2009 (4) TMI 550 - AT - Income Tax

Denying claim for exemption u/s 11 and 12 in toto - object/purpose of the Trust - assessee is registered as Charitable Trust under Bombay Public Trust Act 1950 and from 1986 onwards running a 15 bedded hospital - started a new 100 bedded hospital with various specialities - filed return for the impugned assessment year declaring nil income - claim for exemption u/s 10(23C)(iiiae) - assessee submitted that it had not rendered any concessional treatment to any person falling u/s 13(3) - further assessee was conducting periodical Medical Camps for cancer patients and other persons afflicted with various diseases - According to the assessee just because it had charged well-to-do persons who were able to meet the cost of their treatment would not make it ineligible for claiming exemption u/s 11 and 12 - AO held that advertisements for charity work were only for promoting the hospital itself. Thus he refused to grant the assessee exemption either u/s 10( 23C )(iiiae) or sections 11 and 12 - AO also disallowed assessee s claim of depreciation CIT(A) allowed assessee benefit of exemption u/s 11 and 12 and also allowed benefit of depreciation - According to the revenue such exemption was allowed despite specific violation of basic objects of the Trust and had resulted in donations received by the Trust being taken out of the ambit of taxation. Hence this appeal. HELD THAT - In our opinion just because an institution like hospital charges fees for the services rendered that by itself would not preclude it from claiming to be doing charitable work as defined u/s 2(15). In fact AO went about by his own definition of charity oblivious of the definition given u/s 2(15). No defect has been pointed out in the books of account of the assessee by the AO. He has relied on a solitary incidence of a help given to one Mrs. Lata Tolani wife of one of the donors who had given donation and therefore according to the AO this is hit by section 13(1)( c ). However assessee had all along maintained that Mrs. Tolani was not given free treatment but was discharged before giving any treatment upon the death of her mother. Again sub-section (6) of section 13 clearly specifies that exemption under section 11 or 12 shall not be denied (in relation to any income other than the income referred to in sub-section (2) of section 12) by reason only that a trust had provided education or medical facilities to a person specified in sub-section (3) of section 13. Therefore this could not have been considered as a reason for denying assessee its claim of exemption u/s 11 and 12 in toto. In fact it was the only solitary instance which AO could point out to have been in deviation vis-a-vis the provisions of the Act and even such incidence was never admitted by the assessee. We find that no trustee founder or relative had taken any services nor participated in the profits and surplus or activities of the Trust. Helping a director or a person involved in an accident is also charity because this would fall within the definition of medical relief. No doubt out of 18 persons to whom AO had issued letters 12 came back unanswered but nevertheless this would not be sufficient to give a finding that assessee had not rendered any concessional service to such persons. As already mentioned by us it is not necessary for the assessee to establish that medical services were rendered only to the poor to come within the ambit of definition of charitable purpose u/s 2(15). As for the grievance of the revenue that assessee was allowed benefit of depreciation on assets received as donation in kind we find from Explanation to sub-section (1) of section 43 that assessee had to be allowed depreciation even on assets received by way of gifts or inheritance based on the actual cost of the previous owner as reduced by the depreciation allowed under the Act. Therefore there is no error in the direction of the ld. CIT(A) to grant assessee the benefit of depreciation. As for the taxability of the donation received by the trust voluntary donations received by a trust are by virtue of sub-section (1) of section 12 deemed to be income derived from property held under trust and therefore on such amounts also assessee would be eligible for claiming exemption u/ss 11 and 12. In the result there is no need to interfere with the order of ld. CIT(A) and appeal of the revenue stands dismissed.

Issues Involved:
1. Eligibility for exemption under sections 11 and 12 of the Income-tax Act, 1961.
2. Violation of basic objects of the Trust.
3. Claim of depreciation on assets received as donations in kind.
4. Taxability of donations received by the Trust.

Detailed Analysis:

1. Eligibility for exemption under sections 11 and 12 of the Income-tax Act, 1961:
The Revenue appealed against the CIT(A) order granting the assessee exemption under sections 11 and 12. The assessee, a Charitable Trust, claimed exemptions for running a hospital. The Assessing Officer (AO) questioned the eligibility, asserting the Trust did not exist solely for philanthropic purposes and had a profit motive. The AO found the hospital's rate chart comparable to commercial organizations and noted no established norms for giving concessions. However, the CIT(A) noted that the Trust's statutory auditors did not give adverse remarks and directed the AO to grant the exemption, except for the value of concessional services provided to individuals specified under section 13(3).

2. Violation of basic objects of the Trust:
The AO argued that the Trust violated its charitable purpose by providing free/concessional treatment to individuals who did not need it, including a person whose husband was a donor. The assessee countered that its objects were purely charitable, focusing on medical relief, and produced evidence of concessional treatments. The CIT(A) found that the Trust's main objectives aligned with the definition of 'charitable purpose' under section 2(15) of the Act and that the Trust's activities were charitable, even if some services were charged. The Tribunal agreed, noting that medical relief need not be restricted to the poor and that charging fees does not preclude charitable status.

3. Claim of depreciation on assets received as donations in kind:
The AO disallowed the depreciation claim on assets received as donations, citing Explanation (2) to section 43. The CIT(A) and Tribunal found that under the Explanation to sub-section (1) of section 43, depreciation must be allowed on assets received as gifts or inheritance based on the actual cost to the previous owner. Hence, the direction to grant depreciation was upheld.

4. Taxability of donations received by the Trust:
The AO questioned the taxability of donations received by the Trust. The Tribunal clarified that voluntary donations are deemed income derived from property held under trust by virtue of sub-section (1) of section 12 and are eligible for exemption under sections 11 and 12.

Conclusion:
The Tribunal upheld the CIT(A)'s order, granting the assessee exemption under sections 11 and 12, allowing depreciation on donated assets, and confirming the tax-exempt status of voluntary donations. The appeal by the revenue was dismissed, affirming that the Trust's activities were charitable and aligned with its objectives, despite generating some surplus and charging fees for services.

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