TaxTMI 
TaxTMI 
2015 (4) TMI 801
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....law, the Learned CIT(A)-I, Pune has grossly erred in not considering the fact that The trust had directly applied its immovable property and the income both for the benefit of the Managing Trustee, in clear violation of the provisions of section 13(1)(c). 2. On the facts and in the circumstances of the case and in law, The Learned CIT(A)-I, Pune has grossly erred in not appreciating the fact that the Managing Trustee had diverted the income by using the Trust's infrastructure for his private gains in clear violation of the provisions of section 13(1)(c) read with sections 13(2)(b) and 13(2)(g) of the Income-tax Act. 1961. 3. On the facts and in the circumstances of the case and in law, the Learned CIT(A)-I, Pune has grossly erred in not appreciating the fact That the trust has only given concession in the nature of discounts or making remissions in the patients' bills is common practice in the medical field, and mere conducting free tests during camps organized by other trusts / institutions, both being basically aimed at promoting the hospital / medical institution do not constitute medical relief. 4. For these and such other grounds as may be urged at the time of....
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....st. The assessee incurred the administrative and other incidental expenditure from out of balance amount remaining after payment of consultancy charges. The income from the hospital, as per the assessee was wholly applied to the trust object i.e. to provide medical relief. The assessee further contended that in accordance with the provisions of Bombay Public Trust Act, 1950, 10% of its operational funds for treating weaker section patients were reserved in the trust hospital. Further, in accordance with the provisions of the same Act, the trust was transferring 2% of the total patients billing in each month to an account called "indigent patients fund" to provide treatment to the maximum number of indigent and weaker section patients. 7. The next plea of the assessee before the Assessing Officer was that it was entitled to the exemption as it was providing medical relief which was one of the charitable objects defined under section 2(15) of the Act and as there was no intention to earn profit, the trust / institution would be a charitable institution. The assessee further stated that the trust was registered under section 12AA of the Act and during the year, it had spent more th....
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.... the trust on a monthly rent of Rs. 6 lakhs; constructed area of hospital building was about 45,000 sq. ft. and lease deed was executed on 21.02.2007; b) The trust had leased out certain portions of hospital building i.e. medical shop admeasuring 200 sq. ft. along with furniture & fixture to Shri Vijay Manikrao Nikam, who was the co-brother of managing trustee; c) Part of building admeasuring 475 sq. ft. was leased to Ahmednagar Cathlab (I) Pvt. Ltd. on a monthly rental of Rs. 9,500/- and the directors of the said company were Dr. B.E. Kandekar and his wife Dr. (Mrs.) Sangeeta B. Kandekar. As per MoU executed on 19.04.2007, the said company was to provide their services at concessional rates to all patients of the trust hospital; d) Dr. Kandekar was initially carrying out his private practice in rented premises and had shifted the place of practice to the trust hospital in July, 2007. The return of income filed by Dr. Kandekar was verified and had revealed that he had claimed deduction for the salaries paid to his associate doctors in the earlier years and also in the return of income relating to assessment year 2008-09. The Assessing Officer was of the view that Dr. Kande....
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....view that Dr. Kandekar was using wide powers at his command and had not only conducted his own practice in the trust hospital but the business of the Cathlab (I) Pvt. Ltd. was shifted to the hospital. As per the Assessing Officer, the dominant intention of Dr. Kandekar to constitute the trust was for a profit gain and further comparison of income disclosed in the return of income for the preceding two years with the current year's income reflected the profit gain. The Assessing Officer was of the view that the assessee trust had directly applied its property and income both, for the benefit of D. Kandekar, in clear violation of provisions of section 13(1)(c) of the Act, consequently, the exclusion provisions contained in sections 11 and 12 of the Act had to be applied. The reply of the assessee was that, in fact the trust had benefited by services of Dr. Kandekar as he had treated more patients in the hospital. Further, the comparative position of number of patients and the amount of IPD / OPD receipts in the preceding two years with similar type of receipts in the financial year 2007-08 were filed before the Assessing Officer. It was further pointed out by the learned Authorized R....
