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TMI Blog2019 (9) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in holding that incomplete Form 10B was not a ground for disallowance. iv) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in holding that the A.O. should has considered the assessee's submission that brought forward losses of the trust is allowed to be set off against current year's surplus, and that the same is considered as application of income of the trust as per the judicial rulings of High Courts of Gujarat, Bombay and Rajasthan. v) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in deleting the disallowance of depreciation of Rs. 1,27,63,514/- made by the Assessing Officer. vi) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in ignoring the stand of the Revenue that allowance of depreciation on the assets, the cost of which has already been allowed as a deduction on account of application of income, would amount to double deduction in view of the decision of the Hon'ble Supreme Court in the case of Escorts Ltd., 199 ITR 43. vii) Whether, on the facts and in the circumstances of the case, deduction of depreciation u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1&3 of the Act. Therefore, by entering into the agreement fith SCPL, the eligibility conditions for claiming deduction u/s. 11 of the Act, as laid down in 13(1)(c)(ii) and 13(2)(b), 13(2)(d) and 13(2)(g) of the Act have violated. Which are substantiated as below:- * "The trust has transferred all assets and liabilities as appearing in the balance sheet of SHMI as on 01.04.2008 to SCPL. The liabilities include unsecured loans from the assessee trust worth Rs. 19,57,39,819/-. Before the transfer on 01.04.2008, the referred loan was appearing as asset in the balance sheet of trust and liability in the balance sheet of SHMI, and the SHMI being a constituent of the assessee trust, the loan advanced was treated as application of income. But, as soon as the SHMI no longer remained as a constituent of trust and was taken over by a company (SCPL), the said loan appeared as liability in the balance sheet of SCPL, and SCPL being a company, the said loan can no longer be considered as application of income for the purposes of attaining objects of the trust. Instead, it is treated as property of trust used to serve the business interests (provide benefits) of the person referred in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in sub-section (3).] * Whether the income or property of the trust/institution was used or applied during the previous year for the benefit of any such person in any other manner? * Considering the fact that no such disclosure has been made in the Form 10B report, the assessee has violated the procedural aspect also and the Form 10B report filed by the assessee is considered to be inappropriate and is rejected, making him not entitled for deduction u/s. 11 of the Act. Hence, deduction u/s. 11 of the Act is disallowed on this ground also. 3.8 In the light of above discussion, deduction u/s. 11(1)(a) of the Act worth Rs. 28,72,316/- is disallowed and added to the income of the assessee. The assessee is now treated as an AOP, and ins income is computed as per the normal provisions of the Act (section 28-44)." 5. Being aggrieved the assessee filed appeal before the Ld. CIT(A). Wherein detail submissions made by the assessee which has been reproduced at Para 4 to 4.7 and considering these above facts the Ld. CIT(A) has given his finding at Para 4.9 to Para 7 of his appellate order which are reproduced as under:- "4. The A.O in his order has pointed out via para 3.1.2.2 that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust with a mandate that all the income earned by the trust will be applied for the objects of the trust (for which it has been granted registrations). The trust has been claiming deduction u/s 11 since them, is accumulating assets with a legal binding that its income will be applied for purpose of attaining objectives of the trust. By entering into the said agreement with a corporate (SCPL), the assessee has transferred the assets (including goodwill IPRs, patient details, loans and advances received in the name of the trust, etc) being created /accumulated under the umbrella of section 12A(a) of the Act to a company. This act of the trust, if allowed, will set a precedent for other institutions to accumulate assets and goodwill in the name of the trust for a number of years and then transferring the same by floating a company to earn huge profits. Hence the referred agreement is rejected per se." 43. During the course of appellate proceedings, the appellant submitted as under: "To safeguard the trust activities and its assets because of huge losses, the trustees had to take a prudent decision whereby the liabilities can be discharged, adequate income assured for its object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt which reads as under.: "3.3 SCPL will correspondingly take over and discharge all the liabilities both secured as well as unsecured of SAL Hospital (Divison of Adarsh Foundation) including secured term loans, unsecured loans, trade creditors and other current liabilities and provisions of whatever nature at their respective Book Values as appearing in the books of accounts as of 1st April, 2008 as per balance sheet, annexed herewith and forming part of this agreement. The copy of audited accounts of the trust for F Y 2007-08 relevant to Asst. Year 2008-09 are attached from which it will be seen that the appellant trust had huge deficits in both its institutions and had made negative worth in the Financial Year 2007-08 due to losses from the SHMl (SAL HOSP1TAL& MEDICAL INSTITUTE) and in the KESAR SAL MEDICAL COLLEGE & RESEARCH INSTITUTE. (KSMC) Thus, the