TMI Blog2019 (11) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... oticed that the hospital activities were always under the control and supervision of its management/Board of Trustees. A perusal of the analysis of the percentage of payment made by the assessee to Max group of companies vis- vis the total expenditure incurred by the assessee in various years shows that the same was maximum of 25% in the financial year 2005-06 which has gradually reduced to 20% in financial year 2013-14. The above details furnished by the assessee in the paper book suggest the independence of the assessee vis- -vis Max entities with gradual decline in the obtaining of services from them over a period of time. This also substantiates that the assessee society was incurring substantial expenses on its own account other than the payments made to Max entities. We find force in the argument of the ld. counsel for the assessee that the assessee, due to lack of own funds and expertise in the field of construction of hospital and rendering medical services being a highly specialized and technical field, has entered into the agreements with Max group of companies who were already engaged in the said field which not only helped the assessee in building the state of the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KAMBLE, JUDICIAL MEMBER Assessee by: Shri Ajay Vohra, Sr. Advocate, Shri Gaurav Jain, Advocate And Shri Deepesh Jain, CA Revenue by: Ms Nidhi Srivastava, CIT, DR ORDER PER R.K. PANDA, AM: The appeal filed by the assessee is directed against the order dated 28.12.2011 of the DIT (Exemptions), Delhi withdrawing registration granted earlier u/s 12A of the IT Act since inception. 2. Facts of the case, in brief, are that the assessee is a society registered under Societies Registration Act, 1860 on 01.03.1994 with the main charitable object of providing medical relief through running/operating of hospital and medical research. The society was granted registration u/s 12A of the Act vide order dated 23rd June, 1994 w.e.f. 01.03.1994. Subsequently, a proposal was received from Assistant Director of Income-tax (E), Investigation Circle-1, New Delhi on 16.11.2011 for withdrawal of registration granted u/s 12A of the IT Act on the basis of various facts noted by him during the course of assessment proceedings for the assessment year 2008-09. Accordingly, the DIT (E) issued a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, MMS has also on December 2010 entered into an agreement with the assessee society for supply and lease of plant and machinery and equipment for an initial period of 30 years, the MMS is responsible for acquisition of new equipment, repair, maintenance, services of the said equipment, ensuring adequate insurance coverage from the equipment and replacement of any existing equipment and lease rental are based on fixed percentage of the gross total turnover of the assesses society which are due to MMS on a monthly . Following payments were made by the assessee to group concerns in A. Y. 2008-09. Name Particulars Amounts (Rs.) Max Health Institute Ltd.(MHC) Fees for medical and nonmedical services. 132168111/- Max Medical Services Pvt. Ltd. (MMS) Equipment and furniture hiring charges. 131933978/- Max Medical Services Pvt. Ltd (MHC) Maintenance cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various financial and legal obligations, as stated in previous paras. The hospital is virtually run by the Max Group of concerns which are corporate bodies established with the clear intention of profit motive. This is against the basic principles of the charitable organization where in as per law if, such charitable body is unable to function for any reason, the assets and liabilities are transferred to any other charitable organization having the same aims and objects. 7) In view of above facts and circumstances of the case you are required to attend this office on l/12/2011 at 11.30 AM alongwith reply with justification in respect of points observed above, including books of account for the A. Y. 2009-10 to 2011-12 for examination and to show cause why registration granted u/s 12AA should not be withdrawn from the Trust for violation of the provisions of the Act. Please note, in case of noncompliance on the given date, it will be presumed that you have nothing to say and the matter will be decided on the basis of material available on record. Yours faithfully, Sd/- (S.K. Dash) Director of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a lease agreement for medical equipment with MMK Pvt. Ltd. for supply and maintenance of medical equipments wherein the financial liability was linked to the Gross Annual Turnover of the hospital at the rate of 10% and with a clause for penalty clause to be paid by the assessee in case of termination of the contract. The term of contracts was for 30 years and could be terminated solely at any time by the company. The user of equipment had no right to terminate this agreement. As per the service Agreement with Max Health Care Ltd (MHC), agreement also provides for deputation of personnel from MHC to DDF. As per details available on record, the assessee has agreed to provide an area of at least 1500 sq meters in the hospital for exclusive use of MHC and its personnel. No provision for the compensation or legal obligation was created in favour of MHC for such exclusive use. Here again the right to terminate this agreement was reserved in favour of MHC. Further, Max Medical Services Pvt. Ltd. ( MMS ) has also entered into an agreement with the assessee society for supply and lease of plant and machinery and equipment for an initial period of 30 years, that MMS is responsible for acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basic principles of the charitable organization where in as per law if, such charitable body is unable to function for any reason, the assets and liabilities are transferred to any other charitable organization having the same aims and objects. 