Dwaraka Charitable Trust, Pune V. Income-tax Officer,

ITA 723/PUN/2015

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0477 (ITAT-PUNE)
• Duration Of Justice: 7 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Capital receipt; Benefit of exemption
• Section: 2; 11; 12A; 64; 13; 119

Judgement Text

आयकर अपीलीय अधिकरण “बी” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.723/PUN/2015 धििाारण वर्ा / Assessment Year : 2007-08 Dwarka Charitable Trust, 926, F.C. Road, Shivaji Nagar, Pune – 411004 PAN : AAATD2294H .......अपीलार्थी / Appellant बिाम / V/s. The Income Tax Officer, Ward – 1(4), Pune ......प्रत्यर्थी / Respondent Assessee by : Shri Pratik Sandbhor Revenue by : Shri M.G. Jasnani सुिवाई की तारीख / Date of Hearing :17-03-2022 घोर्णा की तारीख / Date of Pronouncement :08-06-2022 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : This appeal by the assessee against the order dated 18-03-2015 passed by the Commissioner of Income Tax (Appeals)-10, Pune [‘CIT(A)’] for assessment year 2007-08. 2. Ground Nos. 1 to 6 amongst which the only issue raised by the assessee challenging the action of CIT(A) in holding Deendayal Memorial 2 ITA No.723/PUN/2015, A.Y. 2007-08 Hospital (in short ‘DMH’) is a contributory within the meaning of section 13(3)(b) of the Act in the facts and circumstances of the case. 3. Brief facts of the case on hand are that, the assessee is a charitable Trust registered u/s. 12A of the Act and its main objective is to provide medical relief and facilities by running a hospital, Trust Deed dated 18-04- 1974 at Page Nos. 1 to 30 of the paper book. The assessee constructed building on its own property running hospital under the name and style of “Deendayal Memorial Hospital which is also a charitable Trust registered u/s. 12A of the Act, the Trust Deed of which is at Page Nos. 31 to 64 of the paper book. We note that “DMH” agreed to arrange all the team of doctors, physician, medical equipment, furniture and fixtures etc. According to the ld. AR, these two charitable institutions thought it advisable to achieve their common objective of providing the medical facility/relief and the assessee decided to allow DMH to use its building for running the hospital and DMH is to manage and run such hospital. In pursuance of the same, we note that the said two charitable institutions entered into memorandum of Understanding dated 04-12-1995 which is at Page Nos. 86 to 89 of the paper book. 4. During the course of assessment proceedings, the AO observed that the DMH made donation Rs.65,00,000/- towards corpus to assessee. The AO of the view that the said DMH is a contributory within the meaning of section 13(3)(b) of the Act i.e. a prohibited person, thereby, meaning the donation towards corpus is a contribution inconsideration to the hospital run by the DMH which is owned by the assessee. The AO held there is contravention of provision of section 13(1)(c) r.w.s. 13(3)(b) of the Act and 3 ITA No.723/PUN/2015, A.Y. 2007-08 denied exemption u/s. 11 of the Act to the assessee. The CIT(A) confirmed the same. 5. Before us, the ld. AR, Shri Pratik Sandbhor refers to the provisions u/s. 13(3)(b) of the Act and submits that the contribution means something contributed with condition or expectation of some benefit in return. He refers to section 11(1)(d) and submits that voluntary contribution made with specific direction that should form the corpus of the Trust shall not be included in the total income. Voluntary contribution means a contribution made unconditionally without any expectation and specific direction for own use of funds contributed. He argued that the contribution is different from voluntary contribution and precisely for that reason the word voluntary is prefixed. He vehemently opposed the order of CIT(A) in confirming the order of AO and argued that the “DMH” has made a voluntary contribution for specific purpose and is not a prohibited person as held by the AO. In this regard, he drew our attention to Page Nos. 100 to 170 and 119 to 136, respectively. 