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Mool Chand Khairati Ram Trust Vs. Director Of Income Tax (Exemptions)
September, 07th 2015
               THE HIGH COURT OF DELHI AT NEW DELHI
%                                     Judgment delivered on: 27.07.2015
+       ITA 141/2013
MOOL CHAND KHAIRATI RAM TRUST                              .....Appellant
                                   versus
DIRECTOR OF INCOME TAX (EXEMPTIONS)                  ..... Respondent
Advocates who appeared in this case:
For the Appellant    :Mr C.S. Aggarwal, Senior Advocate with
                      Mr Prakash Kumar and Mr Gautam Jain.
For the Respondent   :Mr. Raghvendra Singh, Junior Standing Counsel.

CORAM:
HON\'BLE DR. JUSTICE S.MURALIDHAR
HON\'BLE MR. JUSTICE VIBHU BAKHRU

                               JUDGMENT

VIBHU BAKHRU, J
1.      The Appellant, a Charitable Trust, has preferred the present appeal

under Section 260A of the Income Tax Act, 1961 (hereafter the `Act\')

impugning the order dated 3rd February, 2012 passed by the Income Tax

Appellate Tribunal (hereafter the `Tribunal\') in ITA No. 5681/DEL/2010.


2.      By the impugned order, the Tribunal allowed the appeal filed by the

Revenue assailing the order of the Commissioner of Income Tax (Appeals),

which in turn had allowed the appeal preferred by the Assessee against the

assessment order dated 30th December, 2008 passed in respect of the




ITA 141/2013                                                   Page 1 of 35
Assessment Year 2006-07. The Assessing Officer (hereafter `AO\') had

denied the exemption claimed by the Appellant (hereafter the `Assessee\')

under Section 11 and 12 of the Act as the AO was of the view that the

activities of the Assessee were not in accordance with its objects.              In

addition, the AO also denied the Assessee\'s claim for depreciation on assets

purchased by the Assessee by application of its income that was exempt

under Section 11 of the Act.


3.      Aggrieved by the assessment order, the Assessee preferred an appeal

before the CIT (Appeals). The Assessee contended that the Assessee was a

charitable institution engaged in running a hospital (both Allopathic and

Ayurvedic) and the same constituted a charitable purpose within the

meaning of Section 2(15) of the Act. It was urged that as the Assessee had

applied its income for charitable purposes, the same was exempt under

Section 11 and 12 of the Act. The Assessee further contended that it had

been granted registration under Section 12A of the Act after considering the

nature of its activities and, therefore, it was not open for the AO to deny the

exemption under Section 11 of the Act.


4.      The aforesaid contentions were accepted by the CIT (Appeals). In

addition, the CIT (Appeals) also held that the Assessee was entitled for



ITA 141/2013                                                      Page 2 of 35
depreciation on the assets purchased by application of its income, which

was exempt under Section 11 of the Act.


5.      The Revenue appealed against the aforesaid decision of CIT

(Appeals) before the Tribunal being ITA No. 5681/DEL/2010. The

Tribunal accepted the Revenue\'s contention that the properties of the

Assessee had not been applied towards its objects. The Tribunal held that

the Assessee\'s activities relating to Allopathic system of medicine had

more or less supplanted the activities relating to Ayurvedic system of

medicine and concluded that pre-dominant part of the Assessee\'s activities

exceeded the powers conferred on the trustees and the objects of the

Assessee Trust were not being followed. The Tribunal held that whilst the

activities of the Assessee relating to providing medical relief by the

Ayurvedic system of medicine were intra vires its objects, the activities of

providing medical reliefs through Allopathic system of medicine was ultra

vires its objects. Consequently, the Assessee was not entitled to exemption

under Section 11 of the Act in respect of income from the hospital run by

the Assessee, which offered medical relief through Allopathic system of

medicine. Accordingly, the Tribunal directed that the income and




ITA 141/2013                                                    Page 3 of 35
expenditure of the Assessee from the activities relating to the two

disciplines of medicine, namely Ayurveda and Allopathy, be segregated.


6.      Insofar as the Assessee\'s claim for depreciation was concerned, the

Tribunal held that deprecation on assets, used for providing relief through

Ayurvedic system of medicine or used in education and research relating to

Ayurvedic system of medicine, was allowable notwithstanding that the

expenditure on purchase of the assets was exempted under Section 11(1)(a)

of the Act. However, insofar as the assets purchased for providing medical

relief through Allopathic system of medicine was concerned, the Tribunal

held that depreciation would not be available if the expenditure incurred on

purchase of the assets had been exempted under Section 11(1)(a) of the

Act.


