Chettinad Hospitals P Ltd., CHENNAI V. ACIT, CHENNAI

ITA 3068/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9099 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 16-12-2014
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Charitable institution
• Section: 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.3068, 3069 & 3070/MDS/2014 / ASSESSMENT YEARS : 2008-09, 2009-10 & 2010-11 CHETTINAD HOSPITALS P. LTD RANI SEETHAI HALL, 6 TH FLOOR 603, ANNA SALAI CHENNAI 600 006 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(3) CHENNAI [PAN AACCC 5036 B] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI S SRIDHAR, ADVOCATE /RESPONDENT BY : DR. B. NISCHAL, JCIT / DATE OF HEARING : 08 - 03 - 2016 ! / DATE OF PRONOUNCEMENT : 01 - 0 6 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINS T THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME-TA X (APPEALS)-I, CHENNAI, ALL DATED 30.9.2014 AND PERTAINS TO ASSE SSMENT YEAR FOR ASSESSMENT YEARS 2008-09, 2009-10 AND 2010-11. SINC E COMMON ISSUE ARISES FOR CONSIDERATION IN ALL THE APPEALS, WE HEA RD THEM TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. ITA NOS.3068, 3069 & 3070/14 :- 2 -: 2. SHRI S. SRIDHAR, LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING MANAGEMENT AND OTHER HOSPITAL SERVICES TO THE GENER AL HOSPITAL RUN BY RAJAH MUTHIAH CHETTIAR CHARITABLE AND EDUCATIONAL T RUST. ACCORDING TO THE LD. COUNSEL, THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND CHETTINAD ACADEMY OF RESEARCH AND EDUCATION FOR PRO VIDING VARIOUS SERVICES. THE CONSIDERATION FOR THE SERVICES PROVI DED BY THE ASSESSEE WAS `1 2 LAKHS PER ANNUM EXCLUDING TAXES FOR THE ASSESSMEN T YEAR 2008-9 AND ` 24 LAKHS PER ANNUM EACH FOR ASSESSMENT YEARS 2009- 10 AND 2010-11. REFERRING TO THE AGREEMENT DATED 30.7 .2008, THE COPY OF WHICH IS AVAILABLE AT PAGE 338 OF THE PAPER BOOK , THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE-COMPANY ENTERED INTO TH E AGREEMENT ON TRIAL BASIS. THE ASSESSEE, IN FACT, ENTERED INTO THE AGREEMENT IN ANTICIPATION THAT THE ASSESSEE WILL HAVE GET A REA SONABLE PROFIT. UNFORTUNATELY, THE ASSESSEE HAS TO INCUR HEAVY EXP ENDITURE IN CARRYING OUT THE OBLIGATION OF THE AGREEMENT, THEREFORE, THE EXPENDITURE WAS MORE THAN THE CONSIDERATION RECEIVED FROM THE TRUST . THEREFORE, THE ASSESSEE HAS SUFFERED HEAVY LOSS. THE ASSESSEE CL AIMED SET OFF OF THE LOSS AGAINST OTHER INCOME IN ALL THESE ASSESSMENT Y EARS. THIS WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND T HAT THE AGREEMENT WAS A SHAM. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE OBJECT OF ENTERING INTO THE AGREEMENT WAS TO REDUCE THE TAX L IABILITY OF THE ITA NOS.3068, 3069 & 3070/14 :- 3 -: ASSESSEE-COMPANY BY INCREASING THE INCOME OF THE TR UST. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE HAS NO INTENTION EIT HER TO REDUCE ITS INCOME OR TO INCREASE THE INCOME OF THE TRUST. THE ASSESSEE AS A PRUDENT BUSINESSMAN ENTERED INTO AN AGREEMENT FOR P ROVIDING SERVICES TO THE GENERAL HOSPITAL MAINTAINED BY RAJAH MUTHIAH CHETTIAR CHARITABLE AND EDUCATIONAL TRUST. THE ASSESSEE NE VER EXPECTED THAT THERE WILL BE A HUGE EXPENDITURE FOR PROVIDING THE SERVICES. SINCE THESE ARE THE FIRST THREE YEARS OF THE SERVICES PRO VIDED BY THE ASSESSEE, THE ASSESSEE HAS TO INCUR HEAVY EXPENDIT URE IN DISCHARGING ITS OBLIGATION UNDER THE AGREEMENT. IF THE ASSESS EE FAILED TO DISCHARGE ITS OBLIGATIONS AS PER THE AGREEMENT, THE ASSESSEE HAS TO COMPENSATE THE TRUST BY PROVIDING COMPENSATION IN N OT CARRYING OUT THE OBLIGATIONS UNDER THE AGREEMENT. THEREFORE, IT IS NOT A COLOURABLE DEVICE AS CLAIMED BY THE ASSESSING OFFICER FOR ANY TAX EVASION. IT IS A LOSS SUFFERED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS ACTIVITY, THEREFORE, ACCORDING TO THE LD. COUNSEL, THE CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER. 3. ON THE CONTRARY, DR. B NISCHAL, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE, IN FAC T, ENTERED INTO AN AGREEMENT WITH CHETTINAD ACADEMY OF RESEARCH AND ED UCATION FOR PROVIDING SERVICES TO THE GENERAL HOSPITAL MAINTAIN ED BY THE TRUST. ACCORDING TO THE LD. DR, RAJAH MUTHIAH CHETTIAR CHA RITABLE AND ITA NOS.3068, 3069 & 3070/14 :- 4 -: EDUCATIONAL TRUST WAS MAINTAINING A MEDICAL COLLEGE AND GENERAL HOSPITAL. THE ASSESSEE AGREED TO PROVIDE MANAGERI AL SERVICES FOR RUNNING THE GENERAL HOSPITAL. ACCORDING TO THE LD. DR, THERE WAS A COMMON DIRECTOR IN THE ASSESSEE-COMPANY RAJAH MUTHI AH CHETTIAR CHARITABLE AND EDUCATIONAL TRUST. FROM THE INCORPO RATION OF THE ASSESSEE-COMPANY, THE ASSESSEE HAS INCURRED HUGE E XPENSES IN PROVIDING MANAGERIAL SERVICES TO THE HOSPITAL. THE ASSESSEE COULD NOT EVEN GET THE EXPENSES INCURRED FOR CARRYING OUT THE SERVICES AS PER THE AGREEMENT. AS A PRUDENT BUSINESSMAN, THE ASSESSEE WOULD ATLEAST ENSURE THAT THE EXPENSES INCURRED BY THE ASSESSEE ARE REALIZED, IF NOT A PROFIT IS EARNED. REFERRING TO THE AGREEMENT SAI D TO BE ENTERED INTO BETWEEN THE ASSESSEE AND CHETTINAD ACADEMY OF RESE ARCH AND EDUCATION, THE LD. DR SUBMITTED THAT THE CONSIDERAT ION FOR THE AGREEMENT SHOULD BE CERTAIN PERCENTAGE OVER AND ABO VE THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE. IN THIS CAS E, THERE IS A FIXED AMOUNT RECEIVED BY THE ASSESSEE I.E ` 1 LAKH PER MONTH FOR ASSESSMENT YEAR 2008-09 AND ` 2 LAKHS PER MONTH EACH FOR ASSESSMENT YEARS 2009-10 AND 2010-11. THE AGREEMEN T ALSO DOES NOT PROVIDE THE MANNER IN WHICH THE CONSIDERATION WAS F IXED. ` 12 LAKHS/ 24 LAKHS PER ANNUM IS TOO LOW TO PROVIDE THE SERVI CES UNDERTOOK BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER HA S FOUND THAT THE AGREEMENT BETWEEN