financial position of the trust and its institutions were in a very bad shape and the net worth was negative by crores of rupees. This dark situation was promptly visualized and the trustees had to take a prudent decision to protect the property of the trust and to ensure that without losing the valuable immovable propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allments to Banks and also payment of interest expenses on monthly basis. Since the Trust was not capable of making timely repayment of the amount borrowed from various banks for the purpose of its establishments/ institutions, any further delay would have resulted in the sudden enforcement of repayment by the Banks which certainly would have made the trust a defaulter and its activity would have come to stand still. In addition to the above financial crisis and deficits which occurred to run the aforesaid institutions of the trust, there were also similar other corporate Hospitals upcoming in the city which have created the acute competition for running the medical and Healthcare activities and therefore, to continue to provide the best services at economic rates and with quality of skilled doctors, a prompt decision to a have the benefit of a corporate entity which would not only utilize its acumen, skill and ability in expanding such activity but also ,add to the brand SAL was essential Such a decision has actually benefited the appellant trust since after allowing the Corporate management to run the institution, more renowned Doctors have joined the Hospital and the image of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rging adequate rent or other compensation. As already earlier demonstrated in our earlier submissions and also looking to the facts and figures of year under appeal the trust has charged adequate compensation by way of management charges income under the terms of agreement couple with handing over the liabilities of secured/ unsecured loans and interest thereon as also, huge amount of expenses pertaining to Kesar Sal Medical College are being reimbursed to the trust over and above the aforesaid payments. Thus s. 13(2)(b) is not at all applicable to the case of the appellant. S. 13(2)(d) can apply only if any services of the trust are made available to any specified person during the previous year without adequate remuneration or other compensation. The appellant trust has not rendered or provided any such services to the specified person and hence the question of applying s. 13 (2(d) does not arise. S. 13. (2)(g) can apply only is any income or property of the trust is diverted during the previous year in favour of any specified person. Since the trust has not diverted any income or property in favour of any specified person, this provision is not applicable. The trust has en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Without any justification) that appellant had not furnished any rational or mathematical explanation about arriving at the figure of one crore/ 40% of profit formula for the payment of management fees by SCPL, again the Id AO has failed to look to the above factual figures and has miserably failed to put himself in the place of the trustees while making such untenable allegation/ observation. The trustees being well-aware of their avowed responsibilities had under the circumstances t taken a prudent and wise decision which has proved very much right and rewarding for the trust and its activities. It is not understood, how the Id AO has shut his eyes on the above vital aspects and the actual figures which were very much before him. Again, the Id AO has erred in observing that amount worth Rs. 19.57 crores were advanced by trust to a corporate entity. The incorrect stand of the Id AO has been replied/ explained in reply dated 08.12.2011 relevant query reproduced by Id AO at Para 3.5 page 30 of his assessment order. As a matter of fact, the trust has , in accordance with its objects, utilized the amount for the purposes of SAL Hospital one of its institutions. As not only the movab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that the appellant trust had indulged in to activities which is against the principles of charity and an amount of Rs. 5,43,57,980/- was shown as Loans and advances in the books of the Company which was due to trust as on 31st March,2009. In my opinion, I find the contention of AO unsustainable as alongwith the movable assets entire liabilities of the trust is also transferred to the Company. The basic fact of entering in to agreement with the Company was to secure trust's interest and not to indulge in the losses and to reimburse the expenditure of Kesar Sal Hospital. The AO's claim does not hold well because the purpose of agreement with SCPL was to ensure that the hospital is managed professionally, and in doing so, the purpose of charity is not violated, as a reputed hospital of such a huge size requires professional handling. The AO erred in holding that agreement with SAL Care Pvt Ltd was in violation of any provision of the Act and further that there was no rational and mathematical explanation about the figure of management fees though the same was determined at best and fair manner for survival of the loss making charitable institution. The appellant duly exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement with SCPL is for monetary terms, and the trust has benefited greatly, as deficit of the trust has reduced to a great extent I am in disagreement with the A.O's contention, that there is a violation of the conditions of Section 13. Accordingly, ground No. 4 is allowed. 