TaxTMI 
TaxTMI 
2016 (4) TMI 1307
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....rse of assessment proceedings the AO asked the assessee to submit the information on following points : 1. Details of patients treated at concessional rate/free with proof. 2. Percentage of free/concessional patients out of total patients. 3. Criteria applied for treating patients at concessional rate/free. 4. Comparative chart of rates charged for various procedure in comparison with the rates charged by any three leading hospitals in Pune. 5. Note on services rendered by the Trustees and justification of payments made to them. 6. Patient wise details of charity made. 7. Details of indigent patient fund. 8. Note on interest paid on deposits along with reasons for accepting deposits, rate of interest paid etc. 9. A note on research activity 10. A copy of contract with the persons running the canteen. 11. Details of various expenses claimed as well as income earned under various heads. 4. From the return of income furnished by the assessee for the impugned assessment year and the details furnished from time to time, the AO noted that the assessee has shown total receipts at Rs. 90,3....
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....tal. The Assessing Officer further stated that the number of beds shown to Charity Commissioner was 288 only, whereas the same in the activity report submitted during scrutiny was shown at 450. On that basis the Assessing Officer charged the appellant that the number of operational beds was deliberately reduced for lesser earmarking of beds for indigent patients and weaker section patients. (c) The rates charged by the appellant trust is at par with hospitals run on commercial lines, which is established from the surplus of 10.04 crores after depreciation and Rs. 16.02 crores before depreciation on the total receipt of Rs. 90 crores. (d) Assessee trust had taken deposits of Rs. 1.73 crores from public, Rs. 24.09 lakhs from employees and Rs. 19.07 lakhs from consultants, on which interest of Rs. 11.74 lakhs were paid. 2(a) The Assessing Officer thereafter, in the same show cause notice referred to above, quoted the objects of the trust, as taken out from the trust deeds and thereafter stated that the assessee hospital is also running a canteen whose total gross receipts is of Rs. 2,28,76,076 and after making an expenditure of Rs. 1,49,94,755, the gross pro....
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.... 4. In the aforesaid show cause notice the Assessing Officer thereafter pointed out that payments of Rs. 90,000 as honorarium to Mrs. Meena Kelkar, mother of one of the trustees and Rs. 3,60,000, as salary to Mr. Sachin Kshirsagar, brother of another trustee, Dr. Jitendra Kshirsagar, and Rs. 4,20,000 as honorarium and Rs. 1,80,000 as conveyance charges to Mrs. Bharati Mangeshkar, one of the trustees were made who are persons covered u/s 13(1)I and therefore, the appellant was asked to justify these payments with evidences. 5. The Assessing Officer thereafter, on the strength of the observations described in the above referred show cause notice, which has been summarized above, called upon the assessee trust to show cause as to why the exemption u/s 11 should not be denied for running the hospital as a commercial organization and for suspected violation of sec. 13(1)I. 6. The Assessing Officer further pointed out in the aforesaid show cause notice that the claim of the assessee for depreciation while computing the income u/s 11 is not allowable as per the decisions of the Hon'ble Calcutta High Court given in 199 ITR 215, based on the decision of Hon'ble Madr....
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..... 2.28 crores and from the pharmacy Rs. 12.73 crores. Therefore, it is not understood as to why only Rs. 0.3 crores from canteen and Rs. 3.3 crores from the pharmacy are reduced from Rs. 72.3 crores. 9. As regards the submission of the assessee that they have submitted all the financial statements duly audited to the Charity Commissioner is concerned, the AO held that the same is not correct since the copies of the statement filed by the assessee with the Joint Charity Commissioner shows receipts of only Rs. 21 crores. 10. As regards the submission of the assessee that the amount spent on BPL patients of Rs. 66.06 lakhs is exclusive of freeship of Rs. 5.34 crores is concerned, the AO held that the same is also not correct. He noted that the assessee's activity report submitted during the course of hearing mentions the total number of beds at 450. In the statement filed with the Charity Commissioner they have shown it as 288. 10% of these reserved for BPL patients and further 10% for weaker section patients. The assessee has stated that actual beds are 241. Thus there are different figures given at different points of time. According to the AO only one of them is correct and t....
