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2015 (4) TMI 801

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..... gistration granted under section 12AA of the Act, we find no merit in the order of Assessing Officer, in this regard. Similar ratio was laid down by Delhi Bench of the Tribunal in Manav Bharati Child Institute & Child Psychology [2007 (9) TMI 446 - ITAT DELHI], that merely because there was some surplus in the activities carried on by the society, the same would not dis-entitle to claim exemption under section 11 and 12 of the Act. Similar proposition has been laid down by the Delhi Bench of the Tribunal in ITO Vs. Dharamshila Cancer Foundation & Research Centre [2009 (3) TMI 233 - ITAT, DELHI], wherein it has been laid down that the profitability is not the sole criteria to judge the charitable nature of a society and where the Assessing Officer has failed to take into consideration that income was only applied for the purpose of charity, there was no justification in non-grant of benefit under section 11 of the Act. The Hon’ble Kerala High Court in Pulikkal Medical Foundation (P) Ltd. [1993 (8) TMI 16 - KERALA High Court] had also laid down similar proposition that merely because the assessee was running a hospital on commercial lines, it would not be dis-entitled to the exemp .....

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..... 0% less than market rate. In case, we compare the two agreements for letting out the premises of the assessee trust, the premises handed over to the interested party is fetching high rentals to the trust and it could not be said that the provisions of section 13(1)(c) of the Act, have been violated. Another aspect of the denial of deduction under section 11 of the Act to the assessee was that the assessee had failed to provide concessional treatment to indigent / poor patients. Admittedly, this was the first year of operation of the hospital and the plea of the assessee was that it could not provide free medical relief to large numbers of indigent / poor patients. However, in the absence of any limit being provided in the Income-tax Act, violation, if any, of the said limit does not entitle the Revenue authorities to disallow the claim of exemption under section 11 of the Act to the assessee trust, which otherwise had carried out the activities as per its objects and hence, is entitled to the deduction under section 11 of the Act. - Decided against the revenue. - ITA No.1683/PN/2012, ITA No.130/PN/2013, ITA No.2123/PN/2013 - - - Dated:- 8-4-2015 - Shri G.S. Pannu And MS. Sus .....

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..... ue raised in the present appeal is with regard to the applicability of the provisions of section 13(1)(c) r.w.s. 13(2)(b) and 13(2)(g) of the Act. 5. The brief facts of the case are that, the assessee was a charitable trust registered under section 12AA of the Act. For the year under consideration, it had furnished return of income declaring Nil income, after claiming exemption under section 11 of the Act in respect of entire income of ₹ 3,89,67,621/-. Survey under section 133A(1) of the Act was conducted at the premises of hospital on 9th / 10th October, 2009. Thereafter, the Assessing Officer recorded reasons for reopening the assessment under section 147 of the Act on 14.01.2010. The reasons for reopening the assessment was that income of Dr. B.E. Kandekar, Cardiologist, the managing trustee of the assessee trust had increased manifold and secondly, the hospital was running on commercial lines without there being charitable activities. The Assessing Officer noted that the prima facie inference that flowed from the observation was that there was violation of provisions of section 13(1)(c) of the Act. The assessee, in response to notice under section 148 of the Act furnis .....

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..... (Card.), who in turn was the managing trustee of the assessee trust. Other trustees included Dr. (Mrs.) Sangeeta B. Kandekar, M.B. (Intensivist) wife of settlor, Dr. P.M. Daule, M.D. (Ortho), Dr. N.R. Akolkar, M.D. (Paed.), and Dr. P.S. Bandishti, M.D., D.M. (Neuro.), D.N.B. The objects of the trust are reproduced under para 7.2 at pages 5 and 6 of the assessment order, of which, the first object was to acquire, establish and run and maintain, carry on the work as an advanced hospital and to carry out the diagnostic, therapeutic procedures and provide super specialty facilities in all branches of medical, surgical fields, etc. Other important clauses in the trust deed noted by the Assessing Officer were that the managing trustee of the trust shall be Dr. Bapusaheb Eknath Kandekar for life. Further, the said managing trustee had the unfettered right to appoint his/her successor. Further, the managing trustee and first trustee shall be paid remuneration or honorarium and other benefits as may be agreed upon between the managing trustee and other trustees on the Board of Trustees. Further, though the managing trustee was to work along with others, but his decision shall be final and b .....