6. He summarized submission that there is no nexus between donation made by “DMH” and the utilization of building for running a hospital. The assessee and DMH for mutual benefit entered into an MOU in 1995 to achieve their object of providing medical relief to the public. He submits, it was agreed that the DMH shall make donation to the assessee to support substantial repairs and maintenance of medical facilities in the MOU itself. He vehemently canvassed that the assessee was able to carry out charitable activities of providing medical relief through DMH which lacked the necessary medical facilities to run hospital, offering medical services at cheaper rates to the public at large. He refers to sub-section (2) of section 4 ITA No.723/PUN/2015, A.Y. 2007-08 13 of the Act and submits that the benefit refers to one way flow of consideration and whereas mutual benefit is where assessee and DMH have equally benefited in as much as by joining hands to operate for the benefit of public at large and referred to the case laws of Hon’ble High Court of Allahabad in the case of Bharat Sewa Sansthan in ITA No. 138 of 2008. 7. The ld. DR, Shri M.G. Jasnani submits that the AO discussed the issue in detail and the CIT(A) rightly confirmed the view of AO in holding the “DMH” is a contributory within the meaning of section 13(3)(b) of the Act. Further, there is a clear violation of section 13(1)(c) of the Act and the CIT(A) discussed every aspect of the assessee’s submissions and justified in holding the “DMH” as prohibited person and referred to Para Nos. 8, 9 and 10 of the impugned order. He supported the order of CIT(A) and drew our attention to the case law paper book containing 1 to 38 pages in the case of Champa Charitable Trust (supra) by the Hon’ble High Court of Bombay, in the case of Agappa Child Centre reported in 92 Taxman 327 (Kerala) of Hon’ble High Court of Kerala and on order of ITAT, Ahmedabad in the case of Give Foundation in ITA No. 1465/Ahd/2013 vide order dated 13-05-2015. 8. Heard both the parties and perused the material available on record. We note that the assessee, Dwaraka Charitable Trust (“DCT”) and Deendayal Memorial trust have been granted 12A registration under the Act. The activities of both the institutions are charitable in nature vide their objects. The charitable object of assessee i.e. “DCT” is a building constructed on its own property given to “DMH” to run hospital. Further, charitable object for the “DMH” is to run hospital by providing medical 5 ITA No.723/PUN/2015, A.Y. 2007-08 relief. We note that the assessee is not charging anything from “DMH” for using its building. Therefore, it is clear, both “DCT” and “DMH” are interested parties to each other. The CIT(A) confirmed the view of AO in holding that the donation of Rs.65,00,000/- made by the “DMH” towards corpus is a consideration in lieu of benefit in running the hospital in the building owned by the assessee, meaning thereby, said “DMH” is the prohibited person within meaning of section 13(3)(b) of the Act. The CIT(A) confirmed the action of the AO in denying exemption to the assessee u/s. 11 of the Act for contravention of provision u/s. 13(1)(c) r.w.s. 13(3)(b) of the Act. 9. Section 11 of the Act explains, that income of a Trust held wholly for charitable or religious purpose is exempt, which means, that the Trust should use its funds only for the charitable objects for which they have been set up only and not for anything else. 10. Section 13(3)(b) explains nothing contained in section 11 and 12 of the Act shall operate so as to exclude from the total income of a person that any substantial contribution given in excess of Rs.50,000/- to any interested person, thereby meaning, any such amount which is excess of specified amount in clause (b) of sub-section (3) of section 13 of the Act would not be excluded from the total income of such interested person. Further, section 13(1)(c) explains, that exemption u/s. 11 is not applicable that any income directly or indirectly for the benefit of any person referred to in sub-section 3 of section 13 of the Act, which means, that the provision u/s. 13 of the Act is intended to eliminate any possibility of Trusts fund being used for the benefit of any interested person. The ld. AR, Shri Pratik Sandbhor contends that the “DMH” made a voluntary 6 ITA No.723/PUN/2015, A.Y. 2007-08 