2019 (9) TMI 909 - AT - Income Tax

Trust's Charitable Activities Upheld, Exemptions Allowed, Set-off Permitted, Depreciation Valid

The Tribunal upheld the CIT(A)'s findings, dismissing the Revenue's appeal. It was determined that the trust's activities aligned with charitable ... Exemption u/s 11 - charitable activity u/s 2(15) - providing healthcare facilities and imparting medical education and training - with a view to corporatize the hospital the management of the charitable activity was handed over to SCPL - HELD THAT:- CIT(A) has correctly held that the activity of the trust to carried on in accordance with its objects and in the best interest of charity, therefore, the exemption u/s. 11(1)(a) has rightly allowed by the CIT(A). Similarly, the CIT(A) has clearly held that the Sec. 13((1)(c)(ii) can apply only if any part of the charitable income of the trust has been used or applied for the benefits of the said persons during the previous year. But, since no portion of the income of the assessee has been applied for said person, therefore, the case of the assessee falls outside the scope of this section. The trust is in receipt of income by way of management charges from SCPL and also all of its liabilities have been taken over by the same therefore there is a fact that there is no undue benefits of the use of trust property have been taken by any other persons. Similarly, there is no diversion of income of the trust as per Explanation of Sec. 13(2)(d) and 13(2)(g) of the Act as the trust has been benefitted greatly and its deficit of trust duly reduced to a great extent. We also observed that some erroneous presentation of Form No. 10B report does not disentitle the trust for claiming exemption u/s. 11 of the Act. Similarly, the amount of advance of ₹ 54,35,71,980/- in favour of SCPL appearing in the balance sheet was not advance but the reimbursement of the expenses. In the light of the aforesaid facts and circumstances, we are of the considered opinion that the CIT(A) has analyzed the facts correctly and given a judicious finding which does not call for any interference from outside. Allowance of set off brought forward losses of the trust against the current year surplus - HELD THAT:- We find that the Ld. CIT(A) has given detailed reason for allowing a set off losses and carry forward of losses on the basis of rulings of Hon’ble Jurisdictional High Court of Gujarat, Bombay and Rajasthan. In view of these facts, we are of the considering opinion that the issue is covered in favour assesse. Ld. Counsel further submitted that the issue is settled by the Hon’ble Supreme Court in the case CIT(E) New Delhi vs. Subros Educational Society in Miscellaneous Application [2018 (4) TMI 1622 - SC ORDER] . Accordingly, the findings of the CIT(A) does not call any interference from our side and accordingly the same is upheld. Therefore, this ground of appeal is dismissed. Disallowance of depreciation - HELD THAT:- We find that the issue is covered against the Revenue. Issues Involved:1. Exemption under Section 11(1)(a) of the Income Tax Act.2. Violation of conditions under Section 13 of the Income Tax Act.3. Validity of incomplete Form 10B as a ground for disallowance.4. Set-off of brought forward losses against current year’s surplus.5. Disallowance of depreciation on assets.Issue-wise Detailed Analysis:1. Exemption under Section 11(1)(a) of the Income Tax Act:The Revenue contended that the assessee trust violated the principles of charity by entering into an agreement with SCPL, transferring assets and liabilities, and receiving management fees without adequate rationale. The AO argued that the trust's actions were against the principles of charity and disallowed the exemption under Section 11(1)(a). However, the CIT(A) found that the agreement was made to manage the trust's financial crisis and ensure professional handling of the hospital. The CIT(A) concluded that the trust's activities were in line with its charitable objectives, and the exemption under Section 11(1)(a) was rightly allowed.2. Violation of conditions under Section 13 of the Income Tax Act:The AO claimed that the trust violated Section 13 by transferring assets to SCPL, which involved persons specified under Section 13(3). The CIT(A) disagreed, stating that the trust received fair compensation and did not provide undue benefits to specified persons. The CIT(A) emphasized that the trust's income was not applied for the benefit of specified persons, and the agreement with SCPL was on commercial terms, ensuring the trust's financial stability.3. Validity of incomplete Form 10B as a ground for disallowance:The AO disallowed the exemption under Section 11, citing incomplete disclosures in Form 10B. The CIT(A) ruled that the incomplete Form 10B was not a valid ground for disallowance, as the trust had no reason to believe that any transfer of funds was made to specified persons under Section 13. The CIT(A) concluded that the AO's ground for disallowance based on Form 10B was not tenable.4. Set-off of brought forward losses against current year’s surplus:The AO disallowed the set-off of brought forward losses against the current year's surplus, arguing that the trust's income was computed under Section 12A(a) and Section 11. The CIT(A) allowed the set-off, citing judicial rulings from the Gujarat, Bombay, and Rajasthan High Courts, which permitted the set-off of previous years' deficits against the current year's surplus. The CIT(A) held that the AO's interpretation of Section 11 was incorrect and allowed the set-off of brought forward losses.5. Disallowance of depreciation on assets:The AO disallowed the claim of depreciation, arguing that allowing depreciation on assets, the cost of which was already allowed as a deduction, would result in double deduction. The CIT(A) allowed the claim, relying on judicial precedents from various High Courts, which held that depreciation should be allowed while computing the income of a trust. The CIT(A) concluded that the AO's disallowance of depreciation was not justified.Conclusion:The Tribunal upheld the CIT(A)'s findings on all issues, dismissing the Revenue's appeal. The Tribunal agreed that the trust's actions were in line with its charitable objectives, the set-off of brought forward losses was permissible, and the claim of depreciation was justified. The Tribunal found no infirmity in the CIT(A)'s order and concluded that the trust was entitled to the exemptions and deductions claimed.