ITO (E), New Delhi V. BHAI Hospital Trust, New Delhi

ITA 763/DEL/2011

AI Insights

The case involves the Income Tax Officer (E) Trust Ward-III, New Delhi as the appellant and BHAI Hospital Trust as the respondent. The dispute centered on the treatment of Rs. 13.65 crores, which was categorized as a loan and subsequently treated as a donation to another trust. The revenue challenged the CIT(A)'s decision which favored the assessee, arguing that the trust had misused its funds contrary to the provisions of the Income Tax Act. The Tribunal's decision was influenced by a previous ruling which established that such inter-trust donations are permissible when both entities are recognized as charitable under the same legal framework.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 115901 (ITAT-DELHI)
• Duration Of Justice: 21 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-12-2022
• Assessment Year: misc
• Appeal Filed On: 06-05-2001
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 12; 11; 80G; 12A; 12AA; 13; 10(23C)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI BEFORE SH. C. M. GARG, JUDICIAL MEMBER AND SH. N.K. BILLAIYA, ACCOUNTANT MEMBER ITA No.763/Del/2011 Assessment Year: 2007-08 ITO (E) Trust Ward-III Laxmi Nagar Distt. Centre New Delhi Vs BHAI Hospital Trust 55, Hanuman Road, Connaught Place, New Delhi-1100001 PAN No.AAATB0492M (APPELLANT) (RESPONDENT) C.O. No.75/Del/2011 (In ITA No.763/Del/2011) Assessment Year: 2007-08 BHAI Hospital Trust 55, Hanuman Road, Connaught Place, New Delhi-1100001 PAN No.AAATB0492M Vs ITO (E) Trust Ward-III Laxmi Nagar Distt. Centre New Delhi (APPELLANT) (RESPONDENT) Appellant Sh. P. Praveen Sidharth, CIT DR Respondent Sh. Tarandeep Singh, Advocate Date of hearing: 05/12/2022 Date of Pronouncement: 08/12/2022 2 ORDER PER N.K. BILLAIYA, AM: ITA No.763/Del/2011 and C.O. No.75/Del/2011 are appeals by the revenue and cross objection by the assessee preferred against the order of the CIT(A)-12, New Delhi dated 25.10.2010 pertaining to A.Y. 2007-08. 2. The appeal and the cross objection were heard together and are disposed of by this common order for the sake of convenience and brevity. 3. The grievance of the revenue read as under :- 1. In the facts 8s in the circumstances of the case, the Ld. CIT (A) erred by treating the amount of Rs. 13.65 Cr. as loan and giving benefit of the same to the assessee, merely on the ground that, it has been taxed as an AOP after denial of exemption u/s 11 8s 12 of the I.T. Act. 2. In the facts 8s in the circumstances of the case, it is apparent fact, the ' trust has deliberately dwindled its property by an amount of Rs 15,76,60,018/-(alongwith interest) by way of transfer in and transfer out of funds (although termed as loan/donations) for an ulterior motive, which is against the letter and spirit of the exemption provisions, which are fundamentally designed to prevent any unlawful y pilferages or disposal of trust assets/property, in undue favour of Individual or group benefit. 3. In the facts 8s in the circumstances of the case, Ld. CIT(A) has not given his findings upon the appropriate tax application/incidence of the transaction in question (in the appropriate hands or period) - thereby taking the same out of tax net-during the year under reference. This crucial issue required 3 examination 8s determination, if relief was given to the assessee, by the Ld. CIT(A). This is inspite of denying exemption to the assessee under the relevant provisions by the A.O. and as upheld by the Ld. CIT(A) himself. 4. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.” 4. Representative of both the sides were heard at length. Case records carefully perused. 5. The facts emanating from the Assessment order show that the assessee trust is formed on 08.10.1979 with the object of the establishment and maintenance of hospital in India for the benefit of public in general without any distinction for philanthropic purposes and not for profit. The trust has been registered u/s. 12A of the Act and has been granted certificate u/s. 80G of the Act. 6. During the course of the scrutiny assessment proceedings and on perusal of the financial statements the AO formed a belief that the very insignificant efforts or financial inputs have been made towards the attainment of the basic object of the establishment and maintenance of a hospital or any associated activity in this direction. The AO made following significant observations :- 4 “2.1 To further put into the perspective the issue at hand, it is surprising to see the capital availability of funds as per balance sheet for the charitable activities at a paltry 2,87,000/- as on 31.03.2007 which figure stood at the same amount as on 31.03.2006. The fixed assets stood at the WDV of Rs.2,733/-. On the other hand, the income and expenditure statement shows on the receipts side the OPD fee receipt at Rs.3,346/- as on 31.03.2007, which stood at Rs 2,950 as on 31.03.2006. The opening stock of medicines is reflected at an insignificant value of Rs. 1,389/-, leaving, closing stock of nil at the end of the year. Purchases have been shown at mere Rs.3,352/- which stood as Rs. 5,192/- in the preceding year. The position is similar in respect of the preceding several years. The picture of the charitable medical activities conducted by the assessee trust, over the past period therefore clearly negates the existence of any substantial efforts geared towards the objects of Medical/hospital activities as professed, which in fact never remained a prerogative before the assessee.” 