TaxTMI 
TaxTMI 
2026 (4) TMI 1116
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.... under section 9(1) of the Maharashtra Co-operative Societies Act, 1960 and is also registered as a charitable trust under the Income-tax Act, 1961 vide registration under section 12A bearing Registration No. TR-26748 dated 28.12.1988. 3. During the course of assessment proceedings, the Assessing Officer observed that the assessee is engaged in running a hospital and claims exemption under section 11 on the ground of carrying out charitable activities. However, on examination of the trust deed, the Assessing Officer noted that clause (dd) of the objects specifically provides: "To provide for members and their families medical facilities for prevention, diagnosis and treatment of disease at concessional charges." 4. Based on the above clause and the trial balance, wherein "Director's Concession" was debited in case of both the years, the Assessing Officer formed a prima facie view that the activities of the assessee are oriented towards benefiting members and related persons, thereby attracting the provisions of section 13(1)(c) read with section 13(3) of the Act. Accordingly, for A.Y. 2015-16, a reference was made to the Addl. CIT (Exemption) under section 144A, who ....
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....rdingly, exemption under section 11 was denied in entirety and the income of the assessee was treated as taxable under normal provisions. 9. For A.Y. 2016-17, the Assessing Officer followed the same reasoning and approach as adopted in A.Y. 2015-16, holding that concessional facilities to members attract the provisions of section 13(1)(c), and accordingly denied exemption under section 11 and assessed the income under normal provisions. Year-wise summary of assessment is tabulated below: Particulars A.Y. 2015-16 (Rs.) A.Y. 2016-17 (Rs.) Date of filing return of income 29.09.2015 13.10.2016 Income Declared after claiming exemption u/s 11 Nil Nil Director's Concession Rs. 1,56,692/- Rs. 5,29,176/- Date of Assessment Order 28.12.2017 15.12.2018 Assessment Order Passed u/s 143(3) Passed u/s 143(3) Net Profit / (Loss) as per P&L (-) 38,09,629/- 24,77,725/- Additions: Depreciation debited to P&L 1,84,07,109/- 1,49,46,180/- Disallowance u/s 37 4,367/- - Disallowance u/s 40 16,42,863/- 2,55,113/- Disallowance u/s 43B 2,09,675/- 1,24,75,588/- Disallowance u/s 40A ....
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.... 4,87,38,394/- and concession provided to director members was only Rs. 5,29,177/- out of services amounting to Rs. 12,17,175/- rendered to such members. 14. It was contended that such amounts are insignificant and cannot lead to denial of exemption under section 11 in entirety. The assessee further submitted that: * Only about 10% (approx.) of the services were rendered to members, whereas the substantial portion of services was provided to the general public at large. * The hospital is engaged in various charitable activities such as providing concessional treatment, organizing health check-up camps and awareness camps, and implementing schemes like Rajiv Gandhi Jeevandayee Arogya Yojana. * The assessee also provided assistance to economically weaker sections through schemes such as "Indigent Patient Fund" and extended benefits to BPL patients and other needy sections of society. 15. It was therefore contended that the dominant purpose of the assessee is charitable and the activities are genuine and carried out in accordance with its objects. 16. Without prejudice, the assessee submitted that even assuming there is any violation of section 13, ....
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....ilure to discharge this burden justifies denial of exemption. 21. The CIT(A) further upheld the invocation of provisions of section 13 by the Assessing Officer. It was observed that the Assessing Officer had pointed out that benefits were extended to specified persons and the assessee failed to rebut these findings with cogent evidence. In absence of proper verification and supporting records, the CIT(A) concluded that violation of section 13 could not be ruled out. 22. With regard to the issue of set-off of brought forward losses (A.Y. 2016-17), the CIT(A) recorded that the assessee failed to furnish documentary evidence to establish that such losses were determined in earlier years in accordance with law. It was observed that no evidence was produced to demonstrate filing of return under section 139(3), assessment of such losses, or their eligibility for carry forward. The CIT(A) held that as per section 72, carry forward and set-off of losses is permissible only where such losses are determined in pursuance of a return filed under section 139(3). In absence of such proof, the claim cannot be allowed. The CIT(A) further observed that since exemption under section 11 itself ....
