TaxTMI 
TaxTMI 
2019 (9) TMI 909
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.... of the conditions of Sec. 13 of the I.T. Act. iii) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in holding that incomplete Form 10B was not a ground for disallowance. iv) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in holding that the A.O. should has considered the assessee's submission that brought forward losses of the trust is allowed to be set off against current year's surplus, and that the same is considered as application of income of the trust as per the judicial rulings of High Courts of Gujarat, Bombay and Rajasthan. v) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in deleting the disallowance of depreciation of Rs. 1,27,63,514/- made by the Assessing Officer. vi) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in ignoring the stand of the Revenue that allowance of depreciation on the assets, the cost of which has already been allowed as a deduction on account of application of income, would amount to double deduction in view of the decision of the Hon'ble Supreme Court in the case of Escorts Ltd., 199 ITR 43. v....
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....fact the SCPL is covered under the definition of person as per provisions of Sec. 13(3)(e) read with Explanation 1&3 of the Act. Therefore, by entering into the agreement fith SCPL, the eligibility conditions for claiming deduction u/s. 11 of the Act, as laid down in 13(1)(c)(ii) and 13(2)(b), 13(2)(d) and 13(2)(g) of the Act have violated. Which are substantiated as below:- • "The trust has transferred all assets and liabilities as appearing in the balance sheet of SHMI as on 01.04.2008 to SCPL. The liabilities include unsecured loans from the assessee trust worth Rs. 19,57,39,819/-. Before the transfer on 01.04.2008, the referred loan was appearing as asset in the balance sheet of trust and liability in the balance sheet of SHMI, and the SHMI being a constituent of the assessee trust, the loan advanced was treated as application of income. But, as soon as the SHMI no longer remained as a constituent of trust and was taken over by a company (SCPL), the said loan appeared as liability in the balance sheet of SCPL, and SCPL being a company, the said loan can no longer be considered as application of income for the purposes of attaining objects of the trust. Instead, it ....
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....uate remuneration or other compensation. • Whether any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3).] • Whether the income or property of the trust/institution was used or applied during the previous year for the benefit of any such person in any other manner? • Considering the fact that no such disclosure has been made in the Form 10B report, the assessee has violated the procedural aspect also and the Form 10B report filed by the assessee is considered to be inappropriate and is rejected, making him not entitled for deduction u/s. 11 of the Act. Hence, deduction u/s. 11 of the Act is disallowed on this ground also. 3.8 In the light of above discussion, deduction u/s. 11(1)(a) of the Act worth Rs. 28,72,316/- is disallowed and added to the income of the assessee. The assessee is now treated as an AOP, and ins income is computed as per the normal provisions of the Act (section 28-44)." 5. Being aggrieved the assessee filed appeal before the Ld. CIT(A). Wherein detail submissions made by the assessee which has been reproduced at Para 4 t....
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.... the son of Shri Rajendra shah, Managing Trustee of Adarsh Foundation. Thus this falls under definition of person u/s 13(3) of the Act" 4.2 Further, as per Para 3.7 of his order, the AO has also observed as under: "The registration u/s 12A(a) of the Act was granted to the trust with a mandate that all the income earned by the trust will be applied for the objects of the trust (for which it has been granted registrations). The trust has been claiming deduction u/s 11 since them, is accumulating assets with a legal binding that its income will be applied for purpose of attaining objectives of the trust. By entering into the said agreement with a corporate (SCPL), the assessee has transferred the assets (including goodwill IPRs, patient details, loans and advances received in the name of the trust, etc) being created /accumulated under the umbrella of section 12A(a) of the Act to a company. This act of the trust, if allowed, will set a precedent for other institutions to accumulate assets and goodwill in the name of the trust for a number of years and then transferring the same by floating a company to earn huge profits. Hence the referred agreement is rejec....
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....he arrangement as he only observes about transfer of movable assets (Which is at the fair value as per books only) as the Id AO puts blinkers on his eyes when the fact of transfer of huge liabilities of the trust and its institution is visible and when the Id AO at page 4 of his assessment order reproduced clause 3.3 of the agreement which reads as under.: "3.3 SCPL will correspondingly take over and discharge all the liabilities both secured as well as unsecured of SAL Hospital (Divison of Adarsh Foundation) including secured term loans, unsecured loans, trade creditors and other current liabilities and provisions of whatever nature at their respective Book Values as appearing in the books of accounts as of 1st April, 2008 as per balance sheet, annexed herewith and forming part of this agreement. The copy of audited accounts of the trust for F Y 2007-08 relevant to Asst. Year 2008-09 are attached from which it will be seen that the appellant trust had huge deficits in both its institutions and had made negative worth in the Financial Year 2007-08 due to losses from the SHMl (SAL HOSP1TAL& MEDICAL INSTITUTE) and in the KESAR SAL MEDICAL COLLEGE & RESEARCH INSTITUT....
