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2017 (1) TMI 676 - DELHI HIGH COURT

2017 (1) TMI 676 - DELHI HIGH COURT - TMI - Eligibility under section 10(22A) - Held that:- The disqualification which attaches in absolute terms by virtue of provisions of section 13(1) especially through section 13(3) to the income out of which some benefit flows to a settler/ founder, does not per se apply to institutions covered by section 10(22A) of the Act. - In this Courtís opinion this fundamental error led the Tribunal to hold that since Dr. Behl received significant amounts, the en .....

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as benefits that could debar the assessee to the eligibility it fundamentally had under section 10(22A) of the Act. Question of law framed is answered against the Revenue and in favour of the assessee - ITA 454/2004, ITA 455/2004, & ITA 417/2005 - Dated:- 2-1-2017 - MR. S. RAVINDRA BHAT & MR. NAJMI WAZIRI JJ Appellant Through: Mr. C.S. Aggarwal, Sr. Adv. with Mr. Ravi Pratap, Adv. Respondent Through: Ms. Vibhooti Malhotra, Adv. S. RAVINDRA BHAT, J. (Oral)

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holding that the assessee institution which is duly registered under the Indian Societies Act, was not entitled in law to the claim of the exemption of its income, uls 10(22A) of the Income Tax Act, 1961 in view of the fact that Dr. P .N. Behl who is the Managing Trustee and also founder Director in the Trust was participating in the profits of the income of the Trust and the same disentitle the institution to claim aforesaid exemption?" 3. The appellant/ assessee is a society; .....

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of Association was duly registered subsequently on 21.10.1976. The assessee was also granted exemption certificate from inception i.e. first being on 01.08.1973. The assessee s hospital treats those suffering from illness and also provides convalescence to those requiring medical attention and rehabilitation. It is not in dispute that consistently for the period 1974-75 to 1992-93, the assessee s claims of the income and receipts were being charitable were accepted and not brought to tax. During .....

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t in any manner undermine the charitable nature and functioning of the institution, and rather the patients/ clients from whom the assessee benefited had brought in much larger amounts of which only a percentage was given to Dr. Behl. By way of comparison, amounts paid to certain other consultants/ doctors, was also shown, to say that they received a much higher proportions of such fees given to the hospital. 5. The assessee had appealed unsuccessfully to the Commissioner of Income Ta .....

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resent appeals. 7. Mr. C.S. Aggarwal, the learned Senior Counsel urges that the Tribunal fell into an error in holding that the assessee had ceased to provide charity or services that amounted to a charity under Section 10(22A) of the Act. He urges that even though Dr. Behl was paid sums of ₹ 3.7 lacs and ₹ 4.7 lacs and a similar amount in the concerned assessment years, these were out of a more substantial billing. He also justified those amounts on account of Dr. Behl s .....

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wned by him. According to the arrangement, Dr. Behl could charge in any given year sums not exceeding 50% of the amounts so received. 8. The learned counsel also contrasted the amounts received by Dr. Behl with those received by other such consultants in terms of percentage and submitted that Dr. Behl, in fact, received similar percentage even though in absolute terms the amounts may have been more. 9. The learned counsel submitted that the Tribunal fundamentally misconstru .....

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tion 13(3) and in overlooking this aspect the Tribunal fell into error. It was, secondly, urged that having regard to the finalized assessments for all preceding years, and even subsequent years, such as AY 1994-95, 1997-98 and 1998-99 onwards the revisiting of the issue and bringing to tax amounts received by the assessee is unsustainable. 10. Ms. Vibhooti Malhotra, the learned counsel for the Revenue argued that the Tribunal s findings are justified. She relied upon the ruling of th .....

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not be disturbed. 11. Section 10(22A) of the Act, excluded income received by hospitals or other institutions, for the reception and treatment of persons suffering from illness. It was on the statute book for the period 01.04.1970 to 31.03.1999. It inter alia read as under: " 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- ...... (22A) any income of .....

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Section 11 or Section 12 from taxation. Section 13, to the extent it is relevant, reads as follows: ......13. (1) Nothing contained in section 11 (or section 12) shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public. (b) in the case of a trust for charitable purpose .....

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trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, Directly or indirectly for the benefit of any person referred to in sub-section (3)..... xxxx xxxx (2) Without prejudice to the generality of the provisions of clause (c) [and clause (d)] of sub-section (1), the inc .....

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p> xxxx xxxx (3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely:- (a) the author of the trust or the founder of the institution; (b) any person who had made a substantial contribution to the trust or institution, [that is to say, any person whose total contribution up to the end of the relevant previous year exceeds {fifty} thousand rupees]; (c) whether such author, founder or person is .....

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(from the entitlement or eligibility of certain income the immunity of taxation) opens with the exception Nothing contained in section 11 (or section 12) shall operate . What is immediately apparent is that the exclusion of amounts received by virtue of section 10(22A) is not the subject matter of section 13(1) of the Act or any of its further conditions. In other words, the disqualification which attaches in absolute terms by virtue of provisions of section 13(1) especially through section 13(3 .....

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