THE PARTIES IS A COLOURABLE DEVIC E TO EVADE THE TAX ITA NOS.3068, 3069 & 3070/14 :- 5 -: LIABILITY. THEREFORE, THE ASSESSING OFFICER IGNORE D THE AGREEMENT ENTERED INTO BY THE ASSESSEE FOR MAINTAINING THE M ANAGERIAL SERVICES AND DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE OV ER AND ABOVE THE CONSIDERATION RECEIVED BY THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. AD MITTEDLY, THE ASSESSEE ENTERED INTO AN AGREEMENT FOR PROVIDING MA NAGERIAL AND OTHER SERVICES TO GENERAL HOSPITAL RUN BY RAJAH MUT HIAH CHETTIAR CHARITABLE AND EDUCATIONAL TRUST. IT IS ALSO AN A DMITTED FACT THAT RAJAH MUTHIAH CHETTIAR CHARITABLE AND EDUCATIONAL T RUST IS RUNNING A MEDICAL COLLEGE AND GENERAL HOSPITAL. FOR THE PURP OSE OF PROVIDING VARIOUS SERVICES IN THE GENERAL HOSPITAL, CHETTINAD ACADEMY OF RESEARCH AND EDUCATION ENTERED INTO AN AGREEMENT WI TH THE ASSESSEE- COMPANY. THE CONSIDERATION FOR PROVIDING SERVICES WAS FIXED BETWEEN THE PARTIES AT ` 1 LAKHS PER MONTH FOR ASSESSMENT YEAR 2008-09 AND ` 2 LAKHS PER MONTH EACH FOR ASSESSMENT YEARS 2009-10 AND 2010-11. THE ASSESSING OFFICER CLAIMS THAT ONE SMT. GEETHA M UTHAIAH IS HOLDING 90% OF THE SHARES IN THE ASSESSEE-COMPANY AND SHE I S ALSO ONE OF THE TRUSTEE IN RAJAH MUTHIAH CHETTIAR CHARITABLE AND ED UCATIONAL TRUST. THEREFORE, IT IS A DEVICE BETWEEN THE PARTIES TO RE DUCE THE TAX LIABILITY OF THE ASSESSEE BY SHIFTING THE INCOME IN THE HAND S OF THE CHARITABLE TRUST IN WHOSE HANDS THE INCOME WAS EXEMPT. THE A SSESSEE CLAIMS ITA NOS.3068, 3069 & 3070/14 :- 6 -: THAT IT IS NOT THE INTENTION OF THE ASSESSEE TO RE DUCE THE TAX BURDEN. HOWEVER, IT IS THE INITIAL YEAR OF PROVIDING SERVIC ES TO THE GENERAL HOSPITAL, THEREFORE, ON MUTUTAL BASIS IT WAS AGREED TO PROVIDE THE SERVICES AT ` 1 LAKH/ ` 2 LAKHS PER MONTH. 5. WE HAVE CAREFULLY GONE THROUGH THE AGREEMENT SAID T O BE ENTERED INTO BETWEEN THE PARTIES AND THE OTHER MAT ERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FO R THE ASSESSEE, IT IS THE INITIAL YEAR OF THE AGREEMENT BETWEEN THE PARTI ES, THEREFORE, THE ASSESSEE MAY NOT ANTICIPATE THE EXPENDITURE THAT MI GHT HAVE BEEN INCURRED IN PROVIDING THE SERVICE. EARNING PROFIT IS THE MOTIVE OF THE COMPANY. HOWEVER, IN SOME CIRCUMSTANCES, LOSS IS A LSO INEVITABLE. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER TH E ASSESSEE-COMPANY INTENTIONALLY SHIFTED THE PROFIT TO THE CHARITABLE INSTITUTION FOR THE PURPOSE OF REDUCING THE TAX LIABILITY OR NOT? THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IT IS THE INITIAL YEAR OF P ROVIDING SERVICES, THEREFORE, AS OBSERVED EARLIER, THE ASSESSEE COULD NOT HAVE ANTICIPATED THE EXPENDITURE IN PROVIDING THE SERVI CES. WHEN THE ASSESSEE ENTERED INTO THE AGREEMENT FOR PROVIDING S ERVICES AT ` 1 LAKHS/`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