7.      Aggrieved by the impugned order, the petitioner preferred the

present appeal. This Court, by an order dated 15th July, 2013, framed the

following questions of law for consideration:-


          \"(1) Whether, the Income Tax Appellate Tribunal was
               justified in law in Confirming the action of the
               Assessing Officer in denying the claim of exemption
               u/s 11& 12 of the Income Tax Act, 1961, despite the
               fact that the assessee is a charitable institution
               engaged in running a hospital (both allopathic and



ITA 141/2013                                                    Page 4 of 35
                 ayurvedic), which constitutes charitable activity u/s 2
                 (15) of the Income Tax Act. 1961?
          (2)    Whether, on the facts and circumstances of the case
                 the assessee trust is not entitled to exemption u/s 11
                 of the Act even assuming that activities of the trust
                 that beyond of the objects of the trust which activities
                 were wholly charitable in nature?
          (3)    Whether, the Income Tax Appellate Tribunal was
                 justified in law, in not allowing the depreciation on
                 assets used for providing medical relief through
                 allopathic system of medicines?\"
8.      Briefly stated the necessary facts for appreciating the controversy in

the present appeal are as under:-


8.1     Late Lala Khairati Ram executed a Will dated 23rd December, 1927

and Codicil dated 8th January, 1928. In terms of the said Will, certain

properties were settled in trust for furtherance of the objects as set out in the

Will. The relevant extract of the said Will reads as under:-


          \"After meeting the above mentioned allotments the following
          institutions shall be observed with regard to the property of
          every description that may remain after my death :
          a)    All the remaining property of every description shall
                constitute a Trust known as Mool Chand Khairati Ram
                Trust, Lahore, the objects of which shall be as follows:-
          1)    Imparting education in and preaching              Sanskrit
                according to SanatanDharm Methods, and
          2)    Devising means for imparting education in and
                improving the Ayurvedic system of Medicine and



ITA 141/2013                                                         Page 5 of 35
               preaching the same. In order to gain objects No.2 it is
               not prohibited to take help from the English or Yunani
               or any other system of medicine and according to need
               oneor more than one Ayurvedic Hospital may be
               opened.\"
8.2     In furtherance of the objects, the Assessee set up a hospital named

Shri Mool Chand Khairati Ram Hospital and Ayurvedic Research Institute

in Lahore (then in undivided India). After the partition of the country in

1947, the Assessee applied for allotment of land to the Government of

India, Ministry of Rehabilitation and Urban Development, in order to

continue its activities of running a hospital and an Ayurvedic Research

Institute. Pursuant to the application, the Assessee was allotted land at

Lajpat Nagar-III, New Delhi and in the year 1958, the Assessee set up an

institution known as Shri Mool Chand Khairati Ram Hospital and

Ayurvedic Research Institute, which included a hospital dispensing

treatment under the allopathic system of medicine.


8.3     The Assessee has been running a hospital and Ayurvedic Research

Institute from the site at Lajpat Nagar-III, since 1958 and it is not disputed

that there has been no significant change in the nature of the activities

undertaken by the Assessee since 1958. The Assessee was granted

registration under Section 12A of the Act in December 1974.




ITA 141/2013                                                     Page 6 of 35
8.4     It is not disputed that the Assessee runs dedicated indoor facility and

manages 40 beds where Ayurvedic treatment is provided free of cost. It is

also asserted by the Assessee that it has made significant contribution in

advancing Ayurvedic medicine. The Assessee further claims that the

hospital run by it at Lajpat Nagar dispenses treatment and training both in

Ayurvedic system of medicine as well as Allopathy, to give best results to

the patients. Be that as it may, it is not disputed that treatment under the

Ayurvedic system of medicine as well as Allopathic system of medicine is

dispensed to the patients at the hospital run by the Assessee. However,

since the setting up of the hospital/institution in 1959-60, the gross receipts

pertaining to activities of the Ayurvedic Research Institute has been

significantly lower than the gross receipts from providing treatment under

the Allopathic system of medicine. In the year 1959-60, the percentage of

receipts pertaining to Ayurvedic system of medicine to the total receipts

was 6.34%. The proportion of receipts pertaining to Ayurvedic system of

medicine to the gross receipts in the following years has been lower. In the

financial year 2005-06 the gross receipts pertaining to Ayurvedic system of

medicine constituted 2.66% of the total gross receipts of the Assessee.




ITA 141/2013                                                       Page 7 of 35
9.      In the assessment order dated 30th December, 2008, the AO noted

that in the financial year 2005-06 the Assessee had received a total sum of

Rs.18,97,65,365/- out of which the receipts pertaining to Ayurvedic

Research Institute were only Rs.55,41,423/-. The AO further found that

total expenditure shown by the Assessee for the said financial year was

Rs.27,96,97,610/- out of which only an amount of Rs.53,30,595/- was spent

on operating expenses pertaining to the Ayurvedic Research Institute. In

the circumstances, the AO held that the primary activity of the Assessee

was running an Allopathic hospital. According to the AO, this was not in

accordance with the object of the trust set out in the Will of Late Sh. Mool

Chand Khairati Ram. This view was also accepted by the Tribunal in the

impugned order.


10.     Mr. Aggarwal, the learned senior counsel appearing for the Assessee

contended that since there was no dispute that the activities of the Assessee

fell within the meaning of charitable purposes as defined under Section

2(15) of the Act, the condition for grant of exemption under Section 11 of

the Act was satisfied. He contended that the only requirement under Section

11 of the Act was to apply the income for charitable or religious purposes




ITA 141/2013                                                     Page 8 of 35
and, therefore, the Assessee was entitled to the exemption under Section 11

of the Act.


11.     It was next contended that running an Allopathic hospital would fall

within the object of the trust and the mere fact that the proportion of

receipts and expenditure for providing treatment under the Allopathic

system was larger than for providing Ayurvedic services would not render

the activity of running an Allopathic Hospital ultra vires the object of the

trust. He contended that the treatment under both, the Ayurvedic system of

medicine as well as Allopathic system of medicine was being rendered in

the hospital and the Assessee had been endeavoring to advance the cause of

Ayurveda by drawing on the Allopathic system of medicine. He also

referred to a letter dated 9th December, 2008 submitted by the Assessee to

the AO, which explained the activities undertaken by the Assessee in the

field of Ayurvedic medicine.