7. The crucial fact for the adjudication of the present appeal by the revenue is categorical finding of the AO that the assessee trust procured an unsecured loan of Rs.13,66,50,000/- from one Oscar Pharmaceuticals (P) Ltd. and out of such unsecured loan gave donation amount of Rs.13.65 crores to another associated entity called Dr. Bhai Mohan Singh Foundation. On these facts the AO summarized issues as under :- (i) Whether the assessee is genuinely pursuing the charitable activities as professed in the trust deed and as envisaged in the grant of registration u/s. 12A in terms of section 2(15); and section 11, 12 & 5 13 of the I.T. Act. (ii) Whether the shares of RLL of Rs.58,48,281/- held as investment does not represent violation of section 11(5) read with section 13(l)(d) and therefore, entails rejection of exemption u/s. 11 and 12. (iii) Whether the claim of application/expenditure of Rs.l3,65,00,000/- passed on as donation to another associated trust (with a common author) is not a violation of section 13(3)(a) and therefore, entails rejection of grant of exemption u/s. 12A. More so in view of the fact that, the entire amount was taken as loan, with a huge interest liabilities. (iv) Further, whether the claim of expenditure of this amount of Rs. 13,65,00,000/- does not deserve to be disallowed as application, in absence of any plausible purposes or prudence, being unexplained in nature. 8. Having conclusively satisfied that the donee trust has not carried out any charitable activity nor is in a position to utilize the donation of Rs. 13.65 crores. The AO disallowed the application of Rs. 13.65 crores claimed as expenditure by the assessee and concluded the assessment proceedings as under :- In the background of the elaborate discussions and factual analysis given in the aforementioned paras it-is held as under : " i) The assessee is not engaged in any genuine persuit of charitable activities as professed in the' trust deed and as envisaged in the claim of benefits of exemption u/s. 12A ; in terms of requirements of section 2(15) and further conditionalities of sections 11,12 and 13 of the I.T.Act. Accordingly the benefits of Section 11 and 12 are denied to the assessee. ii) By holding the shares of M/s. Ranbaxy Laboratories Ltd. at the value of Rs.58,48,281/- as investment, the assessee has violated the provisions of section 11(5) read with section 13(l)(d). Therefore, the assessee’s claim of exemption u/s.l land 12 is liable to be rejected. iii) By the act of passing on an amount of Rs.13.65 crores as donation to another associated trust entity (with a common Author/settlor) assessee has 6 squarely violated provisions of section 13(3) (a). Therefore, the claim of registration u/s.12 deserves to be rejected. iv) The claim of Rs. 13.65.00.000/- as application towards donation, in its Profit and Loss account stands disallowed as the same represents an expenditure of unexplained nature. v) It is clearly established that, the assessee has willfully concealed its particulars and evaded taxes in terms of Section 271(1 )(c) of' the I.T.Act. I am satisfied that penalty proceedings should be duly initiated in the case. Subject to aforementioned remarks, Income is computed as under : Total Income declared Nil Add: Surplus (Deficit) as per Income & Expenditure 13,83,13,436 Add: Income applied to the objects of the Trust (treated as AOP) 2,21,045 Total Income 13,85,34,481 9. Assessee strongly agitated the matter before the CIT(A). It was strongly contended before the CIT(A) that the society to whom the loan has been advanced was registered u/s. 12A of the Act and, therefore, the loan constitute application of income. It was further contended that once the AO himself accept that the assessee has not carried any charitable activity, therefore, its income should be taxed under the regular provisions of the Act then how can the loan taken by the assessee be taxed as income by the same analogy the advancing of loan cannot be regarded as expenditure. The CIT(A) was convinced and directed the AO to delete the addition of Rs. 13.65 crores. 7 10. Before us the DR strongly supported the findings of the AO and read the operative part of the assessment order. 11. Per contra the Counsel for the assessee reiterated that loan cannot be treated as income of the assessee once the AO has chosen to tax the assessee trust at normal provisions of the Act. 12. We have given a thoughtful consideration to the orders of the authorities below. 13. We find that the DIT (Exemption) vide order dated 19.07.2011 cancelled registration granted u/s. 12A of the Act on the basis that the assessee had given donation of Rs.13.65 crores to the Bhai Hospital Trust which was given out of the borrowed fund on which the assessee trust had paid interest to the related parties. 