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....y small number of free / concessional basis, was not accepted by the Assessing Officer. The Assessing Officer was of the view that in the context of term medical relief occurring in section 2(15) of the Act, where the pre-dominant intention was to provide medical relief and not to earn profits, the trust would be a charitable institution. However, in the case of trust if it was found that the main object was to earn profit, but not to grant medical relief on charitable basis, then such trust could not be called a charitable trust. The Assessing Officer further observed that the financial aspect of the charitable activity of a trust could be judged and measured by the accounts. From the state of affairs of the assessee trust, the Assessing Officer noted that the hospital had not only recouped its expenses by recovering high charges from the patients undergoing treatment in the upper class, but had also made huge operative surplus in cash in the activity of running the hospital. As per the Assessing Officer, the hospital was being run on commercial lines and which indicated that the hospital was running for the purpose of profit. The Assessing Officer thus held that since the profit ....
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....T(A) was that where the trust is already registered under the Bombay Public Trust Act, 1950 and also registered under sections 12AA and 80G of the Act, then even if the Assessing Officer had any reservations in respect of the clauses of the Trust Deed, then the matter could be referred to higher authority, but he could not give a finding that the clauses of the Trust Deed were in violation of purposes defined in section 2(15) of the Act. The only provision which was available to the Assessing Officer was to decide whether the activities of the trust being carried out from year to year and more particularly in the year under consideration were in accordance with the definition given in section 2(15) of the Act and restriction placed in sections 11 to 13 of the Act. The CIT(A) referred to the judgment of the Hon'ble Supreme Court in CIT (Addl) Vs. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC), which had considered in detail the concept of charity, which was available in the Income-tax law vis-à-vis English law, wherein it has been held that the definition of charitable purposes under Indian law goes much further because it specifically includes medical r....
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....er that the higher income of Dr. Kandekar was explained due to the larger capacity of the hospital vis-à-vis his earlier place and so far as the higher consultancy charges received by Dr. Kandekar was concerned, the CIT(A) noted that the Assessing Officer himself accepted that the maximum receipts of the hospital were from the services rendered by him and hence, it was to be accepted that the largest contribution to the activity of trust as well as generation of surplus was by Dr. Kandekar. Further, it was observed by the CIT(A) that rent paid to Dr. Kandekar was definitely much less than the rent earned by the trust from letting out only part of the premises itself and on this account also, the benefit had actually flown to the trust and not to Dr. Kandekar as claimed by the assessee. Further, the claim of the Assessing Officer in not following the procedure of allotment of medical shop through open tender, as per the CIT(A), it could not be the basis for rendering the trust in-eligible for the benefit of section 11 of the Act. In view thereof, the CIT(A) was of the view that there was no merit in denying the benefit under section 11 of the Act to the assessee and assessing....
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....Foundation Vs. DCIT, in ITA Nos.861 & 1423/PN/2012, vide order dated 31.07.2014. The learned Authorized Representative for the assessee further placed reliance on the ratio laid down by the Hon'ble Supreme Court in ACIT Vs. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC). The learned Authorized Representative for the assessee further referred to the clauses of trust deed and pointed out that the Act does not prohibit payment of charges to the trustees but only prohibits that the charges should not be more than the market rates. It was further clarified by the learned Authorized Representative for the assessee that the Hon'ble Bombay High Court in Sanjiv Gajanan Punalekar Vs. The State of Maharashtra & Ors. in Writ Petition (PIL) No.3132 of 2004, vide order dated 17.08.2006 had laid down the conditions for running of hospitals which were registered under Maharashtra Public Trust Act. Another objection of the learned Authorized Representative for the assessee was against the observation of Assessing Officer that the hospital was being used for self-use and it was pointed out that on the other hand, the trustee was running the Cathlab (I) Pvt. Ltd. against which, ....
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....red by the assessee at Rs. 53,24,562/- was claimed as exempt under section 11 of the Act. However, the Assessing Officer was of the view that the hospital run by the assessee was with a profit motive and further, there was violation of provisions of section 13(1)(c) of the Act vis-à-vis the concession given to Dr.Kandekar, managing trustee and his family members and in view thereof, the assessee trust was not entitled to the claim of exemption under section 11 of the Act. 15. Under the provisions of section 11 and 12 of the Act, it is provided that the income arising from a property held for charitable or religious purpose shall not be included in the total income of the person, subject to the fulfillment of conditions provided under the said section. In order to avail the benefit of section 11 and 12 of the Act, it is mandatory that the trust or the institution has to be registered as a charitable/religious trust under section 12A of the Act. The procedure for registration of a trust or an institution is provided under section 12AA of the Act. Section 13 carves out exception to the general exemption granted under section 11 and 12 of the Act to the income derived by the ....