12.     Mr. Aggarwal further contended on behalf of the Assessee that the

registration granted to the Assessee under Section 12A of the Act has not

been revoked. He referred to Section 12A(3) of the Act and contended that

in cases where it is found that the activities of the Assessee are not in

conformity with the objects of the trust, the registration granted under



ITA 141/2013                                                    Page 9 of 35
Section 12A could be revoked by the Commissioner Income Tax. And, as

this was not done in this case, it would not be open for the AO to go behind

the registration. Mr. Aggarwal submitted that it was not open for the AO to

examine the issue whether activities of the Assessee were in conformity

with the object since the same had been considered by the Commissioner

Income Tax at the time of granting registration under Section 12A of the

Act. Mr. Aggarwal also referred to the decision of the Supreme Court in

Assistant Commissioner of Income Tax v. Surat City Gymkhana: (2008)

300 ITR 214 (SC) in support of his contention that once registration had

been granted under Section 12A of the Act, the same is a fait accompli and

the AO could not thereafter further probe into the objects of the trust.


13.     It was also contended by Mr. Aggarwal that the Assessee had been

claiming exemption under Section 11 of the Act since the year 1959-60 and

the same had been accepted by the Revenue. He further pointed out that in

several years in the past, the Assessee had been granted exemption under

Section 10(22), 10(22A) and Section 10(23C)(via) of the Act. He

emphasized that, admittedly, the activities of the Assessee had remained the

same since 1959-60 and since the Revenue accepted the claim of the

Assessee for exemption under Section 11 of the Act and/or under Section




ITA 141/2013                                                      Page 10 of 35
10(22), 10(22A) and 10(23C) of the Act, in the past, it could not have taken

a view contrary to the settled position. He relied on the decision of the

Supreme Court in Radhasoami Satsang v. CIT:(1992) 193 ITR 321 (SC)

and Commissioner of Income Tax v. Excel Industries Ltd.: (2013) 358

ITR 295 (SC) in support of his contention that following the principle of

consistency, a view consistently accepted ought not to be unsettled.


14.     Insofar as the issue of depreciation is concerned, Mr. Aggarwal

submitted that the said issue is covered by the decision of the Division

Bench of this Court in Director of Income Tax (Exemption) v. M/s

Indraprastha Cancer Society: Income Tax Appeal No. 240/2014, decided

on 18th November, 2014.


15.     Mr. Raghvendra Singh, learned counsel appearing on behalf of the

Revenue controverted the above submissions made on behalf of the

Assessee. Mr. Singh submitted that the objects of the trust did not permit

running of an Allopathic hospital and thus, the activities of the Assessee

were in excess of its objects. He further submitted that the AO was fully

justified in examining whether income of the Assessee was applied towards

its object as that was the pre-condition for grant of exemption under Section

11(1) of the Act. He contended that the expression \"such purposes\" as used



ITA 141/2013                                                     Page 11 of 35
in Section 11(1) of the Act would refer to the objects of the Trust and not to

charitable or religious purposes in general. Consequently, even if the

income of the Assessee had been applied for charitable purposes, the

exemption under Section 11 of the Act would not be available if the same

had not been applied towards the objects of the Trust. He stated that in the

present case, it was not disputed that the activities of the Assessee fell

within the scope of charitable purposes as defined under section 2(15) of

the Act, however, this was not sufficient for availing exemption under

Section 11(1) of the Act.


16.     Mr. Singh referred to the decision of the Supreme Court in

Commissioner of Income Tax, Ujjain v. Dawoodi Bohara Jamat: (2014)

364 ITR 31 (SC) in support of his contention that the exemption under

Section 11(1) of the Act would be available only if the income of the

Assessee was applied for its objects. He also referred to the decision of a

Division Bench of this Court in Director of Income Tax (Exemption) v.

NBIE Welfare Society: (2015) 370 ITR 0490 (Delhi) in support of his

contention.


17.     Mr. Singh contended that the principle of consistency would not be

applicable in the facts of the present case as there had been no definite



ITA 141/2013                                                     Page 12 of 35
determination that the hospital run by the Assessee was in accordance with

the objects of the Trust. He further contended that the principle of res

judicata was not applicable to proceedings under the Act and even if the

exemption had been incorrectly granted in the previous year, it would not

entitle the Assessee to claim the same in subsequent years also. He further

submitted that the provisions relating to exemption had also undergone

material changes from time to time. He referred to the decision of the

Division Bench of this Court in Krishak Bharati Cooperative Ltd. V.

Deputy Commissioner of Income Tax: (2013) 350 ITR 24 (Delhi) to

contend that the rule of consistency did not have wide application.


18.     In respect of the issue regarding depreciation, it was contended by

Mr. Singh that there was no dispute that the depreciation would be

allowable on the asset that was purchased by the Trust by application of its

income which was exempted under Section 11(1)(a) of the Act. However,

it was submitted that where the exemption under Section 11(1)(a) of the

Act has been granted but the asset is applied towards the activities which

are not in conformity with the object of trust, further depreciation would

not be available on such assets.




