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2025 (2) TMI 1495
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....r section 12A of the Income-tax Act, 1961, vide Registration No. TR-30884 dated 28.12.1994, and claiming exemption under section 11 of the Act. 3. The assessee trust was constituted with charitable objects, inter alia, to manage, promote, aid or run hospitals, dispensaries, maternity homes and to carry out medical research. In furtherance of its objects, the assessee trust acquired land measuring about 16 acres at Pune and constructed a hospital building along with service structures and staff residential quarters. 4. According to the assessee, it did not have the requisite expertise to run and manage a full-fledged hospital. Therefore, after completion of construction, it decided to lease out the hospital building and staff quarters to Aditya Birla Health Services Ltd. for the purpose of management, administration and maintenance of the hospital. The lease was granted for a period of 29 years. 5. The Assessing Officer noted that Aditya Birla Health Services Ltd. is a company belonging to the Aditya Birla Group and that trustees of the assessee trust and their relatives were substantially interested in the said company. It was therefore treated as a related concern within ....
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.... observations regarding the genuineness of the activities of the trust and alleged that the entire arrangement of leasing out the hospital to a group concern was a colourable device and a scheme of tax planning, whereby corpus donations were collected from group concerns, hospital property was constructed, and thereafter leased to a related entity at low rent. 11. For both the years under consideration the assessments were completed u/s 143(3) of the Act. The year-specific details are summarised in the following table: Particulars A.Y. 2016-17 A.Y. 2017-18 Date of filing return of Income 04.10.2016 31.10.2017 Date of assessment order u/s 143(3) 27.12.2018 25.12.2019 Rent declared by assessee Rs. 4,20,00,000/- Rs. 4,09,11,870/- Rent adopted by AO Rs. 6,62,36,208/- Rs. 6,95,48,018/- Total income assessed Rs. 4,01,44,154/- Rs. 3,77,73,813/- 12. The assessee preferred appeal before CIT(A) in case of both the years. The CIT(A) after considering the assessment orders and the submissions of the assessee, held that the assessee had not violated the provisions of section 13(2)(b) read with section 13(3) of the Act. He recorded a fi....
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..... On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim of exemption of Rs. 29,33,333/- being the interest income accrued but not received during the previous year when as the assessee followed the mixed system of accounting i.e. cash system for receipts and mercantile system for expenses without appreciating the fact that the assessee is a company registered u/s 25 of the Companies Act, 1956 and was statutorily required to follow mercantile system of accounting. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim without appreciating that the auditor in its report in accounting policies and notes to accounts has specifically mentioned that the foundation follows mercantile system of accounting and recognizes income and expenditure on accrued basis except leave encashment liability which is accounted on payment basis. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim of accumulation of income u/s 11(1)(a) without appreciating the fact that in the return of income & form....
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....-tax Act, 1961 means section 11 & 12 of the Income-tax Act, 1961 will not applicable and thus trust income will be computed as per the normal provisions of the Income-tax Act, 1961. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim of accumulation of income u/s 11(1)(a) & 11(2) without appreciating the fact that in the return of income & form 10B, deficit has been claimed leaving no scope of accumulation u/s 11(1)(a) and 11(2) of the Act which is permitted for specific purposes. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to allow assessee's claim of accumulation of income u/s 11(1)(a) & 11(2) without appreciating that once the assessee was hit by section 13(1)(c) and 13(2)(a) & (b) of the Act, exemption u/s 11 of the Act, including benefit of exemption u/s 11(1)(a) and 11(2) could not be allowed. 6. The appellant craves leave to add, amend, alter vary and/or withdraw any of the grounds of appeal. 15. The learned Authorised Representative (AR) made submissions before us in accordance with the grounds of appea....
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....e of allowability of exemption under section 11. It was contended that if the main grounds relating to exemption under section 11 are decided in favour of the assessee, then the consequential grounds are also required to be allowed. 19. The learned Departmental Representative, on the other hand, relied upon the orders of the Assessing Officer in case of both the years. Findings on Grounds relating to Denial of exemption under section 11 and lease rent issue (Ground No. 1 to 3 in both the years) 20. We have carefully considered the rival submissions, perused the material available on record, and examined the assessment orders, the impugned orders of the Commissioner of Income-tax (Appeals), and the documents placed before us. 21. The principal issue arising for adjudication in both the assessment years is whether, on the facts and in the circumstances of the case, the assessee trust is liable to be denied exemption under section 11 of the Income-tax Act, 1961, on the ground that it has violated the provisions of section 13(1)(c) read with section 13(2)(a) and (b) by leasing its hospital building and staff quarters to Aditya Birla Health Services Ltd., allegedly a related....
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....terial on record, has upheld the view that Aditya Birla Health Services Ltd. is not a related concern within the meaning of section 13(3) and that the provisions of section 13 are not attracted. The relevant findings of the Co-ordinate Bench, as relied upon before us, read as under: 22. Upon careful consideration we note that after examining shareholding pattern of the person specified, learned CIT(A) has given a finding that clause (a) to (d) of section 13(3) of the Act are not applicable. Further learned CIT(A) has given a finding with respect to section 13(3)(e) of the Act the said clause is not applicable here. Learned CIT(A) has given a finding that he has examined the shareholding pattern of ABHSL and also compared the same with the list of the trustees of the appellant trust. He has found that Mrs. Rajshree Birla, Mr. B.L. Shah and Mr. Ashwin Kothari are the three people who are the Trustees of the Appellant Trust and shareholders of ABHSL. That however, the total shares held by these three persons collectively are 30 shares as compared to the total share capital of 50,000 shares of ABHSL. That thus, even collectively, the shareholding of the Trustees in ABHSL is fa....
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....acts on record, applied the law properly, and followed the binding precedent of the Tribunal in assessee's own case. We find no infirmity in the conclusion of the CIT(A) that the provisions of section 13 are not attracted and that the assessee is entitled to exemption under section 11. Consequently, the action of the Assessing Officer in denying exemption under section 11 and in adopting notional rent in place of the actual rent received is not legally sustainable. 29. Thus, respectfully following the binding decision of the Co-ordinte Bench in assessee's own case for earlier assessment years and in the absence of any distinguishing facts brought on record by the Revenue, we uphold the orders of the CIT(A) on this issue for both the assessment years under consideration. Findings on Ground Nos. 4 and 5 for A.Y. 2016-17 (Interest income accrued but not received) 30. We have carefully considered the rival submissions and perused the material available on record. The issue arising for adjudication under Ground Nos. 4 and 5 for Assessment Year 2016-17 is whether the interest income of Rs. 29,33,333/-, which had accrued in the immediately preceding year and was received during t....
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.... were accounted for on receipt basis during this year should be reduced. The resultant figure should be added to the income of the assessee. 34. From the above extract, it is evident that while upholding the principle that interest income is taxable on accrual basis, the Co-ordinate Bench has categorically directed that, in the year of transition, suitable adjustment must be made so that interest income of earlier year, which is brought to tax on receipt basis in the current year, is reduced from the interest accrued for the current year, so as to avoid taxing the same income twice. 35. In the present year, the assessee has specifically demonstrated that interest income of Rs. 29,33,333/- had accrued in A.Y. 2015-16 and was received and offered to tax in A.Y. 2016-17 on receipt basis. It has also been placed on record that, from A.Y. 2016-17 onwards, the assessee has shifted to offering interest income on accrual basis, in order to bring its method of accounting in conformity with the view taken by the Tribunal in earlier years. 36. In our considered view, once the Co-ordinate Bench has already laid down the principle in assessee's own case that interest is taxable on accr....