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....he trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970" 16. Under clause (c) to section 13(1) of the Act, it is provided that a trust for charitable or religious purposes or a charitable or religious institution, created or established on or after 01.04.1962, shall forfeit the exemption under section 11 of the Act, if any part of its income enures to the benefit of any interested person referred to in sub-section (3) or any part of such income....
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....ef to the poor, education, medical relief and advancement of any other object of general public utility to be a activity for charitable purpose. Proviso has been inserted by the Finance Act, 2008 under section 2(15) of the Act w.e.f. 01.04.2009, under which, it has been provided that in case of advancement of any other subject of general public utility shall not be charitable, if it involves carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to such trade, commerce or business for a cess, fees, or any other consideration. The restriction clause by way of proviso to section 2(15) is with regard to advancement of any other subject of general public utility i.e. the fourth clause of section 2(15) of the Act in respect of the activity of providing relief to the poor, education and medical relief. There is no restrictive covenant in the said proviso under section 2(15) of the Act in respect of providing relief to poor, education and medical relief. In other words, where the assessee trust is engaged in activities within the framework of law to pursue its objectives and in turn receives charges for rendering the s....
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....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 learned Authorized Representative for the assessee had made a reference to the ratio laid down by Pune Bench of the Tribunal in in Parkar Medical Foundation Vs. DCIT (supra). However, on the perusal of order, we find that though reference was made to the various submissions made by the assessee, even with regard to the assessee trust running the hospital on commercial basis and its effect, but the said issues have not been adjudicated as registration under section 12A of the Act was allowed to the assessee on other issues. It was further held that the Assessing Officer while assessing the income in the hands of charitable trust, has the power to deny exemption to the extent it is covered under section 13(1)(c) of the Act. Accordingly, we find no merit in the reliance placed upon by the learned Authorized Representative for the assessee. 19. The Hon'ble Supreme Court in CIT (Addl) Vs. Surat Art Silk Cloth Manufacturers Association (supra) had also laid down the proposition that for the ac....
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....consultancy fees of Rs. 53,44,934/- paid to four trustees. In this regard, the Assessing Officer observed that the consultancy fess paid to Dr. Kandekar alone constitute 88%. However, the Assessing Officer also admitted that the amount of corresponding gross IPD/OPD receipts attributed to his consultancy alone in the hands of the trust were of Rs. 2.32 crores, which was about 72% of the total receipts of the trust, which stood at Rs. 3.22 crores. 21. We find no merit in the observations of the Assessing Officer in this regard that the provisions of section 13(1)(c) of the Act have been violated. Admittedly, Dr. Kandekar is the interested party as per provisions of section 13(3) of the Act are concerned. However, the financial aspects reflect that out of total receipts of the trust of Rs. 3.22 crores, admittedly 72% of the said receipts at Rs. 2.32 crores were attributable to services of Dr. Kandekar, against which he was paid consultancy fees of only Rs. 47,08,412/-. The balance receipts were attributable to the trust as per the agreement between consultant doctors and the trust, wherein only consultancy fees was transferred to their account and the balance charges received from....
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....of section 13(1)(c) of the Act was the allotment of medical shop measuring 200 sq. ft. along with furniture & fixtures to Shri Vijay Manikrao Nikam, who was cobrother of Dr. Kandekar. As per MoU, it was agreed for the period 01.06.2007 to 31.03.2008, rent of Rs. 47 lakhs and for the period 01.04.2008 to 31.03.2009, rent of Rs. 1,08,00,000/- had to be paid. If we look at this transaction and compare the same with the MoU signed by Dr. Kandekar with the assessee trust while handing over his building with constructed area of 45,000 sq. ft. on monthly rent of Rs. 6 lakhs, 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 Rs. 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....