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

ITA 9019/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4251 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Assessee Lawyers: APURVA R SHAH
• Keywords: Charitable institution
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI . , ! ' #'' '$ , % ! & BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 9019 / / 2010 A.Y. 2008-09 ITA NO. : 9019/MUM/2010 (ASSESSMENT YEAR: 2008-09) INCOME TAX OFFICER(E)-II(1), ROOM NO. 509, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI -400 012 VS M/S. LILAVATI KIRTILAL MEHTA MEDICAL TRUST, A/791, BANDRA RECLAMATION, BANDRA (WEST), MUMBAI -400 050 .: PAN: AAATL 1398 Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SURINDER JIT SINGH RESPONDENT BY : SHRI FARROKH V. IRANI & APURVA R. SHAH /DATE OF HEARING : 02-07-2013 !' / DATE OF PRONOUNCEMENT : 10 -07-2013 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE DEPARTMENT HAS FILED APPEAL AGAINST THE ORDER OF CIT (A) 1, MUMBAI, DATED 03.08.2010, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO ALLOW EXEMPTION U/S 11 OF THE I.T. ACT IGNORING THE FACTS BROUGHT OUT ON RECORD BY THE ASSESSING OFFICE IN HIS ASSESSMENT OR DER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, AND LD. CIT(A), MUMBAI, ERRED IN DELETING THE ADDIT ION OF RS. 14,12,93,934/- BEING THE PROVISION MADE FOR THE EXP ENSES WHICH ARE NOT ALLOWABLE, IGNORING THE FACTS BROUGHT OUT ON RECORD BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER. T HE LD. CIT(A) FURTHER ERRED IN TREATING THE EXPENSES AS INCURRED BY THE ASSESSEE, FOR WHICH ONLY PROVISION HAS BEEN MADE IN THE ACCOUNTS, AND SHOWN AS LIABILITY IN THE BALANCE SHE ET. M/S. LILAVATI KIRTILAL MEHTA MEDICAL TRUST ITA NO. 9019/MUM/2010 2 3. THE APPELLANT PRAYS THAT THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) -1, MUMBAI BE SET ASIDE AND TH AT OF THE ASSESSING OFFICER BE RESTORED. 2. THE FACTS, AS RECORDED BY THE AO IN THE ASSESSMENT ORDER ARE, THAT THE ASSESSEE IS A TRUST RUNNING A SUPER SPECIALTY HOSPITAL IN THE NAME OF LILAVATI HOSPITAL, BANDRA RECLAMATION, MUMBAI. THE MAIN OBJET OF THE ASSESSEE TRUST IS TO OFFER MEDICAL RELIEF AND S PREAD OF MEDICAL SCIENCE AND ESTABLISHMENT AND MAINTENANCE AND SUP PORT HOSPITAL HEALTH CENTRE, DISPENSARIES WITH OUT WITHOUT MEDIC AL SCHOOLS AND NURSING INSTITUTIONS OR ANY OF THEM FOR TREATMENT OF PATIENTS SUFFERING FROM DECEASES OR ACCIDENTS, ETC. THE ASSESSEE TR UST OWNS A HOSPITAL AT BANDRA BY THE NAME LILAVATI HOSPITAL. THIS HOSPIT AL IS THREE HUNDRED BEDDED MULTI SPECIALTY HOSPITAL AND ONE OF THE E LITE HOSPITALS IN MUMBAI. IT IS KNOWN TO CATER ONLY TO THE HIGHER SECTIO N OF THE SOCIETY. THE ASSESSEE IN ORDER TO CLAIM EXEMPTION U/S 11 OF THE ACT, HAVE CONSIDERED THE RECEIPTS OF THE HOSPITAL OF RS. 1,19,56 ,02,963/- AS ITS INCOME DERIVED FROM PROPERTY AND THE EXPENSES OF RS. 1,72,23,65,268/- INCURRED FOR EARNING THESE RECEIPTS AS APP LICATION OF THE FUND. THE PROVISIONS OF SECTION 11(1)(A) IS AS UNDER: SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63, TH E FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PR EVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOME (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST W HOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA; AND, WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA , TO THE EXTENT TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF [FIFTEEN] PER CENT OF THE INCOME FROM SUCH PROPERTY . AS PER SECTION 11, WHAT IS EXEMPT, IS THE INCOME THAT IS D ERIVED FROM PROPERTY AND APPLIED FOR CHARITABLE PURPOSES. THE MANAGEM ENT OF THE HOSPITAL IS A BUSINESS VENTURE OF THE TRUST AND NOT CHAR ITABLE OBJECT. THE PROFIT MOTIVE CAN BE SEEN FROM THE RECEIPTS AND THE EXPENSES INCURRED BY THE HOSPITAL FOR MANAGING ITS AFFAIRS. THE DETAILS ARE AS UNDER: M/S. LILAVATI KIRTILAL MEHTA MEDICAL TRUST ITA NO. 9019/MUM/2010 3 HOSPITAL OPERATING INCOME AS PER THE INCOME AND EXPENDITURE A/C. RS.219,56,02,963 LESS: A MEDICAL EXPENSES A. PROPERTY EXPENSES RS. 1,93,84,238 B. OPERATIONAL EXPENSES RS.1,28,46,92,872 C. HOSPITAL ADMINISTRATIVE EXPENSES RS. 41,64,08,800 D. LOSS ON SALE OF MEDICAL EQUIPMENT RS.18,65,003 E. BANK OVERDRAFT INTEREST RS. 14,355 RS.172,23,65,268 NET PROFIT 47,32,37,695 3. THE AO, AFTER DETAILED DISCUSSION CONCLUDED, THE INCOME AND EXPENDITURE A/C. FOR THE YEAR ENDED 31.03.2008 SHOWS THAT THE ASSESSEE HAVE NET SPENT ANY AMOUNT O N ACCOUNT OF RELIGIOUS, EDUCATIONAL, RELIEF OF POVERTY AND OTHER CHARITABLE OBJECTS AS THESE HEADS, THOUGH THEY APPEAR IN THE INCOME AND E XPENDITURE A/S. SHOW A NIL FIGURE. THIS INDICATES THAT THE ASSESSEE TRUST HAVE NOT DONE ANY CHARITABLE ACTIVITY DURING THE YEAR. THE ASSESSEES CLAIM OF EXEMPTION U/S 11 OF THE I.T . ACT CONSIDERING THE RECEIPTS OF THE HOSPITAL OF RS. 2,19,56,02,963/- AS ITS INCOME DERIVED FROM PROPERTY AND THE EXPENSES INCURRED FOR EARNING THIS RECEIPT OF RS. 1,72,23,65,268/- AS APPLICATION OF INCOME IS PATENT LY WRONG AND WITH A MALA FIDE INTENTION TO CLAIM EXEMPTION WITHOUT DOIN G ANY FACTUAL CHARITABLE ACTIVITY. PROVIDING SUCH EXEMPTION WILL DEFEAT THE VERY PURPOSE OF THE ENACTMENT OF SECTION 11 OF THE IT AC T. THIS IS BECAUSE THE ASSESSEE AS IN THIS CASE CLAIMS THE ENTIRE PROFIT O F THE HOSPITAL BUSINESS AS EXEMPT WITHOUT VIRTUALLY NOT DOING ANY CHARITABL E WORK. 4. THE AO, THEREFORE, ADDED BACK RS. 47,32,33,695/- AS A CONSEQUENCE OF REFUSAL OF EXEMPTION U/S 11 OF THE INCOME TAX ACT. 5. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM, THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND PER USING THE ORDER OF THE AO, HELD, I HAVE CONSIDERED THE AOS ORDER AS WELL AS THE AP PELLANTS A/R SUBMISSION. HAVING CONSIDERED BOTH, I FIND THAT THI S ISSUE IS REPETITIVE IN NATURE AND THAT A DEDUCTION U/S 11 IS BEING DENIED TO THE APPELLANT FROM AY 2004-05. I ALSO FIND THAT THE DENIAL OF DED UCTION U/S 11 WAS STRUCK DOWN BY THE COMMISSIONER OF TAX (APPEALS)-XX X WHILE ADJUDICATING THE APPEAL FOR AY 2004-05 AND AY 05-06 . THE ORDER OF THE CIT(APPEALS) WAS ALSO UPHELD BY THE ITAT WHILE ADJU DICATING ITA NO. 1843/MUM/2008 VIDE ITS ORDER