ACIT 25(2), MUMBAI V. LEELA CREATORS, MUMBAI

ITA 5252/MUM/2010

• Counselvise Citation: 525219914 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 25-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: USHA NAIR
• Assessee Lawyers: SMITA LOKAPUR
• Keywords: Capital asset; Depreciation; Charitable institution
• Section: 11; 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI B.R. MITTAL, J.M. AND SHRI RAJENDRA SI NGH, A.M. ITA NO. 5352/MUM/2010 ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER(E)-II(1) ROOM NO.509, PIRAMAL CHAMBERS, LABAUG, PAREL MUMBAI-400 012. LILAVATI KIRTILAL MEDICAL TRUST A/791 BANDRA RECLAMATION BANDRA (W) MUMBAI-400 050. PAN NO. AAATL 1398 Q (APPELLANT) VS. (RESPONDENT) CROSS OBJECTION NO.84/MUM/2011 ARISING OUT OF ITA NO. 5352/MUM/2010 ASSESSMENT YEAR : 2007-08 LILAVATI KIRTILAL MEDICAL TRUST MUMBAI-400 050. INCOME TAX OFFICER(E)-II(1) MUMBAI-400 012. (CROSS OBJECTOR) VS. (APPELLANT IN APPEAL) DEPARTMENT BY : MS. USHA NAIR ASSESSEE BY : MS. SMITA LOKAPUR DATE OF HEARING : 24.5.2012 DATE OF PRONOUNCEMENT : 1.6.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE A SSESSEE ARE DIRECTED AGAINST ORDER DATED 31.3.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. ITA NO.5352/M/10 AND CO NO.84/11 A.Y.07-08 2 2. WE FIRST TAKE UP APPEAL OF THE REVENUE IN ITA NO.5352/MUM/2010 . IN THIS APPEAL THE ONLY DISPUTE RAISED BY THE REVENUE IS REGARDING ALLOWABILITY OF EXEMPTION UNDER SECTION 11 OF THE INCOME TAX ACT, 1961(THE ACT). 2.1 THE FACTS IN BRIEF ARE THAT THE AO DURING THE ASSES SMENT PROCEEDINGS NOTED THAT THE ASSESSEE TRUST OWNED A HOSPITAL AT BANDRA, BY THE NAME LILAVATI HOSPITAL WHICH IS A 300 BEDDED M ULTI-SPECIALITY HOSPITAL AND ONE OF THE ELITE HOSPITALS WHICH WAS KNOWN TO CATER TO HIGHER SECTION OF THE SOCIETY. IT WAS ALSO NOTED THAT THE ASSESSEE FOR THE RELEVANT YEAR HAD DECLARED GROSS RECEIPTS OF RS.1,94, 24,75,226/- AGAINST WHICH EXPENSES HAD BEEN CLAIMED TO THE TUNE OF RS.1,59,30,98,800/- AS PER DETAILS GIVEN BELOW:- HOSPITAL OPERATING INCOME AS PER THE INCOME AND EXPENDITURE A/C. RS.194,24,75,226 LESS: A. MEDICAL EXPENSES A. PROPERTY EXPENSES RS. 4,42,21,405 B. OPERATIONAL EXPENSES RS.116,91,68,191 C. ADMINISTRATIVE EXPENSES RS.37,06,90,066 D. INTEREST ON TERM LOAN RS.31,16,757 E. BANK OVERDRAFT INTEREST RS.1,33,469 RS.159,30,98,800 NET PROFIT NET PROFIT NET PROFIT NET PROFIT RS.34,93,76,426 ITA NO.5352/M/10 AND CO NO.84/11 A.Y.07-08 3 2.2 THERE WAS THUS NET RECEIPT OF RS.34,93,76,426/-. TH E AO OBSERVED THAT RECEIPTS WERE THE AMOUNTS RECEIVED FROM PA TIENTS FOR SERVICES RENDERED AND EXPENSES HAD BEEN INCURRED FOR EAR NING OF INCOME. THE AO ALSO OBSERVED THAT THE ASSESSEE HAD NOT UN DERTAKEN ANY CHARITABLE OR PHILANTHROPIC ACTIVITIES AND EXPENSES WERE INCURRED FOR MANAGEMENT OF HOSPITAL. HE, FURTHER, NOTED THAT T HE ASSESSEE HAD SHOWN A SUM OF RS.4,63,86,472/- TOWARDS FREE AND CONCESSION AL TREATMENT GIVEN TO PATIENTS WHICH WAS NOTHING BUT TRAD E DISCOUNT AND WHICH DID NOT ITS GENESIS IN PHILANTHROPIC CONCERNS OF THE TRUST. FURTHER THE CONCESSIONS HAD BEEN GIVEN IN LARGE BILLS PAID BY PAT IENTS WHO WERE NOT POOR. ASSESSEE HAD NOT SPENT ANY AMOUNT ON EDU CATION OR CHARITABLE PURPOSE. THE ASSESSEE WAS THUS NOT ENTITLED FOR EXEMPTION UNDER SECTION 11. THE AO, THEREFORE, FOLLOWING THE D ECISION TAKEN IN EARLIER YEARS DISALLOWED THE CLAIM OF EXEMPTION UNDER SECTION 11 OF THE ACT AND ASSESSED THE INCOME AT RS.34,93,76,426/-. IN APPE AL CIT(A), FOLLOWING THE DECISION TAKEN BY THE TRIBUNAL IN ASSESSMEN T YEAR 2005- 06 ALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 11 OF T HE ACT AGGRIEVED BY WHICH, REVENUE IS IN APPEAL BEFORE THE T RIBUNAL. 