14. Aggrieved by this the assessee preferred appeal before this Tribunal and this Tribunal in ITA No.4147/Del/2011 vide order dated 18.06.2021 has interalia held as under :- 7. In this background, the question which needs to be adjudicated whether Ld. DIT(E) was justified in cancelling the registration u/s 12A of the Act under the facts and circumstances of the present case. Ld. DIT(E) cancelled the registration u/s 12AA of the Act on the ground that the assessee violated the provision of 8 section 13(3) of the Act for taking loan of Rs. 13.65 crores and donating the same to the sister concern without carrying out any charitable activity. It is further observed by Ld. DIT(E) that the donation amount received from assessee trust to foundation has been shown as a corpus and directly credited to the balance sheet and not through Income & Expenditure Account. In the opinion of Ld. DIT(E), it is clearly violation of provision of law to divert the property of assessee trust to others for non-charitable activities. In the opinion of Ld. DIT(E), there was unreasonable and excessive benefit which was given to the related parties which is clearly hit by section 13(l)(c) r.w. section 13(3) of the Act, hence, attracts action for denial of exemption u/s 12A of the Act. Undisputedly, the words as obtained registration at any time was inserted in section 12AA(3) of the Act w.e.f 01.06.2010. However, Ld.DIT(E) has cancelled the registration since inception. Therefore, it was contended by Ld. Counsel for the assessee that the cancellation could not have been made prior to the insertion of the provision thus, the Ld.DIT(E) clearly exceeded the jurisdiction. For the sake of clarity, section 12AA(3) of the Act is reproduced as under:- 12AA(3). “Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)]] and subsequently the [Principal Commissioner or] Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless 9 such trust or institution has been given a reasonable opportunity of being heard.]” 8. Another argument of the assessee is that since the assessee trust is also registered u/s 10(23C) of the Act, therefore, provision of section 13(5) of the Act is not applicable. The factum of registration u/s 10(23C) of the Act is not rebutted by the Revenue. The Ld.DIT(E) is empowered to cancel the registration u/s 12AA(3) of the Act if he is satisfied that the activities of such trust or institution are not genuine and are not being carried out in accordance with its objectives of the trust/institution as the case may be. However, in the present case, the sole ground of cancellation of registration is that the assessee trust obtained a loan of Rs. 13.65 crores, paid interest thereon and donated this sum to another trust. Admittedly, the other trust was also granted registration u/s 12A of the Act and .its registration has not been cancelled and author of both the trusts is same person. We are unable to sustain the action of Ld.DIT(E) firstly, the registration has been cancelled from inception i.e. prior to even when the trust that had obtained registration were brought within the ambit of section 12AA (3) of the Act. 9. Secondly, the Ld.DIT(E) has proceeded purely on the basis that the assessee trust had donated the amount which it had borrowed to other charitable trust without pointing out as to under what provision of law, such action is prohibited. Moreover, it is settled position of law that at the time dissolution of trust, the property of trust would go to another charitable trust. The Ld. DIT(E)’s apprehension that undue benefit is given to sister concern is misplaced. 10. As the alleged sister concern is also a charitable trust, the 10 donation from one charitable trust to another charitable trust is not prohibited under law. We find that Ld.DIT(E) himself has recorded that the assessee trust has carried out some medical OPD in accordance with the objects of the trust. 11. Under these facts, it cannot be construed that the activities of the assessee trust are not genuine. We, therefore, set aside the impugned order and restore the registration granted u/s 12A of the Act. Thus, grounds raised by the assessee in this appeal are allowed. 12. In the result, the appeal of the assessee is allowed. 15. Since the coordinate Bench has accepted taking loan of Rs.13.65 crores and donating the same to the sister concern being the donation from one charitable trust to another charitable trust as not prohibited under law. We do not find any merit in the action of the AO and the finding of the CIT(A) cannot be faulted with, therefore, considering the peculiar facts of the case in light of the decision of the Coordinate Bench (supra) we decline to interfere. The appeal of the revenue is dismissed. C.O. No.75/Del/2011 (A.Y. 2007-08) 16. Since the cross objection has not been pressed the same is dismissed as not pressed. 11 Order pronounced in the open court on 08.12.2022. Sd/- Sd/- (C.M. GARG) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER *NEHA, Sr. Private Secretary* Date:- .12.2022 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 12 Date of dictation 06.12.2022 Date on which the typed draft is placed before the dictating Member 07.12.2022 Date on which the typed draft is placed before the Other member 08.12.2022 Date on which the approved draft comes to the Sr.PS/PS 08.12.2022 Date on which the fair order is placed before the Dictating Member for Pronouncement 08.12.2022 Date on which the fair order comes back to the Sr. PS/ PS 08.12.2022 Date on which the final order is uploaded on the website of ITAT 08.12.2022 Date on which the file goes to the Bench Clerk 08.12.2022 Date on which file goes to the Head Clerk. The date on which file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order