8. Keeping in view the facts narrated above and huge payments to the group concerns under various agreements the DIT(E) was of the opinion that the assessee concern was working only for the monetary benefit of certain corporate concerns and` not working as a philanthropic organization. The assessee society is being used simply as a 'special Purpose Vehicle' to take advantage of facilities of concessional land etc offered by the Government while passing off unilaterally profits to corporate concerns. The complete domination by corporate body, formed with the basic motive to earn profit can not in any way justify any element of 'charitable purpose'. He observed that the assessee society did not select M/s MHC on the basis of any process where comparative advantage to the assessee society from such multiple corporate entities was analysed and compared. Similarly, no details of why the loans from barking chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished with the clear intention of profit motive. This, according to the ld.DIT (E) is against the basic principles of the charitable organizations. He, therefore, held that the assessee is not entitled to the exemption u/s 11 as its activities cannot be classified as charitable activities since inception. Therefore, the registration granted u/s 12A was cancelled by him since inception. 11. The assessee approached the Tribunal and the Tribunal, vide order dated 31st March, 2015 in ITA No.1027/Del/2012 upheld the action of the DIT(E) in cancelling the registration of the assessee granted u/s 12A of the Act since its inception. The assessee approached the Hon'ble High Court against the order of the Tribunal and the Hon'ble High Court vide ITA No.484/2015, order dated 15th February, 2016, restored the issue to the file of the Tribunal for fresh decision in accordance with law. It was further directed that while rendering a fresh decision, the Tribunal will be uninfluenced by its earlier order which has been set aside. The relevant observation of the Hon'ble High Court reads as under:- 3. One of the principal grievances of the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised by the assessee are as under:- 1. That the Director of Income Tax (Exemptions), New Delhi [ DIT(E) ] erred on facts and in law in passing order, dated 28/12/2011, under section 12AA(3) withdrawing the approval/registration granted to the Appellant Society under section 12A of the Income-tax Act, 1961 ( the Act ). 2. That the DIT(E) erred on facts in law in alleging holding that Appellant Society was not a charitable organization, as the property/hospital of the Appellant -Society were taken over by Max Group, by creating various financial and legal obligations on the Appellant Society and the Max Group was running the hospital with a profit motive. 2.1 That the DIT(E) erred on facts in law in observing that the Appellant Society undertook huge/adverse financial obligations by entering into agreements for construction and maintenance of hospital building, supply of medical equipments, provisions of medical staff/services with companies belonging to Max Group, which was a colourable device to transfer profits to such companies. 2.2 That the DIT(E) erred on facts in law in observing that the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. counsel for the assessee has also filed an application for admission of the following additional evidences in terms of Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 by mentioning as under:- Re: Application for admission of additional evidence in terms of Rule 29 of the Income-tax (Appellate Tribuna1) Rules. 1963 It is respectfully submitted as under: The applicant/ assessee craves leave for admission of the following documents (placed in volume I of supplementary paper book - from pages 1 to 52 and 136 to 427) filed on 2.5.2018 as additional evidences under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 in connection with the captioned appeals: Sl. No. Particulars Page No. Filed before Re: Addendums to existing agreement with Max Group Entities 1. Copy of Supplementary Construction Maintenance Agreement dated 24.7.2013 entered into between the appellant and Max Medical Services Ltd, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te/ applications granted to the appellant by Directorate, Health Services, NCT of Delhi - Copies of registration certificate granted to the appellant by South District, NCT of Delhi relating to ultrasound clinic - Copies of Drug Licenses grand to the appellant from time to time Copy of license for Blood Bank granted in the name of the appellant 22-23 24-32 33-34 35-50 51-52 Additional evidence 9. Details of segregation of employees (Dept, and grade wise) employed by the appellant trust for FYs 2008-09, 2009-10 and 2010-11 136-141 Additional evidence 11. Copies of agreements, on sample basis, entered into by the appellant with vendors on own account (Eg. For provision of food and beverages) 143-174 Additional evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thcare Institute Ltd. and the appellant for advancement of clinical research 269-271 21. Copies of various research papers/ analysis carried out by the appellant (through its doctors) published in reputed journals 272-421 Re: Free Treatment/Facility to poor 22. Statement showing revenues applied for free treatment/ discounts by the appellant for financial years 2004-05 to 2013- 14 422 Additional Evidences 23. Copies of inspection notes/ appreciation letters issued by the Directorate of Health Services, Govt, of NCT of Delhi appreciating treatment given by the appellant to EWs category patients. 