contribution for specific purpose, evidencing the receipts at Pages 100 to 117 and 119 to 136. We note that voluntary contribution is defined under clause (iia) of sub-section 24 of section 2 of the Act, which clearly states that, income includes voluntary contributions received by a Trust created wholly or partly for charitable purposes, therefore, voluntary contribution for specific purpose is not an income as vehemently contended by Shri Pratik Sandbhor, such contention, in our opinion, attains no significance in view of clear provisions under clause (iia) of sub-section (2) of section 24 of the Act. Admittedly, the assessee received donation from prohibited person in terms of section 13(3)(b) of the Act, that being so, the arguments of ld. AR is not accepted. We find the CIT(A) discussed the same in Para No. 16 of the impugned order and rightly held that the said explanation could have been accepted, that if the donation could have been received from a person other than prohibited person. Further, there is no dispute about the fact that “DMH” had made a substantial contribution to the assessee and the said contribution so made up to the end of the previous year relevant to the assessment year under consideration being Rs.65,00,000/- far exceeding Rs.50,000/-. There is also not disputed about the fact that “DMH” applied the said sum for the benefit of assessee. Therefore, the provisions under Sub-section (3) of section 13 is attracted as rightly held by the AO by placing reliance on the decision of Hon’ble High Court of Bombay in the case of Champa Charitable Trust reported in 214 ITR 764 (Bom.). Therefore, taking into consideration the submissions of ld. AR and ld. DR and our discussion made hereinabove paras, we find no infirmity in the order of CIT(A) in holding the “DMH” is a prohibited person u/s. 13(3)(b) and consequently denying exemption u/s. 11 of the Act for violation of provision u/s. 13(1)(c) of the Act to the assessee. Thus, ground Nos. 1 to 6 raised by the assessee are dismissed. 7 ITA No.723/PUN/2015, A.Y. 2007-08 11. Ground No. 7 raised by the assessee challenging the action of CIT(A) in denying exemption u/s. 11 of the Act in the light of provisions u/s. 13(6) of the Act. 12. The ld. AR submits that the exemption u/s. 11 and 12 need not be denied by sole reason that the charitable trust has provided medical facilities to a prohibited person. He argued that the said section refer to words ‘medical facilities’ which in all fairness shall include hospital infrastructure and the assessee has provided a hospital infrastructure to DMH, at most, the value of such medical facilities may be brought to taxation. He placed reliance on the decision of Hon’ble High Court of Bombay in the case of Audyogik Shikshan Mandal reported in 101 taxmann.com 247. The ld. DR relied on the order of CIT(A) and also drew our attention to Para No. 19 of the impugned order. For ready reference, the relevant Para No. 7 in the case of Audyogik Shikshan Mandal (supra) of Hon’ble High Court of Bombay is reproduced here-in-below : “7. We find that the impugned order of the Tribunal has placed reliance upon the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra), after having noted that the the decision of the Supreme Court in Bharat Diamond Bourse (supra) does not very clearly specify whether it is only the income diverted as loans to a person specified under Section 13 of the Act, which was denied the benefit of Section 11 of the Act or the entire income was denied the benefit of exemption under Sect ion 11 of the Act. We have closely read the decision of the Apex Court in Bharat Diamond Bourse (supra) and it does not extend the benefit of Section 11 of the Act to the Trust. However, it is not clear whether it is only to the extent of income diverted or the entire income. This, for the reason that the dispute between the parties therein was not as arising in this case. The basic dispute in the above case was - whether the objects of the Trust were charitable and whether the person to whom the loan was given was a person covered by Section 13 of the Act. The decision of the Karnartaka High Court in Fr. Mullers Charitable Institutions (supra), dealt with