2020 (12) TMI 1066 - AT - Income Tax

Tribunal confirms charitable status under Income Tax Act, emphasizes evidence and consistency in tax assessments.

The Tribunal upheld the CIT(A)'s decision, confirming the assessee as a charitable institution under sections 11 and 12 of the Income Tax Act. The ... Exemption u/s 11 - whether the assessee is to be treated as a “charitable institution”? - assessee is a registered society under the Societies Registration Act, 1860 and applied for grant of registration under section 12AA - The registration was granted to the assessee by the Commissioner of Income-Tax, Jalandhar - According to the AO, the sale of medicines has resulted in huge profit to the assessee, and therefore the assessee cannot be considered as a charitable society within meaning of section 2(15) - First circumstance highlighted by the AO is that the assessee is running a pharmacy in the hospital - HELD THAT:- We find that the AO has not specifically rebutted the stand raised by the assessee. The maintenance of pharmacy has been considered in the past as ancillary to the object of running a hospital. It is to be appreciated that how the attendant of the patient would procure medicine from outside during emergency hours, and more so in the night. Thus, it could be considered as an integral part of the hospital activity. It is akin to running hostel alongwith educational institution. It is pertinent to note that when any explanation or a defence of an assessee based on number of facts supported by evidence and circumstances required consideration whether explanation is sound or not must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole. Assessee has already maintaining separate books of accounts and section 11(4A) requiring the assessee to maintain separate books of accounts before some business is being carried out is concerned, the profit from medical store is incidental to the main object and not as separate business activity at the end of the assessee. The AO failed to appreciate this distinction which has been appreciated by the ld.CIT(A) while reversing the finding of the AO. AO ought to have appreciated concept of a running of hospital as well. It is also to be appreciated that in the last more than 12-13 years, this has never been doubted by the Income-tax Department, then what is the strong motive in this year to disbelieve the version of the assessee ? Therefore, we find that no merit in the first fold of reasoning given by the AO to reverse the finding of the CIT(A). Assessee is showing huge profit, and therefore it is to be construed that the hospital is being run on commercial line under the shadow of a charitable institution - AO has compared rate of such hospitals who were provided subsidies from the Government. SGL Hospital, whose rates were relied by the AO, received subsidies/donations/grants from Government, therefore, rates of such hospital cannot be compared with rates of the assessee, who has to take care of day-to-day operational expenses, and future expansion in the area of investigative tools viz. xray machines, CT-scan etc. These equipments require higher lay out of the capital, and therefore in order to remain in competition with the hospitals, and to provide best facility to the patients, and to provide medical help, the assessee has to upgrade its investigative tools. Rates considered by the AO are not relevant rates for determining higher range of profit in the hands of the assessee. We have made reference to submissions summarized by the ld.CIT(A) while taking note of the written submissions of the assessee. On an analysis of the details submitted by the assessee as well as considered by the AO, we are of the view that the AO has made reference to irrelevant claims for working out higher rate of profit in the hands of the assessee for running a hospital. After going through order of the ld.CIT(A), we do not see reason to interfere in the order on this fold of reasoning also. Paid higher consultancy charges to Dr.R.S. Chahal and this payment was being made simply for the reason that Dr. Chahal is trustee of the institution - AO tried to compare his salary with an anesthesiologist. The AO nowhere made reference to the salaries of any other nephrologist having qualification of Dr.R.S.Chahal in the open market in other hospitals. He could appreciate if he could able to lay his hand on the material that a particular doctor having identical educational qualification and experience in the medical field is paid at lesser amount in similar type of hospital. There may be certain Government institutions where instead of making salary payment at this level, other facilities like housing and transportation etc. may be extended to the medical professions. Thus, the ld.CIT(A) has rightly appreciated the facts and circumstances and also considered rule of consistency. Loss from Kinder Hospital should have not been claimed by the assessee - AO has not pointed out any defect in the books of accounts and has not brought any material on record on account of disallowance of expenses. On one hand, the AO accepted receipt of ₹ 5,09,900/-, but on other hand, disallowed entire expenditure incurred by the trust at ₹ 1,72,42,642/-. The assessee also submitted that similar loss amounting to ₹ 68,79,289/- for the Asstt.Year 2013-14 was accepted by the AO vide order dated 15.3.2016, and further loss of ₹ 98,42,611/- for the Asstt.Year 2015-16 was also accepted by the AO vide order dated 23.11.2017. The ld.CIT(A) after considering submissions of the assessee held that the AO was not justified in denying the claim of the assessee in absence of any material finding and he allowed the claim of the assessee. - Decided in favour of assessee. Issues Involved:1. Whether the assessee qualifies as a 'charitable institution' under sections 11 and 12 of the Income Tax Act, 1961.2. Deletion of addition by AO on applicability of proviso to section 2(15) of the IT Act.3. Deletion of addition by AO on account of professional fees paid to Dr. R.S. Chahal.4. Deletion of addition by AO on disallowance of loss in Kinder Women Hospital.Issue-wise Analysis:1. Qualification as a 'Charitable Institution':The primary issue revolves around whether the assessee, a registered society running a hospital, medical shop, and diagnostic center, qualifies as a 'charitable institution' under sections 11 and 12 of the Income Tax Act, 1961. The assessee is registered under section 12AA since 1991, and its activities are considered per se charitable under section 2(15) as they provide medical relief. The Revenue's appeal is based on the AO's findings that the assessee's activities are commercial due to the profits from the pharmacy and hospital operations. The Tribunal, however, upheld the CIT(A)'s decision, emphasizing that the assessee's activities are indeed charitable, and the profits are incidental to the main charitable purpose.2. Applicability of Proviso to Section 2(15):The AO contended that the pharmacy's profits disqualify the assessee from being considered charitable. The Tribunal noted that the pharmacy is integral to the hospital's operations, providing 24-hour service to meet emergency needs. The AO's comparison with other hospitals receiving government subsidies was found irrelevant. The Tribunal agreed with the CIT(A) that the pharmacy's profits are incidental and necessary for the hospital's functioning, thus not violating section 2(15).3. Professional Fees Paid to Dr. R.S. Chahal:The AO disallowed professional fees paid to Dr. R.S. Chahal, alleging they were excessive and influenced by his relationship with a trustee. The CIT(A) and Tribunal found that Dr. Chahal is not a trustee but a relative, and his fees are comparable to other doctors with similar qualifications and experience. The Tribunal emphasized that the AO failed to provide evidence of unreasonableness in the payments and upheld the CIT(A)'s decision to allow the professional fees as legitimate expenses.4. Disallowance of Loss in Kinder Women Hospital:The AO disallowed the loss claimed by the assessee for the Kinder Women Hospital, arguing that the unit had no income or activity. The CIT(A) and Tribunal found that the unit's expenses were duly accounted for and audited, and the AO did not provide any material evidence to justify the disallowance. The Tribunal noted that similar losses were accepted in previous and subsequent years, reinforcing the principle of consistency.Conclusion:The Tribunal upheld the CIT(A)'s order, confirming that the assessee qualifies as a charitable institution under sections 11 and 12 of the Income Tax Act. The Tribunal dismissed the Revenue's appeal, finding no merit in the AO's contentions regarding the pharmacy's profits, professional fees to Dr. Chahal, and the disallowance of the Kinder Women Hospital's loss. The decision emphasizes the importance of consistency in tax assessments and the need for substantial evidence to support disallowances.