AI Drafter 
TaxTMI 
TaxTMI 
2015 (7) TMI 922
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.... claimed by the Appellant (hereafter the 'Assessee') under Section 11 and 12 of the Act as the AO was of the view that the activities of the Assessee were not in accordance with its objects. In addition, the AO also denied the Assessee's claim for depreciation on assets purchased by the Assessee by application of its income that was exempt under Section 11 of the Act. 3. Aggrieved by the assessment order, the Assessee preferred an appeal before the CIT (Appeals). The Assessee contended that the Assessee was a charitable institution engaged in running a hospital (both Allopathic and Ayurvedic) and the same constituted a charitable purpose within the meaning of Section 2(15) of the Act. It was urged that as the Assessee had applied its income for charitable purposes, the same was exempt under Section 11 and 12 of the Act. The Assessee further contended that it had been granted registration under Section 12A of the Act after considering the nature of its activities and, therefore, it was not open for the AO to deny the exemption under Section 11 of the Act. 4. The aforesaid contentions were accepted by the CIT (Appeals). In addition, the CIT (Appeals) also held that the Assessee....
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.... denying the claim of exemption u/s 11& 12 of the Income Tax Act, 1961, despite the fact that the assessee is a charitable institution engaged in running a hospital (both allopathic and ayurvedic), which constitutes charitable activity u/s 2 (15) of the Income Tax Act. 1961? (2) Whether, on the facts and circumstances of the case the assessee trust is not entitled to exemption u/s 11 of the Act even assuming that activities of the trust that beyond of the objects of the trust which activities were wholly charitable in nature? (3) Whether, the Income Tax Appellate Tribunal was justified in law, in not allowing the depreciation on assets used for providing medical relief through allopathic system of medicines?" 8. Briefly stated the necessary facts for appreciating the controversy in the present appeal are as under:- 8.1 Late Lala Khairati Ram executed a Will dated 23rd December, 1927 and Codicil dated 8th January, 1928. In terms of the said Will, certain properties were settled in trust for furtherance of the objects as set out in the Will. The relevant extract of the said Will reads as under:- "After meeting the above mentioned allotments the follow....
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....tem of medicine is dispensed to the patients at the hospital run by the Assessee. However, since the setting up of the hospital/institution in 1959-60, the gross receipts pertaining to activities of the Ayurvedic Research Institute has been significantly lower than the gross receipts from providing treatment under the Allopathic system of medicine. In the year 1959-60, the percentage of receipts pertaining to Ayurvedic system of medicine to the total receipts was 6.34%. The proportion of receipts pertaining to Ayurvedic system of medicine to the gross receipts in the following years has been lower. In the financial year 2005-06 the gross receipts pertaining to Ayurvedic system of medicine constituted 2.66% of the total gross receipts of the Assessee. 9. In the assessment order dated 30th December, 2008, the AO noted that in the financial year 2005-06 the Assessee had received a total sum of Rs. 18,97,65,365/- out of which the receipts pertaining to Ayurvedic Research Institute were only Rs. 55,41,423/-. The AO further found that total expenditure shown by the Assessee for the said financial year was Rs. 27,96,97,610/- out of which only an amount of Rs. 53,30,595/- was spent on o....
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....n conformity with the object since the same had been considered by the Commissioner Income Tax at the time of granting registration under Section 12A of the Act. Mr. Aggarwal also referred to the decision of the Supreme Court in Assistant Commissioner of Income Tax v. Surat City Gymkhana: (2008) 300 ITR 214 (SC) in support of his contention that once registration had been granted under Section 12A of the Act, the same is a fait accompli and the AO could not thereafter further probe into the objects of the trust. 13. It was also contended by Mr. Aggarwal that the Assessee had been claiming exemption under Section 11 of the Act since the year 1959-60 and the same had been accepted by the Revenue. He further pointed out that in several years in the past, the Assessee had been granted exemption under Section 10(22), 10(22A) and Section 10(23C)(via) of the Act. He emphasized that, admittedly, the activities of the Assessee had remained the same since 1959-60 and since the Revenue accepted the claim of the Assessee for exemption under Section 11 of the Act and/or under Section 10(22), 10(22A) and 10(23C) of the Act, in the past, it could not have taken a view contrary to the settled p....