423-427 The aforesaid additional evidences are relevant for adjudication of Grounds of Appeal filed on 01.03.2012 before the Tribunal relating to withdrawal of regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the impugned order was passed by the DIT(E) in undue haste on 28.12.2011, i.e., on the very next day of applicant filing submissions and paperbook(s) running into 4300 pages on 27.12.2011. The applicant was sanguine that the DIT(E) would be pleased to drop the proceedings considering the submissions and voluminous papers placed on record. It was, only on receipt of the impugned order that the applicant came to know that the exemption had been withdrawn by the DIT(E) that too, without calling for any further information and even not considering the submission and papers furnished by the applicant; - Certain extraneous observation/ allegation that the applicant was not carrying on activities in consonance with its objectives were, it is with utmost respect submitted, erroneously made by the Hon ble Tribunal in the order dated 31.03.2015, which did not form part of the show cause notice or order of the DIT(E). Being so, though the Hon ble High Court had directed that the Tribunal must remain uninfluenced by its earlier decision dated 31.3.2015 while adjudicating the issue afresh, however, the applicant seeks to place certain documents on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) 2% of gross annual turnover of the hospital as consideration for construction of building for a period of 26.5 years; (c) 6% of the adjusted turnover of the hospital for each financial year as a consideration for carrying out the repair and maintenance of the building during the term of the agreement. Subsequently, the aforesaid was reduced to 5% of adjusted turnover vide supplementary agreement dated 21.02.2009 [refer pages 76-79 of paper book]. Later, the said building repairs/ maintenance services availed by the appellant from the MMS were discontinued vide Supplementary Construction Maintenance Agreement dated 24.7.2013 [refer pages 1-3 of supplementary paper book] 10.12.2001 21.02.2009 22.07.2013 Agreement with MMS for obtaining medical equipment on lease for the purpose of use at the hospital including maintenance thereof afterwards, at consideration of 10% of the adjusted turnover [refer pages 80-97 of paperbook]. Vide supplementary agreement dated 21.02.2009 [refer pages 98-101 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Cardiac Speciality - Cancer detection and care - Communicable Diseases - Nutritional and Deficiency Disease - Diseases of Pregnancy Newborn - Diseases of Poverty and Illiteracy. 20. Referring to the objects incidental or ancillary to the attainment of the main object as per clause 3 and 4 of the Memorandum of Association, he drew the attention of the Bench to the same which are as under:- 3. To promote, establish, maintain and manage Centres/Institutions of Health/Medical Sciences to provide necessary infrastructure with required physical facilities, equipment, staff, labourers and other inputs including scientific work environment and logistics support for the design, conduct and evaluation of research programs for the accomplishment of the objects of the Society. 4. To establish collaborative linkages with national and international philanthropic, benevolent and other organizations to share experience and expertise through joint activities/ventures/partnership etc., to provide for the reception and treatment of persons suffering f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. the appellant through entering into various agreements with two companies belonging to the Max Group mentioned supra, had virtually handed over the hospital to that group and, therefore, the hospital was operated on commercial basis as opposed to charitable basis; 2. the appellant did not meet the minimum statutory criteria of providing free treatment to economically weaker sections (EWS) of the society. 22. He submitted that the order passed by the DIT(E) is not based on correct appreciation of the facts and the legal position and, therefore, the same needs to be quashed. 23. The ld. counsel for the assessee submitted that the withdrawal of registration is beyond the scope of section 12AA(3) of the Act. Referring to the relevant provision of section 12AA(3) of the Act as amended by the Finance Act, 2010 w.e.f. 01.06.2010, he submitted that the said provisions read as under:- (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (I) or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 2) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otel Lodging Association Educational Institute vs. CBDT, 301 ITR 86, decision of the Hon'ble Patna High Court in the case of St. Michaels Educational Association vs. CIT vide Miscellaneous Appeal No.438 of 2015, order dated 13th August, 2019 and various other decisions, he submitted that the question whether exemption u/s 11 of the Act would be admissible to the assessee would be a question to be gone into in the assessment of each year. Referring to the following decisions, he submitted that registration u/s 12AA(3) of the Act can only be withdrawn on satisfaction of either of the twin conditions specified in the said section:- Maharashtra Housing Area Development Authority vs. ADIT(E): 58 SOT 196 (Mum.) Urmila Devi Charitable Trust v. CIT(E): ITA No.4136/Del/2017 (Del Trib.) Project Management Institute v. DIT(E): 142 ITD 239 (Hyd.) Guru Gobind Singh Educational Society vs. CIT: 118 ITD 207 (Asr.) Chaturvedi Har Prasad Educational Society v. CIT: 134 TTJ 781 (Lucknow) H.P. Government Energy Development Agency vs. CIT: 134 TTJ 33 (Chd.) 26. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e patients. The ld. counsel for the assessee submitted that the aforesaid proviso to section 2(15) of the Act denying exemption to organization carrying on trade/commercial activity is only applicable to the last/residual limb of the charitable activities, i.e., to organization carrying on activities towards advancement of any other object of general public utility and not to other limbs of activities such as relief to the poor, education, medical relief, preservation of environment, etc. For the above proposition, he relied on the following decisions:- - Central Board of Direct Taxes (CBDT) Circular No. 11 dated 19th December, 2008 reported in 221 CTR (St) 1 - India Trade Promotion Organization vs. DIT(E): 371 ITR 333 (Del.) - Hamdard Laboratories India v. ADIT: 379 ITR 393 (Del.) - Bureau of Indian Standard vs. DGIT(E) : 358 ITR 78 (Del.) - GS1 India vs. DGIT(Exemptions): 262 CTR 585 (Del.) - Institute of Chartered Accountants of India v. DGIT (Exemptions): 347 ITR 99 (Del.), - DIT (Exemptions) v. Commerce Teachers Association: 203 Taxman 171 (Del.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e years and is not distributed among the members, it cannot be said that the entity has been set up with a profit motive notwithstanding that fee is charged for rendering the services and profit is earned in the process. Referring to various decisions, he submitted that in order to see whether the applicant exist for the purpose of charity or not what is relevant is the predominant objective of the assessee. If the predominant object of the assessee is to carry out a charitable purpose and does not exist for the purpose of profit, then, the assessee is entitled to claim registration/approval u/s 12A of the Act. For the above proposition, the ld. counsel for the assessee relied on the following decisions:- i) CIT vs. Surat Art Silk Cloth Manufacturers, 121 ITR 1 (SC); ii) Queen s Educational Society vs. CIT, 372 ITR 699 (SC); iii) CIT vs. Pulikkal Medical Foundation Pvt. Ltd., 210 ITR 299 (Ker); iv) Breach Candy Hospital Trust vs. CCIT, 322 ITR 246 (Bom); v) CIT vs. Bar Council of Maharashtra, 130 ITR 28 (SC); vi) CIT vs. Andhra Pradesh State Road Transport Corporation: 159 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant society was working for the monetary benefit of that Group which were established with the clear intention of profit motive; (2) The appellant had entered into agreements for construction of hospital at Saket and for use of medical equipment employed therein with MMS, under which huge payments were made, which was terminable only at the option of MMS; and in the event of termination by the appellant in certain situations, severe penalties were imposable on the appellant society. (3) The services relating to running of the hospital, including deputation of doctors was provided by MHC, pursuant to Medical Services Agreement dated 30.6.2004 involving huge payment and the said agreement, too, could not be terminated at the option of the appellant. The appellant was also required to provide at least 1500 sq. ft (erroneously mentioned as sq. metres) of space for the exclusive use of MHC s personnel, for which no charges were payable by MHC to the appellant. The hospital was, therefore, virtually being run by Max group of companies. (4) The appellant did not render the meet the minimum notified criteria of providing 25% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide order dated 4th January, 2016 in ITA No.1021/2015, dismissed the appeal filed by the Revenue. 33.1 Referring to the decision of the Delhi Bench of the Tribunal in the case of ITO (E) vs. Balaji Medical and Trust Diagnostic Research Centre, ITA No.4317/Del/2012, he submitted that under identical facts, the Tribunal held that exemption u/s 11 of the Act could not have been denied to the assessee. He accordingly submitted that the DIT (E) in the present case erred in misinterpreting the arrangement between the assessee and the Max group of companies and alleging that the control of the assessee s hospital vested with such companies without appreciating that the said agreements were for availing certain specific services in order to fulfill the charitable object of providing medical relief for which such unrelated companies were remunerated at arm s length and none of the companies are covered u/s 13(3) of the IT Act. He also relied on the decision of the Delhi Bench of the Tribunal in the case of DCIT vs. Wood Stock School, ITA No.3838/Del/2014, order dated 25th February, 2019. 34. So far as the allegation of the ld. DIT(E) that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Emphatic reliance in this regard is placed on the decision of the Delhi Bench of the Tribunal in the case of Civil Services Society v. DIT(E): 143 ITD 408 wherein it has been held that DIT(E) cannot cancel registration granted to the assessee society under section 12AA of the Act on that ground that the assessee-school did not provide admission to students of EWS category in accordance with percentage prescribed in Government policy. 