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..... was that the company shall keep their rates 10% less than the market rate to all patients of the trust; f) The trust had invested over ₹ 4.15 crores in Plant Machinery, which was made partly by raising loan of ₹ 2 crores and partly by raising interest bearing loans from medical practitioners concerned and relatives of the trustees totalling ₹ 37.64 lakhs and partly by Dr. Kandekar and Dr. (Mrs) Kandekar at ₹ 71.36 lakhs; g) The assessee trust had paid consultancy fees of ₹ 81,31,117/- to various consultants, which included ₹ 53,44,934/- paid to four trustees out of which ₹ 47,08,412/- was paid to Dr. Kandekar, managing trustee. The Assessing Officer noted that out of the total amount paid to four trustees, the consultancy fees paid to Dr. Kandekar alone constitutes 88% and the amount of corresponding gross IPD / OPD receipts attributable to his consultancy alone in the hands of the trust, were of ₹ 2,32,29,690/-, which constitutes more than 72% of the total hospital receipts of the trust, which were declared at ₹ 3,22,02,828/-. The Assessing Officer was of the view that the hospital though was claimed to be offering serv .....

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..... against which, the trust had sub-let 250 sq. ft. of a medical shop on monthly rent of ₹ 8/10 lakhs. The medical store was not run by him and the assessee trust was earning huge income from rent from the said store. Further, Dr. Kandekar had mortgaged his individual property as a security for taking loan, which he had advanced to the trust and he had not taken any guarantee commission from the trust and he was also paying interest on the bank loan and no interest was charged to the assessee trust. Further, Dr. Kandekar was devoting maximum possible time for the development and betterment of the trust and was not receiving any remuneration from the trust. It was also pointed out by the assessee in reply that, during the year under consideration, the assessee trust had actually not paid the rent for the building. Another explanation given by the assessee trust was that since maximum number of patients belongs to Dr. Kandekar, he had doubled his own staff, associate doctors to take care of his patients and had not utilized the services of the trust staff or their services. According to the assessee, there was no violation of provisions of section 13(1)(c) of the Act. The assessee .....

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..... #8377; 2.75 crores as against the total bill amount of charity given to patients being ₹ 13,42,709/-, the percentage works out at 14.65% and in terms of revenue, such percentage worked out to 4.88%. The Assessing Officer thus, held that going by the amount received by treatment to indigent poor patients, it was amply clear that the earning of profit was the predominant activity of the trust activity and carrying out the charitable was only incidental. The Assessing Officer further held that there was no charity in running the hospital since there was profit gain by Dr. Kandekar in setting up the institution, though he had given large amount to the trust and had also let out the private property to the trust, but when the hospital was commissioned, he not only shifted his base to the trust hospital but also shifted the Cathlab (I) Pvt. Ltd. to the trust hospital, exercising vital powers which he has reserved for himself. The shifting, as per the Assessing Officer, was done to the scope of profit / gain by setting up of the trust. Further, the amounts of consultancy fees received by him were staggering enough to give to the conclusion that there was no intention of charity. Whe .....

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..... ed by restrictive words i.e. not involving the carrying on of any activity for profit. The CIT(A) noted that the restrictive words referred to in the judgment of the Hon ble Supreme Court were omitted by the Finance Act, 1983 w.e.f. 01.04.1984 and remained so up to assessment year 2008-09. A new subsection 2(15) was substituted by the Finance Act, 2008 w.e.f. 01.04.2009 which had a proviso attached. The CIT(A) was of the view that in the absence of any restrictive clause in the year under consideration to the definition of word charitable purpose in section 2(15) of the Act, many of the objections raised by the Assessing Officer had very little or no relevance so far as the assessment year was concerned. The CIT(A) was of the view that the Assessing Officer had failed to bring on record adequate materials which could support the finding of denial of benefit of exemption under section 11 of the Act to the assessee, since the Assessing Officer had not appreciated the position of law correctly and the facts for arriving at conclusion. After considering the various observations of the Assessing Officer, which we have already made reference to in the paras hereinabove, the CIT(A) held .....