ITA 141/2013                                                    Page 13 of 35
19.     At the outset, it would be necessary to refer to clause (a) of sub

Section (1) of Section 11 of the Act which reads as under:-


           \"11. (1) Subject to the provisions of sections 60 to 63, the
          following income shall not be included in the total income
          of the previous year of the person in receipt of the
          income--

          (a) income derived from property held under trust
          wholly for charitable or religious purposes, to the extent to
          which such income is applied to such purposes in India;
          and, where any such income is accumulated or set apart for
          application to such purposes in India, to the extent to which
          the income so accumulated or set apart is not in excess
          of fifteen per cent of the income from such property;\"

20.      A plain reading of Section 11(1)(a) of the Act indicates that for

income to be excluded under the said clause the following conditions must

be met:-


(a) That the income is derived from property held under Trust wholly for

charitable purposes; and


(b) The income is applied for such purposes in India.


Income from the property, which is set apart for application for such

purposes, is also exempted to the extent that it is not in excess of 15% of

the income from such property.




ITA 141/2013                                                      Page 14 of 35
21.      The expression \"such purposes\" clearly refers to the purposes for

which the property is held in Trust. Both the conditions i.e. the income

should be derived from the property held in Trust for charitable or religious

purposes and the condition that the income is applied for such purposes, are

cumulative.


22.     We are unable to accept the contention that the expression \"such

purposes\" would mean any charitable or religious purpose, even if the said

purpose is not the purpose for which the property is held in Trust.       The

contention that as long as the Assessee applies the income from a property

held in Trust for charitable or religious purpose, to any charitable or

religious purpose, the exemption under Section 11(1)(a) of the Act would

be available, notwithstanding that the purpose for which the income is

applied is not the purpose for which the property is held in Trust, cannot be

sustained as the same would be contrary to the plain language of Section

11(1)(a) of the Act. In order for any income to be excluded from the scope

of total income, the same must be derived from a property held in Trust for

a charitable or religious purpose and must also be applied for that purpose.


23.     In Dawoodi Bohara Jamat (supra), the Supreme Court had referred

to Section 11 of the Act and observed as under:-



ITA 141/2013                                                     Page 15 of 35
          \"...... The income of a charitable or religious trust is
          exempt from taxation under the correlated provisions of
          sections 11, 12, 12A, 12AA and 13. Section 11 deals with
          income from trusts for charitable and religious purposes and
          sets out which income shall be exigible to taxation. Section
          11(1) relates to application of income towards the objects of
          the trust and exempts income of trusts with objects wholly
          charitable or religious or parts of income which relate to
          such objects.\"
24.      Mention may also be made of the decisions rendered by this Court in

CIT v. Hotel & Restaurant Association: (2003) 261 ITR 190 (Del.),

Bharat Kalyan Pratisthan v. Director of Income-Tax (Exemption): (2008)

299 ITR 406, Director of Income-Tax (Exemption) v. Daulat Ram

Education Society: (2005) 278 ITR 260 (Del.), Director of Income-Tax

(Exemption) v. Mamta Health Institute for Mother and Children : (2007)

293 ITR 380 (Del.) and NBIE Welfare Society (supra). In these decisions,

the Court affirmed that if income is accumulated for applying towards the

object of the Trust, which is wholly charitable or religious, the exemption

under Section 11(2) of the Act would be available to the Assessee, provided

the conditions as specified under Section 11(2) of the Act are met.

Although these decisions were rendered in the context of Section 11(2) of

the Act, the same would also be applicable while interpreting Section

11(1)(a) of the Act, as Section 11(2) of the Act also uses the expression

\"such purposes\" which has been interpreted to mean the charitable/religious


ITA 141/2013                                                      Page 16 of 35
objects for which the properties are held in Trust. At this stage, it is

necessary to refer to Section 11(2) of the Act, which reads as under:-


          \"11(2) Where eighty-five per cent of the income referred to
          in clause (a) or clause (b) of sub-section (1) read with
          the Explanation to that sub-section is not applied, or is not
          deemed to have been applied, to charitable or religious
          purposes in India during the previous year but is
          accumulated or set apart, either in whole or in part, for
          application to such purposes in India, such income so
          accumulated or set apart shall not be included in the total
          income of the previous year of the person in receipt of the
          income, provided the following conditions are complied
          with, namely:--

           (a) such person specifies, by notice in writing given to the
              Assessing Officer in the prescribed manner, the purpose
              for which the income is being accumulated or set apart
              and the period for which the income is to be
              accumulated or set apart, which shall in no case exceed
              ten years;
           (b) the money so accumulated or set apart is invested or
              deposited in the forms or modes specified in sub-section
              (5):\"

25.     The expression \"such purposes\", obviously, has the same meaning as

used in Section 11(1)(a) of the Act. Section 11(2) of the Act has to be read

in conjunction with Section 11(1) of the Act. While Section 11(1)(a) of the

Act provides for exemption for income applied during the relevant previous

year, Section 11(2) of the Act provides for conditions subject to which such

income could be accumulated for use in later years.



ITA 141/2013                                                      Page 17 of 35
26.     In the aforesaid circumstances, the Assessee would be entitled to the

exemption under Section 11(1)(a) of the Act, only if the income is applied

for the charitable purpose for which the properties are held in Trust.


27.     We also do not find any merit in the contention that the AO is not

entitled to inquire whether the income is applied towards the charitable or

religious purpose for which the property, from which the income is derived,

is held in Trust. It is necessary for the AO to satisfy himself that the

conditions for exclusion, as specified under Section 11(1)(a) of the Act, are

met and for the said purpose the AO can make such inquiries as necessary.


