ITO (E) -II(1), MUMBAI V. LILAVATI KIRTILAL MEHTA MEDICAL TRUST, MUMBAI

ITA 4955/MUM/2010

• Counselvise Citation: 495519914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: USHA NAIR
• Assessee Lawyers: APURVA R SHAH
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Capital expenditure
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D. MANMOHAN, (VICE PRESIDENT [MZ]) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.4955/MUM/2010 ASSESSMENT YEAR : 2006-07 INCOME TAX OFFICER-(E)-II(1) ROOM NO.509, PIRAMAL CHAMBERS LALBAUG, PAREL MUMBAI-12. ..( APPELLANT ) VS. LILAVATI KIRTILAL MEHTA MEDICAL TRUST A/791, BANDRA RECLAMATION BANDRA (WEST) MUMBAI-400 050. ..( RESPONDENT ) P.A. NO. (AAATL 1398 Q) C.O. NO.83/MUM/2011 ARISING OUT OF ITA NO.4955/MUM/2010 ASSESSMENT YEAR : 2006-07 LILAVATI KIRTILAL MEHTA MEDICAL TRUST A/791, BANDRA RECLAMATION BANDRA (WEST) MUMBAI-400 050. ..( CROSS OBJECTOR ) VS. INCOME TAX OFFICER-(E)-II(1) ROOM NO.509, PIRAMAL CHAMBERS LALBAUG, PAREL MUMBAI-12. ..( APPELLANT IN APPEAL ) DEPARTMENT BY : SMT. USHA NAIR ASSESSEE BY : APURVA R . SHAH DATE OF HEARING : 23.9.2011 DATE OF PRONOUNCEMENT : 14 TH OCTOBER, 2011 ITA NO.4955 & CO-83/M/10 A.Y:06-07 2 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSE SSEE ARE DIRECTED AGAINST THE ORDER DATED 25.2.2010 OF CIT (A) FOR THE ASSESSMENT YEAR 2006-07. THE DISPUTE RAISED IN THESE AP PEALS IS REGARDING EXEMPTION UNDER SECTION 11 OF THE INCOME TAX ACT. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A CHARITABLE TRUST REGISTERED UNDER SECTION 12A OF THE I.T . ACT. THE MAIN OBJECT OF THE ASSESSEE TRUST AS MENTIONED IN THE ASSESSMENT OR DER IS TO OFFER MEDICAL RELIEF AND SPREAD OF MEDICAL SCIENCE AN D ESTABLISHMENT AND MAINTENANCE AND SUPPORT OF HOSPITALS, HEALTH CENTR ES, DISPENSARIES WITH OR WITHOUT MEDICAL SCHOOL AND NURSING INSTITUTIONS OR ANY OF THEM FOR TREATMENT OF PATIENTS SUFFERING FROM DISEASES, ACCIDENTS ETC. THE TRUST OWNED A HOSPITAL AT BANDRA KNO WN AS LILAVATI HOSPITAL WHICH IS A 300 BEDDED MULTI-SPECIALTY HOSPITAL. THE AO NOTED THAT TOTAL OPERATING INCOME OF THE TRUST FOR THE YEAR UNDER CONSIDERATION WAS RS.1,61,78,54,770/-. THE TRUST HAD I NCURRED EXPENSES TO THE TUNE OF RS.1,31,70,69,605/- AS PER DETA ILS BELOW :- ITA NO.4955 & CO-83/M/10 A.Y:06-07 3 I) PROPERTY EXPENSES RS. 4,17,52,477/- II) OPERATION EXPENSES RS.97,28,71,513/- III) ADMINISTRATIVE EXPENSES RS.28,96,93,096/- IV) INTEREST OF TERM LOAN RS. 1,27,52,519 /- TOTAL RS.1,31,70,69,605/- 2.1 THE