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.... on the trust The liquidity crunch faced by the trust due to above liabilities was clearly a factor which weighed in the minds of the trustee to take a wise decision in the best interest of trust which has been taken while keeping the valuable immovable property of the trust un effected. On account of heavy deficit and losses incurred as on 31.03.2008, it was very difficult to repay the Installments to Banks and also payment of interest expenses on monthly basis. Since the Trust was not capable of making timely repayment of the amount borrowed from various banks for the purpose of its establishments/ institutions, any further delay would have resulted in the sudden enforcement of repayment by the Banks which certainly would have made the trust a defaulter and its activity would have come to stand still. In addition to the above financial crisis and deficits which occurred to run the aforesaid institutions of the trust, there were also similar other corporate Hospitals upcoming in the city which have created the acute competition for running the medical and Healthcare activities and therefore, to continue to provide the best services at economic rates and with qual....
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....dictional Tribunal in the case of Adaharshila Education and Charitable Trust vs ACIT ITA No: 1443/Ahd/ 2008 that where the payment to and from persons specified is for commercial consideration, s 13 (1)(c)(ii) cannot be applied. A copy of said decision is attached herewith Exhibit-A page 1 to s. 13(2)(b) can apply only if any land building or other property of the trust is made available for use by the specified person during the previous year without charging adequate rent or other compensation. As already earlier demonstrated in our earlier submissions and also looking to the facts and figures of year under appeal the trust has charged adequate compensation by way of management charges income under the terms of agreement couple with handing over the liabilities of secured/ unsecured loans and interest thereon as also, huge amount of expenses pertaining to Kesar Sal Medical College are being reimbursed to the trust over and above the aforesaid payments. Thus s. 13(2)(b) is not at all applicable to the case of the appellant. S. 13(2)(d) can apply only if any services of the trust are made available to any specified person during the previous year without adequate remunerat....
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....e would have to be borne by the trust and trust would have ended up with unrecoverable deficits. With the increase in the activities and revenue of SHMl thanks to its corporate management and administration, the trust has also benefited in later year It is also significant to point out that the Id AO has accepted the fact about the application of income received by trust for the purposes of the trust and genuineness of the charitable activities during the year. As regards the allegation (Without any justification) that appellant had not furnished any rational or mathematical explanation about arriving at the figure of one crore/ 40% of profit formula for the payment of management fees by SCPL, again the Id AO has failed to look to the above factual figures and has miserably failed to put himself in the place of the trustees while making such untenable allegation/ observation. The trustees being well-aware of their avowed responsibilities had under the circumstances t taken a prudent and wise decision which has proved very much right and rewarding for the trust and its activities. It is not understood, how the Id AO has shut his eyes on the above vital aspects and the actua....
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....ate consideration." 4.7 The appellant, further submitted as under: "The Id AO also erred in observing that loans and advances of Rs. 5,43,57,980/-were reflected in Balance sheet of Adarsh Foundation in favour of SCPL. In fact the said amount is debited for various receivable i.e. reimbursement of Kesar Sal College and Management charges under agreement" 4.8 Based on the above observations, the Assessing Officer has withdrawn the exemption granted u/s. 11. 4.9 I have considered the order of the AO and the submission made in this regard. The AO has observed that the appellant trust had indulged in to activities which is against the principles of charity and an amount of Rs. 5,43,57,980/- was shown as Loans and advances in the books of the Company which was due to trust as on 31st March,2009. In my opinion, I find the contention of AO unsustainable as alongwith the movable assets entire liabilities of the trust is also transferred to the Company. The basic fact of entering in to agreement with the Company was to secure trust's interest and not to indulge in the losses and to reimburse the expenditure of Kesar Sal Hospital. The AO's claim doe....
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.... of its land, building or other property by specified persons. However, as explained by the appellant, the trust is in receipt of income by way of management charges from SCPL, and also all of its liabilities have been taken over by the same. This, according to my opinion, is a fair compensation and no undue benefits of use of the trust's property have been taken by any other, person. 5.2 Similarly, the appellant's explanation for section 13(2)(d) and 13(2)(g) regarding application of the trust's services and diversion of income of the trust respectively are also found satisfactory, as the agreement with SCPL is for monetary terms, and the trust has benefited greatly, as deficit of the trust has reduced to a great extent I am in disagreement with the A.O's contention, that there is a violation of the conditions of Section 13. Accordingly, ground No. 4 is allowed. 6. So far as disallowance due to erroneous presentation of Form 10B report, the AO'S Contention that the report as per form 10B is incorrect, is not a fair ground for disallowance, as the appellant was under appeal to contest that, none of the funds or assets of the trust are given to ....