DATED 22 ND JULY 2009. IT IS ALSO EVIDENT THAT RESPECTFULLY FOLLOWING THE ORDER OF HONBLE IT AT IN THE APPELLANT CASE, EVEN I HAVE ADJUDICATED THE APPEALS FOR A.Y. 06-07 & 07-08 ON SIMILAR ISSUE IN FAVOUR OF THE APPELLANT. HENCE FOR THE SAKE OF JUDICIAL M/S. LILAVATI KIRTILAL MEHTA MEDICAL TRUST ITA NO. 9019/MUM/2010 4 CONSISTENCY, I CONSIDER IT PROPER AND APPROPRIATE T O HOLD THAT THE AO WAS NOT JUSTIFIED IN DENYING THE CLAIM OF EXEMPTION U/S 11 OF THE IT ACT. ACCORDINGLY THESE GROUNDS OF APPEAL ARE ALLOWED. 6. THE CIT(A), THEREFORE, REVERSED THE ORDER OF THE AO AN D ALLOWED THE EXEMPTION U/S 11 AS CLAIMED BY THE ASSESSEE. 7. AGGRIEVED THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT. 9. BEFORE US, THE AR POINTED OUT THAT THE ISSUE OF CLAIM OF EXEMPTION U/S 11 HAS BEEN DECIDED BY THE COORDINATE BE NCHES IN THE CASE OF THE ASSESSEE IN ASSESSMENT YEARS 2004-05, 2005 -06 & 2006- 07, AS MENTIONED BY THE CIT(A). AGAINST THE DECISION OF THE COORDINATE BENCH OF THE ITAT IN ASSESSMENT YEAR 2004-05, THE ISSUE WAS AGITATED BY THE DEPARTMENT, BEFORE THE HONBLE BOMBAY HIGH COURT , WHEREIN, THE HONBLE BOMBAY HIGH COURT DISMISSED THE APPEAL FILED BY THE DEPARTMENT, VIDE ORDER DATED 09.02.2010. 10. THE AR SUBMITTED THAT IN LINE OF THE ABOVE, THE EXEMP TION U/S 11 SHOULD BE RESTORED AND ADDITION MADE BE DELETED. 11. THE DR STRONGLY RELIED ON THE ORDER OF THE AO. 12. WE HAVE HEARD THE ARGUMENTS. AT THE OUTSET WE AR E CONSTRAINED THAT THE DEPARTMENT MOVED THE GOVERNMENT MACHINERY W HEN THE ISSUE IMPUGNED IN THE INSTANT APPEAL, HAD BEEN SETTLED BY THE HONBLE JURISDICTIONAL HIGH COURT. WE FIND THAT THE AUTHORIZATION GIVEN FOR FILING OF THE INSTANT APPEAL IS DATED 24.12.2010, WHEREAS, THE ORD ER OF THE HONBLE BOMBAY HIGH COURT SETTING THE IMPUGNED ISSUE, IS DATED 09.02.2010. NO PRESUMPTION CAN BE MADE THAT THE DEPARTM ENT WAS NOT AWARE OF THIS ORDER FOR OVER TEN MONTHS. 13. TAKING INTO CONSIDERATION THE DECISIONS OF THE COORDINA TE BENCHES IN THE ASSESSEES OWN CASE AND RESPECTFULLY FOLL OWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT, WE SUSTAIN THE ORDER OF THE CIT(A) AND REJECT THE GROUND TAKEN BY THE DEPARTMENT. M/S. LILAVATI KIRTILAL MEHTA MEDICAL TRUST ITA NO. 9019/MUM/2010 5 14. THE SECOND GROUND IS DELETION OF RS. 14,12,93,934/- BEIN G THE PROVISION FOR EXPENSES. THE AO IN HIS ORDER, WRITES, PROVISION FOR EXPENSES IT IS SEEN FROM SCHEDULE FO RMING PART OF BALANCE SHEET THAT ASSESSEE HAS SHOWN PROVISION FOR EXPENSE S OF RS. 14,12,93,924/-. SINCE THE PROVISION FOR EXPENSES IS NOT ALLOWABLE, THE SAID AMOUNT IS ADDED BACK WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. 