AI Drafter 
TaxTMI 
TaxTMI 
2022 (12) TMI 635
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.... The Commissioner of Income Tax (Exemptions) has erred in concluding that activities conducted by the Trust, and its objectives, are not charitable in nature. 5. The Commissioner of Income Tax (Exemptions) has erred in not granting registration u/s 12A of the Income Tax Act, 1961." 2.1. Subsequently, assessee had raised the following additional grounds : "The order of the Commissioner of Income Tax (Exemptions) rejecting the application u/s 12AA is bad in law in view of it having been passed and sent after the time permitted u/s 12AA(1)(b) of the Income Tax Act, 1961. 2. The order of the Commissioner of Income Tax (Exemptions) rejecting the application u/s 12AA should be treated as invalid and never to have been issued in view of the said order not being in conformity with Circular No.19 of 2019." 3. The grounds raised by the assessee in ITA No.1885/Hyd/2019 read as under : "1. The order of the Commissioner of Income Tax (Exemptions) is contrary to the provision of law and is bad in law. 2. The order of the Commissioner of Income Tax (Exemptions) is erroneous on facts and in law. 3. The Commissioner of Income Tax (Exemptio....
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....d in Form 10A / 10G to appear and produce its original Memorandum of Association (MoA) Trust Deed for verification and to furnish a detailed reply on specific points on or before 18.07.2019. In response thereto, assessee vide letter dt.18.07.2019 had filed certain documentary evidence. On perusal of the evidence filed by the assessee, the application of assessee was rejected by the ld.CIT(E) vide order dt.30.08.2019 treating the same as non-est due to ambiguity with regard to the name of assessee company and also list of directors. Further it was pointed out by the ld.CIT(E) that the assessee is involved in activities which are in the nature of trade and provides services at market rates. Besides that assessee had also violated the provision of section 13 of Income Tax Act 1961, as huge amounts were paid to the directors/ interested persons. 6. Feeling aggrieved with the order of ld. CIT(E), assessee is now in appeal before us. 7. Before us, ld. AR submitted that the activities conducted by the assessee are charitable in nature and that ld.CIT(E) has wrongly rejected assessee's application for grant of registration u/s 12AA of the Act and that the order passed by ld.CIT(E) is....
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.... this regard reliance is placed on the judgement of the Constitution Bench of the Hon'ble Supreme Court in the Case of Dhirajlal Girdarilal Vs. Commissioner of Income Tax, Bombay (AIR 1955 SC 271) wherein it was held as follows; "It is well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises" 8. The Hon'ble Supreme Court in the case of M/S New Noble Educational Society Versus The Chief Commissioner of Income Tax has laid down various guidelines for examination and grant of registration under Section 12AA of the Income Tax Act, 1961. For convenience, para 76 of the Judgement summarizing all the conclusions is extracted below; "76. The conclusions of this court are summarized as follows: a. It is held that the requirement of the charitable institution, society or trust etc., to 'solely' engage itself in education or educational activities, and not e....
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....s, trusts etc. the proviso under Section 10(23C) is not confined to newly set up trusts - it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure. g. It is held that wherever registration of trust or charities is obligatory under state or local laws, the concerned trust, society, other institution etc. seeking approval under Section 10(23C) should also comply with provisions of such state laws. This would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc. This reasoning is reinforced by the recent insertion of another proviso of Section 10(23C) with effect from 01.04.2021. 9. A perusal of paras 76(b), (c), (d) above would clearly show that profit making is not bar for granting of registration under Section 12AA provided such profits are generated in the course of charitable activities and such profits are applied again towards fulfilment of the objects. 10. Sufficient time has elapsed since the application for grant of registration until today. Therefore....
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.... at the stage of registration or approval. 63. Having regard to the plain terms of the second proviso to Section 10(23C), which refers to the procedure for approval of applications including those made by trusts and institutions imparting education, one can discern no such restrictions. From the pointed reference to 'audited annual accounts' as one of the heads of information which can be legitimately called or requisitioned for consideration at the stage of approval of an application, the inference is clear: the Commissioner or the concerned authority's hands are not tied in any manner whatsoever. The observations to the contrary in American Hotel (supra) appear to have overlooked the discretion vested in the Commissioner or the relevant authority to look into past history of accounts, and to discern whether the applicant was engaged in fact, 'solely' in education. American Hotel (supra) excluded altogether inquiry into the accounts by stating that such accounts may not be available. Those observations in the opinion of the court assume that only newly set up societies, trusts, or institutions may apply for exemption. Whilst the statute potentially app....
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....ame of the assessee is different in the ROC certificate, PAN and Form 10A/10G. 3.1 Further. in the applications in Form 10A and 1CG, the name of the Directors are given as follows: 1) Ms. Evita Francesca Fernandez, Director 2) Ms. Leila Inez Campos, Director 3) Mr. Pramod Gaddam, Director. The assessee has filed declarations dated 25 02.2019, in Form 11(5) and 13(1)(c) of the Income Tax Act. of the above Directors. However, the assessee has filed declarations dated 25.02.2019, in Form 11(5) and 13(1)(c) of the Income Tax Act, of the following Directors: 1. Ms.Evita Francesca Fernandez - Chairperson & Managing Director 2. Ms Olinda Timms - independent Director 3. Mr. Ragunathan Kanner - Independent Director 4. Mr. Peter Leslie Martin - Non-Executive Director Further, the acknowledgement of Income Tax Returns for the last three years of the above four Directors have been filed. The assessee has not filed any copy of amendment being registered before the Registrar of Societies." 12. Ld. DR further submitted that from the perusal of the profit and loss account of assessee for the period ending ....
