IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH ‘B’: NEW DELHI)
BEFORE SHRI U. B. S. BEDI, JUDICIAL MEMBER
SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
ITA No.2016/DEL/ 2011
(Assessment Year: 2005-06)
Laxmi Nagar Distt. Centre
District 321A Lions Service Trust
ASSESSEE BY: Shri K. Sampath, Adv,
REVENUE BY: Mrs. Y. Kakkar, Sr.DR.
PER T. S. KAPOOR,AM:
This is an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-XXI, New Delhi dated 20.01.2011 for the assessment year 2005-06. The grounds of appeal taken by Revenue are as under:
“1. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in holding that the amount received by the assessee from M/s. Delhi Urological Associates (P) Ltd. was in the nature of contribution for charitable activities, whereas the same was clearly business profit as per the ratio specific in the agreement dated 25.03.2004 executed by the assessee with M/s. Delhi Urological Associates (P) Ltd.
2. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred to hold that the amount received from M/s. Delhi Urological Associates (P) Ltd. could not be treated as business income liable to tax in the hands of the assessee, particularly when major part of the same income constitutes business income in the hands of M/s. Delhi Urological Associates (P) Ltd.
3. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in holding that hospital expenses and addition to fixed assets amounting to Rs.8,28,465/- and Rs.53,750/- respectively would be allowable for charitable purpose particularly when charitable activity carried on by the assessee is being contested in this appeal.
4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
2. The brief facts of the case are that return of income was filed on 09.02.2006, declaring Nil income. As per assessment order, the assessee is registered u/s 12A and is also availing the benefit of section 80-G. The trust was made on 24th day of October, 1980. Apart from other charitable activities the trust activities include running of a hospital, which has about 50 beds, and which has various facilities including Ophthalmology, Urology and Nephrology, General Medicine, Gynecology, ENT, Dialysis etc. The case of assessee was selected for scrutiny.
3. During assessment proceedings, the AO observed that assessee had entered into an agreement with M/s Delhi Urological Associates (P) Ltd. vide agreement dated 25.03.2004, whereby, the control of the hospital had been given to company for the purpose of managing, controlling and running of the hospital. The AO further observed that as per clause 6(ii) of the agreement, net annual surplus if any after accounting for all expenses and taxes was to be shared between the Trust and Company in the ratio of 15:85 till March, 2007 and afterwards in the ratio of 20:80. The AO held that the terms and conditions of agreement confirmed that trust had lost all the controls over the hospital and, therefore, it cannot be said that the trust was engaged in running hospital and doing charitable activities within the meaning of section 2 (15). He further held that 85 % of net profit is diverted towards company which is a private limited company and thus the activities of trust cannot be said to be charitable activities.
4. The AO also directed the assessee to produce books of accounts and vouchers for examination to which the assessee replied as under:
“We have produced books of accounts of the Trust, Lions eye centre for perusal. However, the books of Lions kidney hospital and Urology institute where accounts are merged into the trust accounts are not being produced because of dispute with them. We are unable to produce the same.”
In view of the above facts and circumstances, the AO assessed the assessee in the status of an AOP at maximum marginal rate.
5. Dissatisfied with the order, the assessee filed appeal before CIT (A) and submitted as under:
“That the trust has been carrying on charitable activities ever since its setting up, to the best of its ability. That due to limited resources it had become necessary to close down several disciplines and sometimes it did not even have the resources to provide the consumables. That it was impossiblefor trust to collect contributions and donations from various sources for the purpose of augmenting the facilities. That to overcome the financial difficulties it entered into an agreement to upgrade the facilities at the hospital. That there is no commercial consideration in the entire transaction. Whatever is received by way of fixed contributions each month and in the form of variable contributions annually in the event of there being a surplus, are wholly and exclusively deployed for the purpose of charity. That no part of such sum or any part of any other sum belonging or coming to possession is ever deployed for anything other than realization of charity. That regarding complaint of AO regarding production of books of accounts of the company. It is submitted that, we do not have control over that company and we are unable to produce books of accounts belonging to that company but the books of Trust Lions eye centre were produced.”
6. The Ld. AR after going through the submissions of assessee deleted the additions made by AO by holding as under:
“3.2 I have gone through the finding of the AO in the assessment order and Ld. AR’s written submission vide letter dated 16.04.2010. After going through the details of the Management Contribution received from DUAPL, it is found that it is found that it is purely in the nature of contribution to charitable activities. It cannot be termed as business income.
Furthermore, assessee’s reliance on the judgment of the Hon’ble Madrad High Court, reported at 315 ITR 422 in the case of Orient Hospital Ltd. and again Hon,ble Madras High Court judgment reported at 262 ITR 241 in the case of Director of Income- tax (Exemption) A. M. M. Hospitals and Medical Benefit Society is very much in favour of the assessee; especially in the case of A. M. M. Hospitals and Medical Benefit Society, reported at 262 ITR 241, where it has been very convincingly held by the Hon’ble Madras High Court that it was not in dispute that assessee existed solely for philanthropic purposes and not for the purpose of profit. All income from all sources received by the assessee was exempt. After putting my reliance on the above said judgment, it is held that assessee’s activity was for philanthropic purposes. So, action of the AO treating it not in the nature of charitable activities within the meaning of section 2(15) of the IT Act is absolutely misconceived. Hence grounds no. 1 to 4 are allowed.
