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Income tax Officer(E)-II(1)Room No.509, Piramal Chambers, Labaug, Parel Mumbai-400 012.Lilavati Kirtilal Medical Trust A/791 Bandra Reclamation Bandra (W) Mumbai-400 050.
June, 04th 2012
                 MUMBAI BENCHES "A", MUMBAI


                         ITA No. 5352/Mum/2010
                         Assessment Year : 2007-08

Income tax Officer(E)-II(1)              Lilavati Kirtilal Medical Trust
Room No.509, Piramal                     A/791 Bandra Reclamation
Chambers, Labaug, Parel                  Bandra (W)
Mumbai-400 012.                          Mumbai-400 050.
                                         PAN No. AAATL 1398 Q

           (Appellant)                             (Respondent)

                 Cross Objection No.84/Mum/2011
                 Arising out of ITA No. 5352/Mum/2010
                       Assessment Year : 2007-08

Lilavati Kirtilal Medical Trust          Income tax Officer(E)-II(1)
Mumbai-400 050.                          Mumbai-400 012.
        (Cross Objector)                      (Appellant in appeal)

                 Department by      :    Ms. Usha Nair
                   Assessee by      :    Ms. Smita Lokapur

         Date of hearing       :          24.5.2012
         Date of Pronouncement :          1.6.2012



      This appeal by the revenue and Cross Objection by the assessee

are directed against order dated 31.3.2010 of CIT(A) for the

assessment year 2007-08.
                                         2                 ITA No.5352/M/10 and CO No.84/11

2.      We     first   take   up    appeal      of   the    revenue          in      ITA

No.5352/Mum/2010. In this appeal the only dispute raised by the

revenue is regarding allowability of exemption under section 11 of the

Income tax Act, 1961(the Act).

2.1     The facts in brief are that the AO during the assessment

proceedings noted that the assessee trust owned a hospital at Bandra,

by the name Lilavati Hospital which is a 300 bedded multi-speciality

hospital and one of the elite hospitals which was known to cater to

higher section of the society. It was also noted that the assessee for

the relevant year had declared gross receipts of Rs.1,94,24,75,226/-

against      which     expenses    had   been    claimed     to     the      tune       of

Rs.1,59,30,98,800/- as per details given below:-

              Hospital   Operating                     Rs.194,24,75,226
              Income as per The
              income           and
              Expenditure A/c.
     Less:    A. Medical Expenses
              a. Property expenses    Rs.4,42,21,405
              b.        Operational Rs.116,91,68,191
              c.     Administrative  Rs.37,06,90,066
              d. Interest on term       Rs.31,16,757
              e. Bank overdraft          Rs.1,33,469 Rs.159,30,98,800
                                            Net Profit Rs.34,93,76,426
                                   3                ITA No.5352/M/10 and CO No.84/11

2.2   There was thus net receipt of Rs.34,93,76,426/-. The AO

observed that receipts were the amounts received from patients for

services rendered and expenses had been incurred for earning of

income. The AO also observed that the assessee had not undertaken

any charitable or philanthropic activities and expenses were incurred

for management of hospital. He, further, noted that the assessee had

shown a sum of Rs.4,63,86,472/- towards free and concessional

treatment given to patients which was nothing but trade discount and

which did not its genesis in philanthropic concerns of the trust. Further

the concessions had been given in large bills paid by patients who

were not poor. Assessee had not spent any amount on education or

charitable purpose. The assessee was thus not entitled for exemption

under section 11. The AO, therefore, following the decision taken in

earlier years disallowed the claim of exemption under section 11 of the

Act and assessed the income at Rs.34,93,76,426/-. In appeal CIT(A),

following the decision taken by the Tribunal in assessment year 2005-

06 allowed the claim of the assessee under section 11 of the Act

aggrieved by which, revenue is in appeal before the Tribunal.

3.    We have heard both parties, perused the records and considered

the matter carefully. We find that the same issue had arisen in case of

the assessee in assessment year 2006-07 in which the Tribunal vide

order dated 14.10.2011 in ITA No.4955/Mum/2010 noted that the
                                    4               ITA No.5352/M/10 and CO No.84/11

assessee was registered under section 12A of the Act and therefore

the condition that the trust was a charitable institution stood fulfilled.

The order of AO holding that the assessee was not doing charitable

work could not therefore, be accepted. The Tribunal also observed that

the issue was covered by the decision of the Tribunal in assessment

year 2004-05 in which the Tribunal accepted the finding of CIT(A) that

the trust was running a hospital by engaging the services of doctors,

nurses, para-medical staff and also providing infrastructure facilities

for the benefit of the public at large which was in conformity with the

objects of the assessee trust. The Tribunal thus accepted that the

assessee was a charitable institution. The Tribunal also held that

expenditure on acquisition of capital asset acquired by trust was in

furtherance of the objects of the trust and accordingly had to be

considered as application of income. The Tribunal therefore, held that

the assessee was a charitable institution and expenditure incurred on

capital asset for use in charitable activities had to be considered as

application of income. The facts in the present year are identical. We

therefore, hold that assessee is a charitable institution which is

registered under section 12A of the Act and therefore, eligible for

deduction under section 11 subject to fulfillment of conditions in the

said section. We therefore, set aside the order of CIT(A) and restore

the matter to the file of AO for passing a fresh order after necessary
                                   5                ITA No.5352/M/10 and CO No.84/11

examination in the light of observations made above and after allowing

opportunity of hearing the assessee .

Cross Objection No.84/M/2011(By Assessee ):

5.    In the cross objections, the issue raised by the assessee is

regarding disallowance of expenditure incurred on acquisition of capital

assets and disallowance of depreciation on assets. We find that this

issue had also been considered by the Tribunal in the order dated

14.10.2011 for assessment year 2006-07. The Tribunal has held that

the expenditure incurred on acquisition of capital assets for use in

charitable activities has to be treated as application of income. The

Tribunal also held that depreciation on assets debited to the accounts

will be deducted from the income for computing the income available

for application for charitable purposes, in view of the judgment of

Hon'ble High Court of Gujarat in the case of CIT vs. Seth Manilal

Ranchhordas Vishram Bhawan Trust (198 ITR 598). Therefore,

respectfully following the decision of the Tribunal in assessment year

2006-07, we hold that the expenditure on acquisition of capital assets

for use in charitable activities will be treated as application of income

and depreciation on assets will be deducted from income for

computing income available for application for charitable purposes. As

we have already restored the issue of computation of exemption under

section 11 to the file of AO while deciding the appeal of revenue, the
                                   6                ITA No.5352/M/10 and CO No.84/11

AO will take into account these aspects also while computing

application of income for the purpose of charitable work under section

11. In case AO after necessary verification finds that the application of

income is not up to 85%, the assessee will be free to file application

before AO for accumulation which will be dealt by the AO as per law.

6.    In the result, appeal of the revenue and cross objection of the

assessee are allowed for statistical purposes.

Order pronounced in the open court on 1.6.2012.

      Sd/-                                   Sd/-
(B.R. MITTAL )                         (RAJENDRA SINGH)

Mumbai, Dated: 1.6.2012.

Copy to: The Appellant
         The Respondent
         The CIT, Concerned, Mumbai
         The CIT(A) Concerned, Mumbai
         The DR " " Bench

True Copy
                                                  By Order

                              Dy/Asstt. Registrar, ITAT, Mumbai.
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