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....b of donation. In some of the case, the AO further noted that each one of them has paid Rs. 3,000/- as donation. Had it been voluntary the figure would have varied. Therefore, it is highly improbable that individuals from different area decide to give Rs. 3,000/- only for the camp. Thus, it is evident that there is a prescribed fee of Rs. 3,000/- per head to participate in the camp. 13.1 Similarly, the AO noted that the trust has paid salary to Mrs. Bharati Mangeshkar and Mrs. Meena Kelkar. Mrs. Bharati Mangeshkar is a trustee of the assessee trust while Mrs. Meena Kelkar is mother of Mr. Dhananjay Kelkar, who is the trustee of the assessee trust. According to the AO the salary paid to these 2 persons is in clear violation of provisions of section 13(1)(c) of the I.T. Act, 1961. The AO further noted that in respect of the salary paid to Mrs Meena Kelkar the assessee has not proved that any services are rendered by her and whether she had the requisite qualification for handling the job. He further noted that the retirement age of the employees was 58 while Mrs. Kelkar was above the age of 65. The assessee trust has bypassed the rules while appointing her. 13.2 As regards the ....
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....34,45,230/- by observing as under : "13. To sum up, the assessee is running the hospital with an intention of making profit as is evident from the discussions made in paragraphs 5 & 10 above. The legislative intent in exempting the income of the Trusts is that they should provide medical relied to everybody especially to poor and needy. This is clear from the conditions laid down by the Charity Commissioner to set apart 2% of the gross receipts as Indigent Patient Fund. The assessee has not followed this as it has grossly understated its receipts in the statement furnished to the Charity Commissioner as discussed in Paragraphs 5 and 11 above. Some of the patients have paid for medical treatment or other services but receipts have been given to them treating the same as donations. If these people had claimed deduction u/s.80G, then it would amount to the Trust abetting tax evasion. As discussed in paragraph 8 above there is clear violation of section 13(1)I due the payments made to Mrs. Bharati Mangeshkar and Mrs. Meena Kelkar. In view of the above, the exemption claimed u/s.11 of the Income Tax Act , 1961 is denied to the assessee ....
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....to be an activity of charitable nature but for qualifying the said activity under the head charitable purposes, the medical relief must be given to the poor and the under privileged either free of cost or at concessional rates. The Ld.CIT(A) analysed the provisions of section 2(15) which gives an inclusive definition to the charitable purposes and says "charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. Since the impugned assessment year involved is A.Y. 2008-09 he noted that the words "not involving the carrying on of any activity for profit" were not available in the definition of "charitable purposes" upto A.Y. 2008-09. W.e.f., 01-04-2009 sub-section 2 (15) has been further substituted by the new definition. 16. Relying on various decisions the Ld.CIT(A) held that merely because some surplus has been generated, no fault can be found with the activity of the assessee so long the surplus is utilized for the objects of the trust. Therefore, the objection of the AO on the issue of surplus as an evidence of hospital being run as a commercial entity cannot be accepted in the concept of charit....
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....ed that they had given donations to the assessee trust. Further, in the remand proceedings also, the AO could not controvert the various submissions given by the assessee. He, therefore, held that there is no merit in the allegation of the AO that the assessee trust has issued donation receipts and thereby has evaded tax. 21. As regards the objection of the AO that assessee has violated the provisions of section 13(1)(c) in respect of the payment made to Mrs. Bharati Mangeshkar and Mrs. Meena Kelkar is concerned the CIT(A) held that such objection of the AO is not correct. On the basis of the various submissions and evidences including the additional evidences filed before him the Ld.CIT(A) called for a remand report from the AO. On the basis of such remand report the CIT(A) held that both these persons were rendering services to the assessee trust and therefore the payments made to them could not be held to be resulting in violation of the provisions of section 13(1)(c). 22. As regards the objection of the AO that the retirement age of the employees of the trust is 58 whereas Mrs. Meena Kelkar, 65 years of age was accommodated the CIT(A) held that there is no accommodatio....
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.... and to the facts and circumstances of the case. 2. The Ld.CIT(A) grossly erred in holding that the assessee is entitled to exemption u/s.11 of the Income Tax Act, 1961. 3. The Ld.CIT(A) grossly erred in failing to appreciate the voluminous data and evidences gathered and used by the Assessing Officer which would clearly establish that the assessee was running its hospital, canteen and other activities along commercial lines, and, therefore, could not be treated as pursuing charitable objects. 4. The Ld.CIT(A) grossly erred in diluting the concept of charity beyond recognition and in not taking any note of the spirit underlying this concept as used in the Income Tax Act, 1961. 5. The Ld.CIT(A) grossly erred in holding that the assessee cannot be considered to have violated the provisions of section 13(1)(c) of the Act. 6. The Ld.CIT(A) grossly erred in routinely dismissing the instances of violations of section 13(1)(c) brought out in the assessment order, particularly with regard to the unjustifiable payments made by the assessee to Mrs. Meena Kelkar and Mrs. Bharti Mangeshkar. 7. The Ld.CIT(A) grossly erred in dismissing....