4. Ground no.5 is against the action of AO by not allowing hospital expenditure and addition of fixed assets against total receipt of Rs.19,92,841/-. In this regard assessee vide submission dated 16.04.2010 has submitted as under:
“Ground 5 is with regard to the action of the AO in refusing to allow hospital expenses of Rs.8,28,465 and addition to fixed assets at Rs.53,750 against total receipts of Rs.19,92,841. This, he does by keeping away the claim for setoff of the expenses on Ophthalmology activities, which are solely for charity. The AO has assigned no reason for disallowing these expenses. There is not a whisper of an allegation in the assessment order about activities in Ophthalmology not being run on a charitable basis. The disallowance is thus, arbitrary and misconceived, and deserves to be annulled.”
4.1 After going through the details filed by the Ld. AR it is found that claim of set off of the expenses are for Ophthalmology activities which are solely for charity purposes. Therefore, disallowance made by AO on this account is totally misconceived, hence deleted.”
7. Aggrieved, the Revenue is in appeal before us. At the outset, the Ld. DR brought before us the facts of the case from the assessment order and in view of the facts he submitted that assessee was not involved into charitable activities, since only 20% of the income of hospital was received by assessee. Therefore, the assessee was not spending 85% of the total income for charitable activities. Quoting from agreement, the Ld. DR submitted that out of six management executives four were from company and two were from trust and, therefore, assessee had no control over the functions. Clause 19 and clause 29 was read by Ld. DR and it was argued that assessee was paid a fixed amount per month and the agreement was for 15 years and in case of termination of agreement the name of hospital will remain with the company. In view of the above, the Ld. DR argued all the terms and conditions of agreement has been settled on commercial basis and there is no charitable activity on the part of the trust, in this respect section 2(15) was also read. It was also argued that CIT (A) did not go into the findings of AO therefore, the order of CIT (A) order was illegal and against the facts of the case. The Ld. DR further argued that books of accounts and vouchers were not produced and in the absence of the books and vouchers how CIT )A could hold that activities were of charitable nature. It was further argued that CIT (A) had not seen whether the income was being spent or was being accumulated.
8. Continuing her arguments, the Ld. DR submitted that the transaction was purely of commercial nature and activities of the assessee were not genuine and in this respect reliance was placed on a number of case laws:
a) CIT vs Truck Operators Union-328 ITR 36
b) 25 Rural Mobile Commerce Services vs DIT (Exemption)- 128 ITD 177 (Banglore)
c) Allahabad Agricultural Institute vs. Union of India & Others- 291 ITR 116(Allahabad)
9. The Ld. AR on the other hand submitted that assessee is enjoying benefit u/s 12A and 80-G even today. The trust was set up for charitable activities but due to financial difficulties and due to liabilities the assessee had made deliberate choice to utilize the assets of trust in such a way so as to pay off its liabilities and further earn income, which could be utilized for the purpose of charitable activities.
10. Continuing his arguments the Ld. AR submitted that infact the assessee had rented out its property consisting of hospital and Ld. CIT (A) had understood the whole system and, therefore, had rightly deleted the addition made by AO. In her rejoinder, the Ld. DR submitted that additions to assets in the balance sheet shows that addition has been made in water cooler and in typewriter etc. and in view of that she argued that how the addition of these assets can constitute carrying out of charitable activities.
11. We have heard the rival parties and have gone through the material placed on record. We find that the trust had its hospital and equipments but due to financial difficulties and liabilities had entered into an agreement with the company to run the hospital successfully and on a sharing basis by which it was to receive Rs.1,00,000/- per month plus 20% of the net surplus if any after expenses. Therefore, the income of the trust consisted of only monthly rent plus share in surplus. The AO has not brought out anything to highlight that the amount so earned by trust was not spent on charitable activities. From the income and expenditure account, we find that trust had excess income over expenditure amounting to Rs.63,107/- which it had spent for making additions to the fixed assets. There is no adverse finding by AO regarding the correctness of accounts of the assesee. As regards production of books of accounts, the assessee had duly furnished the same relating to Eye Centre and trust which AO himself had mentioned in the assessment order.
The case laws relied upon the by Ld. DR are distinguishable from the facts and circumstances of the present case. In the case of Rural Mobile Commerce Services, the registration u/s 12A was cancelled which is not in the present case. In the case of Allahabad Agricultural Institute, the objects of the trust were altered. Similarly the case law of Truck Operators Union is different as the Association was not formed for advancement of object of general public utility.
In view of the above, we do not find any merit in the appeal filed by Revenue the same is dismissed.
Order pronounced in Open Court on 17th /05/ 2013
(U. B. S. Bedi) (T.S. Kapoor)
Judicial Member Accountant Member
Dated the 17th day of May, 2013
Copy forwarded to:
4. CIT (A)
5. CIT (ITAT), New Delhi.