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....plicable in the facts of the present case as there had been no definite determination that the hospital run by the Assessee was in accordance with the objects of the Trust. He further contended that the principle of res judicata was not applicable to proceedings under the Act and even if the exemption had been incorrectly granted in the previous year, it would not entitle the Assessee to claim the same in subsequent years also. He further submitted that the provisions relating to exemption had also undergone material changes from time to time. He referred to the decision of the Division Bench of this Court in Krishak Bharati Cooperative Ltd. V. Deputy Commissioner of Income Tax: (2013) 350 ITR 24 (Delhi) to contend that the rule of consistency did not have wide application. 18. In respect of the issue regarding depreciation, it was contended by Mr. Singh that there was no dispute that the depreciation would be allowable on the asset that was purchased by the Trust by application of its income which was exempted under Section 11(1)(a) of the Act. However, it was submitted that where the exemption under Section 11(1)(a) of the Act has been granted but the asset is applied towards ....
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....e of total income, the same must be derived from a property held in Trust for a charitable or religious purpose and must also be applied for that purpose. 23. In Dawoodi Bohara Jamat (supra), the Supreme Court had referred to Section 11 of the Act and observed as under:- "...... The income of a charitable or religious trust is exempt from taxation under the correlated provisions of sections 11, 12, 12A, 12AA and 13. Section 11 deals with income from trusts for charitable and religious purposes and sets out which income shall be exigible to taxation. Section 11(1) relates to application of income towards the objects of the trust and exempts income of trusts with objects wholly charitable or religious or parts of income which relate to such objects." 24. Mention may also be made of the decisions rendered by this Court in CIT v. Hotel & Restaurant Association: (2003) 261 ITR 190 (Del.), Bharat Kalyan Pratisthan v. Director of Income-Tax (Exemption): (2008) 299 ITR 406, Director of Income-Tax (Exemption) v. Daulat Ram Education Society: (2005) 278 ITR 260 (Del.), Director of Income-Tax (Exemption) v. Mamta Health Institute for Mother and Children: (2007) 293 ITR 380 (Del....
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....aritable purpose for which the properties are held in Trust. 27. We also do not find any merit in the contention that the AO is not entitled to inquire whether the income is applied towards the charitable or religious purpose for which the property, from which the income is derived, is held in Trust. It is necessary for the AO to satisfy himself that the conditions for exclusion, as specified under Section 11(1)(a) of the Act, are met and for the said purpose the AO can make such inquiries as necessary. 28. The contention that since the Commissioner, by virtue of Section 12A(3) of the Act, is empowered to cancel the registration granted to an Assessee if it is found that the activities of a Trust or an institution are not genuine or are not being carried out in accordance with the object of the Trust or institution, the AO is precluded from examining whether the Assessee had applied its income for the object of the Trust or institution, is wholly without merit. The opening words of Section 12A(1) of the Act read as under:- "Section 12A(1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the follo....
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....referred a Special Leave Petition against the decision of the Gujarat High Court. Whilst the Supreme Court declined to entertain the SLP in respect of the first question on the ground that the same was covered by the decision in the case of Hiralal Bhagwati (supra) and the same had not been challenged by the Revenue, the Supreme Court granted special leave in respect of the second question. Subsequently, the Supreme Court found that the second question was also covered by the decision of the Gujarat High Court in Hiralal Bhagwati (supra) and, accordingly, dismissed the appeal. In Hiralal Bhagwati (supra), the Gujarat High Court had held that once registration is granted under Section 12A of the Act, after accepting that the objects of the Trust are charitable, the AO cannot take a decision to the contrary. This would stand to reason because once a higher income tax authority i.e. a Commissioner had accepted the application of an Assessee and had accepted that the object of the Trust was wholly charitable, it would not be open for the AO to take a contrary view. Thus, it may not be open for an AO to examine whether the object of the Trust registered under Section 12A of the Act is c....
