2016 (4) TMI 1307 - AT - Income Tax

Tribunal Upholds Exemption Claim for Charitable Trust, Dismissing Revenue Appeals

ITO, Ward-11 (2), Pune Versus Lata Mangeshkar Medical Foundation

ITO, Ward-11 (2), Pune Versus Lata Mangeshkar Medical Foundation - TMI Issues Involved:1. Denial of exemption under section 11 of the Income Tax Act.2. Violation of section 13(1)(c) of the Income Tax Act.3. Allegations of commercial activities and profit-making.4. Understatement of receipts to the Charity Commissioner.5. Shortfall in the Indigent Patient Fund (IPF).6. Running a canteen for profit.7. Issuance of donation receipts in lieu of medical services.8. Payments to relatives of trustees.9. Organization of musical nights.10. Receipt of rent from Bharti Airtel for erecting a tower.Detailed Analysis:1. Denial of Exemption under Section 11:The AO denied the exemption under section 11, citing that the trust was running the hospital with an intention of making a profit, not carrying out charitable activities, and generating huge surplus. However, the CIT(A) held that the generation of surplus is not a reason to deny exemption as long as the surplus is utilized for the trust's objectives. The CIT(A) relied on various judicial decisions, including the Hon'ble Supreme Court's decision in Adinath Educational Institution and the Hon'ble Bombay High Court in Vanita Vishram Trust, which emphasized that surplus generation does not negate the charitable nature of the trust.2. Violation of Section 13(1)(c):The AO alleged violations due to payments made to Mrs. Meena Kelkar and Mrs. Bharati Mangeshkar, who are related to trustees. The CIT(A) found that both individuals rendered services to the trust, and the payments were not excessive or unreasonable. The CIT(A) called for a remand report and concluded that the payments did not violate section 13(1)(c).3. Allegations of Commercial Activities and Profit-Making:The AO argued that the trust's activities were commercial, pointing to high profit margins and the running of a canteen. The CIT(A) noted that the profit from the canteen was incidental to the main objects of the trust and that the rates charged were low. The CIT(A) also emphasized that the trust maintained separate books of account for the canteen, fulfilling the conditions of section 11(4A).4. Understatement of Receipts to the Charity Commissioner:The AO observed discrepancies between the receipts reported to the Charity Commissioner and the actual hospital fees. The CIT(A) found that the trust had clarified these issues and had not hidden any figures from the Charity Commissioner.5. Shortfall in the Indigent Patient Fund (IPF):The AO noted a shortfall in the IPF as per the guidelines issued by the Charity Commissioner. The CIT(A) acknowledged some confusion regarding the amount to be provided for the fund and noted that the trust had made up for the shortfall in subsequent years.6. Running a Canteen for Profit:The AO claimed that the canteen was run with a profit motive. The CIT(A) found that the profit was incidental to the main objects of the trust and that the rates charged were reasonable. The CIT(A) also noted that the trust maintained separate books of account for the canteen.7. Issuance of Donation Receipts in Lieu of Medical Services:The AO alleged that the trust issued donation receipts for medical services. The CIT(A) found no merit in this allegation, noting that the AO had recorded statements without giving the trust an opportunity to rebut them. The CIT(A) concluded that the donations were voluntary and not a means to evade tax.8. Payments to Relatives of Trustees:The AO objected to payments made to Mrs. Meena Kelkar and Mrs. Bharati Mangeshkar. The CIT(A) found that both individuals were rendering services to the trust and that the payments were not excessive or unreasonable. The CIT(A) relied on affidavits and confirmations from various individuals to support this conclusion.9. Organization of Musical Nights:The AO argued that organizing musical nights was not warranted for a charitable trust. The CIT(A) found that these events were organized to reduce stress for patients and their families and that the artists performed free of cost. The CIT(A) concluded that the AO's objection was not justified.10. Receipt of Rent from Bharti Airtel for Erecting a Tower:The AO claimed that receiving rent from Bharti Airtel for erecting a tower was commercial exploitation. The CIT(A) found that the rent was incidental to the main objects of the trust and that the space provided for the tower helped augment telecommunication signals for patients and their families.Conclusion:The CIT(A) allowed the claim of exemption under section 11, rejecting the various objections raised by the AO. The Tribunal upheld the CIT(A)'s order, dismissing the appeals filed by the revenue for both assessment years 2008-09 and 2009-10. The Tribunal found no infirmity in the CIT(A)'s order, which was based on a thorough analysis of the facts and applicable legal principles.