28.     The contention that since the Commissioner, by virtue of Section

12A(3) of the Act, is empowered to cancel the registration granted to an

Assessee if it is found that the activities of a Trust or an institution are not

genuine or are not being carried out in accordance with the object of the

Trust or institution, the AO is precluded from examining whether the

Assessee had applied its income for the object of the Trust or institution, is

wholly without merit. The opening words of Section 12A(1) of the Act read

as under:-


          \"Section 12A(1) The provisions of section 11 and section 12
          shall not apply in relation to the income of any trust or



ITA 141/2013                                                       Page 18 of 35
          institution unless the following conditions are fulfilled,
          namely:-- ....\"
29.     The opening words of Section 12A(1) of the Act clearly indicate that

the conditions imposed under that section are in addition to the conditions

or exemptions as specified under Section 11 and 12 of the Act. Thus, if the

conditions as specified under Section 12A(1) of the Act are not met, then

the exemption available under Section 11 of the Act would not be available

to the Assessee. This does not mean that if a trust is registered under

Section 12A of the Act, exemption under Section 11 and Section 12 of the

Act would necessarily follow. The provisions of Section 12 of the Act do

not curtail or in any manner dilute the mandatory requirements of Section

11 of the Act. Thus, notwithstanding that an Assessee has been granted a

registration under Section 12A of the Act, it would be necessary for the

Assessee to comply with the conditions of Section 11 of the Act in order to

claim any benefit under the provisions of that Section.


30.     The reliance placed by the Assessee on the decision of the Supreme

Court in Surat City Gymkhana (supra) is also misplaced. In that case, the

Assessee had asserted that its objects were exclusively charitable and had

claimed exemption under Section 10(23) of the Act. The contention of the

Assessee was upheld by the Tribunal and the Revenue approached the High



ITA 141/2013                                                    Page 19 of 35
Court of Gujarat claiming that the following two substantial questions of

law arose from the order of the Tribunal:-


           \"(A) Whether, on the facts and circumstances of the case, the
          Income-Tax Appellate Tribunal was justified in law in
          holding that the objects of the trust restricting benefit to the
          members of the club would fall within the purview of the act
          of `general public utility\' under section 2(15) of the Income -
          Tax Act constituting as a section of public and not a body of
          individuals?
           (B) Whether, on the facts and circumstances of the case, the
          Income-tax Appellate Tribunal was justified in law in holding
          that registration under section 12A was a fait accompli to
          hold the Assessing Officer back from further probe into the
          objects of the trust?\"

31.      A Division Bench of the Gujarat High Court held that the questions

of law raised by the Revenue were covered by its earlier decision in the

case of Hiralal Bhagwati v. CIT: (2000) 246 ITR 188 and dismissed the

appeal filed by the Revenue. The Revenue preferred a Special Leave

Petition against the decision of the Gujarat High Court.            Whilst the

Supreme Court declined to entertain the SLP in respect of the first question

on the ground that the same was covered by the decision in the case of

Hiralal Bhagwati (supra) and the same had not been challenged by the

Revenue, the Supreme Court granted special leave in respect of the second

question. Subsequently, the Supreme Court found that the second question




ITA 141/2013                                                        Page 20 of 35
was also covered by the decision of the Gujarat High Court in Hiralal

Bhagwati (supra) and, accordingly, dismissed the appeal. In Hiralal

Bhagwati (supra), the Gujarat High Court had held that once registration is

granted under Section 12A of the Act, after accepting that the objects of the

Trust are charitable, the AO cannot take a decision to the contrary. This

would stand to reason because once a higher income tax authority i.e. a

Commissioner had accepted the application of an Assessee and had

accepted that the object of the Trust was wholly charitable, it would not be

open for the AO to take a contrary view. Thus, it may not be open for an

AO to examine whether the object of the Trust registered under Section

12A of the Act is charitable or not. However, the same would not preclude

the AO from examining whether the income derived from the property held

in Trust have been applied for the object of the Trust. It is necessary for the

AO to conduct this exercise for each assessment year and the grant of

registration under Section 12A of the Act would not prevent or in any

manner impede the AO from conducting this exercise.


32.     The only controversy that remains to be addressed is whether the AO

and the Tribunal were justified in holding that the Assessee had applied its

income for purposes other than its objects.




ITA 141/2013                                                      Page 21 of 35
33.     According to the Revenue, the objects of the Trust would not permit

running of a hospital where patients are treated under the Allopathic system

of medicine. The Assessee had disputed the same and had submitted a letter

dated 9th December, 2008, inter alia, explaining that the institution run by

the Assessee is an integrated institution, which has made significant

advances in the field of Ayurvedic medicine.            The Assessee further

explained that the hospital in question integrates both the Ayurvedic system

of medicine as well as Allopathic services, to provide the best treatment to

the patients and the Ayurvedic treatment provided by the hospital utilizes

methods of investigation used under the system of modern medicine. The

relevant extract of the said letter is quoted below:-


           \"As is evident from the name of the hospital, this hospital is
          pioneer in the field of Ayurvedic Education and improving
          Ayurvedic system of medicine by Ayurvedic Research.