AO THUS COMPUTED NET PROFIT OF RS.30,07,85,165 /-. THE AO OBSERVED THAT THE RECEIPTS WERE THE AMOUNTS RECEIVED FRO M PATIENTS FOR SERVICES RENDERED AND THE EXPENSES HAD BEEN INCURRED FOR EARNING OF INCOME. AO ALSO OBSERVED THAT THE ASSESSEE HAD NOT UND ERTAKEN ANY CHARITABLE OR PHILANTHROPIC ACTIVITIES AND THE EXP ENSES WERE INCURRED FOR THE MANAGEMENT OF HOSPITAL. AO FURTHER OBSERVED THAT THE ASSESSEE HAD ALSO SHOWN SUM OF RS.5,06,47,668/- TOWARDS FREE AND CONCESSIONAL TREATMENT GIVEN TO PATIENTS WHICH WAS NOTHING BUT TRADE DISCOUNT AND WHICH DID NOT HAVE ITS GENESIS IN PHIL ANTHROPIC CONCERNS OF THE TRUST. FURTHER, THE CONCESSIONS HAD BEEN GI VEN IN RESPECT OF LARGE BILLS PAID BY PATIENTS WHO WERE NOT PO OR. ASSESSEE HAD NOT SPENT ANY AMOUNT ON ANY EDUCATIONAL OR MEDICAL RELIEF OR ANY OTHER CHARITABLE PURPOSES AND THEREFORE THE ASSESSEE WAS NO T ENTITLED TO EXEMPTION UNDER SECTION 11. HE ALSO REFERRED TO EAR LIER ORDERS IN WHICH CLAIM OF EXEMPTION UNDER SECTION 11 HAD BEEN DENI ED TO THE ASSESSEE. ACCORDINGLY THE AO ASSESSED SURPLUS OF RS.30,07,85,165 /- AS BUSINESS INCOME. ITA NO.4955 & CO-83/M/10 A.Y:06-07 4 2.2 IN APPEAL, THE CIT(A) NOTED THAT SIMILAR CLAIM HA D BEEN DENIED IN ASSESSMENT YEAR 2004-05 WHICH WAS NOT UPHELD BY THE TRIBU NAL IN ITA NO.1843/M/2008 IN ORDER DATED 22.7.2009. THE TRIBU NAL ACCEPTED THE CASE OF THE ASSESSEE, THAT IT WAS A CHARITABLE TRUST REGISTE RED UNDER SECTION 12A OF THE I.T. ACT AND EXPENDED AMOUNT FOR CHA RITABLE PURPOSES. THE TRIBUNAL ALSO HELD THAT EXPENDITURE INCU RRED ON ACQUISITION OF CAPITAL ASSET WAS IN FURTHERANCE OF CHARITA BLE PURPOSES FOR WHICH THE TRUST HAD BEEN CONSTITUTED AND AFTER CONSID ERING THE SAME IT WAS FOUND THAT THE ASSESSEE HAD SPENT 85% OF THE RECEIPT ON CHARITABLE PURPOSES DURING THE YEAR AND CONDITION OF SE CTION 11 WERE FULFILLED AND ACCORDINGLY EXEMPTION WAS ALLOWED. THE TRIBUNAL ALSO NOTED THAT THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2004-05 HAD BEEN UPHELD BY THE HONBLE HIGH COURT IN THE INCOME TA X APPEAL NO.2990/2009 VIDE ORDER DATED 9.2.2010. IN SO FAR AS THE PRESENT YEAR WAS CONCERNED THE CIT(A) NOTED THAT GROSS RECEIPTS WERE OF RS.162.53 CRORES AGAINST WHICH AMOUNT SPENT WAS RS.138.82 CRORES INCLU DING THE PURCHASE OF EQUIPMENT OF RS.6,94,43,011/- AND THEREFOR E, EXPENDITURE WAS MORE THAN 85%. THE CIT(A) THEREFORE, ALLOWED CLA IM OF THE ASSESSEE AGGRIEVED BY WHICH REVENUE IS IN APPEAL. THE A SSESSEE HAS ALSO RAISED CROSS OBJECTION IN WHICH THE ORDER OF CIT(A) HAS BEEN DISPUTED FOR NOT ADJUDICATING THE GROUND RELATING TO DISALLOWANCE OF ITA NO.4955 & CO-83/M/10 A.Y:06-07 5 DEPRECIATION ON ASSETS, TREATING EXCHANGE RATE DIFFEREN CE AS INCOME AND IN TAXING THE ENTIRE EXCESS OF INCOME OVER EXPENSES. 3. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT T HE ISSUE WAS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OW N CASE IN ASSESSMENT YEAR 2004-05 IN INCOME TAX APPEAL NO.1843/M/2 008 IN WHICH THE TRIBUNAL ACCEPTED THE FINDING OF CIT(A) THAT THE TRIBUNAL WAS RUNNING HOSPITAL BY ENGAGING SERVICES OF DOCTORS, NURSES, PARA-MEDICAL STAFF AND ALSO PROVIDING INFRASTRUCTURAL FACILITIES FOR PUBLIC AT LARGE WHICH AMOUNTED TO MEDICAL RELIEF AND WHICH WAS IN CONFOR MITY WITH THE OBJECTIVES OF THE ASSESSEE TRUST. THE TRIBUNAL ALSO HELD T HAT THE CAPITAL EXPENDITURE INCURRED WAS FOR FURTHERANCE OF THE OBJECTS OF THE TRUST AND THEREFORE, THERE WAS APPLICATION OF MORE THA N 85% OF INCOME AND CONDITIONS OF SECTION 11 WERE FULFILLED. THE ORDER OF THE TRIBUNAL ALLOWING THE CLAIM WAS ALSO UPHELD BY THE HONBLE HIGH COURT IN THE ORDER DATED 9.2.2010 IN INCOME TAX APPEAL NO.2990 OF 2009. THE LD. AR SUBMITTED THAT IN THIS YEAR ALSO THE APPLICATION OF INCOME WAS MORE THAN 85% DETAILS OF WHICH WERE GIVEN AS UNDER:- TOTAL RECEIPTS AS PER INCOME & EXPENDITURE ACCOUNT 1,62,53,18,251 TOTAL EXPENDITURE AS PER SCHEDULES TO I & E ACCOUNT PROPERTY RATES AND TAXES 4,17,52,477 OPERATING EXPENSES 97,28,71,513 ADMINISTRATIVE EXPENSES 28,96,93,096 INTEREST 1,27,52,519 ITA NO.4955 & CO-83/M/10 A.Y:06-07 6 EXCHANGE DIFFERENCE ON PURCHASES, ETC. 17,12,357 CAPITAL EXPENDITURE DURING THE YEAR 6,94,43,011 1,38,82,24,973 APPLICATION AS % OF INCOME 85.41% SURPLUS 23,70,93,278 14.6% 3.1 CITING THE ABOVE FIGURES, THE LD. AR SUBMITTED TH AT CONDITIONS OF SECTION 11 WERE FULFILLED AND THEREFORE, CLAIM OF EXEM PTION UNDER SECTION11 SHOULD BE ALLOWED. THE LD. AR ALSO SUBMITTED THAT IN CASE THE CLAIM OF THE ASSESSEE THAT APPLICATION OF INCOME IS MO RE THAN 85% IS NOT ACCEPTED THEN THE ASSESSEE SHOULD BE GIVEN OPPORTUNI TY TO REQUEST FOR ACCUMULATION OF THE SAME FOR APPLICATION IN SUBSEQUENT YEAR AS EARLIER THE ASSESSEE COULD NOT EXERCISE THE OPTION. THE LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDER OF THE AO. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWA BILITY OF EXEMPTION UNDER SECTION 11, OF THE INCOME TAX ACT. UNDE R THE PROVISIONS OF SECTION 11 THE INCOME OF CHARITABLE INSTITU TION WHICH IS REGISTERED UNDER SECTION 12A OF THE IT ACT IS EXEMPT SUBJ ECT TO THE CONDITION THAT AT LEAST 85% OF INCOME IN A PARTICULAR Y EAR IS APPLIED AND ACCUMULATION FOR APPLICATION IN FUTURE DOES NOT EXCE ED 15% OF THE ASSESSED INCOME. IN THE PRESENT CASE, THERE IS NO DISPUTE T HAT THE ITA NO.4955 & CO-83/M/10 A.Y:06-07 7 TRUST HAD BEEN REGISTERED UNDER SECTION 12A OF THE IT A CT AND THEREFORE THE CONDITION THAT THE TRUST IS CHARITABLE IN STITUTION STANDS FULFILLED. THE ORDER OF THE AO HOLDING THAT THE ASSE SSEE WAS NOT DOING CHARITABLE WORK CANNOT THEREFORE BE ACCEPTED. IN FACT T HE ISSUE IS CONCLUDED BY THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEA R 2004-05 IN WHICH IN IDENTICAL SITUATION THE TRIBUNAL ACCEPTED T HE FINDING OF CIT(A) THAT THE TRUST WAS RUNNING A HOSPITAL BY ENGAGI NG SERVICES OF DOCTORS, NURSES, PARA-MEDICAL STAFF AND ALSO PROVIDING INF RASTRUCTURAL FACILITIES FOR BENEFIT OF PUBLIC AT LARGE WHICH AMOUNT ED TO PROVIDING MEDICAL RELIEF WHICH WAS IN CONFORMITY WITH THE OBJECTS OF THE ASSESSEE TRUST. THE TRIBUNAL THUS ACCEPTED THAT THE ASSESSEE WAS A CHARITABLE INSTITUTION. THE TRIBUNAL ALSO HELD THAT THE EXPENDI TURE ON ACQUISITION OF CAPITAL ASSETS ACQUIRED BY THE TRUST WAS IN FURTHERANCE OF THE OBJECTS OF THE TRUST AND ACCORDINGLY SAME WAS CONSIDERED AS APPLICA TION OF INCOME. THEREFORE, FOLLOWING THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2004-05 (SUPRA), WE HOLD THAT THE ASSESSEE HAD TO BE CONSIDERED AS CHARITABLE INSTITUTION AN D EXPENDITURE INCURRED ON CAPITAL ASSET FOR USE IN CHARITA BLE ACTIVITIES SHALL BE CONSIDERED AS APPLICATION OF INCOME. THE DETAIL S OF INCOME AND EXPENDITURE FOR THIS YEAR AS GIVEN BY THE ASSESSEE HA S BEEN REPRODUCED IN PARA-3 EARLIER WHICH SHOWS THAT APPLICATIO N OF INCOME IS MORE THAT 85% OF TOTAL INCOME. THE LD. DR HOWEVER P OINTED OUT THAT ITA NO.4955 & CO-83/M/10 A.Y:06-07 8 AUDITORS IN THE AUDIT NOTE HAVE POINTED OUT THAT ADV ANCES OF RS.25,26,93,188/- INCLUDING RS.7,76,00,000/- FOR PURCHA SE OF RESIDENTIAL PROPERTY AND MEDICAL EQUIPMENTS HAD BEEN O UTSTANDING FOR MORE THAN A YEAR. THE AUDITORS HAVE ALSO POINTED OUT THAT A CIVIL SUIT HAS BEEN FILED BY THE TRUST BEFORE THE HONBLE BOMBAY HIGH COURT FOR RECOVERY OF ADVANCES GIVEN TOWARDS RESIDENTIAL PROPERTY BUT THEY ARE UNABLE TO OPINE WHETHER THE AMOUNTS ADVANCED TOWARDS R ESIDENTIAL PROPERTY COULD BE RECOVERED OR NOT. IT IS NOT CLEAR W HETHER ANY OF THE ADVANCES RELATE TO THIS YEAR. IN CASE THE TRUST HAD GIVE N ANY ADVANCES FOR PURCHASE OF ANY CAPITAL ASSET FOR USE