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..... Departmental Representative for the Revenue was that there was violation of provisions of section 13(1)(c) of the Act and also the deduction under section 11 of the Act could not be allowed to the assessee trust as the dominant object of the assessee trust was profit making. Further, the concessional medical relief provided by the trust was insignificant. The learned Departmental Representative for the Revenue pointed out that the CIT(A) was silent on the violation of provisions of section 13(1)(c), whereas the Assessing Officer had deliberated upon the said aspect in detail. The second objection of the learned Departmental Representative for the Revenue was that the building was owned by the trustees in their individual names and 45,000 sq. ft. was rented to the trust at ₹ 6 lakhs per month as against which, the part of building was rented to Cath Lab India Pvt. Ltd., which was owned by two trustees i.e. area measuring 475 sq. ft. on monthly rental of ₹ 9,500/- only. The objection of the learned Departmental Representative for the Revenue was that the property of the trust was being used by the person mentioned in section 13(2) of the Act. In respect of the medical rel .....

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..... rd was placed on the following decisions:- i) CIT Vs. Pulikkal Medical Foundation (P) Ltd. (1994) 210 ITR 299 (Ker) ii) ITO Vs. Dharamshila Cancer Foundation Research Centre (2010) 134 TTJ (Del) 573 iii) Addl. Director of Income Tax (Exemption) Vs. Manav Bharati Child Institute Child Psychology, (2008) 20 SOT 517 (Del) 14. We have heard the rival contentions and perused the record. The assessee trust was established under the Bombay Public Trust Act, 1950 and had constructed 111 bedded multi-specialty hospital by the name Noble Hospital at Ahmednagar. The hospital having modern diagnostic, medical and surgical equipment was providing facilities in all branches of medicine by engaging services of several medical specialists. The trust deed was executed on 16.08.2004 and was registered under the Bombay Public Trust Act w.e.f. 16.10.2004. The settlor of the trust was Dr. B.E. Kandekar, who was M.D., D.M. in Cardiology and was the managing trustee of the trust along with his wife and three other trustees. The objects of the trust are reproduced under para 7.2 at pages 4 and 5 of the assessment order, which reflect the main object to acquire, establish, run and maintain .....

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..... n fall within the purview of section 13 of the Act. Section 13(1) of the Act starts with a non-obstitute clause i.e. nothing contained in section 11 or 12 of the Act, etc. The section thus, provides that even if income is exempt by virtue of section 11 and/or section 12 of the Act, no such exemption would be allowed to the trust or charitable institution, if any of the provisions of section 13 of the Act are contravened. The provisions of section 13 of the Act are attracted in a case where the income or property of the trust is used or applied or enures for the benefit of any person referred to in section 13(3) of the Act. The subsection (1) to section 13 of the Act is applicable where income of the private religious trust is not enuring for the benefit of public. The provisions of section 13(1)(b) of the Act are attracted where the charitable trusts are created or established for the benefit of a particular religious community or caste. In the case of a charitable or religious trust, activities of which are enuring to the benefit of creator or founder or his relation, provisions of section 13(1)(c) of the Act are applicable, which read as under:- 13. (1) Nothing contained i .....

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..... section 13 of the Act, it is provided the conditions, under which it would be deemed to have been used or applied for the benefit of a person referred to in sub-section (3). It covers the cases where the part of the income or property of the trust or institution is or continues to be lent to such interested person, or where any amount or building or other property of the institution is or continues to be made available for the use of the interested party and where any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) and the amounts so paid is in excess what may be reasonably paid for such services and also where the services of the trust or institution are made available to any interested person without adequate remuneration or other compensation. There are other conditions also laid down in sub-section (2) of section 13(1) which are enumerated to (i) to h of the said sub-section. Further, under sub-section (3) to section 13(1), the interested persons are to include the author of the trust or founder of the trust, any person who has made substantial contribution to the trust or institution and where such a .....