          Over the past several years the hospital has developed new
          techniques of tendering services in the ayurvedic medicine; to
          name a few:

               1.   Scientific application of Panchkarma and medicine
                    which includes :
                    a.   Pizhichil Treatment (Sarvang Sneh Dhara) for
                         Deformed Rheumatoid Arthritis (Amavata)
                    b.   Kati Basil for Disc Prolarse (Katishula,
                         Katistambha),




ITA 141/2013                                                      Page 22 of 35
                     c.        Virechan Kriya : Keeping in view the values of
                               Serum Electrolytes, Lipid Profile for Psoriasis
                               and skin diseases.
                     d.        Shirobasti    Trreatment     for     Insomnia,
                               Hypertension, Alopacoa.

               2.    Developed Various combination of drugs like:
                     a)        Raj Rasayan for Prostate Enlargement
                     b)        Gridhrasihar Churna for Sciatica
                     c)        Mukhdushikahar Churna for acne, Hyper
                               pigmentation
                     d)        Shwitrahar Churna for leucoderma

               3.   To spread awareness and educate the ayurvedic
                    physicians, the following work has been done;

                     a.        Tenth Century granths have been translated
                               into Hindi like Ashtang Hridya, Charak
                               Samhita, Bhashjya Ratnawali etc.

                     b.        The following books and literature has been
                               published;
                               i.      Dehadhatwagni Vigyanam
                               ii.     Panch Karma Chitiksa
                               iii.    Chikitsa -- Kalika
                               iv.     Compilation of Sutras from Different
                                       \"Granthas\".

                     c.        The trust is engaged in the following training
                               and education related activities for creating and
                               spreading awareness about Ayurvedic system
                               of medicine;

                          i.     Interns for Ayurvedic education are taken,
                                 who are not only taught the ayurvedic
                                 medicine but also given hands on practical
                                 experience and clinical knowledge about
                                 Ayurvedic system of medicine.




ITA 141/2013                                                             Page 23 of 35
                    ii.   The Trust runs dedicated indoor facility on
                          Ayurvedic and manages 40 beds wherein the
                          treatment is given free.

                iii.      Ayurvedic medicines are dispensed and
                          provided at nominal cost and in case of
                          deserving patient even free.

                iv.       Every third Friday of the month, trust
                          organizes Ayurvedic Sambhasha Parishad
                          and doctors from far and wide come and
                          attend the event.

                    v.    Scholarships   to   the    students  of
                          Shrimadhyanand Ved Arsh Mahavidhayala
                          Nyas are given to encourage and promote
                          Ayurveda.

                vi.       On side camps are organized at various
                          places to promote Ayurvedic system of
                          medicine.

               vii.       Our Ayurveda charyas are involved        and
                          engaged in giving talks, lecturers       and
                          holding workshops at various places      like
                          NTPC, TCIL, Reserve Bank of India        and
                          other places.

               viii.      Panchkarma teaching and training courses
                          have been developed and are modified on
                          regular basis.

               d.         As a part of pioneer ayurvedic institute the
                          hospital provide state of art ayurvedic
                          facilities as :
                          I       Panch Karma
                          II      Stri Rog
                          III. Shalya Shalkya
                          IV      Kaya Chikitsa.




ITA 141/2013                                                   Page 24 of 35
               4.      Ayurvedic pharmacy through which medicines are
               being manufactured and dispensed caters to the needs of
               patients coming for Ayurvedic treatment to the hospital.
               Besides this, Moolchand has developed the following
               important patient medicines:
                    a. Moolchand Chitrak Haritaki for bronchitis,
                       allergic rhinitis, sinusitis and continuous dry
                       cough
                    b. Raj Rasayan for rejuvenation, prostate
                       enlargement, urinary disorders.
                    c. Chyawan Prash as general rejuvenative tonic.
                    d. Abhrak Miasma for cardiac ailments, fever,
                       bronchitis, chest congestion, bronchial asthma.

          5. It has been clinically proven as result of continuous
             research that we have developed not only treatment but
             absolute care of:
                       a.   Diabetes
                       b.   O.A.
                       c.   Rhenatold
                       d.   Psoriasis
                       e.   Bronchial asthma
                       f.   Leucoderma
                       g.   Hepatitis
                       h.   Hepatitis B
                       i.   Hypertension
                       j.   Paralysis
                       k.   CVA
                       l.   Deadddiction programme for alcohol for
                            drugs and smoking
                       m.   Psychological problems.


          6. In order to promote Ayurvedic Medicine, help is taken
             from Modern Medicine system and trust runs various
             allopathic services both in medicine and surgery such as
             Department of Medicine (Gastroenterology, Respiratory &



ITA 141/2013                                                    Page 25 of 35
               Pulmonology, Cardiology, Oncology and internal
               Medicine): Department of surgery (General Surgery, Uro
               Surgery, cosmetic and plastic surgery, paediatric surgery);
               Department of Orthopedics; Department of Anesthesia;
               Department of Paediatrics; Department of Neonatology,
               Department of Nephrology; Department of Obs & Gynae;
               Department of Neurology; Department of Dental;
               Department of Ophthalmology; Department of ENT and
               Department of physiotherapy.

               This is unique hospital that integrates both Ayurvedic
               system of medicine and allopathic services to give best
               results to the patents and which helps in improving the
               treatment and obtain best results out of this. The Ayurvedic
               hospital utilizes various modern medicine method of
               investigation such as ;
               a.     Blood Hematology
               b.     Microbiology c X-ray
               c.     C. T. scan
               d.     Ultrasound
               e.     ECG
               f.     Eco
               g.     Angiography

               The trust is also engaged in running various health check
               clinics, diet service clinics in remote areas in order to
               augment health care services using Ayurvedic system of
               medicine.

