M/s St. Martha's Hospital, Bangalore V. DDIT, Bangalore

ITA 976/BANG/2015

• Counselvise Citation: 97621114 RSA 2015
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 17-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Keywords: Charitable institution; Benefit of exemption; Revenue expenditure
• Section: 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.976/BANG/2015 ASSESSMENT YEAR : 2011-12 M/S. ST. MARTHAS HOSPITAL, NRUPATHUNGA ROAD, BANGALORE 560 001. PAN: AAATS 4999J VS. THE DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTION), CIRCLE 17(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI SURESH MUTHUKRISHNAN, CA RESPONDENT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) DATE OF HEARING : 04.11.2015 DATE OF PRONOUNCEMENT : 06.11.2015 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 28.04.2015 OF THE CIT(APPEALS)-14, LTU, BANGALORE F OR THE ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE IS A PUBLIC CHARITABLE INSTITUTION REGISTERED AS A SOCIETY UNDER THE MYSORE SOCIETIES REGISTRATION ACT, 1960 S INCE 10.11.1965. IT ITA NO.976/BANG/2015 PAGE 2 OF 8 RUNS A HOSPITAL CALLED ST. MARTHAS HOSPITAL. IT F ILED ITS RETURN OF INCOME FOR THE AY 2011-12 ON 29.09.2011 DECLARING A TOTAL INCO ME OF NIL. 3. THE ASSESSING OFFICER COMPUTED THE ACCUMULATION OF THE NET INCOME OF THE ASSESSEE AT 15% HOLDING THAT THE GROS S RECEIPTS OF AN EDUCATIONAL INSTITUTION WILL NOT BE AVAILABLE FULLY FOR APPLICATION TO CHARITABLE PURPOSES IN INDIA, SINCE THE EXPENDITURE FOR RUNNIN G THE EDUCATIONAL ACTIVITIES, WHICH ARE NECESSARY FOR EARNING SUCH IN COME, WOULD HAVE TO BE FACTORED IN. THE ASSESSEES CLAIM FOR ACCUMULATIO N AT 15% OF THE GROSS RECEIPT WAS NOT ACCEPTED SINCE THE AO WAS OF THE VI EW THAT THIS METHOD IS APPLICABLE ONLY TO A TRUST WHICH IS RUNNING PURELY ON DONATIONS AND WHERE NO AMOUNT HAS BEEN SPENT FOR GETTING SUCH DONATIONS . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED APPEAL BEFORE THE CIT(APPEALS) AGAINST THE RESTRICTION OF DEDUCTION U/S. 11(1)(A) OF THE INCOME-TAX ACT, 1961 [THE ACT] BY THE AO AT R S.1,38,84,923 AS AGAINST THE CLAIM OF RS.4,49,36,161 BY THE ASSESSEE . IT WAS SUBMITTED THAT THE AO HAS NOT APPRECIATED THAT THE WORD INCOME I N SECTION 11 OF THE ACT, WHICH REFERS TO GROSS INCOME/RECEIPT AND NOT THE CO MMERCIAL MEANING OF THE WORD INCOME I.E., NET OF EXPENSES USED FOR EA RNING THE RECEIPTS. 