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..... e trust or institution is to carry out the activities for charitable purposes and not to earn profit, it would not lose its character of being for charitable purpose, merely because some profit arises from the activity. The CBDT in its Circle No.11, dated 19.12.2008 had clarified that where the purpose of trust or institution is relief of the poor, education or medical relief, it would constitute charitable purpose, even if incidentally involves carrying on the commercial activities. In view thereof, where the assessee was engaged in carrying on the activities for attaining the objects of providing medical relief to people at large and surplus was generated from hospital activities for doing charitable work in the hands of the assessee, does not establish the case of the Assessing Officer that it was not engaged in charitable activities. Further, the assessee trust was established for the purpose of granting medical relief and the activities having been carried out as per the terms of settlement and the said activities having been recognized as charitable under the provisions of the Act, even recognition given by the Bombay Public Trust Act and also by the registration granted unde .....

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..... o carry out the activity for charitable purposes and not to earn profit. Further, it was held that the trust would not lose its character of a charitable purpose merely because some profit arises from the activities. Reference was made to the exclusionary clause applicable at that time and it was held that the same does not require that the activity must be carried on in such a manner that it does not result in any profit. 20. Now, coming to the second aspect of exemption under section 11 of the Act to the assessee, in view of violation of provisions of section 13(1)(c) of the Act. In the facts enumerated herein-in-above and also while making reference to the observations of the Assessing Officer, it has been referred to by us that the assessee trust was settled by Dr. Kandekar, managing trustee and four other as trustees. Dr. Kandekar was a cardiologist and he along with his wife made available 45,000 sq. ft. of constructed building to the trust to carry on its activities of running hospital therefrom. The assessee trust was paying monthly rental of ₹ 6 lakhs to Dr. Kandekar and his wife. In addition, certain portion approximately 475 sq. ft. of the hospital premises was .....

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..... d shifted his private practice to the trust hospital. Looking at the remuneration generated by Dr. Kandekar for the assessee trust, it could not be established that he was doing any private practice at the premises of the trust hospital. Another objection of the Assessing Officer was vis- -vis the claim of expenditure of associated doctors by Dr. Kandekar in his return of income, against his consultancy charges, it was explained by the assessee before Assessing Officer that the said associate doctors were engaged by Dr. Kandekar for looking after his patients in the trust hospital and he was paying for their services and claiming the expenditure without utilizing the services of doctors of the hospital trust. The said claim of the assessee has not been rebutted by the Assessing Officer and the contrary inference drawn in this regard, cannot be accepted. We find no merit in the objection of the Assessing Officer, where Dr. Kandekar acting as managing trustee of the assessee trust had supervise the activities of the trust and had devoted time for not only the medical consultancy, but also for administrative work. The assessee had also made available the services of the company Cathla .....

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..... e provisions of section 13(1)(c) of the Act, have been violated. 23. Another aspect of the denial of deduction under section 11 of the Act to the assessee was that the assessee had failed to provide concessional treatment to indigent / poor patients. Admittedly, this was the first year of operation of the hospital and the plea of the assessee was that it could not provide free medical relief to large numbers of indigent / poor patients. However, as per the data submitted before the Assessing Officer, which is incorporated under para 9 at page 10 of the assessment order, such services to indigent / poor patients was numbering 808 was provided by the assessee trust and the total bill amount of concession given to the patients was ₹ 14,49,969/- as against the billed amount received from other patients of ₹ 3.22 crores. Under the Income-tax Act, there is no provision for providing a percentage of the concession to indigent / poor patients. But certain limits have been laid down otherwise. However, in the absence of any limit being provided in the Income-tax Act, violation, if any, of the said limit does not entitle the Revenue authorities to disallow the claim of exempti .....

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