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....erma 3. To spread awareness and educate the ayurvedic physicians, the following work has been done; a. Tenth Century granths have been translated into Hindi like Ashtang Hridya, Charak Samhita, Bhashjya Ratnawali etc. b. The following books and literature has been published; i. Dehadhatwagni Vigyanam ii. Panch Karma Chitiksa iii. Chikitsa - Kalika iv. Compilation of Sutras from Different "Granthas". c. The trust is engaged in the following training and education related activities for creating and spreading awareness about Ayurvedic system of medicine; i. Interns for Ayurvedic education are taken, who are not only taught the ayurvedic medicine but also given hands on practical experience and clinical knowledge about Ayurvedic system of medicine. ii. The Trust runs dedicated indoor facility on Ayurvedic and manages 40 beds wherein the treatment is given free. iii. Ayurvedic medicines are dispensed and provided at nominal cost and in case of deserving patient even free. iv. Every third Friday of the month, trust organizes Ayurvedic Sambhasha Parishad and doctors from far and wi....
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.... Obs & Gynae; Department of Neurology; Department of Dental; Department of Ophthalmology; Department of ENT and Department of physiotherapy. This is unique hospital that integrates both Ayurvedic system of medicine and allopathic services to give best results to the patents and which helps in improving the treatment and obtain best results out of this. The Ayurvedic hospital utilizes various modern medicine method of investigation such as ; a. Blood Hematology b. Microbiology c X-ray c. C. T. scan d. Ultrasound e. ECG f. Eco g. Angiography The trust is also engaged in running various health check clinics, diet service clinics in remote areas in order to augment health care services using Ayurvedic system of medicine. 7. In order to further - spread education, awareness and help in research in ayurvedic and Modern Medicine a full fledged scientific library is maintain by the hospital which has : a. More than, one thousand hooks are available in the library including all leading journals. b. Besides various subscriptions available, the library is open for student staff physicia....
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....offering treatments under the Ayurvedic system of medicine as well as under the Allopathic system of medicine. The Revenue also does not dispute the Assessee's contention that the treatment under the Ayurvedic system of medicine draws significantly from investigation techniques used under modern medicine system. In the circumstances, the limited issue to be addressed is whether running of such hospitals which provides Allopathic as well as Ayurvedic treatment and includes investigation techniques of modern medicine would be contrary to the object of the Assessee Trust. 35. A plain reading of the objects indicates that it includes "devising means for imparting education and improving Ayurvedic system of medicine and preaching the same". It is also expressly clarified that the Assessee is not prohibited to take help from the English, Unani or any other system of medicine for its object. Further, it is also expressly provided that according to the need, one or more Ayurvedic hospitals may be opened. It is at once clear that the object does not prohibit running of an Allopathic hospital or drawing from any the other system of medicine for improving the Ayurvedic system of medicine. ....
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....t of the Ayurvedic system of medicine in the institution established by the Assessee and though the receipts from the Allopathic treatment are larger, the same does not militate against the object for which the institution has been set up and run. 39. The next issue to be addressed is whether it was open for the AO to take a view different from the one that has been accepted by the Revenue for the past several decades. It is well established that each year is a separate assessment unit and the principles of res judicata are not applicable. However, in this case, it would be appropriate to note that the activities carried out by the Assessee have been accepted as being amenable to exemption under Section 11 of the Act for the past several decades. In the past period, the Assessee has been granted exemption under Section 11 of the Act and also under Section 10(22)/10(22A) or Section 10(23C) of the Act. Concededly, the exemptions granted to the Assessee for past several decades would not be available if the activities of the Assessee were considered by the concerned AOs/Authorities to be ultra vires its objects. 40. In the circumstances, it would not be apposite to permit the Re....