35. The ld. counsel for the assessee, referring to page 102 of the paper book, drew the attention of the Bench to the Profit Loss Account of Max Medical Services Pvt. Ltd., for the financial year 2004-05 i.e., assessment year 2005-06 wherein the entire receipt has been shown. Referring to page 103 to 124 of the paper book, he drew the attention of the Bench to the service agreement between the assessee and Max Healthcare Institute Ltd., according to which the assessee was to receive know-how for the medical services. Referring to page 106 of the paper book i.e., page 3 of the agreement, he drew the attention of the bench to clause 1 of the agreement i.e., scope of services, which reads as under:- Subject to ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permissible. The ld. counsel, referring to the provisions of section 12AA(3), submitted that the said provisions provide power to the Commissioner to withdraw registration granted to a charitable organization u/s 12A of the Act w.e.f. 01.06.2010 and does not grant absolute power to the CIT/DIT(E) to withdraw registration from an earlier or retrospective date. For the above proposition, he relied on the decision of the Hon'ble Allahabad High Court in the case of ACIT vs. Agra Development Authority, 407 ITR 462 wherein the Hon'ble High Court held that registration granted to an assessee could only be withdrawn from the date of issue of show cause notice for withdrawal and not from an earlier date, much less retrospectively from the date of inception. He also relied on the decision of the Hon'ble Madras High Court in the case of Auro Lab vs. ITO, 411 ITR 308 (Mad) and the decision of the Delhi Bench of the Tribunal in the case of Urmila Devi Charitable Trust vs. CIT(E), vide ITA No.4136/Del/2017. He accordingly submitted that the registration granted u/s 12AA can, if at all, be withdrawn only from the date of issue of show cause notice and not from any preceding period. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereas the objects of the assessee trust are research, the assessee is running a hospital, therefore, there is ambiguity in the objects. Relying on various decisions, the ld. DR submitted that the ld. DIT(E) was fully justified in withdrawing the registration granted earlier u/s 12A of the Act. 38. The ld. counsel, in his rejoinder, strongly challenged the arguments made by the ld. DR. So far as the allegation that the assessee was working for the monetary benefit of Max group of companies which are corporate bodies and the hospital was virtually operated by the Max group are concerned, the ld. counsel submitted that since the assessee did not have enough funds to construct the hospital on the land allotted by DDA and, further, to acquire and install necessary and essential medical equipment and was not in a position to take loans for the said purpose and to service interest payments thereon, therefore, the assessee entered into agreement with MMS for construction and maintenance of the hospital building. In addition to the above agreement for construction, the assessee had also entered into operating lease agreement with MMS on 10th December, 2001 to take on leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with specifications given by the appellant / architect appointed by the Appellant and the Appellant has right to give instructions to the employees of MMS during the course of construction of hospital. Under clause 6.07 of the agreement, it was stipulated that in the event MMS did not complete the construction and hand over building before a specified date agreed in the agreement, the MMS would be liable to pay liquidated damages to the Appellant for the period of delay. Under clause 6.13 of the agreement, it had been provided that specifications /work schedules/ drawings in relation to the hospital building would be returned by the MMS to appellant on completion and handover of hospital building. Under clause 7.04, it was provided that it was the responsibility of the Appellant to obtain electricity, water and telephone connections at the hospital site. Under clause 8.07, it had been provided that the appellant was entitled to withhold any payment on account of following: (a) Defective work not remedied; (b) Third party claims filed, or reasonableness evidence indicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The aforesaid medical services were to be rendered by employees of MHC on deputation to the appellant, at request of the appellant. Vide clause 6 of the agreement, the appellant undertook following obligations/ responsibilities: - To obtain all necessary permissions, information, permits, licenses in connection with construction and operation of the hospital. - It was specifically agreed that MHC shall not be responsible for any consequences arising out of the failure to obtain such licenses/permissions. - Maintain accounts and ensure audit of such accounts in accordance with law. - It was also agreed that the Appellant had the authority to run/operate the hospital. Vide clause 7 of the agreement, it was agreed by MHC that: - MHC shall be responsible for performing and discharging services agreed under the agreement; - - All the properties in the hospital including land, moveable and immovable properties shall continue to absolutely vest in the assessee, and MHC shall have no right, title and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nursing home registration certificate/ applications granted to the appellant by Directorate, Health Services, NCT of Delhi- refer pages 24-32 of supplementary paperbook. Registration certificate granted to the appellant by South District, NCT of Delhi relating to ultrasound clinic- refer pages 33-34 of supplementary paperbook. Drug Licenses granted to the appellant from time to time-refer pages 