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....ained unaffected. The Ld. Counsel referring Page 57 of the Paper book [which is agreement between the trust and SCPL] submitted that the object of the transfer to SER Hospital for operational management on mutually agreeable terms. The Ld. Counsel referred the Clause 2 of the agreement which clearly demonstrate that the trust has granted SCPL the operational management rights to the business with effect from the transfer date. Further, it was submitted that the SCPL has taken over all immovable assets namely plant and equipments movable machinery elaborated equipments etc. on the basis of valuation done by the Government approve valuer or book value whichever is higher. The Ld. Counsel submitted that the Government valuation done at higher it is reflected at Page 78 of the Paper Book which comes to 7.30 crore. The Ld. Counsel further referred the profit sharing composition Clause 4.1 of the agreement by which it was agreed that the trust shall be paid during the terms of agreement a sum equivalent to 40% of the profit before tax or minimum profit or compensation of Rs. 1 crore whichever is higher. The basis for calculation of 40% net profit for the purpose of Clause 4.1 of the agre....
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....Explanation of Sec. 13(2)(d) and 13(2)(g) of the Act as the trust has been benefitted greatly and its deficit of trust duly reduced to a great extent. We also observed that some erroneous presentation of Form No. 10B report does not disentitle the trust for claiming exemption u/s. 11 of the Act. Similarly, the amount of advance of Rs. 54,35,71,980/- in favour of SCPL appearing in the balance sheet was not advance but the reimbursement of the expenses. In the light of the aforesaid facts and circumstances, we are of the considered opinion that the CIT(A) has analyzed the facts correctly and given a judicious finding which does not call for any interference from outside. Accordingly, the same is upheld. Consequently, Ground No. (i) to (iii) of the appeal of the Revenue are therefore dismissed. 9. Ground No. (iv) relates to allowance of set off brought forward losses of the trust against the current year surplus. 10. The AO noticed that the assessee has claimed set off and carry forward of unabsorbed losses/deficit pertaining to A.Y. 2006-07 and A.Y. 2008-09. The income for the above assessment years has been computed as a trust registered u/s. 12A(a) of the Act and deduction....
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....prove its genuineness as a Trust, non-submissions of its books prepared as per the Indian Accounting Standards as demanded by the AO is justified. Thus, the AO has not made a correct interpretation of section 11 and there are no grounds for disallowance of carried forward losses. Thus, I am of the view that the deficit brought forward from A.Y. 206-07 and 2008-09 should be allowed as the A.O's interpretation of Section 11 does not seem to be valid and is not tenable." 12. Being aggrieved the Revenue has filed this appeal. The Ld. Sr. DR relied on the order of the AO. 13. Per contra the Ld. Counsel for the assessee submitted that the issue is covered in favour of the assessee. Therefore, the findings arrived at by the Ld. CIT(A) are in accordance with law. Ld. Counsel further submitted that the issue is settled by the Hon'ble Supreme Court in the case CIT(E) New Delhi vs. Subros Educational Society in Civil Appeal No(s). 5171/2016 dated 16.04.2018. 14. We have heard the rival submission and perused the material available on record. We find that the Ld. CIT(A) has given detailed reason for allowing a set off losses and carry forward of losses on the basis of rulings of Hon'b....
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....ket Committee Pipli 330 ITR 16 (P & H) the claim of depreciation trust has been held as allowable. 18. Considering these facts and placing reliance on the aforesaid case laws and following decision of ITAT 'C' Bench, Ahmedabad decision in the case of Adharshila Education & Charitable Trust in ITA No. 1443/Ahd/2008, A.Y. 2005-06 & 810/Ahd/2009, A.Y. 2006-07, the CIT(A) has allowed the claim of the assessee. 19. Being aggrieved the Revenue has filed this appeal before us. The Ld. Sr. DR has heavily placed reliance on the order of the AO. 20. On the other hand, the Ld. Counsel for the assessee supported the order of the Ld. CIT(A). 21. We have heard the rival submission and perused the material available on record. We find that the issue is covered against the Revenue, but the decision of the ITAT 'C' Bench, Ahmedabad in the case of Adarshila Education & Charitable Trust(supra), and other decisions of Hon'ble High Court relied by the Ld. CIT(A) and also in the case of Sardar Patel Institute of Public Administration in ITA No. 1322/Ahd/2011 for A.Y. 2008-09 and the relevant portion of the ITAT is as under:- "Para 4.....We have considered facts and circumstances of ....