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2022 (2) TMI 938
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....2 of the I. T. Act, which is contrary to the law." 3. "Whether, on the facts and in circumstances of the case and in law, the Ld. CIT(A), Mumbai has erred in allowing relief of Rs. 3,58,200/- without appreciating fact that the assessee trust is charitable trust and given donation to religious trust." 4. "The appellant prays that the order of the Commissioner of Income Tax (Appeals)-3, Mumbai be set aside and that of the Assessing Officer be restored." 3. Brief facts of the case are as under :- The assessee-trust had e-filed return of income on 29.09.2014 declaring total income at NIL income. The trust is registered with the Director of Income Tax (Exemption), Mumbai u/s.12A under registration No.TR/H(a)/33/74-758 of the Income Tax Act, 1961. The trust is also registered with the Charity Commissioner, Mumbai. The main object of the trust is: i) Operating, Running, Continuing educational and vocational school ii) Establishment & support of Professorships, Instructorships, Fellowships, Lectureships, Scholarships and prizes at any schools, colleges or other educational institutions. iii) Establishment & Maintenance of hostels and/or bo....
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....t making concern. Therefore, Hinduja Healthcare Pvt Ltd has an incentive to increase its profits by paying lower lease rental value to the assessee. Through this, assessee foundation will have lower income at its disposal for charitable activities and the Lessee would increase its profit thereby increase its net worth. The Return on investment for HHPL will he much quicker with lower lease rentals. The Lessee (HHPL) also claims depreciation on the assets invested and it has the facil ity of utilizing the hospital building at a lower than market value." 6. The Assessing Officer sought assessee's response in this regard. However he was not satisfied with it. He observed as under : "The assessee has leased the property of the trust to M/s. Hinduja Healthcare Pvt. Ltd., and the confirming party of the lease agreement is M/s. Hinduja Realty Ventures Ltd (HRVL). It is also pertinent to mention that Charity Commissioner has given permission of leasing property of the trust to M/s.Hinduja Realty Ventures ltd. However, the assessee has given the property on lease to M/s. Hinduja Healthcare Pvt. Ltd. 6.6.2 Names of the Trustee of the trust are as under: 1) Srich....
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....the Managing Trustee of the assessee trust. And Smt. Harsha Hinduja is also one of the trustee. And other trustees, namely, Shri. Srichand P. Hinduja, Sareeta S. Hinduja, Gopichand P. Hinduja, Prakash P. Hinduja are the relatives of Shri. Ashok Hinduja 85 Smt. Harsha Ashok Hinduja. Therefore, Hinduja Healthcare Pvt.Ltd. and assessee trust are covered u/s. 13(3)(cc) 8& 13(3)(e) of the I.T. Act, 1961. Shri. Ashok Premanand Hinduja 8& Smt. Harsha Ashok Hinduja hold more than 70% stake in M/s.Hinduja Healthcare Pvt Ltd. 6.12 Therefore, the assessee has failed to disclosed fully and truly materials facts in respect of trustees and their family members that they are substantial shareholders in Hinduja Healthcare Pvt Ltd; either in the return of income or Tax Audit report/notes to accounts necessary for assessment in the context of lease rent payment to HHPL as per provision of section 13(3) of the IT Act. 6.13 The fact that Charity Commissioner, Greater Mumbai has approved the lease deed is not of much relevance here as the mandate of the Charity Commissioner is not to evaluate the scheme over tax planning but is only to see whether the funds of the charity are not util....
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....sing Officer observed that the assessee is not running its affairs on charitable lines, therefore, the assessee-trust is not entitled to the benefit of exemption under Section 11 of the Act. He referred to the decision of Bangalore Tribunal in D.R. Ranka Charitable Trust Vs. DIT(E) (3 ITR 151) and Chennai Bench of the ITAT in Aurolab Trust Vs. CIT (46 SOT 125). He made a general observation that the assessee is not following the main objects. That the hospital is virtually running by the HHPL which are corporate bodies established with the clear intention of profit motive. After giving general theory about the charitable trust and what is not charitable the AO rejected the assessee's argument that the assessee is registered under section 12A and hence, it is eligible for exemption under section 11 of the Act. He referred to the decision of Honourable supreme court in the case of Queen's Education Society Vs. CIT (2015-TIOL-20-SC-IT) for the proposition that the assessing authority must continuously monitor from assessment to assessment year whether such institution continues to apply their income and invest or deposit their funds in accordance with the law laid down and if the acti....