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.... pages 585 and 586 of the paper book, he submitted that the AO in the order passed u/s.143(3) on 22-10-2009 has allowed the claim of exemption u/s.11. Referring to the copy of the assessment order for A.Y. 2006-07, copy of which is placed at page 589 of the paper book he submitted that the AO has allowed the claim of exemption u/s.11 in the order passed u/s.143(3) on 11-12-2008. He submitted that the AO in the order passed u/s.143(3) for A.Y. 2005-06 on 29-11-2007 has allowed the claim of exemption u/s.11 a copy of which is placed at page 592 and 593 of the paper book. Similarly, the AO has allowed the claim of exemption u/s.11 for A.Y. 2004-05, 2003-04 and 2002-03 in the orders passed u/s.143(3), copies of which are placed at page 596 to 605 of the paper book. However, for the impugned assessment year, the AO denied the claim of exemption u/s.11 mainly on the following grounds: (a) The assessee trust is running the hospital with an intention of making profit and huge surplus is generated. (b) The assessee trust has not properly complied with the objective of charity. There is understatement of receipts in the statements furnished to the Charity Commissioner. ....
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....s for specific purposes at Rs. 7,98,500/-. Thus, the total amount transferred to the IPF fund was Rs. 51,96,384/-, i.e. Rs. 43,97,884/- + Rs. 7,98,500/-. 31. He submitted that the Charity Commissioner has inspected the records and after inspection they have directed the assessee to include the OPD receipts for calculating IPF. The shortfall in the provisions was transferred to the IPF account. Referring to page 612 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the IPF ledger account and submitted that the assessee on 31-05- 2010 has credited an amount of Rs. 71,77,267/- to the IPF account for the period from October 2006 to November 2009 as per the direction of the Charity Commissioner in his visit on 18-05-2010. He submitted that when the Charity Commissioner has not cancelled the registration for such shortfall and since no penalty has been levied by him, therefore, it is not understood as to how the AO can deny exemption u/s.11. He submitted that despite the submission of the above facts before the AO he ignored the contention of the assessee. Further, even after the inspection of the Charity Commissioner the assessee trust was require....
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.... the attention of the Bench to the following table and submitted that for the impugned assessment year the surplus is only Rs. 5,72,54,100/-, i.e. 4.98% of the receipts whereas in the subsequent year there is excess application of Rs. 2,70,34,512/- : A.Y. 2009-10 2008-09 2007-08 2006-07 2005-06 F.Y. 2008-09 2007-08 2006-07 2005-06 2004-05 Gross Income as per computation 1,148,586,404 903,196,502 733,322,641 552,034,152 409,652,559 Revenue expenditure 1,073,193,775 798,643,996 674,418,995 514,885,424 386,018,823 Capital expenditure 102,427,141 47,298,406 42,605,994 188,214,534 96,298,008 Total Expenses as per computation 1,175,620,916 845,942,402 717,024,989 703,099,958 482,316,831 Excess of application over income 27,034,512 (57,254,100) (16,297,652) 151,065,806 72,664,272 % of Income Application 102 94 98 127 118 33. He submitted that even the legislature has allowed accumulation of upto 15% of the receipts and the above amount is not required to be applied immediately. Thus generation of surplus is permitted under the A....
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.... would be considered as a charitable trust is not correct. 37. Referring to the provisions of section 2(15) which defines the term "charitable purpose" he submitted that as per the said definition, charitable purpose would include relief of the poor, education, medical relief and any other object of general public utility. Now-a-days even Yoga, Preservation of Environment and Preservation of Monuments or places or objects of Artistic or Historical interest is also considered as Charitable Purpose. He submitted that relief of the poor is one of the purpose but there is no condition that education or medical services should be provided only to the poor. So long as the trust is engaged in medical activities, it would fall within the definition of "Charitable Purpose" and the said trust can enjoy the benefit of exemption u/s 11 of the I.T. Act. 38. Referring to the decision of the Mumbai Bench of the Tribunal in the case of ITO Vs. Kaushalya Medical Foundation reported in 31 SOT 119 he submitted that the Tribunal in the said decision has held that where charitable trust running a hospital is claiming tax exemption, there is no requirement that medical aid should be provided only ....
