TMI Blog2020 (12) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... he hospital activity. It is akin to running hostel alongwith educational institution. It is pertinent to note that when any explanation or a defence of an assessee based on number of facts supported by evidence and circumstances required consideration whether explanation is sound or not must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole. Assessee has already maintaining separate books of accounts and section 11(4A) requiring the assessee to maintain separate books of accounts before some business is being carried out is concerned, the profit from medical store is incidental to the main object and not as separate business activity at the end of the assessee. The AO failed to appreciate this distinction which has been appreciated by the ld.CIT(A) while reversing the finding of the AO. AO ought to have appreciated concept of a running of hospital as well. It is also to be appreciated that in the last more than 12-13 years, this has never been doubted by the Income-tax Department, then what is the strong motive in this year to disbelieve the version of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) has rightly appreciated the facts and circumstances and also considered rule of consistency. Loss from Kinder Hospital should have not been claimed by the assessee - AO has not pointed out any defect in the books of accounts and has not brought any material on record on account of disallowance of expenses. On one hand, the AO accepted receipt of ₹ 5,09,900/-, but on other hand, disallowed entire expenditure incurred by the trust at ₹ 1,72,42,642/-. The assessee also submitted that similar loss amounting to ₹ 68,79,289/- for the Asstt.Year 2013-14 was accepted by the AO vide order dated 15.3.2016, and further loss of ₹ 98,42,611/- for the Asstt.Year 2015-16 was also accepted by the AO vide order dated 23.11.2017. The ld.CIT(A) after considering submissions of the assessee held that the AO was not justified in denying the claim of the assessee in absence of any material finding and he allowed the claim of the assessee. - Decided in favour of assessee. - ITA No.10/CHANDI/2018 - - - Dated:- 21-12-2020 - S/Shri N.K. Saini, Vice-President And Rajpal Yadav, Vice-President For the Assessee : Shri Sudhir Sehal, Advocate For the Revenue : Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 143(2) and 142(1) of the Act, authorized representative of the assessee appeared before the AO. On an analysis of the record, the ld.AO took cognizance of objects of the Society, and thereafter issued a show cause notice inviting explanation of the assessee on various aspects. A perusal of the assessment order would indicate that the first area of inquiry made by the AO was that the assessee has been running a pharmacy shops wherein it was continuously showing profit. He noticed that from the Asstt.Year 2013-14 to 2015-16, the profit from sale of medicines through this shop has been shown by the assessee at 22.43%, 20.02% and 17.07% respectively. According to the AO, the sale of medicines has resulted in huge profit to the assessee, and therefore the assessee cannot be considered as a charitable society within meaning of section 2(15) of the Income Tax Act. After hearing the assessee, the ld.AO has denied charitable status and consequently did not grant benefit under sections 11 and 12 of the Act. The basic reasons assigned by the AO are (i) the assessee is running a shop, which is not an integral part for running of the hospital. This pharmacy is being run on commercial b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al before the CIT(A). It has filed detailed written submissions. These submissions have been reproduced by the ld.CIT(A) from pages 4 to 17 of the impugned order. The assessee, at end of its submissions has compiled certain details in tabular form pointing out reasons of the AO vis- -vis explanation given by it qua those reasoning. The ld.CIT(A) has taken note of summary of such explanation in page nos.15 to 17 and we deem it appropriate to take note of these submissions along with finding of the ld.CIT(A), which reads as under: Observation of AO CHEMIST SHOP Assessee's submission 1 The assessee is running Chemist shop which is not an integral part of the running of hospital. Running of chemist shop is an integral part of hospital and approved by the CIT as per clause no 14. Of MOA while approving the registration of the society u/s 12A(a) The running of chemist sho1p is considered as integral part for the last 26 years that is from 1991 till date. Please also see 251 CTR Page 237 2 Pharmacy is being run on commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /M.S. The society has utilized more than 85% of the total funds during each year right from the inception of the trust till date. Earning of profit is not fatal for claiming exemption u/s 11 . Kindly see CIT VS CT education Society,253 CTR page 518 , 391ITR Page 73(ALL Punjab High Court) Page 6 to 10. Of our written submission PAYMENT TO DR.R.S. CHAHL 1 DR.R.S.Chahl is trustee as mentioned at Pagel,8.8,12,16,23,24 etc etc Infact DR.R.S.Chahal is not the trustee . He is simply a relative of trustee. 2 He is being paid the highest Professional Charges (Page- 8).i:ers. 65,42,155/- This is wrong as per chart at Page-13 of assessees submission and 24 of the A.O. order .Dr Satish Mishra is being paid 80,28,920/ Dr.Vijay Nanda ₹ 68,60,728/ Dr Ravi Angral ₹ 68,57,756/. 