5. THE CIT(APPEALS) FOUND THAT THE DIFFERENT KINDS OF RECEIPTS AVAILABLE TO THE ASSESSEE THROUGH VOLUNTARY CONTRIBUTIONS, ET C. HAVE ALL BEEN INCLUDED IN THE GROSS RECEIPTS AND TAKEN INTO ACCOUNT BY HIM FOR THE PURPOSE OF CALCULATING 15% ACCUMULATION U/S. 11(1)(A). THE CI T(A) WAS OF THE VIEW ITA NO.976/BANG/2015 PAGE 3 OF 8 THAT WHAT SHOULD HAVE BEEN INCLUDED AS NET RECEIPTS FOR THIS PURPOSE ARE ONLY THOSE ACTIVITIES OR SERVICES FOR WHICH THE ASS ESSEE CHARES A FEE OR CONSIDERATION. THE CIT(A) OBSERVED THAT THE PRINCI PLE OF 15% ACCUMULATION ON NET EDUCATIONAL AND MEDICAL INCOME HAS THEREFORE BEEN APPLIED WITHOUT PROPER APPLICATION OF THE MIND BY THE AO. ACCORDIN G TO THE CIT(A), TO THE EXTENT THE ASSESSEE RECEIVES DONATIONS, THE ACCUMUL ATION FROM SUCH RECEIPTS ARE TO BE TREATED IN TERMS OF THE HONBLE SUPREME COURTS DECISION IN CASE OF CIT V. PROGRAMME FOR COMMUNITY ORGANIZATION (249 ITR 1). THE RECEIPTS FROM THE HOSPITAL, EVEN IF FIXED AT NON CO MMERCIAL RATES (SUBJECT TO VERIFICATION AND RECORDING CLEARLY BY THE AO) COULD BE EARNED ONLY THROUGH THE INCURRING OF OPERATIONAL EXPENSES RELATING TO S ALARY, MEDICINE PURCHASE, ACADEMIC MATERIAL, MAINTENANCE ETC. FOR THESE ACTIV ITIES. THE CIT(A) THEREFORE HELD THAT THE APPLICATION OF INCOME AND A CCUMULATION ARE BOTH TO BE RECKONED FROM THE NET INCOME AVAILABLE FOR THESE PURPOSES. THE CIT(A) THEREFORE DIRECTED THE AO TO BIFURCATE THE RECEIPTS FROM DONATION AND THE CONSIDERATION CHARGING ACTIVITIES AND TREAT THE ACC UMULATION IN THE FORMER IN TERMS OF GROSS RECEIPT AND IN THE LATTER IN TERMS O F NET RECEIPTS. HE THUS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 6. AGGRIEVED BY THE IMPUGNED ORDER OF THE CIT(APPEA LS), THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS THEY ARE AGAINST THE APPELLANT ARE OPPOSED TO LAW, EQUITY, W EIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.976/BANG/2015 PAGE 4 OF 8 2. THE LEARNED CIT[A] IS NOT JUSTIFIED IN UPHOLDIN G, IN PRINCIPLE, THE ACTION OF THE LEARNED A.O. IN COMPUT ING THE ACCUMULATION OF INCOME U/S.11[1][A] OF THE ACT, AT 15% OF THE NET INCOME FROM PROPERTY HELD UNDER TRUST AFTER DEDUCTI NG REVENUE EXPENDITURE INCURRED BY THE APPELLANT AS AGAINST A SUM OF RS.4,49,36,161/- CLAIMED BY THE APPELLANT ON THE BA SIS OF THE GROSS INCOME FROM PROPERTY HELD UNDER TRUST UNDER T HE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE. 3. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING OF THE APPEAL, YOUR APPELLANT HUMBL Y PRAYS THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED AND THE APPELLANT MAY BE AWARDED COSTS IN PROSECUTING THE APPEAL AND ALSO ORDER FOR THE REFUND OF THE INSTITUTION FEES AS PART OF THE C OSTS. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. WE FIND THAT THE ISSUE IS COVERED BY THE CO-ORDINAT E BENCH DECISION IN THE CASE OF JYOTHY CHARITABLE TRUST IN ITA NO.662/BANG/2015 BY ORDER DATED 14.08.2015 . THE RELEVANT EXTRACT AT PARAS 15 TO 8 OF THE SA ID ORDER IS REPRODUCED BELOW:- 15. THE THIRD ISSUE THAT ARISES FOR CONSIDERATION I N THIS APPEAL IS AS TO WHETHER 15% ACCUMULATION FOR APPLICATION I N FUTURE HAS TO BE CALCULATED ON GROSS RECEIPTS OR NET RECEIPTS AFT ER DEDUCTION OF REVENUE EXPENDITURE. THE ASSESSEE CLAIMED ACCUMULA TION OF INCOME FOR APPLICATION FOR CHARITABLE PURPOSE AT 15 % OF THE GROSS RECEIPTS. THE AO WAS OF THE VIEW THAT ACCUMULATION WILL BE ALLOWED ONLY TO THE EXTENT OF 15% OF THE INCOME AFT ER REVENUE EXPENDITURE. IN OTHER WORDS INCOME TO BE SET APART U/S.11(1)(A) OF THE ACT HAS TO BE COMPUTED AT 15% OF THE NET INCOME I.E., GROSS RECEIPTS MINUS REVENUE EXPENDITURE AND NOT ON THE G ROSS RECEIPTS AS CLAIMED BY THE ASSESSEE. SINCE IN THE CASE OF T HE ASSESSEE, THE GROSS RECEIPTS AFTER REVENUE EXPENDITURE WAS NIL, T HE AO DENIED THE BENEFIT OF ACCUMULATION TO THE ASSESSEE. ITA NO.976/BANG/2015 PAGE 5 OF 8 16. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRME D THE ORDER OF THE AO. HENCE GROUND NO.4 RAISED BY THE A SSESSEE BEFORE THE TRIBUNAL. 17. THE ISSUE TO BE DECIDED IS THEREFORE AS TO WHET HER FOR THE PURPOSE OF COMPUTING ACCUMULATION OF INCOME OF 15% UNDER SEC.11(1)((A) OF THE ACT, ONE HAS TO TAKE THE GROSS RECEIPTS OR GROSS RECEIPTS AFTER EXPENDITURE FOR CHARITABLE PUR POSE I.E., THE NET RECEIPTS. THIS IS ISSUE IS NO LONGER RES INTEGRA A ND HAS BEEN DECIDED BY THE SPECIAL BENCH MUMBAI IN THE CASE OF BAI SONABAI HIRJI AGIARY TRUST VS. ITO 93 ITD 0070 (SB) . THE FACTS IN THE AFORESAID CASE WERE THAT THE ASSESSEE WAS A PUBLIC CHARITABLE TRUST ENJOYING EXEMPTION UNDER S. 11 OF THE IT ACT. AS PE R THE REQUIREMENT OF S. 11(1) OF THE IT ACT, AS IT PREVAI LED AT THAT POINT OF TIME, THE ASSESSEE HAD TO APPLY 75 PER CENT OF I TS INCOME FOR THE OBJECTS AND PURPOSES OF THE TRUST AND THE ASSESSEE WAS PERMITTED TO ACCUMULATE OR SET APART UP TO 25 PER CENT OF ITS INCOME, WHICH WAS SUBJECT TO FULFILLMENT OF OTHER CONDITIONS. WHI LE CALCULATING THE AFORESAID 25 PER CENT, THE IMPORTANT QUESTION W HICH AROSE WAS AS TO WHETHER FOR THIS PURPOSE, THE GROSS INCOME EA RNED BY THE ASSESSEE IS RELEVANT OR THE INCOME AS COMPUTED IN A CCORDANCE WITH THE PROVISIONS OF IT ACT. IN OTHER WORDS, WHET HER OUTGOINGS FROM OUT OF GROSS INCOME WHICH ARE IN THE NATURE OF APPLICATION OF INCOME, SHOULD BE FIRST DEDUCTED FROM THE GROSS INC OME AND 25 PER CENT OF ONLY THE REMAINING AMOUNT SHOULD BE ALL OWED TO BE ACCUMULATED OR SET APART. THE SPECIAL BENCH OF THE ITAT ON THE ISSUE HELD AS FOLLOWS:- 9. COMING TO THE MERITS OF THE ISSUE, WE ARE OF THE VI EW THAT THE SAME IS CLEARLY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PROGRA MME FOR COMMUNITY ORGANIZATION (SUPRA). IN THE DECISION , THEIR LORDSHIPS, AFTER TAKING NOTE OF PROVISIONS OF S. 11(1)(A), HAVE HELD AS UNDER : 'HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE PROVISION, IT IS CLEAR THAT A CHARITABLE OR RELIGIOUS TRUST IS ENTITLED TO ACCUMULATE TWENTY- FIVE PER CENT OF ITS INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. FOR THE PRESENT PURPOSES, THE DONATIONS THE ASSESSEE RECEIVED, IN THE SUM OF RS. 2,57,376, WOULD CONSTITUTE ITS PROPERTY AND IT IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT THEREOUT. IT IS UNCLEAR ON WHAT BASIS THE REVENUE CONTENDED THAT IT WAS ENTITLED TO ITA NO.976/BANG/2015 PAGE 6 OF 8 ACCUMULATE ONLY TWENTY FIVE PER CENT OF RS. 87,010. FOR THE AFORESAID REASONS, THE CIVIL APPEAL IS DISMISSED.' IT IS CLEAR FROM THE ABOVE THAT DEDUCTION OF TWENTY -FIVE PER CENT WAS HELD TO BE ALLOWABLE NOT ON TOTAL INCOME A S COMPUTED UNDER THE IT ACT. ANY AMOUNT OR EXPENDITUR E, WHICH WAS APPLICATION OF INCOME, IS NOT TO BE CONSI DERED FOR DETERMINING TWENTY FIVE PER CENT TO BE ACCUMULA TED. THEIR LORDSHIPS, AS NOTED EARLIER, AFFIRMED THE DEC ISION OF KERALA HIGH COURT IN (1997) 141 CTR (KER) 502 : (19 97) 228 ITR 620 (KER) (SUPRA) WHEREIN IT IS HELD AS UND ER : 'AT THE OUTSET, THE STATUTORY LANGUAGE OF S. 11(1)(A) OF THE IT ACT, 1961, RELATES TO THE INCOME DERIVED BY THE TRUST FROM PROPERTY. THE TRUST IS REQUIRED TO BE WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, AND THE INCOME IS EXPECTED TO HAVE RELATION TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA. IT IS THEREAFTER THE STATUTORY PROVISION PROCEEDS FURTHER THAT SUCH INCOME IS NOT TO BE UNDERSTOOD TO BE IN EXCESS OF 25 PER CENT OF THE INCOME FROM SUCH PROPERTIES. IN OTHER WORDS, THE VERY LANGUAGE OF THE STATUTORY PROVISION UNDER CONSIDERATION SETS APART 25 PER CENT OF THE INCOME FROM THE SOURCE OF PROPERTY WITH REFERENCE TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED FOR SUCH PURPOSES, CHARITABLE OR RELIGIOUS. IN OTHER WORDS, FOR THE PURPOSE OF S. 11(1)(A) OF THE ACT, THE INCOME IN TERMS OF RELEVANCE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WHICH 25 PER CENT IS SET APART IN ACCORDANCE WITH THE SPIRIT OF THE STATUTORY PROVISION.' THIS MEANS THAT, WHEN IT IS ESTABLISHED THAT TRUST IS ENTITLED TO FULL BENEFIT OF EXEMPTION UNDER S. 11(1 ), THE SAID TRUST IS TO GET THE BENEFIT OF TWENTY-FIVE PER CENT AND THIS TWENTY-FIVE PER CENT HAS TO BE UNDERSTOOD AS INCOME OF THE TRUST UNDER THE RELEVANT HEAD OF S. 11(1). IN OTHER WORDS, INCOME THAT IS NOT TO BE INCLUDED FOR THE PURPOSE O F COMPUTING THE TOTAL INCOME WOULD BE THE AMOUNT EXPENDED FOR PURPOSES OF TRUST IN INDIA. THEIR LORD SHIPS IN THE ABOVE CASE HAVE EMPHASIZED ON THE CLEAR AND ITA NO.976/BANG/2015 PAGE 7 OF 8 UNAMBIGUOUS LANGUAGE OF S. 11(1)(A) AND DECIDED THE MATTER ON THE BASIS OF THE SAME. IT