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....r contend that the Addl CIT(A) ought to have allowed the exemption under section 11 of the Act in as much as the Assessing Officer or the Addl CIT(A) have not brought anything on record to refute the fact that the appellant-trust is carrying out charitable activities for public at large which is in line with its objects. The appellants further contend that the action of the Assessing Officer is perverse as the same is devoid of any evidence on record. 2. The Addl CIT(A) erred in upholding the action of the Assessing Officer in not allowing set-off of brought forward business loss of Rs. 25,25,822 against business income. The appellants contend that on the facts and in the circumstances of the case and in law, the Addl CIT(A) ought to have allowed the set-off of brought forward business loss against the business income inasmuch as he has not correctly appreciated the facts of the case in its entirety; the same is as per the provisions of section 72 of the Act and hence, the action of the CIT(A) in not allowing the said set-off needs to be reversed. 24. The learned Authorised Representative (AR) of the assessee, reiterating the submissions advanced befor....
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....was placed on the judgement of Hon'ble Karnataka High Court in the case of CIT vs. Fr. Mullers Charitable Institutions(44 taxmann.com 275). The learned AR also submitted that the above view has been affirmed by the Hon'ble Supreme Court in CIT vs. Fr. Mullers Charitable Institutions (51 taxmann.com 378), wherein the Special Leave Petition filed by the Revenue was dismissed. The AR also submitted that the Hon'ble Bombay High Court in DIT (Exemption) vs. Sheth Mafatlal Gagalbhai Foundation Trust (114 taxman 19) held that only the non-exempt income portion would fall in the net of tax... and not the entire income. 29. Placing reliance on the above judicial principles, the AR submitted that even in cases of violation of section 13, the denial of exemption is to be restricted only to the extent of income which is directly relatable to such violation and not the entire income of the trust. 30. The learned AR further pointed out that during the course of assessment proceedings, the Assessing Officer had issued a show cause notice to the assessee as to why the matter should not be referred to the CIT(Exemption) for cancellation of registration granted under section 12A of the Act. It....
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....rendered by the assessee in A.Y. 2016-17 amounted to Rs. 48,73,80,394/-, whereas the concessional portion extended to directors was only Rs. 5,29,177/- out of services of Rs. 12,17,175/- rendered to them. The proportion of such concession works out to approximately 0.25% of the total services provided. Similar factual position exists in A.Y. 2015-16. 37. In our considered view, such a negligible and incidental benefit cannot be construed as diversion of income or application of funds so as to defeat the charitable character of the institution. The dominant purpose of the assessee continues to be charitable, and the activities are overwhelmingly directed towards providing medical relief to the general public. 38. It is also relevant to note that the objects of the assessee, as approved by the competent authority at the time of granting registration under section 12A, specifically contemplate provision of medical facilities, including concessional treatment. Therefore, the act of extending concession, even to members or directors, cannot be viewed in isolation so as to constitute a per se violation of section 13(1)(c), unless it is shown that such benefit is excessive or unreas....
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....ome of an AOP. The phrase 'relevant income or part of the relevant income' in the proviso is required to be read in contradistinction to the phrase 'whole income 'under s. 161(1A). This is only by way of comparison. Under s. 161(1A), which begins with a non-obstante clause, it is provided that where any income in respect of which a person is liable as are presentative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the legislature has clearly indicated its mind in the proviso to s. 164(2) when it categorically refers to forfeiture of exemption for breach of s.13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has for forfeited exemption. It does not refer to the entire income being subjected to maximum, marginal rate of tax. This interpretation is also supported by Circular No.387, dt. 6th July, 1984. Vide the said Circular, it has ' been laid down in para 28.6 that where a trust contravenes s.13(1)(d), the maximum marginal rate of Income-tax wil....