35-50 of supplementary paperbook. License for Blood Bank granted in the name of the appellant- refer pages 51-52 of supplementary paperbook. - Copy of minutes of meetings of the Governing Body of the appellant substantiates that various financial and operating decisions were taken by the appellant, independent of Max Group. On perusal of minutes, it would be noted that the various functions/ responsibilities in relation to day-to-day operations as well as major decisions like purchase of equipment/ investment of funds belonging to hospital, etc. were taken by the Governing Body of appellant itself, without any involvement of representatives of companies belonging to Max Group- refer pages 53-135 of supplement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance, for financial year 2006-07, out of total expenses of ₹ 139.44 crores, the contractual payments made to Max entities were only ₹ 32.66 crores; and in financial years 2009-10, the aforesaid percentage got further substantially reduced inasmuch as out of the total expense of ₹ 163.5 9 crores, only ₹ 20.29 crores was paid to Max group. - Statement showing percentage of revenue given out by way of payment to Max entities in lieu of services availed therefrom - refer pages 176-177 of supplementary paperbook. The tabular representation clearly reflects that only around 10% to 27% [expenses FY 2005-06 (39%) and 2006-07 (32%)] were applied for payments to Max entities for services rendered over the years. Further, there is steady decline in the aforesaid percentage of payment to Max entities over the years, indicating decreased reliance on that group and increased independence of the appellant. - Statement showing financial impact of transactions (construction/ repair/ equipment use) between appellant and Max Medical Services Ltd. It would be appreciated that the payments made by appellant to MMS were much lower than the IR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 13(3) of the Act were not excessive/unfavorably skewed in favor of Max Group and were agreed on arm s length basis, having regard to commercial expediency. Further, in the assessment completed for assessment year 2005-06, 2006-07 and 2007-08 (refer pages 965-980 of the paperbook), the assessing officer after considering all the agreements in detail, had categorically held that the appellant was eligible for exemption under section 11 12 of the Act. In all fairness, it is pointed out that pursuant to the impugned order passed by DIT(E) withdrawing registration under section 12A, the aforesaid assessments were re-opened under section 147 of the Act, which on a writ petition filed by the appellant were stayed for passing by the Delhi High Court. Notwithstanding the reopening of the concluded assessments on the basis of the impugned order the fact remains that on the same facts, the assessing officer(s) had accepted this charitable status of the appellant in those years. In this regard, it is respectfully submitted that it is well settled that although the principle of res judicata is not applicable to income tax proceedings, in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect to allege that the appellant did not have right to terminate the agreement. Attention in this regard is invited to clause 4.02 of Construction/Repair Maintenance agreement, whereby the appellant/ owner had to the right to terminate the agreement in case of material breach of contractual obligations by MMS, which remain unremedied/ uncured within 60 days of written notice by the appellant/ owner to the MMS/ contractor. It would be pertinent to note that, once the appellant had gained sufficient experience and resources, the aforesaid building repairs/ maintenance services agreement was infact terminated vide Supplementary Construction Maintenance Agreement dated 24.7.2013 [refer pages 1-3 of supplementary paperbook]. In view of the above, the adverse inferences on the aforesaid termination right with MMS were wrongly drawn in the impugned order, which needs to be completely disregarded and ignored. 43. So far as the allegation of the ld. DR that the services relating to running of the hospital including deputation of doctors was provided by Max Healthcare Institute Ltd., pursuant to medical service agreement dated 13th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to Max Group has drawn erroneous conclusion which needs to be ignored. 45. The ld. counsel for the assessee accordingly submitted that the various allegations made by the ld.DIT(E) while cancelling the registration granted earlier u/s 12A of the Act are misplaced, not in accordance with law and contrary to facts and, therefore, the same should be set aside and the registration granted earlier be restored. 46. We have considered the rival arguments made by both the sides, perused the order of the ld. DIT (E) and the paper books filed on behalf of the assessee. We have also gone through the various decisions cited before us. We find the DIT(E), in the instant case, has withdrawn the registration granted earlier u/s 12A of the IT Act on the ground that the assessee foundation has not been operating as a charitable institution as the trust has allowed the property/hospital of the society to be taken over by Max group by creating various financial and legal obligations and has virtually handed over the activity of the hospital to Max group which are corporate bodies established with a clear intention of profit motive which, according to him, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The Annexure shall be considered an integral part of this Agreement. (b) The Services are only inclusive and not exhaustive, however, if any additional services are required to be rendered during the term of this Agreement the Parties shall discuss and determine the fees for such additional services by mutual agreement. 