Mahavir Institute of Medical Sciences, Hyd, Hyderabad V. CIT(Exemptions), Hyd, Hyderabad

ITA 438/HYD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2727 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2017
• Assessment Year: 2014-2015
• Appeal Filed On: 20-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAN KUMAR SINGHANIA
• Keywords: Charitable institution
• Section: 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.438/HYD/2015 ASSESSMENT YEAR: 2014-15 MAHAVIR INSTITUTE OF MEDICAL SCIENCES, HYDERABAD. PAN AADTM 7000R VS. COMMISSIONER OF INCOME-TAX (EXEMPTIONS), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A. SRINIVAS REVENUE BY : SHRI MOHAN KUMAR SINGHANIA DATE OF HEARING : 27-07-2017 DATE OF PRONOUNCEMENT : 11-08-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (EXEMPTIO NS), HYDERABAD, DATED 30/01/2015 FOR AY 2014-15. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A TRUST FORMED BY ITS PARENT TRUST BHAGWAN MAHAVIR MEMORIAL TRUST AS A GOING INSTITUTION. BY A DEED OF DECLARATION OF THE TRUST, THE PARENT COMPANY TRANSFERRED THE ASSETS AND LIABILITIES REQU IRED TO RUN THIS TRUST INDEPENDENTLY ON A GOING INSTITUTION AND APPO INTED BMMT INSTITUTE OF EDUCATION A SOLE TRUSTEE OF THE ASSES SEE TO MANAGE THE AFFAIRS OF THE TRUST. THE TRUSTEE IS A SECTION 25 C OMPANY ESTABLISHED UNDER THE COMPANIES ACT, 156, 2 ITA NO. 438/H/15 MAHAVIR INSTITUTE OF MEDICAL SCIENCES, HYD.. 3. WHEN THE CIT(E) ISSUED NOTICE TO ASSESSEE FOR PE RSONAL HEARING, THE ASSESSEE COULD NOT APPEAR BEFORE HIM, BUT, FILED WRITTEN SUBMISSIONS. AFTER CONSIDERING THE APPLICATION AND WRITTEN SUBMISSIONS OF THE ASSESSEE, CIT(E) REJECTED THE A PPLICATION FOR REGISTRATION U/S 12AA OF THE ACT BY OBSERVING AS UN DER: IT IS NOTICED THAT THERE IS REFERENCE TO CERTAIN A SSETS (LAND TOGETHER WITH BUILDING THEREON) AS GIVEN IN A SCHED ULE AT PAGE 8 OF THAT TRUST DEED, BUT WITHOUT GIVING ANY VALUATIO N THEREOF. FURTHER, THERE IS A LIST OF CERTAIN ASSETS (PART II) GIVEN AT PAGE 9 & 10 OF THAT TRUST DEED, WITHOUT GIVING ANY VALUA TION OF THE SAME. FURTHER, THERE IS A LETTER/CERTIFICATE DATED 29/05/2014, GIVING CERTAIN VALUATION OF LAND AT VIKARABAD, HOSP ITAL BUILDING AND PLANT AND MACHINERY, SIGNED BY THE DIRECTOR OF BMMT INSTITUTE OF EDUCATION AS SOLE TRUSTEE, ENCLOSED TO THAT APPLICATION IN FORM NO. 10A. THUS, AS MAY BE NOTICE D, THE SAID VALUATION RELATING TO SUCH GROUP OF ASSETS UNDER LA ND, HOSPITAL BUILDING AND PLANT AND MACHINERY ARE SHOWN AS ON TH AT DATE, I.E. 29/05/2014. UNDER THESE CIRCUMSTANCES, IT IS N OT