6. So far as disallowance due to erroneous presentation of Form 10B report, the AO'S Contention that the report as per form 10B is incorrect, is not a fair ground for disallowance, as the appellant was under appeal to contest that, none of the funds or assets of the trust are given to persons mentioned under subsection (3) of section 13, and as the appellant had no reason to believe that any transfer of funds was made to persons u/s 13, nothing was mentioned in the form 10B report, as such. Thus lam of the view that the AO's ground that incomplete form 10B is a ground for disallowance u/s 11 is not tenable. Ground No. 5 is thus allowed. 7. As far as advance amounting to Rs. 5,43,571980/- in favour of SCPL appearing in the balance sheet of the trust, I am of the view that it does not result in misapplication of income for objectives other than those for which registration and establishmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuer or book value whichever is higher. The Ld. Counsel submitted that the Government valuation done at higher it is reflected at Page 78 of the Paper Book which comes to 7.30 crore. The Ld. Counsel further referred the profit sharing composition Clause 4.1 of the agreement by which it was agreed that the trust shall be paid during the terms of agreement a sum equivalent to 40% of the profit before tax or minimum profit or compensation of Rs. 1 crore whichever is higher. The basis for calculation of 40% net profit for the purpose of Clause 4.1 of the agreement shall be annual audited accounts of SCPL. Accordingly, the assessee has received 1.63 crore during the year from SCPL as management fees which have been duly reflected at Paper Book Page 11 in the Income and Expenditure account of the trust. The Ld. Counsel further submitted that the amount of Rs. 5.43 crore was not loan and advances but it was the reimbursement of expenses. Therefore, relying upon the finding of the CIT(A) the Ld. Counsel submitted that the CIT(A) elaborately discussed all aspects and given his finding in accordance with law and same required to be sustained. 8. We have heard the rival submissions and per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all for any interference from outside. Accordingly, the same is upheld. Consequently, Ground No. (i) to (iii) of the appeal of the Revenue are therefore dismissed. 9. Ground No. (iv) relates to allowance of set off brought forward losses of the trust against the current year surplus. 10. The AO noticed that the assessee has claimed set off and carry forward of unabsorbed losses/deficit pertaining to A.Y. 2006-07 and A.Y. 2008-09. The income for the above assessment years has been computed as a trust registered u/s. 12A(a) of the Act and deduction u/s. 11 of the Act as discussed by him in Ground No. 1 to 3 above. Therefore, the claim of assessee for set off brought forward losses of A.Y. 2006-07 worth Rs. 39,68,311/- and A.Y. 2008-09 worth Rs. 51,12,346/- was disallowed and assessee carry forward of losses/deficit of A.Y. 2008-09 worth Rs. 3,70,60,272/- was also disallowed. 11. Being aggrieved the assessee carried the matter before the CIT(A). Wherein after placing the reliance on the decision of Hon'ble Jurisdictional High Court in the following cases CIT vs. Shree Plot Swetamber Murtipujak Jain Mandal 211 ITR 293 (Guj) and similarly on following judgment CIT vs. Sacred Heart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee. Therefore, the findings arrived at by the Ld. CIT(A) are in accordance with law. Ld. Counsel further submitted that the issue is settled by the Hon'ble Supreme Court in the case CIT(E) New Delhi vs. Subros Educational Society in Civil Appeal No(s). 5171/2016 dated 16.04.2018. 14. We have heard the rival submission and perused the material available on record. We find that the Ld. CIT(A) has given detailed reason for allowing a set off losses and carry forward of losses on the basis of rulings of Hon'ble Jurisdictional High Court of Gujarat, Bombay and Rajasthan. In view of these facts, we are of the considering opinion that the issue is covered in favour assesse. Ld. Counsel further submitted that the issue is settled by the Hon'ble Supreme Court in the case CIT(E) New Delhi vs. Subros Educational Society in Miscellaneous Application No. 941/2018 in Civil Appeal No(s). 5171/2016 dated 16.04.2018. Accordingly, the findings of the CIT(A) does not call any interference from our side and accordingly the same is upheld. Therefore, this ground of appeal is dismissed. 15. Ground No. (v), (vi), (vii) & (viii) relating to deleting the disallowance of depreciation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and perused the material available on record. We find that the issue is covered against the Revenue, but the decision of the ITAT 'C' Bench, Ahmedabad in the case of Adarshila Education & Charitable Trust(supra), and other decisions of Hon'ble High Court relied by the Ld. CIT(A) and also in the case of Sardar Patel Institute of Public Administration in ITA No. 1322/Ahd/2011 for A.Y. 2008-09 and the relevant portion of the ITAT is as under:- "Para 4.....We have considered facts and circumstances of the case and submissions made by the respective Representatives of the parties. The Assessing Officer has disallowed the claim following the judgment passed by the Hon'ble Supreme Court in the case of Escorts Ltd. (supra). We find the Hon'ble High Court Punjab and Haryana has distinguished the judgment of the Hon'ble Supreme Court in the case of CIT vs. Tiny Tots Education Society 330 ITR 21 (P&H) in view of the fact that the issue has already been settled by the Hon'ble High Court of Punjab and Haryana respectfully following the ratio laid therein we had no infirmity into the impugned order of the Ld. CIT(A). Therefore, the present appeal stands dismissed. We find no infirmity i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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