3. WE HAVE HEARD BOTH PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. WE FIND THAT THE SAME ISSUE HAD ARISEN IN CASE OF THE ASSESSEE IN ASSESSMENT YEAR 2006-07 IN WHICH THE TRIBUN AL VIDE ORDER DATED 14.10.2011 IN ITA NO.4955/MUM/2010 NOTE D THAT THE ITA NO.5352/M/10 AND CO NO.84/11 A.Y.07-08 4 ASSESSEE WAS REGISTERED UNDER SECTION 12A OF THE ACT AND THE REFORE THE CONDITION THAT THE TRUST WAS A CHARITABLE INSTITUTI ON STOOD FULFILLED. THE ORDER OF AO HOLDING THAT THE ASSESSEE WAS NOT DOING CHARITABLE WORK COULD NOT THEREFORE, BE ACCEPTED. THE TRIBUNAL ALSO OBSERVED THAT THE ISSUE WAS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2004-05 IN WHICH THE TRIBUNAL ACCEPTED THE FINDI NG OF CIT(A) THAT THE TRUST WAS RUNNING A HOSPITAL BY ENGAGING THE SERV ICES OF DOCTORS, NURSES, PARA-MEDICAL STAFF AND ALSO PROVIDING INFRASTRU CTURE FACILITIES FOR THE BENEFIT OF THE PUBLIC AT LARGE WHICH WAS IN CO NFORMITY WITH THE OBJECTS OF THE ASSESSEE TRUST. THE TRIBUNAL THUS ACCEPTED T HAT THE ASSESSEE WAS A CHARITABLE INSTITUTION. THE TRIBUNAL ALSO HELD THAT EXPENDITURE ON ACQUISITION OF CAPITAL ASSET ACQUIRED BY T RUST WAS IN FURTHERANCE OF THE OBJECTS OF THE TRUST AND ACCORDINGLY HAD TO BE CONSIDERED AS APPLICATION OF INCOME. THE TRIBUNAL THEREF ORE, HELD THAT THE ASSESSEE WAS A CHARITABLE INSTITUTION AND EXPENDITURE INCURRED ON CAPITAL ASSET FOR USE IN CHARITABLE ACTIVITIES HAD TO BE CONSIDERED AS APPLICATION OF INCOME. THE FACTS IN THE PRESENT YEAR AR E IDENTICAL. WE THEREFORE, HOLD THAT ASSESSEE IS A CHARITABLE INSTITUTION WHICH IS REGISTERED UNDER SECTION 12A OF THE ACT AND THEREFORE, ELIGIBLE FOR DEDUCTION UNDER SECTION 11 SUBJECT TO FULFILLMENT OF COND ITIONS IN THE SAID SECTION. WE THEREFORE, SET ASIDE THE ORDER OF CIT( A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY ITA NO.5352/M/10 AND CO NO.84/11 A.Y.07-08 5 EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING THE ASSESSEE . CROSS OBJECTION NO.84/M/2011(BY ASSESSEE ): 5. IN THE CROSS OBJECTIONS, THE ISSUE RAISED BY THE ASSESSEE I S REGARDING DISALLOWANCE OF EXPENDITURE INCURRED ON ACQUI SITION OF CAPITAL ASSETS AND DISALLOWANCE OF DEPRECIATION ON ASSETS. WE FIND T HAT THIS ISSUE HAD ALSO BEEN CONSIDERED BY THE TRIBUNAL IN THE OR DER DATED 14.10.2011 FOR ASSESSMENT YEAR 2006-07. THE TRIBUNAL HA S HELD THAT THE EXPENDITURE INCURRED ON ACQUISITION OF CAPITAL ASSE TS FOR USE IN CHARITABLE ACTIVITIES HAS TO BE TREATED AS APPLICATION OF INCOME. THE TRIBUNAL ALSO HELD THAT DEPRECIATION ON ASSETS DEBITED T O THE ACCOUNTS WILL BE DEDUCTED FROM THE INCOME FOR COMPUTING THE INCO ME AVAILABLE FOR APPLICATION FOR CHARITABLE PURPOSES, IN VIEW OF THE JUDGMENT OF HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. SE TH MANILAL RANCHHORDAS VISHRAM BHAWAN TRUST (198 ITR 598). THEREFO RE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2006-07, WE HOLD THAT THE EXPENDITURE ON ACQUISITION OF CAPITAL ASSETS FOR USE IN CHARITABLE ACTIVITIES WILL BE TREATED AS APPL ICATION OF INCOME AND DEPRECIATION ON ASSETS WILL BE DEDUCTED FROM INCOME F OR COMPUTING INCOME AVAILABLE FOR APPLICATION FOR CHARITAB LE PURPOSES. AS WE HAVE ALREADY RESTORED THE ISSUE OF COMPUTATION OF E XEMPTION UNDER SECTION 11 TO THE FILE OF AO WHILE DECIDING THE APPEA L OF REVENUE, THE ITA NO.5352/M/10 AND CO NO.84/11 A.Y.07-08 6 AO WILL TAKE INTO ACCOUNT THESE ASPECTS ALSO WHILE COMPUTIN G APPLICATION OF INCOME FOR THE PURPOSE OF CHARITABLE WOR K UNDER SECTION 11. IN CASE AO AFTER NECESSARY VERIFICATION FINDS THAT THE APPLICATION OF INCOME IS NOT UP TO 85%, THE ASSESSEE WILL BE FREE TO FI LE APPLICATION BEFORE AO FOR ACCUMULATION WHICH WILL BE DEALT BY THE AO AS PER LAW. 6. IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECT ION OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1.6.2012. SD/- SD/- (B.R. MITTAL ) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 1.6.2012. 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.