TMI Blog2022 (12) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... d examined the data supplied by the assessee at the time of making the application. Assessee had failed to bring on record any comparative chart of diagnostic charges / procedure charges / test charges prior to the conversion of the assessee into section 8 company and thereafter to show that there was a major reduction in fee / charges charged by the assessee for the above said purposes. As nothing contrary had been brought to the notice of CIT(E), hence in our view, assessee is not entitled for registration or approval under section 10(23C) / 12A. The present case is a case of conversion of a profit making company into a section 8 Company. In fact, the assessee was earning huge profit as a private company, which was later on converted into section 8 company w.e.f. 03.08.2018. As mentioned assessee was having surplus of Rs.15,96,02,014/- in the financial year 2018-19 and Rs.34,82,52,005/- for financial year 2019-20, which only shows that the assessee has been charging cost plus unreasonable mark up on its services. If we accept the argument of the learned counsel for the assessee that only the subsequent document should be taken into consideration, despite the fact that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the order of ld.CIT(E) is upheld and the appeal of the assessee is dismissed. - ITA No.1884 & 1885/Hyd/2019 and ITA No.299/Hyd/2020 - - - Dated:- 8-12-2022 - Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member For the Assessee : Shri S. Ravi, Advocate. For the Revenue : Shri Rajendra Kumar, CIT-DR ORDER PER BENCH : The appeals of the assessee arise from the order of Commissioner of Income Tax (Exemptions), Hyderabad dt.30.08.2019 and dt.15.05.2020 involving proceedings under section 12AA(1)(b)(ii), 80G(5)(vi) and 10(23C)(vi) of Income Tax Act, 1961 (in short, the Act ), respectively. 2. The grounds raised by the assessee in ITA No.1884/Hyd/2019 read as under : 1. The order of the Commissioner of Income Tax (Exemptions) is contrary to the provision of law and is bad in law. 2. The order of the Commissioner of Income Tax (Exemptions) is erroneous on facts and in law. 3. The Commissioner of Income Tax (Exemptions) is erred in drawing incorrect conclusions from facts. 4. The Commissioner of Income Tax (Exemptions) has erred in concluding that activities conducted by the Trust, and its objectives, are not ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us, at the outset, both parties submitted that the issues raised in all the three appeals are identical. In view of the aforesaid submissions, we, for the sake of convenience proceed to dispose of all the captioned appeals by a consolidated order but however, refer to the facts in ITA No.1884/Hyd/2019. 5.1. Facts of the case, in brief, are that till 02.08.2018 assessee was a private limited company and on 03.08.2018, assessee converted the said company into a Section 8 Company and changed the name to Fernandez Hospital . However, while filing Form 10A/10G online, the assessee had given the name as Fernandez Hospital Foundation . The certificate issued by the Registrar of Companies was given to the assessee foundation as Fernandez Hospital . Further, the PAN data shows that the PAN was obtained in the name of Fernandes Foundation . Due to the mismatch in the name of the assessee from ROC to Form 10A/10G, a notice dt.28.06.2019 was issued to the assessee to the address mentioned in Form 10A / 10G to appear and produce its original Memorandum of Association (MoA) Trust Deed for verification and to furnish a detailed reply on specific points on or before 18.07.2019. In resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit making activity. However, this finding of the Respondent was based on material in relation to the Appellant Company prior to its conversion into a Charitable Company as provided under Section 8 of the Companies Act, 2013. 6. The Respondent ought to have appreciated the fact that the application made by the Appellant for grant of registration was on the basis of its conversion into a Charitable Company under the provisions of Section 8 of the Companies Act, with effect from 03-08-2018. The past history of the Company when it was not undertaking charitable activities cannot be looked into. Therefore any material looked into by the Respondent in relation to the affairs of the Appellant prior to 03-08-2018 is irrelevant. 7. Therefore once the impugned rejection order of the Respondent is based on material/evidence in relation to affairs of the Appellant prior to 03-08 2018, such material is irrelevant and consequently the order is vitiated. In this regard reliance is placed on the judgement of the Constitution Bench of the Hon'ble Supreme Court in the Case of Dhirajlal Girdarilal Vs. Commissioner of Income Tax, Bombay (AIR 1955 SC 271) wherein it was held as follows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey pertain to the interpretation of expression 'solely' are hereby disapproved. The judgments are accordingly overruled to that extent. f. While considering applications for approval under Section 10(23C), the Commissioner or the concerned authority as the case may be under the second proviso is not bound to examine only the objects of the institution. To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes. The observations made in American Hotel (supra) suggest that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment. Whilst that reasoning undoubtedly applies to newly set up charities, trusts etc. the proviso under Section 10(23C) is not confined to newly set up trusts - it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner or the concerned authority 'may call for such documents' including audited annual accounts or information from the fund, or trust or institution etc., as is deemed necessary for recording satisfaction about the genuineness of the activities. The judgment in American Hotel (supra) dealt extensively with the effect of the provisos to Section 10(23C). While doing so, the court made certain remarks with respect to the effect of these provisos characterizing a few of them as those dealing with the stage of considering applications for approval or registration and other as those dealing with application of income or receipts of the trust. In respect of the latter, this court was of the opinion that the question of application of income or profits could arise only at the stage of assessment. The court was also of the opinion that the audited books of account would be of little or no relevance at the stage of registration or approval. 