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....el for the assessee submitted that the musical nights were organized in order to reduce the stress of the patients, relatives, staff members etc. It was submitted before the AO that the assessee trust started innovative endeavor called Deenayan Kalaparv from August, 2004 wherein renowned artists performed and such programmes were broadcasted in the rooms of the patients. It was explained that the performing artist performed free of cost and the main intention of organizing such programmes was to reduce to stress level of the patients and their relatives. Therefore, the AO is not justified in holding that such musical nights were not required. He submitted that the AO cannot dictate the assessee as to how to conduct its affairs. 41. As regards the denial of exemption u/s.11 on the ground that assessee had issued donation receipts is concerned, he submitted that payments were infact made by the persons for the services obtained from the assessee. As regards the donation received from Shah family is concerned, the Ld. Counsel for the assessee submitted that the assessee trust had conducted a project called "Shwas" which was a research project analyzing the effect of Yoga on the fun....
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...., who was responsible for the house keeping activity of the hospital. 44. As regards the observation of the AO in the assessment order that Mrs. Meena Kelkar had no prior work experience as admitted by Dr. Dhananjay Kelkar is concerned, he submitted that Dr. Dhananjay Kelkar had clearly stated that the remark made by the AO was incorrect and he had not made any such statement during the assessment proceedings. Referring to the copy of the affidavit of Dr. Dhannanjay Kelkar placed at pages 77 and 78 of the paper book and which was produced before the AO in remand proceedings he submitted that the AO has not controverted the said affidavit. Referring to the contents of the affidavit he submitted that Dr. Dhannanjay Kelkar had stated in the said affidavit that Mrs. Meena Kelkar was looking after the house keeping of Sanjeevan Hospital. Referring to pages 230 to 237 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to some of the bills which have been approved by Mrs. Meena Kelkar. In one of the invoices Mrs. Meena Kelkar has even noted for reduction in the invoice amount on accounts of non-satisfactory work of the vendor. Referring to the affidavit ....
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....e assessee drew the attention of the Bench to the confirmations/affidavits wherein they have confirmed their interaction/dealing with Mrs. Mangeshkar for the hospital activities. He accordingly submitted that there is no violation of provisions of section 13(1)(c) of the I.T. Act on account of payment to the above persons since both of them have rendered services to the assessee trust. Further, the payments made to them is reasonable and not excessive. 46. The Ld. Counsel for the assessee also relied on the following decisions and submitted that the courts have held that for invoking provisions of section 13(1)(c) the onus is on the AO to prove that the payments made to the trustees or the relatives is excessive and unreasonable : 1. Baba Gandha Singh Educational Trust reported Vs. CIT in 138 TTJ 1 (Chd.) 2. ACIT Vs. Surat Art Silk Cloth Manufacturers Association reported in 121 ITR 1 (SC) 3. CIT Vs. Janakiammal Ayyandar Trust reported in 277 ITR 274 (Mad.) 4. Dr.D.Y. Patil Pratisthan Vs. DCIT reported in 154 TTJ 320 (Pune) 5. ACIT Vs. Manav Bharti Child Institute & Child Psychology reported in (2008) 20 SOT 517 (Delhi). 47. As reg....
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....Meena Kelkar (mother of the trustee). 8. The assessee has received rent of Rs. 2,88,100/- from various parties which includes Rs. 1,80,000/- from Bharti Airtel. 49. We find the Ld.CIT(A) allowed the claim of the assessee by rejecting the various objections raised by the AO. We do not find any infirmity in the order of the CIT(A). We find the first objection of the AO for denying claim of exemption is due to incorrect information to Charity Commissioner and shortfall in making provision for Indigent Patient Fund (IPF) as per the guidelines issued by Charity Commissioner. As per the guidelines issued by the Charity Commissioner/, each hospital should make a provision of 2% of the hospital receipts for IPF. According to the AO, the actual receipt of the trust is Rs. 72.31 crores as against Rs. 21.09 crores disclosed to the Charity Commissioner. Therefore, the assessee should have credited an amount of Rs. 1.44 crores to the IPF fund whereas it has credited Rs. 66.06 lakhs only. Thus there is shortfall in making provision for the Indigent Patient Fund. 50. It is the submission of the Ld. Counsel for the assessee that there had been no proper clarification regarding the i....
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..... We also find merit in the submission of the Ld. Counsel for the assessee that legislature has allowed accumulation upto 15% of the receipts. Further, the submission of the Ld. Counsel for the assessee that whatever surplus has been generated has been utilized for the purpose of the trust could not be controverted by the Ld. Departmental Representative. 53. We find the Hon'ble Supreme Court in the case of ACIT Vs. Surat Art Silk Cloth Manufacturers Association reported in 121 ITR 1 has held as under (head notes) : "Charitable trust - Charitable purpose - Advancement of any other object of general utility not involving carrying on of any activity for profit - Where, the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of "charitable purpose" would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution - It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment - What is inhibited by these last ten words is the li....
