1 ITA NO. 1225/DEL/2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `B' NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A .No.-1225 /DEL/2015
(ASSESSMENT YEAR-2010-11)
Institute of Haematology vs ADIT (E)
11/6B Trust Circle-II
Shanti Chambers, Pusa Road, New Delhi
New Delhi
AAAT14267P (RESPONDENT)
(APPELLANT)
Appellant by Sh. T. R. Talwar, Adv.
Respondent by Sh. Amrit Lal, Sr. DR,
Date of Hearing 10.12.2015
Date of Pronouncement
14.01.2016
ORDER
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated
29/12/2014 passesd by the Ld. CIT (A) 40, New Delhi.
2. The grounds of appeal are as follows:-
"1. In denying the exemption u/s 11& 12 of the Income Tax
Act when the assessee trust is registered u/s 12A & also
registered u/s 80G of the IT Act and when there was
compliance with objects of the trust by using the income
2 ITA NO. 1225/DEL/2015
for charitable purposes and the trust having been
exempted in the past.
2. In not restricting the addition to Rs.2,22,000/- being the
interest on the advances given to the specified persons in
violation of the provisions of Section 13(1) (d) r.w.s. S 13
(3) and S 11 (5) of the IT Act and taxing it at the maximum
marginal tax as provided u/s 164(2) of the Act and in not
allowing the exemption u/s 11 to the other income when
the same has been actually applied for charitable
purposes.
3. In denying the exemption to the entire income of the trust
u/s 11 & 12 of the Income Tax Act which has been
actually applied for charitable purposes and the trust
having been exempted in the past.
WITHOUT PREJUDICE TO THE ABOVE.
4. In making an addition of Rs.2,22,000/- towards notional
income of interest on amounts given out of its capital and
reserves, if the exemption u/s 11 & 12 of the IT Act has
been denied."
2. The assessee is a charitable trust registered u/s 12A on
29/6/1999 of the I.T Act, 1961 and also registered under Section
80G of the Act on 07.08.2009 for the A.Y. 2010-11. The assessee is
involved in pathology for the test of blood and urine etc. and is
doing the same at the subsidized rates. The assessee was claiming
the benefit of exemption u/s 11(1) as a charitable trust and as such
the assessee was required to follow all the terms and conditions of
Section 11, 12, 12A, 12AA & 13 etc. As per these sections the
assessee was required to invest its corpus funds or the capital fund
in the specified assets as provided u/s 11(5) but there was violation
3 ITA NO. 1225/DEL/2015
of this provision as the assessee had given the interest free loans of
Rs.18,39,778/- to the relatives of the managing trustee (Shri Divya
Bhushan Lal) and the details of loans are as under:-
Sl Name Amount Relation
No.
1. Mrs. Neha Lal 6,00,000/- Wife of one of the
trustee
2. Mr. Anirudh Lal 5,00,000/- Son of one of the
trustee
3. Mr. Anuj 5,50,000/- Son of one of the
trustee
4 Mr. Narender Pal 1,89,778/-
Total 18,39,778/-
3. The A.O has found that there is violation of Section 11 (5)
r.w.s 13 (1) (d) and has accordingly denied the exemption u/s 11(1).
The A.O has also made the addition of notional interest of
Rs.2,22,000/- for the interest free loans given to relatives of the
managing trustee. The A.O has also made the estimated
disallowance of 10% of the expenses of Rs.3,41,964/- vide the order
of the A.O.
4. The assessee filed appeal against the order of the A.O before
CIT(A). The assessee was claimed the benefit of exemption u/s 11(1)
being a charitable trust but as per the CIT(A), the assessee was not
doing any charity to the public at large under the meaning of
4 ITA NO. 1225/DEL/2015
Section 11(1) of the Income-tax Act. The CIT(A) dismissed the
contention of the assessee related to exemption u/s 11(1) as
provided u/s 13(1D) and confirmed the order of the Assessing
Officer. The CIT(A) further held that the estimated disallowances @
10% out of the total expenses are concerned the same has been
made on estimated basis without any valid reasons and accordingly
the same was deleted.
3. The Ld. AR submitted that Section 11 & 12 provides
exemption from tax to the income of a charitable trust/ institution
under specified terms and conditions. Section 13 with the
heading "Section 11 not to apply in certain cases" provides
certain exceptions to Section 11 with the purpose to deprive a
religious or charitable trust of exemption inter alia where its income
from the property held under a trust (S. 13 (1) (a), or any income
thereof (b), or if any part of such income or any property of the trust
(c) or any funds of the trust etc (d) are used or applied for the
benefit of the specified persons. In other words, section 11 exempts
the income of the trust from taxation but Section 13 provides
taxability of certain incomes of the trust if these were not applied or
used for the fulfillment of the objects of the trust maybe either u/s
13(1)(c) of u/s 13 (1) (d) of IT Act, that part of the income of the
trust would be brought to tax and taxed at the maximum marginal
rate as per the proviso to Section 164 (2) of IT Act.