          7. In order to further - spread education, awareness and help
             in research in ayurvedic and Modern Medicine a full
             fledged scientific library is maintain by the hospital which
             has :
               a.   More than, one thousand hooks are available in the
                    library including all leading journals.
               b.   Besides various subscriptions available, the library is
                    open for student staff physicians, traiees, interns and
                    technicians.


ITA 141/2013                                                        Page 26 of 35
          8. To further spread education, hospital also provides
             diploma in nursing which is registered under aegis of Delhi
             Nursing Council and every year 30 student enroll for this
             course. This duration for this diploma course is 3-1/2
             years. Through this course, hands on training is also
             provided in Ayurvedic system of medicine.

          It is a matter of pride that physicians from far and wide come
          for Ayurvedic training to this institute.

          From the perusal of the above, it may be appreciated that lot of
          activities is being done to improve Ayurvedic system of
          medicines and preaching the same. It is respectfully submitted
          that your contentions/observations that \'it is no where
          permitted to open and run Allopathic Hospital\' is prima facie
          untenable because of the fact that Trust has opened primarily
          an ayurvedic Hospital and taking help from Allopathic system
          of medicines or any other system of medicines is not
          prohibited, it means that it is permitted. While promoting
          Ayurveda, the other system of medicine also got promoted. It
          serves the General good of the community while retaining its
          charitable nature at a all points of time. It will be appreciated
          that this is permissible under the provisions of the Trust Deed
          as well as under the provisions of the Income Tax, 1961.

          It will also be appreciated that the Trust has not changed its
          activities/system of medicines of be it Ayurveda or be it
          allopathic from the very beginning. It is submitted that Trust
          can only open hospital but can not compel the community to
          choose the system of medicines. Thus while providing
          Ayurveda and continuously improving the Ayurvedic system
          of medicines, patents wanting allopathic treatment are being
          provided Allopathic treatment as well.

          This is unique Hospital where in order to improve Ayurvedic
          system of medicines and create awareness about the Ayurvedic
          system of medicines are being adopted.




ITA 141/2013                                                        Page 27 of 35
          The name of the Hospital is not Moolchnd Hospital but
          Moolchand Khairati Ram Hospital and Ayurvedic Research
          Institute.\"
34.      The assertion made by the Assessee that it provides treatment under

the Ayurvedic system at the hospital in question and is involved in the

advancement of the Ayurvedic medicine is not disputed by the AO. It is

also not disputed that the hospital run by the Assessee is an integrated

hospital offering treatments under the Ayurvedic system of medicine as

well as under the Allopathic system of medicine. The Revenue also does

not dispute the Assessee\'s contention that the treatment under the

Ayurvedic system of medicine draws significantly from investigation

techniques used under modern medicine system. In the circumstances, the

limited issue to be addressed is whether running of such hospitals which

provides Allopathic as well as Ayurvedic treatment and includes

investigation techniques of modern medicine would be contrary to the

object of the Assessee Trust.


35.     A plain reading of the objects indicates that it includes \"devising

means for imparting education and improving Ayurvedic system of

medicine and preaching the same\". It is also expressly clarified that the

Assessee is not prohibited to take help from the English, Unani or any other




ITA 141/2013                                                    Page 28 of 35
system of medicine for its object. Further, it is also expressly provided that

according to the need, one or more Ayurvedic hospitals may be opened. It

is at once clear that the object does not prohibit running of an Allopathic

hospital or drawing from any the other system of medicine for improving

the Ayurvedic system of medicine. The Assessee\'s endeavour of running a

hospital providing modern techniques and treatment which would also be a

source for improving Ayurvedic system of medicine would, plainly, be an

activity towards the objects as specified. Merely because, running of an

Allopathic hospital is not specifically mentioned, it does not necessarily

mean that the same would be ultra vires the objects, as establishment of an

Allopathic hospital does assist the Assessee in its object of improving the

Ayurvedic system and taking assistance from the Allopathic system of

medicine. Any activity reasonably incidental to the object would not be

ultra vires the objects. As explained by the Assessee, the modern

investigation techniques are equally utilized for treatment under Ayurvedic

system.


36.     In Lakshmanaswami Mudaliar v. Life Insurance Corporation: AIR

1963 SC 1185, the Supreme Court had observed as under:




ITA 141/2013                                                     Page 29 of 35
        \"(13) Power to carry out an object, undoubtedly includes
        power to carry out what is incidental or conducive to the
        attainment of that object, for such extension merely permits
        something to be done which is connected with the objects to
        be attained, as being naturally conducive thereto.\"

37.     Although the above observations were made in the context of

interpretation of the Object Clause of a Memorandum of Association of a

Company, the principle would also be applicable to determine whether any

activity is ultra vires the purpose of a Trust.





