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TMI Blog2021 (11) TMI 1098X X X X Extracts X X X X X X X X Extracts X X X X ..... rar of Firms and Societies, Punjab, Chandigarh vide No.916 dated 10.10.1994. That the assessee's application for grant of registration u/s 12A of the Act as a charitable entity for the purpose of availing exemption, as per the provisions of section 11 of the Act, was initially rejected by the Ld.CIT-II, Jalandhar w.e.f. 2004-05 vide order dated 23.12.2013, which order was cancelled by the ITAT vide its order dated 29.09.2015 holding that the Ld.CIT had no powers for cancelling the registration. In this backdrop the assessment proceedings for the impugned year were undertaken, during the course of which the AO noted from the financial statement of the assessee society that it had earned income only by way of interest on FDRs and the expenditure incurred were related to administration expenses only. He, therefore, noted that the assessee had carried out no charitable activity, as listed in its objects, and accordingly proposed withdrawing exemption u/s 11 of the Act. A show cause notice was issued to the assessee, in response to which detailed reply was filed by the assessee stating that it had indulged in its stated objects and was maintaining Medical College in Jalandhar and had al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear in the status of AOP amounting to Rs.5,02,35,799/- was upheld. As for the addition made by the AO on account of non-utilization of the accumulated surplus pertaining to the assessment year 201011, the Ld.CIT(A) deleted the same noting the fact that the assessee had been denied exemption on the same in the said year also which had been confirmed in appeal by the Ld.CIT(A) and, therefore, taxing the accumulated surplus in the impugned year would tantamount to double addition. 4. Aggrieved by the same the assessee has come up in appeal before us raising the following grounds: l. That the Worthy CIT (A) has erred in confirming the stand of Learned A.O. that the appellant society was not doing any Charitable activity during the relevant previous year and erred in making addition of Rs.5,02,35,799/- on this account ; 2. That the Worthy CIT (A) has erred in confirming the Order of A.O. in assessing the income of the appellant society in the status of AOP. 3. That the Worthy CIT (A) has failed to appreciate that the Assessment order of learned A.O. is vague with regard to para 5.1 of the order in which A.O. at one place mentioned the withdrawal of exemption u/s 10(23C)(vi) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the assessee of the conditions prescribed for charitable entities u/s 13(1)(d) r.w.s. 11(5) of the Act resulting in denial of exemption u/s 11 of the Act. The additional grounds as is evident are relevant only if the assessee is held to be entitled to grant of exemption u/s 11 of the Act. Therefore, it is pertinent to adjudicate the main grounds raised by the assessee first before dealing with the additional grounds. 7. We have heard both the parties and have also carefully perused the orders of the Ld.CIT(A) and the AO. We have noted from the same that primary reason for denial of exemption u/s 11 of the Act is the categorical finding of fact, affirmed by the Ld.CIT(A), that the assessee was not carrying out any charitable activity whatsoever and the basis for arriving at this finding are as under: 1) The income and expenditure account of the assessee does not reveal any income earned from the charitable activity, nor does it reveal any expenditure incurred for the same. That the annual income reflected in the said financial statement pertains to interest earned on FDRs and lease income, which cannot be attributed to earning from charitable activity and the expenditure per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to set tip Punjab Institute of Medical Sciences and Jalandhar as the institute may think fit and for the advancement of learning and dissemination of knowledge and patient care in such branches; (iv) To gel affiliation to the Medical Council of India or any other affiliating agency for the award of degrees, diplomas and certificates; (v) To institute and award fellowships, scholarships, prizes and medals in accordance with the Rules and Bye - laws; (vi) To confer honorary awards or other distinctions; (vii) To fix demand and receive such fees and other charges an may he laid down in the Bye-laws made under the rules of the Society. (viii) To established, maintain and manage halls and hostels for the residence of students: (ix) To provide for the maintenance of mils of the National Cadet corps when established for the students of the Institute; (x) To create administrative, teaching/non-- teaching and ministerial and other posts under the society and make appointments there to us needed in- accordance with rules and Bye-laws; (xi) To co-operate with educational or other institutions in any part of the work having objectives wholly or partly similar to those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or committees constituted by it; 10. Referring to the same he stated that besides the activity of administration and management of Punjab Institute of Medical Sciences, Jalandhar, the other objects of the assessee society include establishing, promoting, managing and associating with other institutions in Punjab devoted to