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TMI Blog2018 (10) TMI 1501X X X X Extracts X X X X X X X X Extracts X X X X ..... same in his hands for A.Y. 2011-12 and A.Y. 2012-13. 2.1 The ld. CIT(E) has erred in facts and in law in holding that A.O. has not make any inquiry or verification regarding the income of medical shop run by Smt. Kamla Ranwa (Secretary) ignoring that she is not running any such shop in the year under consideration and this fact is evident from the order of CIT(E) U/s 254/12AA dated 09/10/2015. 3. The assessee craves to amend, alter and modify any of the grounds of appeal. 4. Necessary cost be allowed to the assessee." 2. The assessee is a society registered under Rajasthan Society Registration Act, 1958. The main object of the society is to provide medical facility in the State of Rajasthan. The assessee is running a hospital at Sikar in the name and style of Getwell Hospital & Research Centre. The assessee filed its return of income on 19/2/2015 declaring NIL income after claiming exemption U/s 11 of the Income Tax Act, 1961 (in short the Act). The Assessing Officer completed the scrutiny assessment U/s 143(3) of the Act on 23rd December, 2016 and denied the claim of exemption U/s 11 of the Act. Accordingly, the Assessing Officer assessed the income of the assessee at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 28/09/2018 has directed the ld. CIT(E) to grant registration U/s 12AA of the Act to the assessee. Both the issues which were subject matter of denial of registration U/s 12AA of the Act has been considered by the Tribunal while passing the order dated 28/09/2018 in the appeal against the order of denial of registration U/s 12AA of the Act. He has further submitted that even otherwise Smt. Kamla Ranwa finally donated the entire stock of medicines to the assessee's society and the ld. CIT(E) has not disputed this fact that on 30/11/2011, the medicines stock of medical shop in question was donated to the assessee society. Therefore, invoking the provisions of Section 263 of the Act by the ld. CIT(E) based on the order passed U/s 12AA(1)(b) of the Act and consequential impugned revision order are not valid and liable to be quashed. He has relied upon the decision of Hon'ble Gauhati High Court decision in the case of Smt. Lalita Chaoudhary Vs CIT & ors. (2007) 289 ITR 226. 4. On the other hand, the ld CIT-DR has submitted that the Assessing Officer while completing the assessment U/s 143(3) of the Act has not conducted due enquiry on the issue of income from medical shop a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was no such shop run by Smt. Kamla Ranwa as the said shop was closed in the year 2011 itself and the medicine stock of the shop was donated to the assessee society on 30/11/2011. Thus, it is clear that there was no such issue in the year under consideration, however, the ld. CIT(E) has taken up the said issue as it was one of the reasons for denial of registration U/s 12AA of the Act while rejecting the application of the assessee vide order dated 09- 14/10/2015. The said order passed by the ld. CIT(E) U/s 12AA(1)(b) of the Act was challenged before this Tribunal and this Tribunal vide order dated 28/09/2018 in ITA No. 245/JP/2016 directed the ld. CIT(E) to grant registration U/s 12AA of the Act. Therefore the issue raised by the ld. CIT(E) in the show cause notice regarding the income of the medical shop was a non-existing issue for the year under consideration. 5.1 As regards the bogus claim of rent payment, we find that the ld. CIT(E) has given the reference of Section 13(1)(c) of the Act whereas the Assessing Officer while passing the assessment order U/s 143(3) of the Act has denied the benefit of Sections 11 and 12 of the Act, therefore, the question of violation of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (E) has not questioned the charitable nature of objects of the assessee and even the dominant and primary objects and activities of the assessee are not in dispute. The objections raised by the ld. CIT (E) are only in respect of violation of provisions of section 13(3) read with section 13(1)(c) of the Act and the genuineness of the donations due to spurt increase in amount of donation. The main objection is regarding the violation of section 13(3) as in view of ld. CIT (E) the assessee has diverted the income to the persons specified in section 13(3) of the Act. It is pertinent to note that section 13(3) provides only the class of the persons to whom if any benefit is granted by the Trust or Institution, the same would not be considered as income applied for the charitable purposes but will be considered as applied for benefit of such persons. For ready reference, we quote section 13(3) of the Act as under :- " Section 13(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 has made a substantial contribution to the trust or institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate; 48[(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;] (h) if any funds49 of the trust or institution are, or continue to remain, invested49 for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern49 in which any person referred to in sub-section (3) has a substantial interest." Therefore, the income which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in section 13(3) of the Act, a proper investigation and enquiry is required when it is not a mere case of diversion of income but the payment is against the consideration or against the services. Therefore, subject to the provisions of section 13(2) of the Act and without conducting a proper enquiry about the fair market rent of the building in question it is not possible to come to the conclusion that the payment of rent of Rs. 50,000/- per month by the assessee society in respect of the hospital building of such a big size or area is in violation of the provisions of section 13 of the Act. Even otherwise, the Tribunal while remanding the matter to the record of the ld. CIT (E) has expressed its inability to determine the issue for want of relevant record. However, once the matter was remanded to the ld. CIT (E), it ought to have first ascertained the fair market rent of the hospital building in question when the constructed area of hospital is not in dispute. Thus when the ld. CIT (E) has not given a finding about the fair market rent of the building in question then giving a finding in the impugned order that the payment of rent is in violation of provisions of section 13( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee society. The ld. CIT (E) has not disputed this fact that on 30.11.2011 the medicine stocks of medical shop in question was donated to the assessee society and, therefore, thereafter there is no question of even alleged benefit or diversion of income to the specified persons. The order in question has been passed in the month of October, 2015 whereas the said shop itself was donated to the hospital on 30.11.2011. In view of these facts, when there is no specific instance of any favour or diversion, then running a shop by the specified person itself cannot be regarded as a violation of provisions of section 13 of the Act until and unless any benefit is provided in the shape of income applied on such persons. Hence we do not find any merit in the objection raised by the ld. CIT (E) on this account." Thus, in view of the order of the Tribunal dated 28/09/2018 in the appeal filed by the assessee against the order passed U/s 12AA(1)(b) of the Act, the impugned order passed by the ld. CIT(E) U/s 263 of the Act would not survive. Even otherwise once the registration U/s 12AA of the Act was directed to be granted then the Assessing Officer has to consider the issue of exemption U/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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