63. Having regard to the plain terms of the second proviso to Section 10(23C), which refers to the procedure for approval of applications including those made by trusts and institutions imparting education, one can discern no such restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the name of assessee and its directors and it is evident from the declarations filed by the assessee dt.25.02.2019 in Form 11(5) and 13(1)ld. DR of the Income Tax Act. With respect to the mismatch of name of assessee company and its directors, ld. DR has drawn attention to paras 3 to 3.1 of the order of ld.LD. DR(E). 3. The assessee till 02.08.2018 was a Private Company. On 03.08.2018, the assessee has converted the said company into Section 8 Company and changed the na e to Fernandez Ho pital'. However, the while filing Form 10A/10G online, the assessee has given the na e as Fernandez Hospital Foun ation . The Certificate issued by the Registrar of Companies is given to the ssessee foundation as Fernandez Hospital . Further, the PAN data shows that the PAN is obtained in the name Fernandez Foun ation . Thus, there is mismatch in the name of the assessee. Thus, name of the assessee is different in the ROC certificate, PAN and Form 10A/10G. 3.1 Further. in the applications in Form 10A and 1CG, the name of the Directors are given as follows: 1) Ms. Evita Francesca Fernandez, Director 2) Ms. Leila Inez Campos, Director 3) Mr. Pramod Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in its submissions mentioned that. on conversion of the assessee private company into a company under Section 8 of the Companies Act, 2013. the activity of the assessee remained the same. This is clear from the provisional statement of Income Expenditure account of FY 2018-19. in which the revenue from healthcare services and educational activities stood at Rs. 1,72,62,75.961/-, against Rs. 1,41.90,06 829/- of FY 2017-18. Thus, there is increase in the receipts. 4.4 The assessee has not reduced the charges I fees or giving the treatment at subsidized rates on conversion from private company into a Section 8 Company. The previous charges are continuing even after conversion into a Section 8 Company. There is no evidence shown by the assessee that they are charging less fee / no fee at all. The assessee has nowhere in the MoA mentioned that it is going to extend the medical facilities to the poor. The words Not for Profit does not appear in the MoA. Further. the clause at 5(11) that directors won't take any portion of the profits of the assessee is only to safeguard, but the core charitable object is not demonstrated The relevant clause is reproduced below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FT 650 830 7 Hemogram 250 510 Further, the Room Charges (per day) are as follows : General Ward Rs.2,800/- Cubile Rs.3,000/- Single Room Non AC Rs.6,000/- Single Room AC Rs.6,600/- Deluxe Rs.11,500/- Deluxe Large Rs.12,000/- The procedure charges are as follows : Procedure Type Length of stay (No. of days) General Ward Cubicles Single Room A/c Deluxe Normal Delivery 2 37000 64000 81000 106000 C. Section 3 64000 91000 109000 134000 EPRC 1 19000 23000 27000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. It is humbly submitted that the issue of deeded approval is not within the scope of appeal before Hon'ble ITAT. If the assessee is of the opinion that there is deemed approval, the appeals would not survive and if the assessee is aggrieved, the remedy lies elsewhere and not in the present appeals. 2. It is humbly submitted that on facts also the assessee is not correct and relying on incorrect facts. The orders u/s 12A and 80G were passed by the CIT(E) well within time i.e on 31/08/2019 and they were uploaded on the system on the same date. Thereafter, once again, the orders were dispatched on 10/12/2019 because admittedly, the assessee enquired about the status of the applications on 29/11/2019. As quoting of DIN number was mandatory as per Instruction of CBDT from 01/10/209, a DIN number was allotted at the second time of dispatch. These facts are clearly evident from the letters of the CIT(E) dated 11/08/2020 and 03/09/2020 which were in response to the enquiry made by this office as per the directions of the Hon'ble ITAT during earlier hearings. Proof of loading the orders of rejection on ITBA systems of the Department on 30/08/2019 in the form of screen shots o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now. If it is not so, merely because there is no positive action from the Department, an assessee who is otherwise ineligible would claim exemption which would be against the spirit of the Act. 6.Reliance is also placed on the following decisions in this regard: (i) Decision of Hon'ble Gujarat High Court in the case of Addor Foundation [2020] 117 taxamann.com 359 (In this case, the context in which the decision in the case of Society for the Promotion of Education, Adventure Sport Conservation of Environment was rendered by Hon'ble Supreme Court is discussed) (paragraphs 8 to 22 of the decision may kindly be referred) ; (ii) Decision of Hon'ble Allahabad High Court in the case of Muzaffar Nagar Development Authority [2015] 231 Taxman 490 (overruled the decision in the case of Society for the Promotion of Education, Adventure Sport Conservation of Environment [2008] 171 Taxman 113 (All); (paragarphs 11 to 16 of the decision may kindly be referred) (iii) Decision of Hon ble Madras High Court in the case of Kariamangalam Onriya Pengal Semipu Amaipu Ltd (2013) 214 Taxman 665. 7. On merits also, the assessee has no case because in his order, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the legal representatives along with case laws. In the present case, ld.CIT(E) had denied the exemption to the assessee on the ground that the assessee is providing the medical facilities on commercial basis and further, it was also brought on record that the assessee had paid huge amount to its promoters, directors etc in shape of remunerations. The above said facts were duly noted by the ld.CIT(E) in his order in his order vide paras 5 to 5.2. Per contra, ld.AR had submitted that the ld.CIT(E) was carried away by the earlier statement of account of the assessee before its conversion into a charitable company u/s Section 8 of the Companies Act. It was the contention of ld.AR that the relevant material which was to be considered by ld.CIT(E) , was the material filled by the assessee for the period after 03.08.2018. In other words, the submission of ld.AR was that the ld.CIT(E) was only entitled to look into the assessee's financial affairs for 03.08.2018 to 25.02.2018( date of application) and as the ld.CIT(E) had examined the financials of the assessee for A.Y. 2016-17, 2017-18 and 2018-19, therefore, the conclusion of the ld.CIT(E) cannot be said to be in accordance with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities as reflected in the accounts and the annual reports with special reference to the appropriation of income towards purposes of the applicant, if applicable . Hence, in our opinion the ld.CIT(E) was correct in relying upon the financials for last three years. Further the assessee had filled and relied upon such information during the proceedings before ld.CIT(E). 20. Form 56 is reproduced hereinbelow for ready reference. 21. In the light of the Form 56, which is applicable for claiming approval u/s 10(23C), it was required for the assessee to file the above said document at the time of filing the application. Similar requirement for filing documents is also applicable for filing form 10A for claiming registration under Section 12A/12AA of the Act. Undoubtedly, in the present case also, the assessee had filed return of income, audited balance-sheet etc as on 31.03.2016 along with provisional balance sheet as on 31.03.2019 (pages 95 to 148 of the paper book filed on 28.01.2020) and other documents before the ld.CIT(E). In our view, the submission of the ld.AR that the matter may be remitted back to the ld.CIT(E) for re-examining the case in the light of the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no response. In the counter affidavit also nothing has been set out in this behalf. 7. If the aforesaid had been the only matter to be tested, we may have been inclined to remit the matter on account of failure to disclose the relevant information which form the basis of that conclusion. However, that is not the only reason and it is not as if the requirement is for the twin reasons to exist in order to denying the benefit to the appellant. Each one of these reasons could have been sufficient. 8. In our view the most material aspect is the first one set out above and that too on the basis of what we perceived to be an admission of the appellant emerging from the pleadings in the writ petition filed before the High Court. In order to appreciate the same, we consider it appropriate to reproduce paragraph No.3(x) (xi) as under:- 3 (x) The scheme of the remuneration payable to the Doctors from OPD and IPD has been devised in a manner where all the Doctors are paid 50% of the receipt from the patients visiting for consultation in OPD (Out Patient Department), except consultants of minor branches where 70% of the receipts are paid to them. With regard to IPD patients r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities of the assessee are commercial in nature. In our view, the argument of the learned counsel for the assessee that only the data for the period 03.08.2018 to 25.02.2019 can only be considered is without any basis and is contrary to Form 56 / Form 10A and the judgment of the Hon ble Supreme Court, in the case of New Noble Education Society (supra). In our view, the above said proposition of the assessee cannot be accepted, in case of the assessee, as the assessee was not a beginner or new starter. Rather the present case is a case of conversion of a profit making company into a section 8 Company. In fact, the assessee was earning huge profit as a private company, which was later on converted into section 8 company w.e.f. 03.08.2018. As mentioned hereinabove, the assessee was having surplus of Rs.15,96,02,014/- in the financial year 2018-19 and Rs.34,82,52,005/- for financial year 2019-20, which only shows that the assessee has been charging cost plus unreasonable mark up on its services. Further, if we accept the argument of the learned counsel for the assessee that only the subsequent document should be taken into consideration, despite the fact that the assessee, being a profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n mind, what Section 2(15) emphasizes is that so long as a GPU s charity s object involves activities which also generates profits (incidental, or in other words, while actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to Section 2(15) for receipts from such profits, is adhered to. 172. Yet another manner of looking at the definition together with Sections 10(23) and 11 is that for achieving a general public utility object, if the charity involves itself in activities, that entail charging amounts only at cost or marginal mark up over cost, and also derive some profit, the prohibition against carrying on business or service relating to business is not attracted - if the quantum of such profits do not exceed 20% of its overall receipts. 173. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi s philosophy (in Surat Art Silk) through museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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