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....osit to the assessee trust due to trustees and their relatives are substantially interested in the concern HHPL. Hence, he held that the assessee is not eligible for exemption under section 11 of the Act. In this regard he referred to the decision of Ho'ble Delhi High Court in the case of Pt. Kanahyalal Punj Charitable Trust Vs. DIT(E). Thereafter the Assessing Officer further observed upon the genuineness of the activities. He noted that the assessee trust got the land free of cost as donation from Bawa Baldeodas Beragi. That thereafter the assessee trust has taken corpus donation from group concerns. He observed that if the assessee has taken corpus fund it mean public money is invested by way of corpus and the company's claim 80G deductions on that corpus amount. He proceeded to hold that after completing the hospital building the assessee trust has made the application to charitable commissioner for leasing out of the hospital building due to the trust has not required expertise to run such a huge hospital. That this is nothing but only tax planning to dubious method for colourable devices. He held that the fact that Charity Commissioner, Greater Mumbai has approved the lease d....
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....on, whether the assessee trust is owner of property or M/s. Hinduja Healthcare Pvt Ltd. As per provision u/s. 11(1) of the I.T. Act. The income derived from property held under trust but in the instant case, property is actually transferred to M/s. Hinduja Healthcare Pvt Limited (HHPL) by way of lease deed." (5) Firstly, it was that the assessee trust has given the lease hold right of the space for a period of 66 years. Therefore, held that if the transaction is held to be a real lease, the assessee would be entitled to receive the lease rent but same is not applicable in the instant case as the here assessee has indirectly transfer the lease rights in the form of Hospital Building. (6) The transactions also constitute a transfer of a capital asset in view of section 2(47)(vi) read with section 269UA(d) and (f) of the Act is also well founded. 10. In this regard after referring to section as above. He held as under :- "7.5 Considering the facts of the case, the assessee has transferred the hospital building by way of lease rent for dubious method. As the assessee has received the lease rent measure of Rs. 1.50 crores and other misc. expenses which resu....
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....s of the case, the activity of the assessee trust is not genuine and is not carried out in accordance with objects of trust. Hence, the assessee trust is not entitled to claim exemption u/s. 11 of the I. T. Act. 8.4 In view of the above, exemption under section 11 is not allowed to the assessee and rent income chargeable to tax at maximum Marginal rate under section 164(2) of the I.T. Act." 12. Thereafter the Assessing Officer noted that the assessee has made donation to certain religious trust to the tune of Rs. 4,24,481/-. The Assessing Officer was of the opinion that such donation to the charitable trust is not objective of the assessee trust. He was not satisfied the assessee's response and disallowed the same holding that the donation given by the assessee is not corpus in nature with specific direction. These directions are normal donations given by the assessee to these trust. 13. Thereafter the Assessing Officer referred to the reimbursement expenses. He observed that the assessee was asked to explain nature and details of reimbursement from PD Hinduja National Hospital & Research Centre (PDHNHRC) and how and where these receipts were taken into account. The ....
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..... 13(3) of the I.T. Act and assessee's transaction with the concern is not genuine. Hence, he held that the benefit of section 11 & 12 will not be available to the assessee. Also the reimbursement expenses to the tune of Rs. 1,98,71,842/- is denied. Against this order the assessee's appeal before ld CIT(A). Ld CIT(A) dealt with various aspects of the appeal and finally partly allowed by holding as under. 14. As regards, the AO's adverse inference on lease rent. Ld.CIT(A) concluded as under:- The above findings lead to a conclusion that:- a) The lease is not a transfer u/s.2(47) of the Income Tax Act, as there is no involvement of salami / premium. b) The lease agreement is approved by the Charity Commissioner u/s.36(1)(b) per his orders dtd. 31,03.2010 and 15.12.2010, The approval conferred by the charity commissioner per the said orders is also in respect of adequacy of the lease rent, interest free refundable security deposit obtained by the assessee and other terms & conditions as contained in the tripartite lease agreement dtd. 2 1 . 1 2.201 0 entered into by the appellant with Hinduja Healthcare Pvt. Ltd. and Hinduja Realty Ventures Ltd. The AO....
