TMI Blog2022 (2) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... the other facts, which show that the lease was awarded after due advertisement and making provision for appropriate security deposit. Hence, in the background of aforesaid decision and the facts of the case, we do not find any infirmity in the order of ld.CIT(A) in this regard. Trustees are related to the party to whom lease has been awarded - We note that this issue will not arise once, it is held that it cannot be said that lease rent is undervalued. In any case, ld.CIT(A) has given the detailed finding, how the AO s finding in this regard is not correct. The revenue has not brought any cogent material to rebut these findings. Disallowance of reimbursement of expenses to/from PDNHRC - We note that similar issue has already travelled to the Hon ble Bombay High court in the case of PDNHRC [ 2019 (2) TMI 1454 - BOMBAY HIGH COURT] . In the said case of Hon ble High Court has held that these reimbursements do not attract TDS. Once, the payment has been subject matter of examination by the Ho nble Bombay High Court, AO has no jurisdiction to make any comment whatsoever. Moreover, the CIT(A) has given due finding that these are due reimbursement. This fact is also arising out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in allowing relief u/s. 11(1)(a) , 11(2) r.w.s. 12 of the I. T. Act, which is contrary to the law. 3. Whether, on the facts and in circumstances of the case and in law, the Ld. CIT(A), Mumbai has erred in allowing relief of ₹ 3,58,200/- without appreciating fact that the assessee trust is charitable trust and given donation to religious trust. 4. The appellant prays that the order of the Commissioner of Income Tax (Appeals)-3, Mumbai be set aside and that of the Assessing Officer be restored. 3. Brief facts of the case are as under :- The assessee-trust had e-filed return of income on 29.09.2014 declaring total income at NIL income. The trust is registered with the Director of Income Tax (Exemption), Mumbai u/s.12A under registration No.TR/H(a)/33/74-758 of the Income Tax Act, 1961. The trust is also registered with the Charity Commissioner, Mumbai. The main object of the trust is: i) Operating, Running, Continuing educational and vocational school ii) Establishment support of Professorships, Instructorships, Fellowships, Lectureships, Scholarships and prizes at any schools, colleges or other educational institutions. iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit making concern. Therefore, Hinduja Healthcare Pvt Ltd has an incentive to increase its profits by paying lower lease rental value to the assessee. Through this, assessee foundation will have lower income at its disposal for charitable activities and the Lessee would increase its profit thereby increase its net worth. The Return on investment for HHPL will he much quicker with lower lease rentals. The Lessee (HHPL) also claims depreciation on the assets invested and it has the facil ity of utilizing the hospital building at a lower than market value. 6. The Assessing Officer sought assessee s response in this regard. However he was not satisfied with it. He observed as under : The assessee has leased the property of the trust to M/s. Hinduja Healthcare Pvt. Ltd., and the confirming party of the lease agreement is M/s. Hinduja Realty Ventures Ltd (HRVL). It is also pertinent to mention that Charity Commissioner has given permission of leasing property of the trust to M/s.Hinduja Realty Ventures ltd. However, the assessee has given the property on lease to M/s. Hinduja Healthcare Pvt. Ltd. 6.6.2 Names of the Trustee of the trust are as under: 1) Srichand P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The Assessing Officer sought reply of the assessee to the above also. He elaborately reproduced the submission of the assessee. However he rejected the same. He observed as under :- 6.11 After going through the trust deed, the list of trustees and the shareholding pattern of M/s. Hinduja Healthcare Pvt. Ltd clearly indicate that the lease transaction is a transaction between related concerns as per provision of section 13(3) of the IT Act. Shri. Ashok Premanand Hinduja is the Managing Trustee of the assessee trust. And Smt. Harsha Hinduja is also one of the trustee. And other trustees, namely, Shri. Srichand P. Hinduja, Sareeta S. Hinduja, Gopichand P. Hinduja, Prakash P. Hinduja are the relatives of Shri. Ashok Hinduja 85 Smt. Harsha Ashok Hinduja. Therefore, Hinduja Healthcare Pvt.Ltd. and assessee trust are covered u/s. 13(3)(cc) 8 13(3)(e) of the I.T. Act, 1961. Shri. Ashok Premanand Hinduja 8 Smt. Harsha Ashok Hinduja hold more than 70% stake in M/s.Hinduja Healthcare Pvt Ltd. 6.12 Therefore, the assessee has failed to disclosed fully and truly materials facts in respect of trustees and their family members that they are substantial shareholders in Hinduja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and undue benefits to the Hinduja Group. The Hospital Building was indirectly transferred by way of Lease Agreement for 66 Years to HHPL almost free of cost. A bare reading of the above agreements entered into by the assessee with HHPL shows that the agreements were drafted in, a way to give maximum benefit to the commercial Hinduja Group of companies and could not be said to be in advancement of any charitable activity of the assessee. 