2015 (4) TMI 801 - AT - Income Tax

Trust Granted Exemption for Charitable Activities Under Sections 2(15) and 11

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeals. It found that the trust's activities were charitable under section 2(15) and ... Charitable hospital - Non-fulfilment of conditions prescribed in section 2(15) of the Income Tax Act, 1961 - Denial of deduction u/s 11 of the Income Tax Act, 1961 - Violation of provision of section 13(1)(c) rws 13(2)(b) and 13(2)(g) of the Income Tax Act, 1961 - No concessional treatment to poor peoples - Whole income not applied for trust object i.e. to provide medical relief - Held that:- Where the assessee was engaged in carrying on the activities for attaining the objects of providing medical relief to people at large and surplus was generated from hospital activities for doing charitable work in the hands of the assessee, does not establish the case of the Assessing Officer that it was not engaged in charitable activities. Further, the assessee trust was established for the purpose of granting medical relief and the activities having been carried out as per the terms of settlement and the said activities having been recognized as charitable under the provisions of the Act, even recognition given by the Bombay Public Trust Act and also by the registration granted under section 12AA of the Act, we find no merit in the order of Assessing Officer, in this regard. Similar ratio was laid down by Delhi Bench of the Tribunal in Manav Bharati Child Institute & Child Psychology [2007 (9) TMI 446 - ITAT DELHI], that merely because there was some surplus in the activities carried on by the society, the same would not dis-entitle to claim exemption under section 11 and 12 of the Act. Similar proposition has been laid down by the Delhi Bench of the Tribunal in ITO Vs. Dharamshila Cancer Foundation & Research Centre [2009 (3) TMI 233 - ITAT, DELHI], wherein it has been laid down that the profitability is not the sole criteria to judge the charitable nature of a society and where the Assessing Officer has failed to take into consideration that income was only applied for the purpose of charity, there was no justification in non-grant of benefit under section 11 of the Act. The Hon’ble Kerala High Court in Pulikkal Medical Foundation (P) Ltd. [1993 (8) TMI 16 - KERALA High Court] had also laid down similar proposition that merely because the assessee was running a hospital on commercial lines, it would not be dis-entitled to the exemption under section 10(22) of the Act. The Hon’ble Supreme Court in Surat Art Silk Cloth Manufacturers Association [1979 (11) TMI 1 - SUPREME Court] had also laid down the proposition that for the accomplishment of object or means to carry out the object, it is not necessary that it should not involve any activity for profit, in cases, where the predominant object of the trust is to carry out the activity for charitable purposes and not to earn profit. Further, it was held that the trust would not lose its character of a charitable purpose merely because some profit arises from the activities. Reference was made to the exclusionary clause applicable at that time and it was held that the same does not require that the activity must be carried on in such a manner that it does not result in any profit. We find no merit in the objection of the Assessing Officer, where Dr. Kandekar acting as managing trustee of the assessee trust had supervise the activities of the trust and had devoted time for not only the medical consultancy, but also for administrative work. The assessee had also made available the services of the company Cathlab (I) Pvt. Ltd. for the patients of trust hospital at concessional rates and in such circumstances, it could not be said that the provisions of section 13(1)(c) of the Act are attracted. In any case, under section 13(2)(c) of the Act, the provision is attracted where the amount paid is in excess what may be reasonably paid for such services. The provisions of section 13(2)(c) of the Act are not to be applied where any amount is paid by way of salary, allowance or other to any interested person out of reserves of the trust or institution, for services rendered by such person to trust or institution. The clauses are attracted in case the amount so paid is in excess of what may be paid for such services. Also we find no merit in the order of Assessing Officer in holding that the said medical shop being rented out to interested party attracts the provisions of section 13(1)(c) of the Act. In comparison, part of the building measuring 250 sq. ft. was allotted to M/s. Samarth Diagnostics Pvt. Ltd. on a monthly rent of ₹ 5,000/- and as per the Assessing Officer, both the directors were wholly unrelated either to the managing trustee or any other trustee. As per MoU, the services were provided to the patients of hospital at rates 10% less than market rate. In case, we compare the two agreements for letting out the premises of the assessee trust, the premises handed over to the interested party is fetching high rentals to the trust and it could not be said that the provisions of section 13(1)(c) of the Act, have been violated. Another aspect of the denial of deduction under section 11 of the Act to the assessee was that the assessee had failed to provide concessional treatment to indigent / poor patients. Admittedly, this was the first year of operation of the hospital and the plea of the assessee was that it could not provide free medical relief to large numbers of indigent / poor patients. However, in the absence of any limit being provided in the Income-tax Act, violation, if any, of the said limit does not entitle the Revenue authorities to disallow the claim of exemption under section 11 of the Act to the assessee trust, which otherwise had carried out the activities as per its objects and hence, is entitled to the deduction under section 11 of the Act. - Decided against the revenue. Issues Involved:1. Applicability of provisions of section 13(1)(c) read with sections 13(2)(b) and 13(2)(g) of the Income Tax Act, 1961.2. Determination of whether the trust's activities are charitable under section 2(15) of the Act.3. Violation of provisions of section 13(1)(c) of the Act due to benefits provided to interested persons.4. Entitlement to exemption under section 11 of the Act.Detailed Analysis:1. Applicability of Provisions of Section 13(1)(c) r.w.s. 13(2)(b) and 13(2)(g):The Revenue contended that the trust had directly applied its immovable property and income for the benefit of the Managing Trustee, violating section 13(1)(c). The Assessing Officer noted that the trust's hospital was run on commercial lines without charitable activities, and the Managing Trustee's income had increased significantly. The trust was also accused of diverting income by using its infrastructure for private gains, violating sections 13(1)(c), 13(2)(b), and 13(2)(g). The CIT(A), however, found that the trust's activities were in line with its charitable objectives and did not violate section 13(1)(c).2. Determination of Charitable Activities under Section 2(15):The trust was registered under section 12AA and claimed exemption under section 11. The Assessing Officer argued that the trust's hospital was run with a profit motive, not for charitable purposes. However, the CIT(A) held that the trust's activities fell within the definition of 'charitable purpose' under section 2(15), as it provided medical relief. The CIT(A) cited the Supreme Court's judgment in CIT (Addl) Vs. Surat Art Silk Cloth Manufacturers Association, which held that medical relief is inherently charitable, even if it involves some profit.3. Violation of Provisions of Section 13(1)(c):The Assessing Officer argued that the trust's property and income were used for the benefit of the Managing Trustee and his family, violating section 13(1)(c). The trust paid consultancy fees to the trustees, including significant amounts to the Managing Trustee. The CIT(A) found that the fees were reasonable and that the trust benefited from the Managing Trustee's services. The CIT(A) also noted that the rent paid by the trust for the hospital building was below market rates, benefiting the trust rather than the Managing Trustee.4. Entitlement to Exemption under Section 11:The Revenue argued that the trust was not entitled to exemption under section 11 due to its profit-making activities and insignificant concessional medical relief. The CIT(A) disagreed, stating that the trust's activities were charitable and that the trust met the requirements for exemption under section 11. The CIT(A) emphasized that medical relief does not require free services and that the trust provided services at lower rates than market rates. The CIT(A) also noted that the trust treated a significant number of indigent patients, fulfilling its charitable purpose.Conclusion:The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeals. The Tribunal found that the trust's activities were charitable under section 2(15), and there was no violation of section 13(1)(c). The trust was entitled to exemption under section 11, as it provided medical relief and met the necessary conditions. The Tribunal emphasized that the predominant objective of the trust was charitable, and any profit generated was incidental to its charitable activities.