education, training, research and related infrastructure in various branches of health sciences and such related objects. He thereafter pointed out that the assessee had been indulging in all the above charitable activities. To support his contention he stated that though undeniably the assessee has leased out the Punjab Institute of Medical Sciences premises at Jalandhar to a third party but it still exercised all control over its running and management, having clearly stipulated in the agreement parameters within which the institute was to be run by the third party, thus ensuring that the institute would run on the lines of charity. That no free rein had been given to the lessor for the running of the institute but was subjected to limitation which ensured that the institute was run on charitable lines alone and further that the assessee had retained right o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been in existence. The Concessioning Authority also approves the constituents (members) of concessionaire being prescribed in the concession agreement Therefore there are many such obligations and as such responsibilities etc. in the concession agreement for Concessioning authority i.e. PIMS Society Jalandhar which are being regularly undertaken by the PIMS. The part covering the above said terms and conditions in the Concessionaire agreement is being attached for your ready reference." 2. The copy of Concession Agreement dated 28.OK.2009 has already been filed before your goodself. The main points/articles of Concession agreement where your indulgence is sought are as under ; As per the Concession Agreement the consortium. Consortium (I'SP) has formed a society named as PIMS Medical & Education Charitable Society (PMEC Society) On the direction the 21st Governing Body meeting held on 27.8.2009 the Concession Agreement was signed on 28.8.2009 amongst the Concessioning Authority (PIMS Society), the Concessionaire (PIMS Medical & Education Charitable Society) and the Confirming Party State Govt). Till dale PMEC Society has full & final payment of Rs. 131.00 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntact. 3. The AO wrongly observed in para 5.1 (last para of page 10 of assessment order ) of her order (hat Assessee is a basically a lessor. It was further wrongly observed that the assessee has claimed exemption u/s 10(23C)(vi), has earned systematic profits. The AO has held that the assessee society is not entitled for registration granted under Section I2AA(3) as the assessee society is not existing and working for the objects for which it was created as per MOA. 11. The Ld.Counsel for the assessee further contended that besides the above it was also brought out to the authorities below the various other charitable activities which the assessee had been indulging in over a number of years. Our attention was drawn to the submissions made by the assessee as under: "ii. Further (lie AO has wrongly understood that the assessee society has been carrying only one object that of "To establish and carry on the administration and management of Punjab Institute of Medical Sciences." Whereas she has herself reproduced the Objects as per MOA on page 2 of assessment order which also includes the following apart from 20 other ancillary objects" ' "To set up establish, promote, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Govl. Dental College (GDC) Arnritsar/Patiala and Nursing College and National Level Physiotherapy ^Workshop at Govt. Medical College (GMC) Paliala). Further more than 3 crore advance to M/s HSCC (supervising agency) with the project of Nursing College & National Level Physiotherapy workshop at GMC Patiala was also adjusted. Hence the belief of AO that the society spent whole of the amount on Administrative Expenses during FY 2014-15 is wrong. Copy of ledger accounts filed before Learned AO are attached at Pages 15-18. v. In FY 2014-15 the amount on the project could not be spent due to the reason the Income Tax department had issued the bank attachment notice n/s 281. All the bank accounts and FDR accounts having balances of Rs. 29.54 crore were attached by the Income 'fax department (Pages 192 1). Moreover an amount of Rs.24,50,9672/= was recovered from the bank accounts of the society/Institute by AO during FY 2014-15.This has jeopardized the spending of the Society on the objects of the society. (Copies attached at Pages 22-24). Documents evidencing the above were duly filed before Learned AO during assessment proceedings. (Pages I 9-24)." 12. The Ld.Counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and was therefore not entitled to exemption u/s 11 of the Act. Copy of the order passed by the ITAT in ITA No.504 & 515/Chd/2009 dated 3112-2013 was placed before us. 14. We have heard the contentions of both the parties and perused the documents placed before us. The denial of exemption to the assessee society in the present case is for the reason that it was found to be not carrying out any charitable activities. Undoubtedly, the objective with which the assessee society was setup in 1994 was to establish and carry on the administration and management of Punjab Institute of Medical Sciences, Jalandhar, which the assessee claims to be carrying out through a concessionaire. Admittedly, as per the Concessionaire Agreement entered into on 28.08.2009 ,the land and building constructed by the assessee for the purpose of running the hospital has been leased out to a private party, PIMS Medical & Educational and Charitable Society, for a period of 99 years for a consideration comprising of Rs.131 crores as upfront consideration and an annual concession fee being 5% of the upfront consideration to be increased every year @ 5% beginning from the 8th year from the acceptance of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also been brought to our notice from the concession agreement demonstrating the right of the assessee to exercise substantial control over the medical infrastructure leased. Various case laws relied upon by the Ld.Counsel for the assessee to buttress its contention that it can be said to be carrying out its charitable activity through leasing also, all are distinguishable on account of the material fact of the lease being for a period of 99 years which dramatically changes the character of the transaction from a simplicitor lease to virtual sale. 17. Besides We have noted that the ITAT, in its order in the case of the assessee relating to A.Y. 2006-07 in ITA Nos.504 & 515(Asr)/2009 dated 31.12.2013, had considered this fact of the assessee intending to then hand over the running of its medical facility in PPP model to a private party and noting the fact that it actually did so in 2009 when it entered into a concessionaire agreement and further noting that right from inception the assessee society had done nothing towards its stated charitable activity but indulge only in construction activity for a seemingly very long period of time, from 1994 to 2009, when it handed over its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain contractor for the main building and the construction was started. In 2005-06, it was decided by the Governing Body to take the Public Private Partnership (PPP) mode for operationalising and managing the Institute. This has been finally achieved in August, 2009. 23. Keeping in view the facts narrated by learned CIT(A), it is admitted that the assessee-society has not yet started imparting medical education and the expenditure incurred during the year by the society was not for any other purpose other than setting up of the medical institute. He finally held that the expenditure incurred by the assessee-trust is for charitable purpose and the assessee-trust is entitled for exemption under Section 11(l)(a) of the Act in respect of the income applied to such construction, which has to be allowed to the assessee. i) In our view, as per the facts narrated by learned CIT(A) in the aforesaid paragraph that in the year 1998, an agreement was made with a contractor to construct an initial building to be used to accommodate some departments of the institute and hospital. The building was completed in 2000. We fail to understand that if the building, as stated by learned CIT(A), com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as claimed. .................................................... 26. Keeping in view the facts and circumstances of the present case, we are of the view that the assessee has not given any explanation as to why it has not taken any step for about 8 years from 10.10.1994 to 2002 to achieve the objects of the assessee-trust and also has not given any explanation regarding any charitable activities done by the assessee during these period except to spending time in construction of building for medical institute. As per para no. 4.4 at page 20 of the impugned order as well as the reply dated 19.12.2008 filed in response to the notice dated 08.12.2008, the assessee itself admitted that in 2005-06, it was decided by the Governing Body to take Public Private Partnership (PPP) mode for operationalising and managing the Institute and this was finally achieved in August, 2009, as informed by the assessee. The intention of the assessee clearly shows the motive behind spending a long period for construction of building of medical college which is certainly not for charitable purpose to achieve the objects of the assessee-society. Secondly, if the assessee-trust was granted registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therein funding of various medical projects in Government Medical College and Hospitals in Punjab and to which effect it had contributed over the years substantial sum of money, the Ld. DR has pointed out the fallacy in this argument of the Ld.Counsel for the assessee by drawing our attention to the Memorandum of Understanding the assessee society had entered into with Baba Farid University, filed alongwith submissions of the assessee dated 9/7/2019, where the assessee has contended to have utilized its funds for medical upgradation in the hospital run by it. The Ld. DR has pointed out that it was not simplicitor funding of projects in the hospital as claimed by the assessee, but in fact in the nature of investment in the hospital. The Memorandum of Understanding, he pointed out, required revenue sharing between the assessee and Baba Farid University in the ratio 60:40 or 80:20 of the net receipts earned from the project. Submissions to this effect were filed in writing before us as under: "8. Further, there is another unique issue in case of Assessee trust. The sums advanced to various intuitions are not even donations. A perusal of the balance sheet for the year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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