3 The payment to DR.R.S.Chahl is not reasonable (Page-8) Prior to joining the trust DR.R.S.Chahl has filed his Income Tax return for the assessment year 2003-2004 to 2006-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... landhar. Copy of rent deed filled with A.O. The building was used by the trust and DR.Arun Kumar Sharma (PAN: BCOPS5796J) was the incharge of this unit. TDS on both the payment was deducted and deposited .The loss of this unit was accepted by the department during the assessment year 2013-2014 and by the same A.O. during the assessment year 2014-2015. I have gone through the assessment order passed by the AO, detailed submissions made by the appellant and find that there are four issues which have been raised in the assessment order- (a) The Hospital run by the trust is also running a pharmacy and selling medicines on a profit; (b) The trust is engaged in commercial activities and earning profits from hospital; (c) Payments have been paid to persons covered u/s 13(l)(c) or u/s 13(3) of the IT Act and (d) Loss claimed from Kirn' Women Hospital is not genuine. 4.5 AO has stated in the order that appellant has earned 20.02% profit, which comes to ₹ 94,08,947 on total sale of medicines of ₹ 4,69,89,258 in the year under consideration and has also compared the list of charges for different tests taken by the appellant viz-a-viz the charges taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no occasion for a different approach to be taken for the assessment year in question when the activities have continued uninterruptedly since the time of inception of the institution and the fact that the assessee is a non-profit organization and it has not been disputed. 4.10 The appellant has submitted that hospital is running a chemist shop which is an integral part and is also approved by the CIT while giving approval to the trust and has been there since 1991. It is also stated that a complete list of concession of ₹ 24.78 lacs which includes medical camp, free OPD etc has been given to the AO, which is not disputed. It is submitted that profit rate of 22.43% has been accepted during previous year and therefore profit of 20.02% on chemist shop in this year is not unreasonable as no benefit has been derived by the trustees on account of this. 4.11 The appellant has further stated that profit computed by the AO is only of one unit and combined profit of all the units is only 1.05% and it is stated that same AO has accepted profit rate of 9% in the previous year. The appellant has stated that comparative analysis of rates charged by the other hospitals like SGL ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause at times surplus of one segment would help in meeting the deficit of other segment. For this purpose, it would be appropriate to compare the aggregate receipts, expenses and net surplus for period of 5 years which would involve 2 years preceding and 2 years succeeding the year under consideration. The comparative results are as under:- Asstt year Total Receipts Revenue Expenditure Capital Expenditure % of utilisation Net Profit Of NP 2012-13 16,70,35,839 15,84,11,623 10,71,38,157 158.97% 86,24,216 5.2% 2013-14 22,24,44,203 20,23,32,884 1,50,74,392 97.74% 2,01,11,319 9.0% 2014-15 24,78,08,876 24,40,52,624 3,23,57,155 111.54% 37,56,252 1.5% 2015-16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om this. 4.19 In view of the above facts and material available on record, I find that it cannot be held that activities of the trust are being run on commercial principles and there is no justification in the action of the AO in denying the claim of exemption of income u/s 11 of the IT Act. Accordingly, I direct the AO to allow the claim of exemption of income u/s 11 of the IT Act to the appellant. 4.20 Further, as regards the issue of payment of professional charges to Dr. R.S. Chahal is concerned, the finding given by the AO that payments made to the doctor 11.52% of total professional charges claimed is stated by the appellant to be not rect. The appellant had filed a chart of payments made to different doctors :- Dr. VijayNanda : ₹ 68,60,728 Dr. Ravi Angral : ₹ 68,57,756 Dr. R.S. Chahal : ₹ 65,42,155 Dr. Manoj Chaudhary : ₹ 54,31,589 Dr. Atul Khullar : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year; **** **** 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general public utility . Since in the appeal in hand, this part does not involve, we need not delve into this aspect. In brief, this activity can be treated uncharitable if hit by conditions provided in the proviso to section i.e. an assessee should not carry out activities in the nature of trade, commerce or business for fees, cess or for any other consideration. In other words, it should not be carried out with a profit embedded intention or motive. If some incidental profit is there, then it is a secondary circumstance. Sub-clause (i) and (ii) further provides guidance and conditions to find out whether this fifth category of activity is being carried out on trade, commerce or business. Since this aspect is not involved in this appeal, therefore, it is not necessary to go in detail. The activity undertaken by the assessee is medical relief, and same is per se charitable. 