the very issue herein viz. the denial of exemption of entire income under Section 11 of the Act, or is the denial restricted only to the quantum of diverted funds. This, as it is hit by Section 13 of the Act. The Court held that the benefit of Section 11 of the Act will not be available only in respect of the diverted income. The above decision of Karnataka High Court was the basis for the view in the impugned order of the Tribunal. Moreover, we note that the order of Karnataka High Court in case of Fr. Mullers Charitable Institutions (supra) inter alia, places reliance upon the decision of this Court in DIT v/s. Sheth Mafatlal Gagalbahai Foundation Trust 249 ITR 533 and the Delhi High Court in the case of IT (Exemption) v/s. Agrim Charan 8 ITA No.723/PUN/2015, A.Y. 2007-08 Foundation 253 ITR 593. Moreover, on a plain reading of Sections 11 and 13 of the Act, it is clear that the legislature did not contemplate the denial the benefit of Section 11 of the Act to the entire income of the Trust. If the interpretation sought to be advanced by the Revenue is accepted, it would lead to grave injustice as any mistake minor and/or misdemnour involving a small amount takes place by the Trust, the consequence would be denial of the benefit of exemption to the entire income otherwise admittedly used for charitable purposes. It is pointed out to us that the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra) was carried by the Revenue to the Supreme Court and its SLP was dismissed on 19th September, 2014 Fr. Mullers Charitable Institutions (supra).” 13. On careful reading of the decision of Hon’ble High Court of Bombay in the case of Audyogik Shikshan Mandal (supra), we note that the Hon’ble High Court of Bombay was pleased to dismiss the substantial question of law by the Revenue which is as under : "Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in law in holding that the denial of benefit under section 11 of the IT Act will be restricted only to that income of the Trust which was used/applied directly or indirectly for the benefit of the prohibited persons?" 14. The Hon’ble High Court observed that the law laid down by the Hon’ble High Court of Karnataka in holding the benefit of section 11 of the Act will not be available to diverted income and also observed that in order to come to such conclusion, the Hon’ble High Court of Karnataka placed reliance on the decisions of High Courts of Bombay and Delhi in the cases of Sheth Mafatlal Gagalbahai Foundation Trust and Agrim Charan Foundation reported in 249 ITR 533 and 253 ITR 593, respectively. Therefore, respectfully following the law laid down by the Hon’ble High Court of Bombay, we hold, that the denial of exemption u/s. 11 of the Act is restricted only to Rs.65,00,000/- which was received from prohibited person. Thus, ground No. 7 raised by the assessee is allowed. 15. Ground No. 8 raised by the assessee is without prejudice to ground Nos. 1 to 7 challenging the action of CIT(A) in treating the donation of 9 ITA No.723/PUN/2015, A.Y. 2007-08 Rs.65,00,000/- received towards Trust corpus overlooking the fact that is a capital receipt. 16. We answered ground Nos. 1 to 6 against the assessee by treating the “DMH” is a prohibited person. In ground No. 7 by placing reliance in the case of Audyogik Shikshan Mandal (supra) restricted denial of exemption u/s. 11 of the Act only to the extent of Rs.65,00,000/-. In view of the same ground No. 8 raised by the assessee becomes academic and requiring no adjudication. Thus, ground No. 8 is dismissed as infructuous. 17. In the result, the appeal of assessee is partly allowed. Order pronounced in the open court on 08 th June, 2022. Sd/- Sd/- (Inturi Rama Rao) (S.S. Viswanethra Ravi) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; ददिांक / Dated : 08 th June, 2022. रधव आदेश की प्रधतधलधप अग्रेधर्त / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(A)-10, Pune 4. The CIT(Exemptions), Pune 5. धवभागीय प्रधतधिधि, आयकर अपीलीय अधिकरण, “बी” बेंच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गार्ा फ़ाइल / Guard File. //सत्याधपत प्रधत// True Copy// आदेशािुसार / BY ORDER, वररष्ठ धिजी सधचव / Sr. Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune