2015 (1) TMI 781 - AT - Income Tax

Tribunal rules on Revenue's appeal, upholding exemptions for dividend income and mutual fund units but denying exemption for interest income.

Income Tax Officer-2(2), Lucknow Versus Radha Mohan Mehrotra Medical Relief Trust

The Tribunal partly allowed the Revenue's appeal for various assessment years, maintaining exemptions under Sections 10(34) and 10(38) for dividend income ... Exemption U/s 10(34) and 10(38) on dividend income and on redemption of Mutual fund units - Exemption U/s 10(23C)(iiiae) on interest income - AO challenged CIT(A) order allowing such exemption as without appreciating the fact of the case that the assessee has never claimed exemption under these sections, in the return of income - assessee trust is registered u/s 12AA - Held that:- It is noted by CIT(A) that the Assessing Officer while completing the assessment has treated the income of ₹ 7.50 lac of the hospital as exempt u/s 10(23C)(iiiae) of the Act and the income of the liaison office was determined at ₹ 71,93,691/-. We do not find any merit in this stand taken by CIT(A) because this expenditure of donation cannot be considered as an expense incurred for earning interest income or dividend income or capital gain. Therefore, on this aspect, we reverse the order of CIT(A) and restore that of the Assessing Officer. In addition to this, the CIT(A) has directed the Assessing Officer for allowing exemption to the assessee u/s 10(34) in respect of dividend income of ₹ 61.46 lacs and exemption u/s 10 (38) of ₹ 1,17,262/-. On this aspect, we do not find any infirmity in the order of CIT(A) and therefore, decline to interfere in the order of CIT(A) on this issue. Thereafter in Para 4(11), it is held by CIT(A) that in his view, the hospital and liaison office are to be considered as a whole and not separately and therefore, the income generated at the liaison office having been utilized for the objects of the assessee trust, which is philanthropic u/s 10(23C)(iiiae) of the Act, is eligible for exemption under that section. Thereafter, he directed the Assessing Officer to allow exemption u/s 10(23C)(iiiae) on the entire income of ₹ 71,93,691/-, which also includes income of ₹ 62.64 lacs being separately exempt u/s 10(34) and 10 (38). On this aspect, we do not find any merit in the stand taken by CIT(A) because as per the provisions of clause (iiiae) of section 10(23C), only those income which are received by a hospital on account of treatment is exempt u/s 10(23C)(iiiae) and not any income received by the said entity. Hence, on this aspect, we reverse the order of CIT(A) and restore that of the Assessing Officer. - Decided partly in favour of revenue. Exemption U/s 10(23C)(iiiae) - Entire receipts of the appellant being below ₹ 1 Crore is fully covered within the provisions of Section 10(23C)(iiiae) as held by CIT(A) - Held that:- it is noted by the Assessing Officer that the total receipt from hospital was ₹ 3,41,437/- and bank interest on FDR was ₹ 22,06,224/-. Thereafter, it is noted that the net surplus from hospital was declared at ₹ 9,48,174/-, which was held to be exempt u/s 10(23C)(iiiae) of the Act. In addition to that, the Assessing Officer worked out the income of liaison office at Mumbai at ₹ 17,88,398/- consisting of interest income and dividend income. Against this, the Assessing Officer has allowed deduction to the extent of ₹ 11.07 Lacs being 15% of the gross receipts of ₹ 73,10,836/- and assessed the net income at ₹ 7,38,018/-. It goes to show that the income assessed by the Assessing Officer is consisting of interest income only. We have already decided while deciding the appeal of the Revenue for assessment year 2005- 06 that exemption is not allowable to the assessee u/s 10(23C)(iiiae) of the Act in respect of interest income. Hence, we decline to interfere in the order of CIT(A) on this issue. - Decided against assessee. Donation to trust outside India - CIT(A) deleted the addition considering additional evidence - Held that:- Issue was decided in favour of the assessee on the basis of this fact that the donnee M/s Lions Clubs International Foundation is having office at Mumbai also. This amount has been given towards the project of campaign sight first- II. It is also noted by CIT(A) that M/s Lions Clubs International Foundation is assessed in India under PAN AAAAL1691F. He has given a clear finding that the income has been properly applied for charitable purposes u/s 11 of the Act and no addition is warranted. Learned D.R. of the Revenue could not controvert this finding of CIT(A). Regarding the technical objection that there is violation of Rule 46A, we are of the considered opinion that for a small amount and after such a clear finding, no purpose will be served by restoring the matter back to the Assessing Officer and therefore, we decline to interfere in the order of CIT(A) on this issue. Decided in favour of assessee Issues Involved:1. Exemption under Section 10(34) and 10(38) on dividend income and redemption of mutual fund units.2. Exemption under Section 10(23C)(iiiae) on interest income.3. Violation of Rule 46A of the Income Tax Rules, 1962.Detailed Analysis:Issue 1: Exemption under Section 10(34) and 10(38) on Dividend Income and Redemption of Mutual Fund UnitsThe Revenue contended that the CIT(A) erred in allowing exemptions under Sections 10(34) and 10(38) since the assessee did not claim these exemptions in the return of income. The Tribunal found no merit in the Revenue's argument and upheld the CIT(A)'s decision to allow these exemptions. The Tribunal noted that the CIT(A) correctly directed the Assessing Officer to allow exemptions under Sections 10(34) and 10(38) for dividend income and redemption of mutual fund units, respectively.Issue 2: Exemption under Section 10(23C)(iiiae) on Interest IncomeThe Revenue argued that the CIT(A) erred in allowing exemption under Section 10(23C)(iiiae) on interest income, which was earned from FDRs and not from the hospital's income. The Tribunal agreed with the Revenue, stating that the income earned by the Mumbai office on account of bank interest and dividend is not eligible for exemption under Section 10(23C)(iiiae). The Tribunal reversed the CIT(A)'s order on this aspect and restored the Assessing Officer's decision, emphasizing that only income received by a hospital for treatment purposes is exempt under this section.Issue 3: Violation of Rule 46A of the Income Tax Rules, 1962The Revenue raised concerns about the CIT(A) considering additional evidence in violation of Rule 46A. The Tribunal noted that the CIT(A) had decided the issue based on the fact that the donation was made to an entity with an office in Mumbai and assessed in India, thus applying the income for charitable purposes within India. The Tribunal found no merit in the Revenue's technical objection regarding Rule 46A and upheld the CIT(A)'s decision, stating that no purpose would be served by restoring the matter to the Assessing Officer.Conclusion:- The appeal of the Revenue for the assessment year 2005-06 was partly allowed, with the Tribunal reversing the CIT(A)'s decision on exemption under Section 10(23C)(iiiae) for interest income but upholding the exemption under Sections 10(34) and 10(38).- The appeal of the assessee for the assessment year 2006-07 was dismissed, with the Tribunal agreeing with the CIT(A) that interest income is not eligible for exemption under Section 10(23C)(iiiae).- For the assessment year 2008-09, the Tribunal partly allowed the Revenue's appeal, maintaining the exemption under Section 10(34) but reversing the CIT(A)'s decision on exemption under Section 10(23C)(iiiae) for interest income.- The appeal of the Revenue for the assessment year 2009-10 was also partly allowed, with similar decisions on exemptions as in the previous years.In summary, the Tribunal consistently upheld the exemption under Sections 10(34) and 10(38) for dividend income and mutual fund units but denied the exemption under Section 10(23C)(iiiae) for interest income across all relevant assessment years. The Tribunal also addressed and dismissed the Revenue's technical objections regarding Rule 46A.