M/s. Radha Mohan Mehrotra Medical Relief Trust, Lucknow V. The DCIT, Faizabad

ITA 5/LKW/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5347 (ITAT-LUCKNOW)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2010
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 23-11-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-01-2010
• Court: TRIBUNAL
• Department Lawyers: ANADI VERMA
• Assessee Lawyers: PRAKASH NARAIN; SURENDRA KOHLI S
• Keywords: Charitable institution; Opportunity of being heard
• Section: 12AA; 11; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, LUCKNOW BENCH 'A: LUCKNOW. BEFORE SHRI H. L. KARWA, HON'BLE VICE PRESIDENT AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO.05/LUC/10 ASSESSMENT YEAR: 05-06 M/S RADHA MOHAN MEHROTRA VS. DY. C. I. T., MEDICAL RELIEF TRUST, CIRCLE FAIZABAD. 10/6, MADAN MOHAN MALVIYA MARG, LUCKNOW. PAN:AAATR2198C (APPELLANT) (RESPONDENT) I.T.A. NO.27/LUC/10 ASSESSMENT YEAR: 05-06 DY. C.I.T., VS. M/S RADHA MOHAN MEHROTRA CIRCLE FAIZABAD. MEDICAL RELIEF TRUST, LUCKNOW. (APPELLANT) (RESPONDENT) ASSESSEE BY:S/SHRI PRAKASH NARAIN & SURENDRA KOHLI, ADVO CATES REVENUE BY : SHRI ANADI VERMA, D. R. O R D E R PER N. K. SAINI: THESE CROSS APPEALS BY THE ASSESSEE AND THE DEPARTMENT ARE DIRECTED AGAINST THE ORDER DATED 22/10/2009 OF THE CIT(A)-I, LUCKNOW RELATING TO ASSESSMENT YEAR 2005-2006. SINCE THE APPEA LS WERE HEARD TOGETHER SO THESE ARE BEING DISPOSED OF BY THIS CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. 2 2. IN THE ASSESSEES APPEAL THE FOLLOWING GROUNDS HAVE B EEN RAISED: 1. THAT THE LEARNED CIT(A) ERRED IN HOLDING THAT T HE APPELLANT TRUST'S INCOME TO THE EXTENT OF `35,92,411/ - WAS LIABLE TO TAX UNDER THE PROVISIONS OF INCOME TAX ACT 1961. 2. THAT THE LEARNED CIT(A) OUGHT HAVE HELD THAT THE ENTIRE INCOME OF THE APPELLANT AMOUNTING TO `80,41, 981/- WAS EXEMPT U/S 1O(23C)(IIIAE) OF THE I.T. ACT 1961 WH ICH ALSO INCLUDED THE ACTUAL EXPENDITURE OF `38,62,873/- INCURRED FOR THE PURPOSES OF CHARITABLE OBJECTS LAID D OWN IN THE DEED OF TRUST DATED 16-3-1981. 3. WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS THE LEARNED CIT (A) FURTHER FAILED TO HOLD THAT DIVIDEN D INCOME OF `61,46,750/- AND RECEIPTS FROM REDEMPTION OF MUTU AL FUNDS OF `1,17,262/- WERE EVEN OTHERWISE EXEMPT U/S 10(34) AND 10(38) OF THE I.T. ACT, 1961 RESPECTIVELY . 3. IN APPEAL OF THE DEPARTMENT THE FOLLOWING GROUND S HAVE BEEN RAISED: 1. THE LEARNED CIT (A) HAS ERRED ON FACTS AND IN LA W BY ALLOWING EXEMPTION U/S 11 TO THE ASSESSEE, WHEREAS, THE EXEMPTION WAS CLAIMED U/S 10(23C) OF THE ACT. 2. THE LEARNED CIT (A) HAS ERRED ON FACTS AND IN LAW BY DOING SO, BECAUSE OBJECTS OF THE TRUST ARE TO CARRY OUT MEDICAL RELIEF WORK, BUT THE DOMINANT ACTIVITY OF T HE TRUST DURING THE YEAR WAS EARNING INCOME FROM INVESTMENT. RECEIPTS FROM HOSPITAL ARE ONLY 4.25% OF THE TOTAL R ECEIPTS. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS TAKING THE NET SURPLUS OF THE INCOME AND EXPENDITURE ACCOUNT OF THE LIAISON OFFICE R, MUMBAI, I.E. `46,86,209/- FOR CALCULATION OF NET IN COME CHARGEABLE TO TAX IGNORING THE FACTS THAT THERE IS NO APPLICATION OF INCOME FOR CHARITABLE PURPOSES. 