8. Thereafter the Assessing Officer observed that the assessee is not running its affairs on charitable lines, therefore, the assessee-trust is not entitled to the benefit of exemption under Section 11 of the Act. He referred to the decision of Bangalore Tribunal in D.R. Ranka Charitable Trust Vs. DIT(E) (3 ITR 151) and Chennai Bench of the ITAT in Aurolab Trust Vs. CIT (46 SOT 125). He made a general observation that the assessee is not following the main objects. That the hospital is virtually running by the HHPL which are corporate bodies established with the clear intention of profit motive. After giving general theory about the charitable trust and what is not charitable the AO rejected the assessee s argument that the assessee is regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antially interested which resulted the assessee s claim of exemption of total income is hit by provisions of section 13(1)(c) and 13(2)(a) (b) of the Act and denial of exemption under section 11 of the Act. He held that in the present case the assessee has leased out hospital buildings for a period of 66 years without security deposits which clearly indicate that the undue benefit taken by HHPL by way of lesser lease rent/inadequate rent payment and without providing the adequate security deposit to the assessee trust due to trustees and their relatives are substantially interested in the concern HHPL. Hence, he held that the assessee is not eligible for exemption under section 11 of the Act. In this regard he referred to the decision of Ho ble Delhi High Court in the case of Pt. Kanahyalal Punj Charitable Trust Vs. DIT(E). Thereafter the Assessing Officer further observed upon the genuineness of the activities. He noted that the assessee trust got the land free of cost as donation from Bawa Baldeodas Beragi. That thereafter the assessee trust has taken corpus donation from group concerns. He observed that if the assessee has taken corpus fund it mean public money is invested by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a transaction which has the effect of transferring or enabling the enjoyment of immovable property. The explanation to section 2(47) provides that for the purposes of sub-clauses (v) and (vi) thereof, immovable property shall have the same meaning as in section 269UA(d). Section 269UA(f)(i) defines immovable property inter-alia to mean any land or building or part of a building and the explanation thereto provides that the land, building, part of a building include any right therein. Then there is a question, whether the assessee trust is owner of property or M/s. Hinduja Healthcare Pvt Ltd. As per provision u/s. 11(1) of the I.T. Act. The income derived from property held under trust but in the instant case, property is actually transferred to M/s. Hinduja Healthcare Pvt Limited (HHPL) by way of lease deed. (5) Firstly, it was that the assessee trust has given the lease hold right of the space for a period of 66 years. Therefore, held that if the transaction is held to be a real lease, the assessee would be entitled to receive the lease rent but same is not applicable in the instant case as the here assessee has indirectly transfer the lease rights in the form of Hospital Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng adequate rent or Security deposits/other compensation, shall be treated as includible in the total income of such trust/institution. As the assessee has violated the provision of section 13(2)(b) r.w.s 13(3) of the I.T. Act, therefore the exemption claimed u/s. 11 of the I. T. Act is denied to the assessee. The sub-par exploitation of its assets results in lower realization of income and hence lower income for the purposes of charity. 8.3 Considering the above facts and circumstances of the case, the activity of the assessee trust is not genuine and is not carried out in accordance with objects of trust. Hence, the assessee trust is not entitled to claim exemption u/s. 11 of the I. T. Act. 8.4 In view of the above, exemption under section 11 is not allowed to the assessee and rent income chargeable to tax at maximum Marginal rate under section 164(2) of the I.T. Act. 12. Thereafter the Assessing Officer noted that the assessee has made donation to certain religious trust to the tune of ₹ 4,24,481/-. The Assessing Officer was of the opinion that such donation to the charitable trust is not objective of the assessee trust. He was not satisfied the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here should not be any objection regarding-denial of section 11 of PDHNHMRC. Here the assessee is only a tool in the hands of PDHNHMRC and the payment which has should have been paid by itself. It has used assessee as a tool to distinguish its transaction. Thereafter he held that as per the provision of section 13(3)(b) and 13(1)(c) and 13(2)(g) of the Act and held that transaction of the assessee with PDHNHMRC is covered under section 13(1)(c) and 13(2)(g) r.w.s. 13(3) of the I.T. Act and assessee s transaction with the concern is not genuine. Hence, he held that the benefit of section 11 12 will not be available to the assessee. Also the reimbursement expenses to the tune of ₹ 1,98,71,842/- is denied. Against this order the assessee s appeal before ld CIT(A). Ld CIT(A) dealt with various aspects of the appeal and finally partly allowed by holding as under. 14. As regards, the AO s adverse inference on lease rent. Ld.CIT(A) concluded as under:- The above findings lead to a conclusion that:- a) The lease is not a transfer u/s.2(47) of the Income Tax Act, as there is no involvement of salami / premium. b) The lease agreement is approved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of the Gujarat High Court considering similar provisions of the Income-tax -Act, as well as, the BPT Act has observed as under (page 613): In the light of the aforesaid facts, it is apparent that there was no reason for the Appropriate Authority to resort to the provisions of Chapter XX-C of the Income-tax Act. It would be difficult to arrive at a conclusion that there is significant undervaluation of property to the extent of 15 per cent, or more in the agreement of sale as evidenced by the apparent consideration being lower than the fair market value by 15 per cent, or more. Further, the property was sold after inviting offers from the public at large by giving advertisement in the newspaper and that too after proper -verification by the statutory authority under the Bombay Public Trusts Act. Even after executing the agreement to sell, objections are invited as provided under rule 24. Hence, in such types of cases, even if some lower amount is received, it would not mean that power to purchase the said property under section 269UD of the Income-tax Act can be exercised by the authorities under Chapter XX-C as it would be difficult to draw a presumption that there was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. In the facts before us it may be true that HDFC Ltd. may indirectly have 20% of the voting power in the Petitioner because HDFC Investments Ltd. is a wholly owned subsidiary of HDFC Ltd. However, that by itself would not mean that HDFC Ltd. has a substantial interest in the Petitioner as required and stipulated in explanation (a) to section 40A(2)(b). As mentioned earlier, for a person to have a substantial interest as contemplated under explanation (a), two conditions have to be fulfilled, namely (i) that the person has to be the beneficial owner of the shares and (ii) those very shares have to carry not less than 20% of the voting power. It is only when these two conditions are fulfilled that explanation (a) can be pressed into service. In the facts before us, if we were to accept the submission of the Revenue. then we would have to hold that HDFC Ltd. is the beneficial owner of the 6.25% shareholding that HDFC Investments Ltd. has in the Petitioner. This 6.25% shareholding of HDFC Investments Ltd in the Petitioner is the movable property and an asset of HDFC Investment Ltd. That would mean that HDFC Ltd. holding 100% shares of HDFC Investments Ltd., would have to be constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as correct then one will not have to not stop there and then also see the shareholders of Company 'A' as the beneficial owner of the shares of Company 'C. This would then lead to absurd results, namely, that then even Company 'A' also would not have a substantial interest in Company 'C and it would be the shareholders of Company 'A that would have a substantial interest in Company 'C'. This would lead to startling results. It is now welt settled that whilst interpreting a statutory provision, an interpretation which would lead to an absurdity, should always be avoided. This is yet another reason why we are unable to accept the submission of the Revenue that this particular transaction would fall within the meaning of a SDT as understood and set out in section 92BA (i) of the I. T.Act. Even otherwise, following the above decision, the beneficiaries of Param Jamuna Trust and Aasia Trust cannot be said to have any substantial interest in HHPL. Under the circumstances, the contentions of the AO fail therefore, the parties herein are not covered as related parties for the purposes of section 13(3) of the Income Tax Act and therefore, even on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y succeeds in Ground No.(II) taken in this appeal. Ground no.2 is allowed. 15. As regards, the AO s disallowances of reimbursement of ₹ 1.98 crores, he held as under:- I have carefully considered the facts of the case, AO's contentions as well as appellant's submissions. After perusal of the above submissions made by the appellant and the AO's contention made in the assessment order, my decision in respect of the above ground is as under: The AO has alleged that these are donations in nature and not in the nature of reimbursement expenses as propagated by the assessee. The AO states that no documents were furnished with respect to the agreement between PDNHRC and assessee trust in respect of these reimbursement. The AO is factually incorrect in respect of these observations The assessee in its communication dtd. 11.08.2016, which was filed before the AO during the course of the assessment proceeding had demonstrated that the amount received of ₹ 1.98 Crores was reimbursement of expenses for providing services of senior functionaries. Along with this the assessee had also furnished ledger accounts and debit notes raised by it on PDNHRC tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee are all highly qualified persons who are deputed to man senior management positions of the assessee - hospital. These highly qualified persons are paid by the Hinduja Foundation and it is to reimburse the Foundation that payment is made by the assessee - hospital. The fact that the Hinduja Foundation charges only the actuals from the assessee can be appreciated because Hinduja Foundation is also a trust. Looking to these facts, the CIT (Appeals) came to the conclusion that the payments made by the assessee to the Hinduja Foundation in respect of the persons deputed by it to the assessee - hospital, are not in the nature of 'fees for professional services' but was in the nature of pure reimbursement. On this issue, the ITAT also agreed with the findings given by the CIT (Appeals). The ITAT noted that the CIT (Appeals) after considering the order passed by the Assessing Officer, the submissions of the assessee and the nature of services carried out by the service providers, held that payments made to the Hinduja Foundation was towards reimbursing the salaries of Senior Management Personnel deputed by Hinduja Foundation to the assessee - hospital. All these personn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order that the donations in question have been made on the following dates : Sr. No. Name Date Amount in Rs. 1. ISKCON 16.05.2013 50,000 13.06.2013 6,200 19.08.2013 41,000 09 102013 50,000 04.12.2013 50,000 18 122013 11,000 18.02.2014 1,00,000 06.03.2014 50,000 Total 3,58,200 The above donations on various dates have been primarily given to ISKCO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove donations given by the appellant were not for the food programme but were for religious purposes, In these circumstances, the addition made of ₹ 3,58,200/- stands deleted. The other donations given are as under: Sr. No. Name of the Trust Donation in Rs. i. Shri Ramniwas Ram Mandir Trust (for philanthropic activities) 30.000/- ii. Donation (cash) for poor at Balaji Temple, Phanaswadi, Mumbai. 23,081/- iii. Donation of Vastras to poor at Balaji Temple, Phanaswadi, Mumbai, (purchased by cash). 13.200/- Total 66.281/- In respect of the above donations of ₹ 66,281/-, there are no evidences brought on record by the appellant. In these circumstances, I uphold the disallowance made by the AO in respect of donations given to these trusts aggregating to ₹ 66,281/- as utilized for religious purposes and not for charitable purposes. Accordingly, ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arat High Court decision in the case of Om Shri Jigar Association Vs. UOI [1994] 209 ITR 608 (Guj) assessment order for AY 2011-12 3. Delhi High Court Judgement in case of Shriram Pistons Rings Ltd.[1990] 181 ITR 230 (Del) 21. He further submitted that adequate security deposit has also been received by the assessee from the lease. He further submitted that in ld. CIT(A) has given a clear finding that the trustees are not related to the concern to whom lease has been given. As regards, the issue of reimbursement of expenses to PDNHRC, he submitted that these are proper reimbursement. That this matter has already reached Hon ble Bombay High Court in the case of PDNHRC. Wherein Hon ble Bombay High Court had duly held that these are reimbursement and no TDS requirement is there. Furthermore, in this regard, ld. Counsel placed reliance upon the following case laws. 1. The Jurisdictional Bombay High Court decision in case of National Health Education Society [2019] 412 ITR 404 (BOM). 22. Upon careful consideration, we note that AO s adverse inference on the assessee is based upon three disallowances. Firstly, he has made addition on account lease rent holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of C.B. Gautam v. Union of India [1993] 199 ITR 530 . 24. Hence, if the expenditure has been approved by appropriate authority, the AO cannot take the divergent view. Moreover, we also note that ld. CIT(A) has given the finding that the bid for the lease was obtained by due advertisement in news papers. There is also due provision for security deposit of ₹ 5 crores. In this regard assesse has also submitted valuation by a Government approved valuer report in this regard. Hence, these factors duly corroborate that the lease rent in this case is not only approved by the charity commissioner, but also supported by the other facts, which show that the lease was awarded after due advertisement and making provision for appropriate security deposit. Hence, in the background of aforesaid decision and the facts of the case, we do not find any infirmity in the order of ld.CIT(A) in this regard. 25. As regards, the other related aspect in this regard that the trustees are related to the party to whom lease has been awarded, we note that this issue will not arise once, it is held that it cannot be said that lease rent is undervalued. In any case, ld.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITAT also agreed with the findings given by the CIT (Appeals). The IT AT noted that the CIT (Appeals) after considering the order passed by the Assessing Officer, the submissions of the assessee and the nature of services carried out by the service providers, held that payments made to the Hinduja Foundation was towards reimbursing the salaries of Senior Management Personnel deputed by Hinduja Foundation to the assessee - hospital. All these personnel were on the pay-roll of the Hinduja Foundation and they got all the benefits from the Foundation. In turn, the Foundation raised a debit note towards actual cost of employment and accordingly the assessee made the payments to the said Foundation and which was therefore clearly in the nature of reimbursement. It was in these circumstances, and after hearing the parties and perusing the material on record, the ITAT concurred with the findings of the CIT(Appeals). In these circumstances, the ITAT opined that the payments made by the assessee to the Foundation were not in the nature of fees for technical services and therefore confirmed the order passed by the CIT(Appeals). 23. On going through the findings given by the CIT (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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