Tribunal limits exemption denial to specific donation amount, following High Court precedent.

The Tribunal upheld the decision that Deendayal Memorial Hospital (DMH) is a prohibited person under section 13(3)(b) and denied exemption under section 11 for the donation received. However, the denial of exemption was restricted to the specific amount of Rs.65,00,000/- received from DMH, following the precedent set by the High Court of Bombay. The appeal was partly allowed, limiting the denial of exemption to the amount received from the prohibited person.

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Issues Involved:
1. Whether Deendayal Memorial Hospital (DMH) is a contributory within the meaning of section 13(3)(b) of the Act.
2. Whether the denial of exemption under section 11 of the Act is justified.
3. Whether the denial of exemption should be restricted only to the amount received from the prohibited person.
4. Whether the donation of Rs.65,00,000/- received towards the Trust corpus should be treated as a capital receipt.

Issue-wise Detailed Analysis:

1. Contributory Status of DMH:
The primary issue raised by the assessee was the challenge against the CIT(A)'s decision that Deendayal Memorial Hospital (DMH) is a contributory within the meaning of section 13(3)(b) of the Act. The assessee, a charitable trust registered under section 12A, allowed DMH to use its building for running a hospital. The AO observed that DMH made a donation of Rs.65,00,000/- towards the corpus of the assessee and considered DMH as a prohibited person under section 13(3)(b) of the Act, thereby denying the exemption under section 11. The CIT(A) confirmed the AO's view, stating that the donation was a consideration for the benefit received by DMH in using the assessee's building.

2. Denial of Exemption under Section 11:
The assessee argued that the donation from DMH was a voluntary contribution for a specific purpose and should not be considered as a contribution with an expectation of benefit in return. The assessee contended that both entities entered into an MOU in 1995 to achieve their common objective of providing medical relief. The CIT(A) and AO held that the donation was a consideration for the benefit received, thus violating section 13(1)(c) read with section 13(3)(b) of the Act, and denied the exemption under section 11.

3. Restriction of Denial of Exemption:
The assessee argued that the denial of exemption under section 11 should be restricted only to the amount received from the prohibited person. The Tribunal referred to the case of Audyogik Shikshan Mandal, where the Hon'ble High Court of Bombay held that the denial of exemption should be limited to the diverted income. Consequently, the Tribunal concluded that the denial of exemption under section 11 should be restricted to Rs.65,00,000/-, the amount received from DMH.

4. Treatment of Donation as Capital Receipt:
The assessee raised a ground challenging the CIT(A)'s action in treating the donation of Rs.65,00,000/- as a contribution towards the Trust corpus, arguing it should be considered a capital receipt. However, since the Tribunal had already addressed the issue by restricting the denial of exemption to the amount received from the prohibited person, this ground became academic and required no further adjudication.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that DMH is a prohibited person under section 13(3)(b) and denied the exemption under section 11 for the donation received. However, it restricted the denial of exemption to the amount of Rs.65,00,000/- received from DMH, following the precedent set by the Hon'ble High Court of Bombay in the case of Audyogik Shikshan Mandal. The appeal was partly allowed, with the denial of exemption limited to the specific amount received from the prohibited person.

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