3 4. SINCE THE ISSUES AGITATED BY BOTH THE PARTIES ARE C ORRELATED, THEREFORE, THE CROSS APPEALS ARE DECIDED SIMULTANEOUSLY . THE FACTS RELATED TO THIS CASE, IN BRIEF, ARE THAT THE ASSESSEE TRU ST WAS ESTABLISHED BY SHRI LALJI MEHROTRA & OTHERS. THE TRUST WAS CREATED WITH SOLE OBJECT TO PROVIDE MEDICAL HELP TO THE POOR AND NEEDY PERSONS AND WAS REGISTERED U/S 12AA OF THE I.T. ACT, 1961 (IN SHORT , THE ACT). THE ASSESSEE FILED THE RETURN OF INCOME ON 27/10/2005 DECLA RING NIL INCOME BY CLAIMING EXEMPTION AMOUNTING TO `62,64,01 2/- U/S 10 OF THE ACT. THE ASSESSING OFFICER FOUND FROM THE ACCOUNTS FI LED BY THE ASSESSEE THAT THE GROSS RECEIPTS OF `80,41,981/- WAS CONSIST ED OF INCOME OF `3,42,004/- FROM HOSPITAL, `14,35,964/- F ROM BANK INTEREST AND REMAINING AMOUNT I.E. `62,64,012/- FROM DIVIDEN D ON INVESTMENTS. ACCORDING TO THE ASSESSING OFFICER, THE INCOME EARNED FROM INVESTMENT WAS NOT UTILIZED FOR PHILANTHROPIC PURPOSES AND WAS EAR NED JUST FOR PROFIT AND INCREASE IN THE ASSETS. THE ASSESSING OFFICER DID NOT FIND MERIT IN THE CLAIM OF THE ASSESSEE THAT INCOME EARNED F ROM INVESTMENTS WAS RECEIVED ON BEHALF OF THE HOSPITAL AND THE SAME QUALIFIED FOR EXEMPTION U/S 10 OF THE ACT. THE AO H AS HELD AS UNDER:- 3.1 IN THIS CASE, THE ASSESSEE TRUST IS EARNING INCOME FROM ITS MAIN SOURCE I.E. INVESTMENTS WHICH IS NOT APPL IED FOR PHILANTHROPIC PURPOSES. SUCH INCOME IS ALSO NOT RECEIVED BY THE TRUST I.E. GOVERNING BODY OF THE HOSP ITAL ON BEHALF OF THE HOSPITAL BECAUSE IT IS NOT FOR THE BENEF IT OF THE HOSPITAL BEING RUN BY THE ASSESSEE TRUST. THE ASSESSEE ALSO FAILED TO ESTABLISH THAT INCOME EARNED FROM 4 INVESTMENTS IS INCOME EARNED FROM ACTIVITIES ANCILLARY AND INCIDENTALS TO RUNNING THE HOSPITAL. THE INCOME FROM INVESTMENTS WAS EARNED JUST FOR PROFIT PURPOSE AND WITH INTENTION TO INCREASE THE ASSETS IN SHAPE OF INVESTMENTS ONLY. UNDER THESE CIRCUMSTANCES, I HOLD THAT THE ASSESSEE TRUST, IN ITS CAPACITY AS GOVERNING BODY OF THE HOSPIT AL EARNED INCOME (A) FROM RUNNING THE HOSPITAL, AND (B) FROM INVESTMENTS. IT IS THE TRUST IN WHOSE HAND THE INCOME IS ASSESSED. THE PART OF INCOME WHICH IS EARNED FROM HOSPITAL IS THE IN COME RECEIVED BY THE ASSESSEE TRUST ON BEHALF OF THE HOSPITA L AND INCOME EARNED FROM INVESTMENTS IS NOT RECEIVED ON BEHALF OF HOSPITAL IN VIEW OF ABOVE DISCUSSIONS. THE INC OME EARNED FROM INVESTMENTS DOES NOT QUALIFY FOR EXEMPTION U/S 10(23C)(IIIAE). EXPENSES OF DONATION `25,07,480 /- WAS NOT FOR THE PURPOSE OF EARNING INCOME OR IT WAS NO T SPENT FOR THE PURPOSE OF HOSPITAL RUN BY THE ASSESSEE TRUST , THEREFORE THIS AMOUNT IS NOT ALLOWED AS DEDUCTION. PROPORTION EXPENSES RELATED TO INCOME OF `62,64,012/- WILL BE - 62,64,012 X 98,306/72,91,987 = 84,447/-. NET CHARGEABLE INCOME = 62,64,012 - 84,447 = `61,79,565 /-'. 5. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT(A) AN D SUBMITTED THAT THE ASSESSEE TRUST IS EXISTING SOLELY FOR PHILANTHRO PIC PURPOSES WITHIN THE DEFINITION OF SECTION 10(23C)(IIIAE) OF THE ACT AND NOT FOR PURPOSES OF PROFIT. IT WAS FURTHER STATED THAT THE INC OME OF THE TRUST IN THE EARLIER YEARS WAS EXEMPTED FROM TAX UNDER SECTION 10(22A) AND AFTER AMENDMENT W.E.F. 01.4.1999 THE TRUST INCOME WA S EXEMPTED U/S 10(23C)(IIIAE) OF THE ACT. IT WAS CLAIMED THAT THE INCOME FROM HOSPITAL, DIVIDEND, INTEREST AND REDEMPTION OF MUTUAL FUNDS DID NOT EXCEED THE AMOUNT OF ` 1 CRORE UNDER RULE 2BC(1) AN D WAS WITHIN THE 5 AMBIT OF SECTION 10(23C)(IIIAE) OF THE ACT AND THAT THE INCOME/INVESTMENTS, DIVIDENDS AND REDEMPTION OF MUTUA L FUNDS WERE FULLY COVERED BY THE EXEMPTION CLAUSES ENVISAGED IN SE CTION 10, 10(34) AND 10(38) OF THE ACT. 5.