KNOWN NOR VERIFIABLE AS TO HOW THE APPLICANT HAS ARRIVED AT T HE VALUE OF FIXED ASSETS AS ON 31/03/2014, AS SHOWN BY IT IN TH E SCHEDULE 4 OF THE BALANCE SHEET, FILED VIDE THAT SUBMISSION LA TER. 3.1 FURTHER, CIT(E) HAS EXAMINED THE ACTIVITIES OF THE TRUST AND OBSERVED AS UNDER: IN BRIEF NOTE FURNISHED VIDE ANNEXURE 1 TO THAT L ETTER FILED ON 11/12/2014, IT IS STATED THAT THE TRUST HAS EXPENDE D AN AMOUNT OF RS. 22,10,203/- TOWARDS PURCHASE OF MEDICINES AN D OTHER CONSUMABLES AND RS. 41,61,002/- TOWARDS PROFESSIONA L AND OTHER EXECUTIVES TILL 31/03/2014 FOR THE TREATMENT OF GENERAL PUBLIC AT FREE OF COST. FURTHER, UNDER POINT NO. 10 OF THAT LETTER FILED ON 11/12/2014, IT HAS BEEN SUBMITTED THAT MAH AVIR INSTITUTE OF MEDICAL SCIENCES IS RUNNING 350 BED CHARITABLE H OSPITAL, WHERE ALL THE TREATMENTS ARE DONE AT FREE OF COST A T ITS VIKARABAD PREMISES CATERING TO THE SURROUNDING VILL AGES. FROM THE SAME, IT MAY BE NOTICED THAT THE APPLICANT, HOW EVER, HAS NOT EXPLAINED AS TO HOW IT IS CARRYING ON SUCH ACTIVITI ES, I.E., PROVIDING FREE TREATMENT TO THE PERSONS OF THAT LOC ALITY. IT HAS NOT BEEN EXPLAINED AS TO HOW THE APPLICANT IS RUNNI NG THAT HOSPITAL IN ITS CASE. 3.2 LD. CIT(E) NOTICED THAT ONE SHRI PRADEEP GADHIY A (MANAGER) HAS SIGNED THE APPLICATION IN THE CASE OF BMMT INST ITUTE OF EDUCATION AS WELL AS IN THE APPLICATION FOR THE ASSESSEE. HE OPINED THAT SINCE THE SAME PERSON HAS SIGNED BOTH THE APPLICATIONS FO R BOTH THE 3 ITA NO. 438/H/15 MAHAVIR INSTITUTE OF MEDICAL SCIENCES, HYD.. INSTITUTIONS, THE ASSESSEE LOOSES INDEPENDENCE TO F UNCTION AS INDEPENDENT PUBLIC CHARITABLE INSTITUTION. HE WAS O F THE VIEW THAT ON THIS REASON ALSO REGISTRATION CANNOT GRANTED. 4. AGGRIEVED BY THE ORDER OF THE CIT(E), THE ASSES SEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(E), HYDERABAD IS CONTRARY T O LAW, FACTS AND CIRCUMSTANCES. 2. THE CIT(E), HYDERABAD OUGHT NOT TO HAVE REJECTED THE APPLICATION SEEKING REGISTRATION U/S 12AA OF THE IT ACT. 5. LD. AR SUBMITTED THAT ASSESSEE IS FORMED TO RUN THE HOSPITAL INDEPENDENTLY AND IN THE PROCESS, THE PARENT TRUST HAS TRANSFERRED THE ASSETS AND LIABILITIES REQUIRED TO RUN THIS INSTITU TION AND IN THE DEED OF SETTLEMENT, THEY HAVE IDENTIFIED ONLY ASSETS AND LI ABILITIES AND THE VALUATION OF THE ASSETS WAS TRANSFERRED LATER, WHIC H WAS RECORDED IN THE BOOKS OF ACCOUNT OF THE PARENT TRUST. SECONDLY, SIGNING OF DOCUMENT AND ACTIVITIES OF THE TRUST ARE THE DOMAIN OF AO, WHO WILL VERIFY THE RUNNING OF THE INSTITUTION. HE SUBMITTED THAT AS FAR AS GRANTING OF REGISTRATION, CIT(E) HAS TO VERIFY THE OBJECTS OF THE TRUST AND GENUINENESS OF THE TRUST AND AS LONG AS THESE T WO CRITERIAS ARE PRESENT, HE HAS TO ISSUE THE REGISTRATION. HE CONTE NDED THAT AT THE STAGE OF REGISTRATION, CIT(E) CANNOT TAKE THE ROLE OF AO. 6. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF CIT(E) AND SUBMITTED THAT ASSESSEE IS RUNNING HOSPITAL WITHOUT ANY INCOME AND INCURRED HUGE EXPENDITURE, FOR WHICH, HE BROUGHT TO OUR NOTICE THE INCOME AND EXPENDITURE ACCOUNT AS ON 31/03/2014, WH ICH IS PART OF THE PAPER BOOK FILED BY THE ASSESSEE AT PAGE 36, WH ICH SHOWS THAT TRUST IS NOT GENUINE AND SUPPORTED THE VIEWS OF CIT (E) IN REJECTING THE APPLICATION FOR REGISTRATION. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE PROVISIONS OF SECTION 12AA PROVIDE V ERY LIMITED SCOPE 4 ITA NO. 438/H/15 MAHAVIR INSTITUTE OF MEDICAL SCIENCES, HYD.. FOR EXERCISING DISCRETION AT THE END OF THE CIT. TH E COURTS OF LAW HAVE CONSISTENTLY BEEN HOLDING THAT THE CIT CANNOT GO BEYOND ASSESSING THE GENUINENESS OF THE ORGANIZATION. IN T HIS CONNECTION, THE COURTS HAVE HELD AS UNDER: 7.1 IN THE CASE OF CIT V. VIJAY VARGIYA VANI CHARIT ABLE TRUST 369 ITR 360 (RAJ.), THE HONBLE COURT HAS HELD THAT WHE RE OBJECTS INCORPORATED IN TRUST DEED WERE FOUND TO BE GENUINE FOR CARRYING ON CHARITABLE ACTIVITIES, COMMISSIONER WAS UNJUSTIFIED IN REJECTING APPLICATION OF ASSESSEE BASED ON NON-CHARITABLE ACT IVITIES AT STAGE OF MOVING APPLICATION 7.2 IN THE CASE OF SHISHU NIKETAN PANCHKULA EDUCATIONAL SOCIETY V. CIT [2015] 53 TAXMANN.COM 311 (PUNJ. & HAR.), THE HONB LE COURT HAS HELD THAT WHERE OBJECTS INCORPORATED IN TRUST DEED WERE FOUND TO BE GENUINE FOR CARRYING ON CHARITABLE ACTIVITIES, IT F ULFILLED REQUIREMENT OF GRANT OF REGISTRATION UNDER SECTION 12A. THEREFORE, THE COMMISSIONER WAS NOT JUSTIFIED IN REJECTING APPLICATION OF THE A SSESSEE BASED ON NON-CHARITABLE ACTIVITIES AT STAGE OF MOVING APPLIC ATION. 7.3 EVEN THOUGH, THE FINDINGS RELATING TO SECTION 1 0(23C, THE RATIO IS RELEVANT: THE UTTARAKHAND HIGH COURT IN THE CASE MAHARANI LUXMI BAI MEMORIALEDUCATIONAL SOCIETY VS. CHIEF COMMISSIONER OF INCOME TAX (2015) 93 CCH0060 HAD ALSO HELD THAT FOR GRANTING EXEMPTION U/S 10(23C)(VI), THE TEST OF PREDOMINANT OBJECT OF THE ACTIVITY IS TO BE SEEN AS TO WHETHER IT EXISTSSOLELY FOR EDUCATIONAL PURPO SES AND NOT FOR PURPOSES OF PROFIT. IN OTHER WORDS THE OBJECT AND I TS GENUINENESS SHOULD BE SAME AND NOT SUCH THAT ACTIVITIES ARE IN EXISTENCE. 7.4 IN THE CASE OF CIT V. RED ROSE SCHOOL [2007] 163 TAXMANN 19 (ALL.) THE ISSUE OF REGISTRATION UNDER SECTION 12AA AND THE SCOPE OF ENQUIRY AT THE STAGE OF SECTION 12AA WAS DISCUSSED. IT WAS CATEGORICALLY HELD THAT SECTION 12AA DOES NOT SPEAK ANYWHERE THAT THE CIT, WHILE CONSIDERING THE APPLICATION FOR REGI STRATION, SHALL ALSO 5 ITA NO. 438/H/15 MAHAVIR INSTITUTE OF MEDICAL SCIENCES, HYD.. SEE THAT THE INCOME DERIVED BY THE TRUST OR THE INS TITUTION IS EITHER NOT BEING SPENT FOR CHARITABLE PURPOSES OR SUCH INSTITU TION IS EARNING PROFIT. PROFIT EARNING OR MISUSE OF THE INCOME DERI VED BY CHARITABLE INSTITUTION FROM ITS CHARITABLE ACTIVITIES MAY BE A GROUND FOR REFUSING EXEMPTION ONLY WITH RESPECT TO THAT PART OF THE INC OME BUT CANNOT BE TAKEN TO BE A SYNONYM TO THE GENUINENESS OF THE ACT IVITIES OF THE TRUST OR THE INSTITUTION. WHILE CONSIDERING THE REGISTRAT ION UNDER SECTION 12AA, THE SCOPE OF ENQUIRY OF THE COMMISSIONER WOUL D BE LIMITED TO THE AFORESAID EXTENT ONLY. 7.5 IN THE CASE OF TISHIR SHIKSHA PRASAR SAMITI V. CIT [2012] 21 TAXMANN.COM 525 (AGRA - TRIB.) IT WAS HELD THAT AT THE STAGE OF GRANTING REGISTRATION CIT WAS NOT ENTITLED TO EXAMI NE THE APPLICATION OF INCOME OR INFER WHETHER THE TRUST WILL BE ELIGIB LE FOR INCOME OR NOT. THE LANGUAGE OF THE SECTION 12AA DOES NOT SHOW THAT IN ORDER TO BE ABLE TO GET REGISTRATION UNDER SECTION 12A/12AA OF THE ACT, THERE IS NECESSITY OF FIRST ESTABLISHING AS TO HOW THE CONCE RNED INSTITUTION OR SOCIETY WOULD BE ABLE TO CLAIM THE EXEMPTIONS UNDER SECTION 11 OR SECTION 12 OF THE ACT. 7.6 IN THE CASE OF PRAYER FOR INDIA V. ITO [2011] 7 ITR (TRIB.) 201 (CHENNAI), IT WAS HELD THAT THE CIT WAS NOT REQUIRE D TO ASK FOR UNNECESSARY INFORMATION, SUCH AS THE SOCIO-ECONOMIC BACKGROUND, EDUCATIONAL QUALIFICATION, PROFESSIONAL COMPETENCE OF THE TRUSTEES TO RUN A CHARITABLE ORGANIZATION. 7.7 IN THE CASE OF DIRECTOR OF INCOME-TAX (EXEMPTIONS) V. VALLAL MD SESHADRI TRUST [2012] 19 TAXMANN.COM 114 (MAD.) THE HIGH COURT OF MADRAS HELD THAT THE CLAUSE OF PUBLISHING OF NEWSPA PERS AND PERIODICALS DOES NOT IPSO FACTO BECOME COMMERCIAL ACTIVITY. SINCE AUTHORITIES COULD NOT FIND ANY FAULT WITH GENUINENE SS OF TRUST, REJECTION OF APPLICATION UNDER SECTION 12AA WAS NOT JUSTIFIED . 6 ITA NO. 438/H/15 MAHAVIR INSTITUTE OF MEDICAL SCIENCES, HYD.. 7.8 IN THE CASE OF BABA AMARNATH EDUCATIONAL SOCIETY V. COMMISSIONER OF INCOME-TAX-III [2012] 18 TAXMANN.COM 222 (CHD.) IT WAS HELD THAT FOR PURPOSE OF GRANTING REGISTRATION UNDER SECTION 12AA, A SINGLE NON-OPERATIVE CLAUSE OF COMMERCIAL NATURE COULD NOT OBLITERATE WHOLE RANGE OF CHARITABLE ACTIVITIES UND ERTAKEN BY