year 2011-12 also. In this case also, we allow Ground Nos. 1 to 4 raised in appeal by the assessee. 16. Ground Nos. 5 to 9 raised in appeal by the assessee are not pressed and hence, the same are dismissed. 17. In the result, appeal of the assessee in ITA No.2728/PUN/2017 for the assessment year 2011-12 is partly allowed. 8 ITA Nos.2726 to 2728/PUN/2017 A.Ys.2008-09, 2010-11 & 2011-12 18. In the combined result, all the appeals of the assessee are partly allowed. Order pronounced on 11 th day of November, 2021. Sd/- Sd/- R.S.SYAL CHANDRA MOHAN GARG VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; ददनांक / Dated : 11 th November, 2021. SB आदेश की प्रधतधलधप अग्रेधषत / Copy of the Order forwarded to : 1. अपीलाथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The CIT(Appeals)-2, Kolhapur 4. The Pr. CIT-2, Kolhapur. 5. धवभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गार्ा फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // धनजी सधचव / Private Secretary आयकर अपीलीय अधधकरण, पुणे / ITAT, Pune. 9 ITA Nos.2726 to 2728/PUN/2017 A.Ys.2008-09, 2010-11 & 2011-12 Date 1 Draft dictated on 10.11.2021 Sr.PS/PS 2 Draft placed before author 11.11.2021 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order