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSEE IS A MEDICAL RELIEF TRUST WHICH IS ENGAGED IN OTHER CHARITABLE ACTIVITIES APART FROM RU NNING A HOSPITAL AT JAUNPUR. HE FURTHER OBSERVED THAT THE PROVISIONS OF SECTION 10(23C)(IIIAE) WERE APPLICABLE ONLY IN RESPECT OF TH E ACTIVITIES OF THE HOSPITAL RUN AT JAUNPUR, THEREFORE, THE ONLY INCOME OF THE SAID HOSPITAL WAS ENTITLED TO THE BENEFIT OF THE AFORESAID SECTION, WHEREAS THE OTHER INCOME DERIVED BY THE ASSESSEE TRUST WAS TO BE CONSIDERED FOR EXEMPTION AS PER SECTION 11 OF THE ACT. NOW BOTH T HE PARTIES ARE IN APPEAL. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT A SPECIFIC ISSUE RELATING TO THE EXEMPTION U/S 10(34) OF THE ACT WAS RAISED BEFORE THE LEARNED CIT (A) VIDE GROUND NO. 8, HOWEVER, THE SAME HAS NOT BEEN ADJUDICATED BY THE LEARNED CIT (A). IT WAS FURTHER SUBMITTED THAT THE EXEMPTION U/S 10(34) AND 10(38) OF THE ACT ARE STATU TORY EXEMPTION, THEREFORE, THE ASSESSING OFFICER WAS REQUIRED TO ALLOW THE ABOVE 6 EXEMPTION IN ACCORDANCE WITH LAW, HOWEVER, NO BENE FIT WAS GRANTED TO THE ASSESSEE BY THE ASSESSING OFFICER. IT WAS STATED THAT, T HE LEARNED CIT (A) DID NOT ADJUDICATE THE ISSUE INSPITE OF THE F ACT THAT SPECIFIC GROUND WAS TAKEN BEFORE HIM BY THE ASSESSEE IN ITS APPEAL . 7. IN ITS RIVAL SUBMISSIONS, THE LEARNED D. R. ALTHOUGH COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LEARNED C OUNSEL FOR THE ASSESSEE, HOWEVER, SUBMITTED THAT THE LEARNED CIT (A), W ITHOUT AFFORDING ANY OPPORTUNITY OF BEING HEARD TO THE ASSESSI NG OFFICER, ALLOWED EXEMPTION U/S 11 OF THE ACT TO THE ASSESSEE INSPI TE OF THE FACT THAT THE ASSESSEE ONLY CLAIMED THE EXEMPTION U/S 10(23C) (IIIAE) OF THE ACT. 7.1 DURING THE COURSE OF HEARING BOTH THE PARTIES AGR EED THAT IT WOULD BE FAIR AND REASONABLE TO REMAND THE ISSUE CASE T O THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE W ITH LAW. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFUL LY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN T HE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER DID NOT CONSIDER THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10(34) AND 10(38) OF THE ACT. IT ALSO APPEARS THAT THE LEARNED CIT (A) DID NOT PROVIDE OP PORTUNITY OF BEING HEARD TO THE ASSESSING OFFICER WHILE DECIDING THE ISSUE RELATING TO THE 7 EXEMPTION U/S 11 OF THE ACT IN FAVOUR OF THE ASSESSEE. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, DEEM IT APPROP RIATE TO SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED CIT (A) AND REMAND THE CASE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STA TISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 23/11/2010 ) SD/. SD/. (H. L. KARWA) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 23/11/2010 SINGH COPY FORWARDED TO THE: - 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR