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TMI Blog2022 (2) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... hether, on the facts and in circumstances of the case and in law, the Ld. CIT(A), Mumbai has erred in allowing relief of Rs. 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) Establishment & Maintenance of hostels and/or boarding houses to students and those connected with the institutions. iv) Grant of monetary assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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. Hinduja 2) Sareeta S. Hinduja 3) Gopichand P. Hinduja 4) Prakash P. Hinduja 5) Ashok P. Hinduja 6) Harsha A. Hinduja 6.6.2 Shareholding pattern of Hinduja Healthcare Pvt. Ltd 31/03/2014 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust 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 Healthcare Pvt Ltd; either in the return of income or Tax Audit report/notes to accounts necessary for assessment in the context of lease rent payment to HHPL as per provision of section 13(3) of the IT Act. 6.13 The fact that Charity Commissioner, Greater Mumbai has approved the lease deed is not of much relevance here as the mandate of the Charity Commissioner is not to evaluate the scheme over tax planning but is only to see whether the funds of the charity are not utilized otherwise. The order of the Jt. Charity Commissioner is as per section 36(l)(b) of the Bombay Public' Trust Act, 1950 and not as per the Indian Income Tax Act, 1961. So, one does not preclude other and both operate parallelly for achieving diverse objects. Therefore, the order of Charity Commissioner does not prevent this office from inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 registered under section 12A and hence, it is eligible for exemption under section 11 of the Act. He referred to the decision of Honourable supreme court in the case of Queen's Education Society Vs. CIT (2015-TIOL-20-SC-IT) for the proposition that the assessing authority must continuously monitor from assessment to assessment year whether such institution continues to apply their income and invest or deposit their funds in accordance with the law laid down and if the activities of the institution are found not to be genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. He held that the annual lettable value is to be taken at Rs. 4.50 crores instead of Rs. 1.50 crores as shown in the return of income. He refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 way of corpus and the company's claim 80G deductions on that corpus amount. He proceeded to hold that after completing the hospital building the assessee trust has made the application to charitable commissioner for leasing out of the hospital building due to the trust has not required expertise to run such a huge hospital. That this is nothing but only tax planning to dubious method for colourable devices. He held that the fact that Charity Commissioner, Greater Mumbai has approved the lease deed is not of much relevance here as the mandate of the Charity Commissioner is not to evaluate the scheme over tax planning but is only to see whether the funds of the charity are not utilized otherwise. Thereafter the AO observed as under:- "Considering these facts the assessee trust is not carrying out activity in accordance with the objects of trust as well as activity of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 Building. (6) The transactions also constitute a transfer of a capital asset in view of section 2(47)(vi) read with section 269UA(d) and (f) of the Act is also well founded. 10. In this regard after referring to section as above. He held as under :- "7.5 Considering the facts of the case, the assessee has transferred the hospital building by way of lease rent for dubious method. As the assessee has received the lease rent measure of Rs. 1.50 crores and other misc. expenses which resultant that assessee has nothing in the hand on account of lease rent. It indicates that the assessee has transferred the hospital building is almost free of cost. 7.6 The general objective in doing all this was to conceal the true and fair nature of the transactions by entering into lease agreements by the assessee trust & its group companies. If we look at the broader picture, the whole agreement has been created to siphon off the profit/ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gious trust to the tune of Rs. 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 response and disallowed the same holding that the donation given by the assessee is not corpus in nature with specific direction. These directions are normal donations given by the assessee to these trust. 13. Thereafter the Assessing Officer referred to the reimbursement expenses. He observed that the assessee was asked to explain nature and details of reimbursement from PD Hinduja National Hospital & Research Centre (PDHNHRC) and how and where these receipts were taken into account. The Assessing Officer reproduced the assessee's submission and found it to be not acceptable. He noted that no documents were furnished regarding agreement with PD Hinduja National Hospital & Research Centre. He referred to the definition of income in section 2(24)(iii) of the Act and held that as per the definition of section 2(24)(iii) transfer of fund to the assessee is income of the assessee. He further observed as under :- "Here PD Hinduja National Hospital is covered under section 13(3)(b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 the Charity Commissioner u/s.36(1)(b) per his orders dtd. 31,03.2010 and 15.12.2010, The approval conferred by the charity commissioner per the said orders is also in respect of adequacy of the lease rent, interest free refundable security deposit obtained by the assessee and other terms & conditions as contained in the tripartite lease agreement dtd. 2 1 . 1 2.201 0 entered into by the appellant with Hinduja Healthcare Pvt. Ltd. and Hinduja Realty Ventures Ltd. The AO has also not brought anything on records to challenge the lease rent as confirmed by the Govt. approved registered valuer with comprehensive analysis contained in his report dtd.20.09.2009. The said rent is found to be at Arm's Length by the Charity Commissioner after considering open offers per his order dtd. 31. 03. 2010 & 15.12.2010. Moreover, the appellant has also had floated public tender by giving advertisement in newspapers and the highest bidder has also quoted Rs. 1.5 crore per annum as the lease rent which is also the value of the transaction. Thus, having consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act can be exercised by the authorities under Chapter XX-C as it would be difficult to draw a presumption that there was an attempt to evade tax. This is made abundantly clear by the Supreme Court in the case of C.B. Gautam v. Union of India [1993] 199 ITR 530 . Now I come to the issue as to whether the trustees of Hinduja Foundation, namely, Mr. Ashok P. Hinduja & Mrs. Harsha A. Hinduja, who are fiduciary shareholders of HGL have derived any benefit from the above lease to HGL's step down subsidiary HHPL. In this background, one has to refer to the provisions of section 13(2)(b) which read as under. "(b) if any /and, building or other property of the trust or institution is, or continues o be made available for the use of any person referred to in sub section (3), for any period during the previous year without charging adequate rent or other compensation; Since, I have held that the lease rent is at arm's length with the discussion and analysis hereinabove, reference to section 13(3) in this case is not warranted. I also hold that in this case the provisions of section 13(3) are not violated The section 13(3)(e) speaks about direct holding. From the chart fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment Ltd. That would mean that HDFC Ltd. holding 100% shares of HDFC Investments Ltd., would have to be construed as the beneficial owner of the properties/assets of HDFC Investments Ltd- This can never be the case because that would be contrary to all canons of company law as well as the decisions of the Supreme Court in the case of Guzderand Vodafone International Holdings BV (supra). This being the case, HDFC Ltd., by no stretch of the imagination can be said to be the beneficial owner of the shares that HDFC Investments Ltd. holds in the Petitioner. This is simply because the shares that HDFC Investments Ltd. holds in the Petitioner is its asset, and HDFC Ltd., though being a 100% shareholder of HDFC Investments Ltd., cannot be termed as the owner (beneficial or otherwise) of the assets and properties of HDFC Investments Ltd. In these circumstances, therefore, the shareholding of HDFC Ltd. and HDFC Investments Ltd. cannot be clubbed together to cross the threshold of 20% as required under explanation (a). This being the position, we have no hesitation in holding that the HDFC Ltd. does not have a substantial interest in the Petitioner, and therefore, is not a person as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not covered as related parties for the purposes of section 13(3) of the Income Tax Act and therefore, even on this count addition on account of lease rent made cannot be sustained. The AO is directed to delete the said addition. Coming to the issue of genuineness of activity, the AO has erred in giving a finding that the accumulated income has not been spent for the objects of the trust. One of the objects for giving charitable institution the laxity of spending accumulated income within the period of 5 years is essentially for this purpose that it has to properly spend the amount accumulated u/s.11(2) of the Income Tax Act, It may be seen from the data filed before me that the assessee has been spending funds accumulated for specified objects as under: F.Y. Amount accumulated Period of 5 years Amount applied Unspent 12-13 3.02 31.03.18 3.02 0 13-14 2.66 31.03.19 2.66 0 14-15 5.25 31.03.20 3.85 1.40 15-16 7.56 31.03.21 3.28 4.28 16-17 8.65 31.03.22 5.32 3.33 17-18 5.36 31.03.23 0.74 4.62 Moreover, as may be seen from the assessment order itself that though the AO has held that the assessee has not carried ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. This is as per Memorandum of Understanding dtd.16.03.1994 r.w. the another document dtd.01.10.1986. During the course of the appellate proceeding the appellant has also drawn my attention to the fact that PDHNHMRC was subject matter of survey action u/s.133A of the Income Tax Act on 04.10.2010 for verification of proper TDS compliance. In this survey undertaken by the TDS Wing of the Income Tax Department, one of the transactions was pertaining to the reimbursement of executive salaries by PDHNHMRC to the appellant. During the course of appellate proceedings, the appellant has filed written submissions on 07.03.2019 pointing out that after being rejected by both the CIT(A) and the Tribunal, the Department's appeal in the matter of PDHNMRC travelled to the High Court. As per the copy produced the Hon'ble Bombay High Court in the above case in ITA Nos.: 105, 116, 112, 115,121 & 128 of 2016 vide order dated 22.02.2019 rejected the appeals filed by the Department and held that these are reimbursement of expenses hence not liable for TDS. The operative portion of the Hon'ble Bombay High Court order is reproduced as under: "21. Question (d) basically relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (Appeals) as well as the ITAT on this issue, we find that both the authorities below have given their findings on the basis of facts presented before them- We find that the authorities below are fully justified in coming to the conclusions that they did, namely, that the payments made by the assessee to the Foundation was in the nature of reimbursement and not in the nature of any technical or professional services which required deduction of TDS under section 194J of the I. T.Act. This being the case, Question (d) also does not give rise to any substantial question of law that would require our consideration." Following the above decision of Hon'ble Bombay High Court, the addition of Rs. 1.98,71,842/-made by-the AO is deleted, as this is a case of mere reimbursement of expenditure by one Charitable Trust another. Thus, there are no violation of provisions of Section 13(1)(c) & 13(2)(g) r.w.s.13(3) of the Income Tax Act, as made out by the AO, the assessee is entitled for relief u/s.11(1 )(a) & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of India, and is being implemented by ISKCON Food Relief Foundation (IFRF) under the brand name -"annamhta" in select schools across the country. The aim of this project is to liberate children from the vicious cycle of Malnourishment and Illiteracy. Annamrita serves 1.2 million meals every single day, through its 20 kitchens across India. ISKCON have a presence in 7 states namely - Andhra Pradesh, Delhi, Haryana, Jharkhand, Maharashtra, Rajasthan and West Bengal. c) Even the former President of India - Hon'ble Mr. Pranab Mukherjee, lauded the above movement by stating as under: (ISKCON) movement, just imagine ..... within a short span of time .... Today I am told ISKCON movement runs more than 600 centres all over the world, everyday in India it provides food to over one million children ..... healthy food . And the message of love, compassion, which is inherent in Indian civilization." It may be seen from the above submission made by the appellant, the purpose for which the donations have been given to ISKCON cannot be doubted. The AO has not brought any evidence on records to prove that the above donations given by the appellant were not for the food programme but we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Apex Court Judgement in case of Parashuram Pottery Works Co. Ltd. Vs ITO [1977] 106 ITR 1 (SC) 2. The Apex court decision in case of Radhaswami Satsang [1992] 193 ITR 321 (SC) 20. He further submitted that as regards, the AO observation that lease charge is not appropriate, he submitted that the same was duly approved by the charity commissioner. Further, he submitted the lease rent was arrived at after proper bidding. Hence, he submitted that when the appropriate authority has duly approved the rent and the agreement, the AO cannot now sit in judgment and take an opposite stand. In this regard, he placed reliance upon following case laws. 1. Jurisdictional Bombay High Court decision in case of Virendra Vs. Appropriate Authority [2010] 327 ITR 185 (Bom). 2. Gujarat 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 truste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent 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 an attempt to evade tax. This is made abundantly clear by the 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 Rs. 5 crores. In this regard assesse has also submitted valuation b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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