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.... mentioned that it is going to extend the medical facilities to the poor. The words "Not for Profit" does not appear in the MoA. Further. the clause at 5(11) that directors won't take any portion of the profits of the assessee is only to safeguard, but the core charitable object is not demonstrated The relevant clause is reproduced below: "(ii) No portion of the profits, other income or property aforesaid shall he paid or transferred. directly or indirectly, by way of dividend, bonus or otherwise by way of profit. to persons who, at any time are, or have been, members of the company or to any one or more of them or to any persons claiming through any one or more of them." 5. The assessee has submitted a list containing ''Details of Beneficiaries of the activities undertaken". The list contains the name of patient, IP No., Reg. date, Discharge date. No f days stay, address, case type and Healthcare Concession extended. On perusal of the said list, it is observed that the assessee has given concession to 180 patients ranging from Rs. 5,100/- to 12,87,533/-. A total of 27 patients were given concession more than Rs. 1,00.000.1-. However, the assessee has ....
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....e assessee. Just including medical relief in the objects does not confer charitable nature on the assessee. True intent has to be demonstrated. Even after conversion into Section 8 company, the intent of assessee is commercial only. 13. Ld. DR further submitted that the return of income of the directors show the huge amount of receipts for which no details have been filed. He submitted that donations were received by way of cash in violation of Income Tax Act and that the fees collected from Fernandez College of Nursing had not been reflected at all. In this regard, ld. DR drew our attention to paras 5 to 6 of the order of ld.CIT(E). Ld. DR further submitted that the order passed by the ld.CIT(E) is in accordance with law. The ld.DR had also relied upon the written submissions filed by the earlier ld.DR namely, Shri Sai, which to the following effect : "1. At the outset, it is submitted that the grounds and additional grounds taken by the assessee are self-contradictory. On one hand the assessee challenges the order of rejection passed by the CIT(Exemptions) and on the other hand, the assessee challenges that the order was not passed within time stipulated under the Act....
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....placed because the matter before Hon'ble Supreme Court was only with regard to the date of registration, whether it should be six months after the application or the date of application itself. The Hon'ble Supreme Court held that the date of the application is itself the date of registration. The position is correct as per the provisions of the Act also. However, the Hon'ble Supreme Court did not lay down any principles or guidelines as claimed by the appellant. 4. It is also humbly submitted that the reliance on the decision of Hon'ble Allahabad High Court in the above cited case is also of no avail as in the said case, the facts are different. In the said case, the CIT(E) did not grant registration, nor did he reject the application. The assessee filed a Writ petition before the Hon'ble High Court and the Hon'ble High Court stated that because the order was not passed, there is deemed recognition. In the present case, the order was very much passed within stipulated time. Even if the assessee was aggrieved about non-passing of the order, as per the scheme of the Act, no appeal lies to Hon'ble ITAT. It is also pertinent to submit that the said ....
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....th. Examination of the website reveals that there is no inkling of charitable activity even as on date." 14. Ld.DR had submitted that the profile of the assessee is no way similar to "Bill Gate Foundation" and "Tata Sons". He relied upon the information available on the Wikipedia to distinguish the activities of assessee with these organizations. It was the contention of the ld.DR that the said organizations are contributors and applying their business income for the welfare of needy and poor in health, education, nutrition , computer literacy etc, whereas the assessee for the obvious reasons had converted its profit making company into a section 8 company, with a view to seek exemption of income. 15. In support of his arguments, ld. DR has relied on the following case laws : 1) Ananda Social & Educational Trust (114 Taxmann.com 693 (SC) (2020). 2) Jagannath Gupta Family Trust (411 ITR 235 SC (2019). 3) CIT Vs. Muzaffar Nagar Development Authority (371 ITR 209 (All). 4) Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC). 5) CIT Vs. Durga Prasad More (1971) 82 ITR 540 (SC). 6) CIT(E) Vs. Addor Foundation (2020) 117 taxmann.com 35....
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....t all after its conversion or it is extending free medical facilities to the poor and down trodden people. The ld.CIT(E) had meticulously recorded in Para 4.6, that the amount charged by the assessee was far more than the amount charged by other diagnostics centers / hospitals, for similar tests/ diagnostic/ treatment. After recording this, ld.CIT(E) concluded that the assessee is charging for diagnostic / procedure at market rate. 18. The above said finding of ld.CIT(E) was sought to be contradicted by the ld.AR. He firstly submitted that the ld.CIT(E) was only required to restrict for the period from 03.08.2018 to 25.02.2019 and secondly, it was submitted that as per the paper book filed on 05.02.2021, the assessee had given the concessional treatment to 65 indoor patients for Rs.84,48,709/- and had also given the concessional treatment to 5,569 outdoor patients for Rs.39,65,102/- (Page 10). Similarly, it was mentioned by the assessee in the same paper book that the assessee was having surplus of Rs.15,96,02,014/- in the financial year 2018-19 and Rs.34,82,52,005/- for financial year 2019-20. 19. We had considered the submissions of the ld. AR. In our considered opinion, as....