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.... the agreement of sale as evidenced by the apparent consideration being lower than the fair market value by 15 per cent, or more. Further, the property was sold after inviting offers from the public at large by giving advertisement in the newspaper and that too after proper -verification by the statutory authority under the Bombay Public Trusts Act. Even after executing the agreement to sell, objections are invited as provided under rule 24. Hence, in such types of cases, even if some lower amount is received, it would not mean that power to purchase the said property under section 269UD of the Income-tax Act can be exercised by the authorities under Chapter XX-C as it would be difficult to draw a presumption that there was an attempt to evade tax. This is made abundantly clear by the Supreme Court in the case of C.B. Gautam v. Union of India [1993] 199 ITR 530 . Now I come to the issue as to whether the trustees of Hinduja Foundation, namely, Mr. Ashok P. Hinduja & Mrs. Harsha A. Hinduja, who are fiduciary shareholders of HGL have derived any benefit from the above lease to HGL's step down subsidiary HHPL. In this background, one has to refer to the provisions of sect....
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....planation (a), two conditions have to be fulfilled, namely (i) that the person has to be the beneficial owner of the shares and (ii) those very shares have to carry not less than 20% of the voting power. It is only when these two conditions are fulfilled that explanation (a) can be pressed into service. In the facts before us, if we were to accept the submission of the Revenue. then we would have to hold that HDFC Ltd. is the beneficial owner of the 6.25% shareholding that HDFC Investments Ltd. has in the Petitioner. This 6.25% shareholding of HDFC Investments Ltd in the Petitioner is the movable property and an asset of HDFC Investment Ltd. That would mean that HDFC Ltd. holding 100% shares of HDFC Investments Ltd., would have to be construed as the beneficial owner of the properties/assets of HDFC Investments Ltd- This can never be the case because that would be contrary to all canons of company law as well as the decisions of the Supreme Court in the case of Guzderand Vodafone International Holdings BV (supra). This being the case, HDFC Ltd., by no stretch of the imagination can be said to be the beneficial owner of the shares that HDFC Investments Ltd. holds in the Petitioner. ....
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....tartling results. It is now welt settled that whilst interpreting a statutory provision, an interpretation which would lead to an absurdity, should always be avoided. This is yet another reason why we are unable to accept the submission of the Revenue that this particular transaction would fall within the meaning of a SDT as understood and set out in section 92BA (i) of the I. T.Act." Even otherwise, following the above decision, the beneficiaries of Param Jamuna Trust and Aasia Trust cannot be said to have any substantial interest in HHPL. Under the circumstances, the contentions of the AO fail & therefore, the parties herein are not covered as related parties for the purposes of section 13(3) of the Income Tax Act and therefore, even on this count addition on account of lease rent made cannot be sustained. The AO is directed to delete the said addition. Coming to the issue of genuineness of activity, the AO has erred in giving a finding that the accumulated income has not been spent for the objects of the trust. One of the objects for giving charitable institution the laxity of spending accumulated income within the period of 5 years is essentially for this purp....
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....s was reimbursement of expenses for providing services of senior functionaries. Along with this the assessee had also furnished ledger accounts and debit notes raised by it on PDNHRC towards reimbursement of these expenses. The amounts so reimbursed were credited to the head of the respective expenditure incurred. In the said communication, the assessee had also mentioned that it has an.MOU with PDNHRC in respect of the above arrangement for reimbursement. The appellant has also furnished a detailed analysis of the debit notes raised for reimbursement along with the costs incurred by it, as referred in the appellant's submissions. The analysis will reveal that this is a case of reimbursement of actual cost incurred by the assessee. This is as per Memorandum of Understanding dtd.16.03.1994 r.w. the another document dtd.01.10.1986. During the course of the appellate proceeding the appellant has also drawn my attention to the fact that PDHNHMRC was subject matter of survey action u/s.133A of the Income Tax Act on 04.10.2010 for verification of proper TDS compliance. In this survey undertaken by the TDS Wing of the Income Tax Department, one of the transactions was pertain....
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.... held that payments made to the Hinduja Foundation was towards reimbursing the salaries of Senior Management Personnel deputed by Hinduja Foundation to the assessee - hospital. All these personnel were on the pay-roll of the Hinduja Foundation and they got all the benefits from the Foundation. In turn, the Foundation raised a debit note towards actual cost of employment and accordingly the assessee made the payments to the said Foundation and which was therefore clearly in the nature of reimbursement. It was in these circumstances, and after hearing the parties and perusing the material on record, the ITAT concurred with the findings of the CIT(Appeals). In these circumstances, the ITAT opined that the payments made by the assessee to the Foundation were not in the nature of fees for technical services and therefore confirmed the order passed by the CIT(Appeals). 23. On going through the findings given by the CIT (Appeals) as well as the ITAT on this issue, we find that both the authorities below have given their findings on the basis of facts presented before them- We find that the authorities below are fully justified in coming to the conclusions that they did, namely, t....