ASSESSEE-SOCIETY. THE CASE DIT V. JTO CHENNAI CHAPTER [2012] 17 TAXMANN.COM 261 (MAD.) IS ALSO RELEVANT IN THIS REG ARD. 7.9 IN LIGHT OF THE ABOVE, IT CAN BE CONCLUDED THAT THE PROVISIONS OF SECTION 12AA ARE EXTREMELY CONCISE AND LIMITED. THE PURPOSE IS TO ENSURE THAT A GENUINE CHARITABLE OR RELIGIOUS ORGAN IZATION IS GRANTED REGISTRATION WITHOUT GETTING INTO THE VARIOUS DETAI LS PERTAINING TO TYPE OF ACTIVITY OR EXISTENCE OF ANY COMMERCIAL OR CONFL ICT OF INTEREST ACTIVITY. ESSENTIALLY CIT IS NOT REQUIRED TO GET IN TO ISSUES WHICH ARE RESERVED FOR THE ASSESSING OFFICER BY THE INCOME TA X ACT. THE LANGUAGE OF THE SECTION 12AA DOES NOT SHOW THAT IN ORDER TO BE ABLE TO GET REGISTRATION UNDER SECTION 12A/12AA OF THE A CT, THERE IS NECESSITY OF FIRST ESTABLISHING AS TO HOW THE TRUST WOULD BE ABLE TO CLAIM THE EXEMPTIONS UNDER SECTION 11 OR 12 OF THE ACT OR TO DETERMINE THE EARNING CAPACITY OF THE TRUST. 7.10. IN THE GIVEN CASE, ONE OF THE GROUND SHOWN BY THE CIT(E) TO REJECT THE APPLICATION U/S 12AA IS THAT THE MANAGER OF THE APPLICANT TRUST HAS SIGNED IN FORM NO. 10A FOR BOTH THE MAHAV IR INSTITUTE OF MEDICAL SCIENCES AND BMMT INSTITUTE OF EDUCATION, T HEREFORE, THE APPLICANT TRUST CANNOT BE ACCEPTED AS AN INDEPENDEN T PUBLIC CHARITABLE INSTITUTION. WHEREAS THE BMMT INSTITUTE OF EDUCATION IS APPOINTED AS SOLE TRUSTEE TO MANAGE THE AFFAIRS OF THE TRUST. IN THAT PROCESS, THE MANAGERS OF THE TRUST MUST HAVE ACTED TO GET THESE TRUSTS FOR REGISTRATION. THIS CANNOT BE A GROUND TO REJECT THE APPLICATION. MOREOVER, THE PARENT TRUST IS WELL KN OWN AND CIT(E) HAS NOT COME ACROSS OR FOUND ANY ACTIVITIES IN THE PAST , WHICH WAS IN VIOLATION OF ANY PROVISION OF THE IT ACT. CONSIDERI NG THE BACK GROUND 7 ITA NO. 438/H/15 MAHAVIR INSTITUTE OF MEDICAL SCIENCES, HYD.. OF THE PARENT TRUST, WHICH SATISFIES THE GENUINENES S OF TRUST. WITH REGARD TO NATURE OF THE TRUST, LD. CIT(E) HAS NOT E XPRESSED ANY RESERVATION. IN OUR CONSIDERED VIEW, THE ASSESSEE S HOULD BE CONSIDERED FOR ISSUING REGISTRATION U/S 12AA. IN TH IS REGARD, WE ARE REMITTING THIS CASE BACK TO THE FILE OF LD. CIT(E) TO CONSIDER THE ABOVE OBSERVATION AND GRANT REGISTRATION IN ACCORDANCE WI TH LAW. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 11 TH AUGUST, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED: 11 TH AUGUST, 2017. KV COPY TO:- 1) M/S MAHAVIR INSTITUTE OF MEDICAL SCIENCES, 10-1- 1, BHAGVAN MAHAVIR MARG, AC GUARDS, HYDERABAD 500 004. 2)ITO (E) 2, HYDERABAD. 3) CIT(E) , HYDERABAD 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 5) GUARD FILE