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....he impugned order whereby he held that the assessee was running the activities on commercial basis and that the activities of assessee are not of charitable nature. In our considered opinion, the approach of the ld.CIT(E) cannot be faulted merely because he had examined the data supplied by the assessee at the time of making the application. Further, the ld.AR for the assessee had failed to bring on record any comparative chart of diagnostic charges / procedure charges / test charges prior to the conversion of the assessee into section 8 company and thereafter to show that there was a major reduction in fee / charges charged by the assessee for the above said purposes. As nothing contrary had been brought to the notice of ld.CIT(E), hence in our view, assessee is not entitled for registration or approval under section 10(23C) / 12A of the Act. For the above said purposes, we may fruitfully rely upon the decision of the Hon'ble Supreme Court in the case of Ashwini Sahakari Rugnalaya & Research Centre [2021] 130 taxmann.com 366 (SC), wherein it was held as under : "5. There is a dual reasoning permeating both the orders which seek to deny the exemption. Firstly, that remuner....
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....xygen charges, ECG charges, attendant charges, set charges are taken into account for arriving at the net collection figure and such shares (of 20% - 30% of net collection) have been paid to the concerned consultants (Physical/Specialist/Surgeons). Thus, apart from the consultancy charges received in OPD, the member doctors, some of whom are also Directors, have received shares from the collection made from the IPD patients by the Hospital ranging from 20% to 30%." 9. A reading of the aforesaid leaves no manner of doubt that while referring to the remuneration payable to member doctors with regard to IPD patients receipts, the same is not confined to the doctors performing the task. Learned counsel for the appellant did seek to canvas, despite this, as if only doctors performing the task in the IPD are paid. However, that would run contrary to the own pleading of the appellant specially towards the end of paragraph (xi) extracted aforesaid which makes it clear that the receipts from IPD are distributed across the board for doctors. 10. We are, thus, of the view that the decision on facts made by the competent authority and as affirmed by the High Court cannot be s....
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....argument of ld.DR that the assessee can do charity by either bringing down its profit by providing services at reasonable rate or by utilizing the surplus for helping medical aid / facilities to the poor / needy persons at free of cost. Nothing of this nature, if at all done by the assessee, has been brought to our notice. The assessee had only provided the treatment to 65 indoor patients for an amount of Rs.84,48,709/- and 5,569 outdoor patients for Rs.39,65,102/- on concessional rates and the said amount is a meagre amount when compared to its total revenue collection of the assessee i.e., Rs.141.90 crore for the period under consideration. By that standard alone the activities of the assessee cannot be said to be charitable activities. In a recent decision, the Hon'ble Supreme Court mandates that all private hospitals that had acquired land at cheaper rates must reserve 10% of their in-patient department capacity and 25% OPD for free treatment of poor patients. Though the said decision was rendered in the context of cheap allotment of land but nonetheless, we are of the view that some percentage of free treatment or treatment at concessional rate should be provided by the as....
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....from those who can afford to pay, by providing extra services, far above the cost-plus nominal markup) such activities are in the nature of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to Section 2(15)." (emphasis supplied by us.) 26. In our view, ld.CIT(E) was correct in holding that the assessee is charging on the basis of commercial rates from the patients, either outdoor/indoor and the assessee has failed to demonstrate that the charges / fee charged by it were on a reasonable markup on the cost. Considering the totality of the facts and circumstances of the case, we do not find any error in the decision of ld.CIT(E). Accordingly, the order of ld.CIT(E) is upheld and the appeal of the assessee in ITA No.1884/Hyd/2019 is dismissed. 27. Now coming to the remaining appeals, which are identical to the facts and issues raised in ITA 1884/Hyd/2019, our decision in ITA No.1884/Hyd/2019 would apply mutatis mutandis to other appeals also i.e., ITA Nos.1885/Hyd/2019 and ITA 299/Hyd/2020. Accordingly, all the appeals of a....
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.... Relief of the poor Education Yoga Preservation of environment (including watersheds, forests and wildlife Preservation of monuments or places or objects of artistic or historic inte Advancement of any other object of general public utility Medical relief (ii) 1 b. (i) In case of "advancement of any other object of general public utility", please provide following: (1) Whether it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, fora cess or fee or any other consideration? Whether the activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and Details of receipts from such activity: Yes/1 Yes/1 S. No. Total Receipts Aggregate Receipts from the Activity Percentage to Total Receipts Remarks, if a Details of Author (s)/ Founder (s)/ Settlor (s): S. No. Name PAN Aadhaar No. (if allotted) Address i 1. Substituted by the IT (Sixth Amdt.) Rules, 2019, w.e.f. 5-11-2019. Earlier, Form No. 56 ....