5 ITA NO. 1225/DEL/2015
4. The Ld. AR further submitted that the assessee trust is
registered u/s. 12A of the Income Tax Act vide dated 29.06.1999. It
is also registered u/s 80G by letter dated 07.08.2009 for the period
Assessment Year 2010-11 to 2012-13. As regards the denial of
exemption u/s. 11 of the Act, the Ld. AR submitted that the
charging of concessional rates does not take away the charitable
character of the institution as 85% of the entire receipts are applied
for charitable purposes and / or any surplus accruing thereto is
ploughed back to carry out the charitable activities as envisaged in
its trust deed. The trustees do not get any profit or any benefit from
the trust in the form of any salary, perks or any concession. The
trust is providing free, concessional / subsidized rates, to the needy
in the form of medical relief as per the data given at pages 16-25 of
the paper book submitted. The activity of the trust falls under the
first three limbs of Section 2(15) which is given under board circular
no. 11/2008 dated 19.12.2008 (2009) 308 ITR (ST) 5. The Ld. AR
relied upon the case of ITO V. Kaushalya Medical foundation (2009)
31 SOT 119 (Mum.)(Tri.) and PIMS Medical and Education
Charitable Society V. CIT (2013) 56 SOT 522/150 TTJ 891 (Chd.)
wherein it has been held that it is not necessary that the medical
relief should be entirely free, and no fee be charged for services and
that the exemption u/s. 11 &12 cannot be denied on this account.
The Ld. AR also relied upon ITPO V. DG IT (Exemptions) (2015) 371
ITR 333 (Delhi) wherein it was held as under:
6 ITA NO. 1225/DEL/2015
Definition of "Charitable Purpose" in Section 2(15) Amendment of
Section 2 (15) by Finance Act, 2008 Validity of Amendment
Amendment to be read down Primary and dominant object of
institution to advance General Public Utility Income generated by
commercial activities incidental Charitable Institution entitled to
Exemption. Exemption u/s. 11 & 12 cannot be denied to the
assessee as it is carrying on medical relief in compliance with the
objects of the trust for charitable purposes and such trust has been
exempted in the past.
7. The Ld. DR relied upon the Assessment Order and CIT(A)'s
order.
8. We have perused all the records and heard the submissions of
both the parties. During the course of assessment proceedings the
Assessing Officer noticed that the trust had given interest free loan
to persons amounting to Rs. 20,39,778/- in violation of the
provision of section 13(1)(d) r.w.s Section 13(3) and Section 11(5) of
the Income Tax Act, 1961 and, thus worked out an addition of Rs.
2,22,000/- to the returned income of the trust. On this account, the
Assessing Officer, denied exemption under Section 11 & 12 for the
Assessment Year 2010-11 and assessed it as an AOP. He also
disallowed 10% of the expenses claimed amounting to Rs.
3,41,964/- on adhoc basis. The CIT(A) while deleting the adhoc
addition of Rs. 3,41,964/- in expenses, confirmed the denial of
exemption under Section 11 and 12 as done by the Assessing
7 ITA NO. 1225/DEL/2015
Officer. As regards the denial of exemption u/s. 11 it is submitted
that the assessee's activities is related to that of a hospital where
medical tests are carried out for giving medical relief to the poor or
disadvantaged either free or at a concessional /subsidized rates.
The charging of concessional rates does take away the charitable
character of the institution. The reliance of the Hon'ble Delhi High
Court judgment in case of ITPO V. DG IT (Exemptions) (2015) 371
ITR 333 (Delhi) is relevant in this particular case. The said
judgment held that "the expression "charitable purpose" is not to be
construed in a vacuum but in the specific context of Section
10(23C)(iv) which specifically deals with income received by any
person on behalf of, inter ala, an institution established for charitable
purposes. Therefore, the meaning of the expression "charitable
purposes" has to be examined in the context of Section 10(23C)(iv).
The expression has a reference to income. Because it is only when
such an institution has an income that the question of not including
that income in its total income would arise. Therefore, merely because
an institution, which otherwise is established for a charitable
purpose, receives income that would not make it any less a charitable
institution." In the present case the Assessing Officer as well as the
CIT(A) has ignored this aspect that the assessee's main activity of
providing medical facility at the subsidies rate does amount to
charitable purpose. Thus Ground No. 1 and 3 are allowed in favour
of the Assessee.
9. As regards the Second ground, it is admitted that the assessee
has violated the provisions of Section 13(1)(d) r/w/s Section 13(3)
8 ITA NO. 1225/DEL/2015
and Section 11(5) of the Income Tax Act, 1961 and added income of
Rs. 2,22,000/- has to be taxed at the maximum marginal rate of tax
as per the provision of Section 164(2) of the Income Tax Act, 1961
as per the various case laws submitted separately, which have also
held that the denial of exemption should only be to the extent of
income which was violative of Section 13(1) (d) and not the total
denial of exemption u/s. 11. The same has to be taxed as the same
is not related to the charitable purpose under Section 11 and 12 of
the Act.
10. In result, the appeal of the assessee is partly allowed.
The order is pronounced in the open court on 14th of January,
2016.
Sd/- Sd/-
( S. V. MEHROTRA) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 14/01/2016
*R. Naheed*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT ASSISTANT REGISTRAR
ITAT NEW DELHI
9 ITA NO. 1225/DEL/2015
Date
1. Draft dictated on 10.12.2015 PS
2. Draft placed before author 11.12.2015 PS
3. Draft proposed & placed before .01.2016 JM/AM
the second member
4. Draft discussed/approved by .01.2016 JM/AM
Second Member.
5. Approved Draft comes to the PS/PS
Sr.PS/PS 14.01.2016
6. Kept for pronouncement on .01.2016 PS
7. File sent to the Bench Clerk PS
14.01.2016
8. Date on which file goes to the AR
9. Date on which file goes to the
Head Clerk.
10. Date of dispatch of Order.
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