15. THE ASSESSEE APPROACHED THE CIT(A) AGAINST THIS DISA LLOWANCE, BEFORE WHOM, THE ASSESSEE MADE DETAILED SUBMISSIONS. THE C IT(A) SOUGHT AOS COMMENTS ON REMAND PROCEEDINGS, WHO SUBMIT TED THE REPORT, ONCE AGAIN SUGGESTING TO SUSTAIN THE ADDITION. THE CIT(A), FORWARDED THE REPORT TO THE ASSESSEE WHO SUBMITTED BE FORE THE CIT(A) IN ITS REPLY DATED 21.07.2010, SAYING, IN THIS REGARD WE SUBMIT THAT THE APPELLANT FOLLOW S THE MERCANTILE SYSTEM OF ACCOUNTING. PROVISION FOR EXPENSES REPRES ENTS EXPENSES WHICH HAVE ACTUALLY BEEN INCURRED BUT PAYMENTS HAVE BEEN MADE SUBSEQUENTLY. THUS THESE EXPENSES ARE NOT CONTINGEN T LIABILITIES BUT THE EXPENSES ACTUALLY INCURRED AND THUS REPRESENT AN AP PLICATION OF THE INCOME EARNED BY THE APPELLANT, THOUGH THE ACTUAL D ISCHARGE OF THE FUND MAY HAVE HAPPENED IN THE SUBSEQUENT YEAR. THE SAID PROVISIONS ARE FOR REGULAR ITEMS SUCH AS D OCTOR FEES, SALARIES AND RELATED EXPENSES, SURGICAL EXPENSES AND TDS PAY ABLE. A LIST THEREOF AS GIVEN IN THE AUDITED ACCOUNTS IS ENCLOSE D HEREWITH FOR PERUSAL. WE SUBMIT THAT WHAT MATTER IS THE APPLICATION OF IN COME AND THE SAME HAS HAPPENED AND HENCE THERE IS NO REASON ENOUGH TO TREAT THE SAME AS NON APPLICATION AND HENCE AS AN ITEM OF DISALLOW ANCE. WE FURTHER SUBMIT THAT IN THE APPELLANTS CASE, THE SAID APPLICATION HAS ALREADY HAPPENED IN TERMS OF THE FACT THAT SERVICES HAVE BEEN UTILIZED, THOUGH PAYMENTS ARE MADE SUBSEQUENTLY. IN THE CASE OF TRUSTS, IT HAS BEEN HELD THAT EVEN IF THE SUMS ARE SANCTIONED IN A YEAR THOUGH DISBURSED LATER THE SAME TANTAMOUNT TO AN APPLICATI ON OF INCOME. WE PLACE RELIANCE FOR THIS PROPOSITION ON THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT IN THANTHI TRUST 137 ITR 735 WHI CH HAS BEEN SUBSEQUENTLY ALSO APPROVED BY THE SUPREME COURT IN 239 ITR 502 . 16. HE, THEREFORE DELETED THE ADDITION MADE. 17. AGAINST THIS, THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT. 18. BEFORE US, THE DR RELIED ON THE ORDER OF THE AO AND S UBMITTED THAT ISSUE IS COVERED IN 128 ITD 66. M/S. LILAVATI KIRTILAL MEHTA MEDICAL TRUST ITA NO. 9019/MUM/2010 6 19. THE AR SUBMITTED THAT THE ASSESSEE MAINTAINS MERCA NTILE METHOD AND THE PROVISION IS AN YEAR TO YEAR PROCESS. HE FURTHER SUBMITTED THAT THE NATURE OF EXPENSES ARE SUCH THAT T HEY ARE IN ANY CASE ALLOWABLE. EVEN IF THE EXPENSES ARE DENIED IN THE YEAR WHEN PROVISION IS MADE, IT WILL BE ALLOWED IN THE YEAR IN WHICH THEY ARE ACTUALLY INCURRED. 20. ON GOING THROUGH THE ARGUMENTS, AND THE DETAILS, WE ARE IN AGREEMENT THAT CERTAIN EXPENSES THOUGH BOOKED BUT RE MAIN PENDING, AND IN MERCANTILE SYSTEM OR HYBRID SYSTEM, THEY ARE ALLOWED, ONCE TH EY ARE ACTUALLY INCURRED, IN THE YEAR IN WHICH THEY HAD BEEN BOOKED. THATS WHERE THE EXPRESSION OF PROVISION COMES IN. 21. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON T O DISTURB THE FINDING OF THE CIT(A), WHICH WE SUSTAIN. 22. THE GROUND AS FILED BY THE DEPARTMENT IS REJECTED. 23. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2013. SD/- SD/- ( . ) ( #'' '$ ) ! ! (B. RAMAKOTAIAH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 10 TH JULY, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. M/S. LILAVATI KIRTILAL MEHTA MEDICAL TRUST ITA NO. 9019/MUM/2010 7 3) THE CIT (A)-1, MUMBAI. 4) & & ' DIT(E)/ CONCERNED , MUMBAI / THE DIT(E)/CONCERNED.., MUMBAI. 5) ,-. / 0 , & / , 12 / THE D.R. A BENCH, MUMBAI. 6) .3 4 COPY TO GUARD FILE. &56 / BY ORDER [ 7 / 8 9 & / , 12 DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *;<8 . . * CHAVAN, SR. PS