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....ungry.' Since that time ISKCON devotees have expanded a global network of free food restaurants, mobile services and relief programs establishing daily delivery routes in many large cities around the world b) Currently, Food for Life's largest programs are in India. More than 1.2 million school children are a served multi-course hot, healthy, and tasty lunch six days a week in cities throughout the sub-continent, through a partnership with the Indian government for the 'Mid-day Meal' scheme. Education administrators have stated that the ISKCON Food for Life program, known locally as Annamhta, actually facilitates many poor children to attend school. Otherwise, they explain, without the program the children would be forced to work as child laborers to earn enough to eat for the day. Midday Meal is a strategic program of the Government of India, and is being implemented by ISKCON Food Relief Foundation (IFRF) under the brand name -"annamhta" in select schools across the country. The aim of this project is to liberate children from the vicious cycle of Malnourishment and Illiteracy. Annamrita serves 1.2 million meals every single day, through its 20 kitchens a....
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.... by the assessee is very low as compared to the valuation fixed by the stamp valuation authority. Furthermore, he submitted that the property has been leased to the concern in which trustees are interested. Hence, it is submitted that AO was correct in his observation that there is violation of law. He further relied upon the order of AO regarding the other aspect of AO finding and observations. 19. On the other hand, Ld. Senior counsel for the assessee Shri Percy Pardiwala submitted that the order of Ld.CIT(A) is appropriate. He submitted that assessee's transactions have all along been accepted and on the basis of same transactions in earlier assessment years no adverse inference was taken by the AO. He submitted that there is no change in facts and laws in this year. Hence, he submitted that AO cannot take a divergent stand on the same facts in this year. In this regard, the place last upon following case laws. 1. The Apex Court Judgement in case of Parashuram Pottery Works Co. Ltd. Vs ITO [1977] 106 ITR 1 (SC) 2. The Apex court decision in case of Radhaswami Satsang [1992] 193 ITR 321 (SC) 20. He further submitted that as regards, the AO observation that....
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....omplying with all the formalities being a trust and property being a trust property, as required under the BPT Act, based upon the proper valuation of the property considered and decided and sanction by the competent authority just cannot be overlooked without any contra material to justify to challenge the said valuation, in a case like this, where the sanction is granted by the authority under the BPT Act. In Om Shri Jigar Associations. Union of India T19941 2Q9 ITR 608 (Guhati Bench of the Gujarat High Court considering similar provisions of the Income-tax -Act, as well as, the BPT Act has observed as under (page 613): "In the light of the aforesaid facts, it is apparent that there was no reason for the Appropriate Authority to resort to the provisions of Chapter XX-C of the Income-tax Act. It would be difficult to arrive at a conclusion that there is significant undervaluation of property to the extent of 15 per cent, or more in the agreement of sale as evidenced by the apparent consideration being lower than the fair market value by 15 per cent, or more. Further, the property was sold after inviting offers from the public at large by giving advertisement in the newspa....
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.... reimbursement. This fact is also arising out of the detailed observation of the Hon'ble Bombay High court referred in the order of Ld.CIT(A) above. We may gainfully refer to decision of Hon'ble Bombay High Court in ITA Nos. 105,116,112,115,121 & 128 of 2016 vide order dated 22.2.2019 which read as under:- "21. Question (d) basically relates to payments made to Hinduja Foundation for its employees who had rendered services to the assesse in key managerial positions. It was the case of the assesse that these payments are to be treated as a reimbursement and not as payment towards professional fees which would require TDS to be deducted under section 194J of the I.T.Act. The CIT (Appeals) noted that the Hinduja Foundation charges the salaries (and other allowances) to the assessee on actual basis and there is no further markup (either as a percentage of such charges or otherwise) paid by the assessee to the Hinduja Foundation. The personnel deputed by the Hinduja Foundation to the assessee are all highly qualified persons who are deputed to man senior management positions of the assessee - hospital. These highly qualified persons are paid by the Hinduja Foundation and it is ....