8. Next condition is that such institution/trust should get itself registered under section 12AA of the Act. Section 12AA of the Income Tax Act provides that on receipt of an application for registration by the Pr.Commissioner/Commissioner from a trust/institution under this section he will call for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts over expenditure for the purpose of future application, and how it has to intimate the AO with regard to such unutilized receipts. No circumstance is available in the present case, neither the AO has recorded. Therefore, again much discussion is not required on other procedural aspect of section 11. 11. Similarly, a perusal of section 13 would indicate that if any part of income from the property held under a trust does not enure for the benefit of public, and it has been used for the benefit of certain individuals who happen to be relatives of the trustee, then such receipt will not qualify for exemption under sections 11 and 12 of the Act. In other words, benefit of section 11 and 12 would not available. For this purpose, list of persons who could be categorized as enured undue benefit from the trust or institution provided in section 13(3) of the Act. If some undue benefit is being extended to such persons on account of their position in the institution/trust, then to that extent that income would not qualify for exemption, and will be brought to tax. 12. Keeping in mind, this basic scheme of Income Tax Act for assessment of charitable institution, let us reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances in these years. Qua this proposition, the ld.DR was unable to point out any aspect. He failed to bring to our notice any changes which authorise the AO to take different stand in this assessment year. Therefore, on this preliminary reason itself, order of the CIT(A) should be upheld, but nevertheless, we would like to go into circumstances narrated by the AO for arriving at a conclusion, whether settings of these circumstances as whole could goad any adjudicating authority to record a finding that activities of the assessee are not charitable, and therefore, benefits under sections 11 and 12 of the Act should be denied to the assessee. 13. First circumstance highlighted by the AO is that the assessee is running a pharmacy in the hospital. While impugning orders of theld.CIT(A), the ld.DR relied upon order of the AO and contended that running a pharmacy in the hospital is an independent business activity, and therefore, the profit earned in such running of a pharmacy ought to be separately assessed. On the other hand, the ld.counsel for the assessee relied upon written submissions made before the CIT(A) as well as synopsis filed during the hearing before the Tribunal. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the version of the assessee ? Therefore, we find that no merit in the first fold of reasoning given by the AO to reverse the finding of the CIT(A). 14. Next reason assigned by the AO is that the assessee is showing huge profit, and therefore it is to be construed that the hospital is being run on commercial line under the shadow of a charitable institution. We have gone through the details as well as circumstances highlighted by the ld.AO. The ld.CIT(A) as a matter of fact found that the AO has not appreciated activities of the assessee as a whole, rather he has carved out the higher range of profit under one unit. The ld.CIT(A) took note of total receipts, revenue expenditure, capital expenditure etc. in para 4.15 of the impugned order. The AO has compared rate of such hospitals who were provided subsidies from the Government. SGL Hospital, whose rates were relied by the AO, received subsidies/donations/grants from Government, therefore, rates of such hospital cannot be compared with rates of the assessee, who has to take care of day-to-day operational expenses, and future expansion in the area of investigative tools viz. xray machines, CT-scan etc. These equipments require hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ualification and experience in the medical field is paid at lesser amount in similar type of hospital. There may be certain Government institutions where instead of making salary payment at this level, other facilities like housing and transportation etc. may be extended to the medical professions. Thus, the ld.CIT(A) has rightly appreciated the facts and circumstances and also considered rule of consistency. 16. The next reason assigned by the AO is that loss from Kinder Hospital should have not been claimed by the assessee. During the assessment proceedings, the AO noted from the balance sheet of Kinder Women Hospital that the assessee has not shown any receipts, rather it has claimed various expenditure for running of this centre. It was explained by the assessee that this unit could not be run successfully and therefore it was closed down. The unit was functioning from the rented premises and paid rent amounting to ₹ 71,72,980/-. The assessee has also to incur certain other fixed overhead expenses which also contributed to the increase in loss. The assessee was under obligation to run the unit for a minimum period of three years as per the registered lease agreement wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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