47. Similarly, clause 7 8(a) and (b) of the agreement reads as under:- 8. INDEMNITY (a) DDF hereby undertakes that DDF shall be responsible and solely liable for any actions that may be initiated against DDF or MHC with respect to the services being provided at the Hospital. DDF further undertakes that MHC shall have no liability whatsoever In connection with any claim asserted against DDF or MHC by any third party including government, state or central, quasi-judicial, judicial, local authorities for any act or omission whatsoever. (b) Further, it is agreed and understood between the Parties that in complying with its obligations pursuant to this Agreement MHC shall be deemed to be acting entirely on behalf of and for the benefit of DDF vis a vis all third parties. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol of the property of the assessee i.e., the hospital in favour of Max group of companies. 48.1 We also find from the various details furnished by the assessee such as minutes of the meeting of the governing body of the assessee society substantiating that various financial and operational decisions were taken by the said body without involvement of Max entities. The copy of various approvals applied and allotted were in the name of the assessee society without any indication of Max entities. We find the organizational structure of the assessee society/hospital shows that the assessee had independent management and heads of various departments looking after its various operations which were independent from Max entities and no involvement of Max entities have been brought on record. We, further find that none of the members of the governing body/trustees of the assessee and the directors/board of management of Max are persons specified u/s 13(3) of the IT Act. Further, the number of employees have gone up substantially which were 838 in F.Y. 2008-09 to 1033 in F.Y. 2009-10 and 1150 in 2010-11. From the various details furnished by the assessee in the paper book, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sesse observed that there was nothing to suggest that the asssessee had violated any of the provisions and the conditions contained in section 11 to 13 of the Act. The control and supervision and overall affairs of the hospital were with the assessee. It did not have enough resources to make a state of the art hospital. The hospital required large sum of money for installation of modern equipment s; appointment of trained doctors to run them so as to enable the trust to provide medical care to the public. It could have done the same by itself but it found itself unable to provide financial resources and the management of the hospital effectively. In view of the limited resources, it had engaged an agency in the form of Fortis Healthcare Ltd./Onus Healthcare Pvt. Ltd. to run and maintain the hospital. The overall management of the trust continued to remain with the trustee. Most of the decisions were subject to approval and consent of trustees. Ld. CIT(A) further observed that the trust in any way does not have any surplus for which the exemption had been claimed. It had continued losses i.e. the expenditure far exceeds the receipt. No benefit had been taken by the trustee or by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 of 2015, observing as under: 4. The IT AT has followed the earlier order passed by the IT AT in the case of the same Assessee for AY 2008-09 where the dismissal was on account of low tax effect. However, in the said order, the IT AT took note of the decision for AY 2004-05 which involved the same question as has been raised in the present appeals. The essential point raised is that the Respondent Assessee, which is a Trust registered under Section 12AA of the Act, has by virtue of an operation and maintenance agreement entered into with Fortis Healthcare Limited ( FHLj on 29th October 2013, transferred control of the Trust to FHL and by virtue of the said agreement has agreed to pay management fees at 35% of the gross billings of the hospital to FHL. 5. The Commissioner of Income Tax (Appeals) [ CIT (A) ] has in the order dated 26th February 2010,common to both AYs, disagreed with the Assessing Officer ( AO ) and held that there is no evidence to show that there has been any siphoning off of funds and that by virtue of the agreement control of the Trust has been transferred to FHL. 6. On the facts of the present case, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged by various hospitals offering services of similar standard during the financial year 2012-13. At page Nos. 28 to 34 of the paper book dated 27.5.2016 has been made available, copies of letter of appreciation dated 18.4.2012 issued by the Directorate of Health Services, Govt, of NCT of Delhi praising the charitable activities of the assessee; notice dated 11.2.2019 issued by the Directorate of Health Services, Govt, of NCT of Delhi to various hospitals, including assessee, for verification of implementation of EWS guidelines in hospitals and minutes of meeting dated 20.10.2015 of the Special Committed constituted by the Directorate of Health Services, Govt, of NCT of Delhi, wherein list of defaulting hospitals after verification of EWS guidelines implementation were identified and assessee was not included in such lists. The Learned CIT(Appeals) has discussed in detail all the important aspect of the case supported by the above documents. There