38.     Thus, in our view, the AO and the Tribunal erred in concluding that

the Assessee\'s activities were in excess of its objects. Running an

integrated hospital would clearly be conducive to the objects of the

Assessee. The trustees have carried out the activities of the trust bonafide

and in a manner, which according to them best subserved the charitable

objects and the intent of the Settlor. Thus the activities of the Assessee

cannot be held to be ultra vires its objects. The AO and the Tribunal were

unduly influenced by the proportion of the receipts pertaining to the

Ayurvedic Research Institute and the hospital. In our view, the fact that the

proportion of receipts pertaining to the Ayurvedic Research Institute is

significantly lower than that pertaining to the hospital would, in the facts of

the present case, not be material. Undisputedly, significant activities are



ITA 141/2013                                                      Page 30 of 35
carried out by the Assessee for advancement and improvement of the

Ayurvedic system of medicine in the institution established by the Assessee

and though the receipts from the Allopathic treatment are larger, the same

does not militate against the object for which the institution has been set up

and run.


39.     The next issue to be addressed is whether it was open for the AO to

take a view different from the one that has been accepted by the Revenue

for the past several decades. It is well established that each year is a

separate assessment unit and the principles of res judicata are not

applicable. However, in this case, it would be appropriate to note that the

activities carried out by the Assessee have been accepted as being amenable

to exemption under Section 11 of the Act for the past several decades. In

the past period, the Assessee has been granted exemption under Section 11

of the Act and also under Section 10(22)/10(22A) or Section 10(23C) of the

Act. Concededly, the exemptions granted to the Assessee for past several

decades would not be available if the activities of the Assessee were

considered by the concerned AOs/Authorities to be ultra vires its objects.


40.     In the circumstances, it would not be apposite to permit the Revenue

to challenge a position that has been sustained over several decades without



ITA 141/2013                                                     Page 31 of 35
there being any material change. In Radhasoami Satsang (supra), the

Supreme Court observed as under:-


         \"....each assessment year being a unit, what is decided in one
         year may not apply in the following year but where a
         fundamental aspect permeating through the different
         assessment years has been found as a fact one way or the
         other and parties have allowed that position to be sustained by
         not challenging the order, it would not be at all appropriate to
         allow the position to be changed in a subsequent year..\"



41.      In Parashuram Pottery Works Co. Ltd. v. ITO: (1977) 106 ITR 1

SC, the Supreme Court reiterated the principle that if the parties have

allowed a position to sustain, it would not be appropriate to change the

position in a subsequent year. The said decisions have also been followed

by the Supreme Court in its later decision in Excel Industries Ltd. (supra).


42.      In Krishak Bharati Co-operative Ltd. (supra), a Division Bench of

this Court struck a note of caution that the rule of consistency is not of a

wide application and a blind adherence to this rule would lead to anomalous

results. Thus, in the circumstances, where the views are mistaken and

apparently erroneous, it would not be apposite to compel the Revenue to

follow the same on the principle of estoppel or of consistency. However, in

cases, where two views are plausible, it would be, plainly, whimsical to



ITA 141/2013                                                       Page 32 of 35
frame an assessment contrary to the position accepted in earlier years. This

would render the exercise of assessment highly subjective; clearly, an

Assessee cannot be subjected to such vagaries. Indisputably, the powers of

AO are wide but its exercise cannot be undisciplined. In cases where there

is a palpable mistake or the position accepted by the Revenue in earlier

years is apparently erroneous, the AO would not be bound to accept the

view of his predecessors. However, in cases - such as the present case -

where the Assessee\'s claim for exemption has been accepted for several

decades, it would not be open for AO to think of new grounds, which at

best raise contentious issues, to cast a wider net of tax. It is trite law, that if

two views are possible, the one favoring the Assessee must be adopted.

This rule would apply a fortiori in cases where the Assessee\'s claim has

been consistently accepted by the Revenue in the past. Thus, in cases where

the claim of an Assessee has been accepted in earlier years, unless the claim

of an Assessee is found to be devoid of any basis or plainly contrary to law,

it would not be open for the AO to take a view contrary to the position

which has been accepted by the Revenue in earlier years and has been

permitted to sustain for a significant period of time.




ITA 141/2013                                                          Page 33 of 35
43.     In the facts of the present case, it is not possible to accept that grant

of exemption to the Assessee for the past several decades was palpably

erroneous and successive AOs were wrong in accepting that the activities

of the Assessee were in furtherance of its charitable objects, entitling the

Assessee to escape the levy of income tax.


44.     In view of the above, the second question is answered in affirmative

and Assessee would not be entitled to exemption under Section 11 of the

Act if its activities are outside the scope of its objects, even if its activities

are charitable in nature. However, the first question is answered in the

negative and in favour of the Assessee and in our view, the Tribunal was

not justified in allowing the Revenue\'s appeal and denying the Assessee\'s

claim under Section 11 of the Act.


45.      Insofar as the issue regarding depreciation on assets used for

providing Allopathic systems of medicine is concerned, the learned counsel

for the Revenue did not dispute that the depreciation would be allowable if

the activities of the Assessee were considered to be within the scope of its

objects. The Tribunal had denied the claim of depreciation, in respect of

assets used for providing medical relief through Allopathic system of

medicine, only on the basis that the Assessee\'s activity for running the



ITA 141/2013                                                         Page 34 of 35
hospital was ultra vires its objects. In the circumstances, the third question

is to be answered in the negative and in favour of the Assessee.


46.      In view of the aforesaid, the impugned order of the Tribunal is set

aside. The appeal is disposed of. No order as to costs.




                                                    VIBHU BAKHRU, J




                                                    S. MURALIDHAR, J
JULY 27, 2015
RK




ITA 141/2013                                                       Page 35 of 35

 
 
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