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....iew. It has been held in various decisions that mere generation of surplus year after year cannot be the reason for disallowing the claim of exemption u/s.11. Further, in the instant case, as mentioned earlier, the claim of exemption u/s.11 has been allowed by the AO from A.Yrs. 2002-03 to 2007-08 in assessments completed u/s.143(3) of the Act. Under these circumstances, we do not find any reason as to why the exemption u/s.11 should be denied to the assessee merely because there is some surplus. Since the Ld.CIT(A) while dealing with this issue has given justifiable reasons and accepted the contention of the assessee, therefore, we do not find any infirmity on this issue. 56. The next objection of the AO is that the assessee is not engaged in charitable activity since the assessee has not provided services to the underprivileged class of the society. From the various details furnished by the assessee we find the assessee has given freeships to patients. Further, it is not mandatory that the assessee should provide medical services only to the poor people. As per the provisions of section 2(15) the term "charitable purpose" includes relief of the poor, education, medical relief ....
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....r is directed to allow the claim of assessee in this regard." 59. Since the CIT(A) while dealing with this issue has also given justifiable reasons, therefore, the same being in order we do not find any infirmity on this issue. 60. Another objection of the AO is that the assessee is running a canteen in the hospital which is not one of the objects of the trust and is not providing free meals even to the indigent patients and it is in the nature of business conducted by the assessee. According to him, the income from such business cannot be exempt unless it is in the course of the actual carrying out of the primary purpose of the trust. It is the submission of the Ld. Counsel for the assessee that the assessee is running a huge hospital and therefore canteen facility is required to be provided to the patients and their families. Thus, canteen is an essential part and a necessity. According to him, the rates charged for the food is very reasonable and much lesser than the standard rates which has been accepted by the CIT(A). He has also brought to our notice that the profit generated by the canteen is only Rs. 18.95 lakhs as against Rs. 78.81 lakhs computed by the AO. Further, ....
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....s given by section 13(1)(bb). If the object of Parliament was to give trusts and institutions no more benefit than that given by section 13(1)(bb), the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilised by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The trust, therefore, is entitled to the benefit of section 11 for the assessment year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has been employed to achieve its objectives of education and relief to the poor and that it has maintained separate books of account in respect thereof." 62. In view of the above decisio....
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.... only Rs. 5,100/-. Similarly, in the case of Mr. Deepak Phadke, there is no material before the AO that the assessee has demanded donation. The submission of the Ld. Counsel for the assessee that the above persons have given donations according to their free will and there is no evidence before the AO that the assessee has demanded the same could not be controverted by the Ld. Departmental Representative. We find the Ld.CIT(A) while dealing with this issue has held that there is no justification for arriving at such conclusion. He has also observed that the AO has recorded the statements of few persons without granting any opportunity to the assessee to rebut the same. Since the CIT(A) has rejected the objection of the AO after considering the various evidences furnished by the assessee before him wherein the above persons had clarified that they had given donations to the assessee trust on their own will and since the AO in the remand proceedings also could not controvert the various submissions given by the assessee, therefore, the order of the CIT(A) holding that there is no merit in the allegation of the AO that the assessee trust has issued donation receipts and has evaded tax....
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.... in order to invoke provisions of section 13(1)(c) of the Act the onus is on the AO to prove that the payment made to the trustee or the relative is excessive or unreasonable. As mentioned earlier, the payment made to Mrs. Meena Kelkar and Mrs. Bharti Mangeshkar are not excessive or unreasonable. We, therefore, concur with the findings given by the Ld.CIT(A) on this issue. Accordingly, the objection of the AO on account of violation of section 13(1)(c) of the Act is not justified. 67. The next objection of the AO is that assessee has received rent of Rs. 2,88,100/- from various parties which includes Rs. 1,88,000/- from Bharti Airtel for allowing them to erect their tower in the premises of the trust which is commercial exploitation of the property. We find the CIT(A) has already held that the same is for supplementing the main object of the assessee trust. We agree with the argument of the Ld. Counsel for the assessee that erection of such tower in the premises of the hospital enhances the signal for telecommunication. Further, as the rent has been shown in the books of account and has been utilized for the objects of the trust, therefore, we uphold the order of the CIT(A) on t....