IN CHARITABLE A CTIVITIES AND IF THE ASSETS HAD NOT BEEN ACTUALLY ACQUIRED, THE GENUINENE SS OF TRANSACTION IS REQUIRED TO BE LOOKED INTO. THE DETAIL S OF CAPITAL EXPENDITURE SHOWN BY THE ASSESSEE THEREFORE, REQUIRES PRO PER VERIFICATION. WE, THEREFORE, SET ASIDE THE ORDER OF C IT(A) AND RESTORE THE MATTER BACK TO AO FOR PASSING A FRESH ORDER AFTER N ECESSARY EXAMINATION IN THE LIGHT OF THE DECISION OF THE TRIBU NAL IN ASSESSMENT YEAR 2004-05 (SUPRA) AND OBSERVATIONS MADE BY THIS BENCH IN THIS ORDER AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. IN THE CROSS OBJECTION NO.83/MUM/2010 THE ASSESSEE HAS RA ISED DISPUTES REGARDING ALLOWABILITY OF DEDUCTION ON ACCOUNT OF DEPRECIATION ON ASSETS. THE C.O. IS ALSO IN SUPPORT OF CIT(A) ALLOWI NG DEDUCTION ON ITA NO.4955 & CO-83/M/10 A.Y:06-07 9 ACCOUNT OF EXCHANGE RATE DIFFERENCE AND ON ACCOUNT OF ACQU ISITION OF CAPITAL ASSET. THE ASSESSEE HAS ALSO MADE A REQUEST THAT IN CASE INCOME IS FOUND NOT SPENT UP TO 85% OR MORE THE ASSESSEE MAY BE GIVEN OPPORTUNITY FOR ACCUMULATION OF INCOME. 5.1 WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. W E AGREE WITH CIT(A) THAT ANY LOSS ARISING ON ACCOUNT OF FOREIGN EXCHAN GE RATE DIFFERENCE IN RELATION TO TRANSACTION FOR CHARITABLE ACT IVITIES WILL BE ALLOWED AS A DEDUCTION WHILE CONSIDERING THE APPLICATION OF INCOME. SIMILARLY, DEPRECIATION ON ASSETS DEBITED TO THE ACCOUNTS WILL ALSO BE REQUIRED TO BE DEDUCTED FROM THE INCOME FOR COMPUTING THE INCOME AVAILABLE FOR APPLICATION FOR CHARITABLE PURPOSES IN VI EW OF THE JUDGMENT OF THE HONLE HIGH COURT OF GUJARAT IN CASE OF CIT VS. SETH MANILAL RANCHHORDDAS VISHRAM BHAWAN TRUST (198 ITR 598 ). AS REGARDS ACQUISITION OF CAPITAL ASSET, WE HAVE ALREADY HEL D WHILE DEALING WITH THE APPEAL OF THE REVENUE THAT ACQUISITION OF CA PITAL ASSET FOR CHARITABLE TRUST WILL HAVE TO BE TREATED AS APPLICATION OF INCOME. HOWEVER, THIS ASPECT HAS BEEN RESTORED TO AO FOR NECESSARY VERIFICATION. IN CASE THE AO AFTER NECESSARY VERIFICATIO N FINDS THAT THE APPLICATION OF INCOME IS NOT UP TO 85%, THE ASSESSEE WILL BE FREE TO FILE APPLICATION BEFORE AO FOR ACCUMULATION OF INCOME W HICH WILL BE DEALT BY THE AO AS PER LAW. ITA NO.4955 & CO-83/M/10 A.Y:06-07 10 6. IN THE RESULT, BOTH, THE APPEAL OF THE REVENUE AN D THE CROSS OBJECTION FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14.10.2011. SD/- SD/- (D. MANMOHAN) (RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 14.10.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.