HAS BEEN HELD T HAT AS PER THE STATUTORY LANGUAGE OF THE ABOVE SECTION THE INCOME WHICH IS TO BE TAKEN FOR PURPOSE OF ACCUMULATION IS THE INCOME DERIVED BY THE TRUST FROM PROPERTY. IF BOTH THE DECISIONS ARE CAREFULLY READ, IT BECOME S EVIDENT THAT ANY EXPENDITURE WHICH IS IN THE SHAPE OF APPLI CATION OF INCOME IS NOT TO BE TAKEN INTO ACCOUNT. HAVING F OUND THAT TRUST IS ENTITLED TO EXEMPTION UNDER S. 11(1), WE ARE TO GO TO THE STAGE OF INCOME BEFORE APPLICATION THEREO F AND TAKE INTO ACCOUNT 25 PER CENT OF SUCH INCOME. THEIR LORDSHIPS HAVE POINTED THAT THE SAME HAS TO BE TAKE N ON 'COMMERCIAL' BASIS AND NOT 'TOTAL INCOME' AS COMPUT ED UNDER THE IT ACT. THEIR LORDSHIPS IN THE DECIDED CA SE REJECTED THE CONTENTION OF THE REVENUE THAT THE SUM OF RS 1,70,369 WHICH WAS SPENT AND APPLIED BY THE ASSESSE E FOR CHARITABLE PURPOSES WAS REQUIRED TO BE EXCLUDED FOR PURPOSE OF TAKING AMOUNT TO BE ACCUMULATED. HAVING REGARD TO THE CLEAR PRONOUNCEMENT OF THEIR LORDSHIPS OF THE SUPREME COURT, IT IS DIFFICULT TO ACCEPT THAT OUTGOINGS WHICH ARE IN THE NATURE OF APPLICATI ON OF INCOME ARE TO BE EXCLUDED. THE INCOME AVAILABLE TO THE ASSESSEE BEFORE IT WAS APPLIED IS DIRECTED TO BE TA KEN AND THE SAME IN THE PRESENT CASE IS RS. 3,42,174. TWENT Y FIVE PER CENT OF THE ABOVE INCOME IS TO BE ALLOWED AS A DEDUCTION. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE MADHYA PRADESH HIGH COURT IN PARSI ZORASTRI AN ANJUMAN TRUST VS. CIT (SUPRA). NO REASON WHATSOEVER HAS BEEN GIVEN BY THE REVENUE AUTHORITIES FOR DEDUCTING RS. 2,17,126 IN THIS CASE FOR PURPOSES OF S. 11(1)(A). THE DECISION CITED ON BEHALF OF THE REVENUE DID NOT TAK E INTO ACCOUNT THE DECISION OF THE SUPREME COURT REFERRED TO ABOVE. THE CIRCULAR OF CBDT HAS ALSO BEEN CONSIDERE D BY THE HONBLE KERALA HIGH COURT IN ITS DECISION REFER RED TO ABOVE. ACCORDINGLY THE QUESTION REFERRED TO IS ANSW ERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 18. THE AFORESAID DECISION CLEARLY SUPPORTS THE PLE A OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ACC UMULATION U/S.11(1)(A) OF THE ACT SHOULD BE ALLOWED AS CLAIME D BY THE ASSESSEE. GROUND NO.4 RAISED BY THE ASSESSEE IS AC CORDINGLY ALLOWED. ITA NO.976/BANG/2015 PAGE 8 OF 8 8. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF JYOTHY CHARITABLE TRUST (SUPRA) , WE SET ASIDE THE ORDER OF THE CIT(A) AND HOLD THAT THE ACCUMULATION U/S.11(1)(A) OF THE ACT SHOULD BE ALLOWED AS CLAIMED BY THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF NOVEMBER, 2015. SD/- SD/- ( JASON P. BOAZ ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 6 TH NOVEMBER, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4 . CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.