is no dispute on the object of the society and the fact that it was enjoying registration under sec. 12A of the Income-tax Act, 1961 issued by the department during the course of assessment proceedings for the year- under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sec. 11 of the Income-tax Act, 1961. The Hon ble Supreme Court in the case of Queen Educational Society vs. CIT (supra), has been pleased to hold that whether institution exists solely for educational purposes and not for profit, the finding that the society makes profit does not necessarily mean it exists for profit. The Hon ble Delhi High Court in the case of DIT (E) vs. R.B. Seth Jessaram Bros. Charitable Hospital Trust (supra) wherein it has been held that there is no evidence to show that there has been any siphoning of funds and that by virtue of the agreement, control of the trust has been transferred to Fortis Health Care Ltd. The Hon ble Bombay High Court in the case of Breach Candy Hospital Trust vs. CCI (supra) has been pleased to observe that philanthropy is not restricted to give free treatment to the extremely poor, but it M ould also be philanthropy to give treatment at a concessional rate to those who though not extremely poor cannot afford to pay the full and normal charges. It was held that in absence of any material to show that generally there was a profit, it cannot be said that the petitioner does not exist solely for the philanthropic purpose but exists f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e thus of the view that the Learned CIT(Appeals) was justified in deleting the disallowance of exemption with this finding that appellant is charitable organization and running the hospital to achieve its charitable objects. The first appellate order in this regard is upheld. In result, grounds are rejected, 53. Similar view has been taken by the Delhi Bench of the Tribunal in the case of DCIT vs. Wood Stock School, vide ITA No.3838/Del/2014, order dated 25.02.2019. In that case, the assessing officer withdrew exemption under section 11 of the Act qua payment made to Mars Catering Services Pvt. Ltd., a high level catering company engaged by the school for managing and operating food services at school and boarding and lodging of students/ teachers. The assessing officer alleged that the main purpose of such agreement was to allow undue monetary benefit to the above company. 54. Considering that the company was not in any-way associated with the assessee trust, in violation of section 13 and that hotel facility and catering services were utilized for the purposes of the school, the Tribunal decided the issue in favour of the assessee and dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advances is for the benefit of Mar catering services and it is not for the object of trust assessee. Looking at the activity of the school, it is a boarding school and teachers training college. No doubt, it has hired a hostel for accommodation of student, which is a hotel. However, it is not doubted that such hotel is not used by assessee is a hostel. Catering services were part of the boarding and lodging activity of students of assessee society who were staying in that hostel along with other locations. It is not case of revenue that Mars enterprises were any way associated with assessee society except in status of a service provider. None of shareholders of Mars services is in any way connected with assessee society. It is also not case of revenue that whatever is paid by society assessee to Mars enterprises is excessive or is not in terms of agreement. Furthermore, it is not denied by assessing officer that assessee society is providing lodging and boarding facilities to students of school. It is also not case that in impugned property, which is incidentally a hotel but not denied to have been used for any other purpose other than a hostel, is occupied by assessee society for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows : (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied-the purpose of education should not be submerged by a profit-making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on for profit . No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year in question the object is to make profit as opposed to educating persons. These tests would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit. Addl. CIT v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court reversed the Tribunal's order and restored the order of the Assessing Officer in view of the profits earned. On appeal: Held, affirming the order of the Tribunal, that the final conclusion of the High Court that if a surplus is made by an educational society and ploughed back to construct its own premises, it would fall foul of section 10(23C) was to ignore the language of the section and to ignore the tests laid down by the Supreme Court in Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC), Aditanar Educational Institution [1997] 224 ITR 310 (SC) and American Hotel and Lodging Association Educational Institute [2008] 301ITR 86 (SC). Decision of the Uttarakhand High Court in CIT v. QUEENS' EDUCATIONAL SOCIETY [2009] 319 ITR 160 (Uttarakhand) reversed. Where by various orders, the Chief Commissioner withdrew exemptions granted under section 10(23C)(vi) of the Act to the assessees for various assessment years from 2001-02 to 2007-08 on the ground that the profits were substantial and arose year after year but the High Court set aside his orders holding that merely because an institut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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