2016 (4) TMI 1307 - AT - Income Tax

Benefit of exemption u/s.11 denied - assessee is not engaged in charitable activity and has not provided services to the underprivileged section of the society - running of the canteen - Held that - Denial of exemption u/s.11 by the AO on account of running of the canteen is not correct, we find no infirmity in his order holding that the assessee cannot be denied exemption u/s.11 of the Act for running a canteen and making profit out of it. So long as the surplus generated from the canteen is utilized for making relief, the exemption u/s.11 in our opinion cannot be denied unless it is brought on record that such surplus generated has not been utilized for charitable purposes or has been utilized for non charitable purposes. Since there is no such finding given by the AO, therefore, denial of exemption u/s.11 on account of running of the canteen is not justified. As regards the objection of the AO that assessee trust has organized musical nights and such programmes are not warranted in case of a charitable trust, we find this objection of the AO is also not at all justified. When the assessee has clarified that the musical nights were performed by renowned artists who did not take any remuneration from the trust and the main intension of organizing such programmes was to reduce the stress level of the patients and their relatives, therefore, under these circumstances denial of exemption u/s.11 in our opinion is not warranted. The Ld.CIT(A) has properly appreciated the facts and rejected the objection of the AO on this issue by giving valid reasons which in our opinion is proper and justified. Next objection of the AO that the assessee had received donations from the patients in lieu of medical services rendered for which he has given examples such as Mr. Dilip Nayakude, Mrs. Kavita Waghle and Mr. Rajesh Deepak etc. We find the assessee has conclusively proved before us that the donation given by the above persons are much less than the concession given to them. Since the CIT(A) has rejected the objection of the AO after considering the various evidences furnished by the assessee before him wherein the above persons had clarified that they had given donations to the assessee trust on their own will and since the AO in the remand proceedings also could not controvert the various submissions given by the assessee, therefore, the order of the CIT(A) holding that there is no merit in the allegation of the AO that the assessee trust has issued donation receipts and has evaded tax is correct. As regards the objection of the AO that the assessee has violated the provisions of section 13(1)(c) of the Act by paying remuneration of ₹ 90,000/- to Mrs. Meena Kelkar and ₹ 6 lakhs to Mrs. Bharti Mangeshkar is concerened, we find such objection of the AO is also not correct as from the various details furnished by the assessee we find Mr. Meena Kelkar was earlier looking after house keeping department of Sanjeevan Hospital and thus was having enough experience. Further, she was appointed in place of Smt. Sarita Shelke who was looking after the house keeping activity and she was paid remuneration of ₹ 16,000/- per month. The various evidences furnished by the assessee in the paper book show that Mr. Meena Kelkar was actually looking after the house keeping activity of the assessee trust. The trustee Dr. Dhananjay Kelkar had also filed an affidavit before the CIT(A) that the remark made by the AO was incorrect and he had not made any statement in the assessment proceedings as alleged by the AO. The next objection of the AO that assessee has received rent of ₹ 2,88,100/- from various parties which includes ₹ 1,88,000/- from Bharti Airtel for allowing them to erect their tower in the premises of the trust which is commercial exploitation of the property, CIT(A) has already held that the same is for supplementing the main object of the assessee trust. We agree with the argument of the assessee that erection of such tower in the premises of the hospital enhances the signal for telecommunication. Further, as the rent has been shown in the books of account and has been utilized for the objects of the trust, therefore, we uphold the order of the CIT(A) on this issue and hold that exemption cannot be denied for receiving rent from Bharti Airtel for erecting tower in the hospital premises. Thus we find no infirmity in his order allowing the benefit of exemption u/s.11 . - Decided in favour of assessee

Issues Involved:
1. Denial of exemption under section 11 of the Income Tax Act.
2. Violation of section 13(1)(c) of the Income Tax Act.
3. Allegations of commercial activities and profit-making.
4. Understatement of receipts to the Charity Commissioner.
5. Shortfall in the Indigent Patient Fund (IPF).
6. Running a canteen for profit.
7. Issuance of donation receipts in lieu of medical services.
8. Payments to relatives of trustees.
9. Organization of musical nights.
10. Receipt of rent from Bharti Airtel for erecting a tower.

Detailed Analysis:

1. Denial of Exemption under Section 11:
The AO denied the exemption under section 11, citing that the trust was running the hospital with an intention of making a profit, not carrying out charitable activities, and generating huge surplus. However, the CIT(A) held that the generation of surplus is not a reason to deny exemption as long as the surplus is utilized for the trust's objectives. The CIT(A) relied on various judicial decisions, including the Hon'ble Supreme Court's decision in Adinath Educational Institution and the Hon'ble Bombay High Court in Vanita Vishram Trust, which emphasized that surplus generation does not negate the charitable nature of the trust.

2. Violation of Section 13(1)(c):
The AO alleged violations due to payments made to Mrs. Meena Kelkar and Mrs. Bharati Mangeshkar, who are related to trustees. The CIT(A) found that both individuals rendered services to the trust, and the payments were not excessive or unreasonable. The CIT(A) called for a remand report and concluded that the payments did not violate section 13(1)(c).

3. Allegations of Commercial Activities and Profit-Making:
The AO argued that the trust's activities were commercial, pointing to high profit margins and the running of a canteen. The CIT(A) noted that the profit from the canteen was incidental to the main objects of the trust and that the rates charged were low. The CIT(A) also emphasized that the trust maintained separate books of account for the canteen, fulfilling the conditions of section 11(4A).

4. Understatement of Receipts to the Charity Commissioner:
The AO observed discrepancies between the receipts reported to the Charity Commissioner and the actual hospital fees. The CIT(A) found that the trust had clarified these issues and had not hidden any figures from the Charity Commissioner.

5. Shortfall in the Indigent Patient Fund (IPF):
The AO noted a shortfall in the IPF as per the guidelines issued by the Charity Commissioner. The CIT(A) acknowledged some confusion regarding the amount to be provided for the fund and noted that the trust had made up for the shortfall in subsequent years.

6. Running a Canteen for Profit:
The AO claimed that the canteen was run with a profit motive. The CIT(A) found that the profit was incidental to the main objects of the trust and that the rates charged were reasonable. The CIT(A) also noted that the trust maintained separate books of account for the canteen.

7. Issuance of Donation Receipts in Lieu of Medical Services:
The AO alleged that the trust issued donation receipts for medical services. The CIT(A) found no merit in this allegation, noting that the AO had recorded statements without giving the trust an opportunity to rebut them. The CIT(A) concluded that the donations were voluntary and not a means to evade tax.

8. Payments to Relatives of Trustees:
The AO objected to payments made to Mrs. Meena Kelkar and Mrs. Bharati Mangeshkar. The CIT(A) found that both individuals were rendering services to the trust and that the payments were not excessive or unreasonable. The CIT(A) relied on affidavits and confirmations from various individuals to support this conclusion.

9. Organization of Musical Nights:
The AO argued that organizing musical nights was not warranted for a charitable trust. The CIT(A) found that these events were organized to reduce stress for patients and their families and that the artists performed free of cost. The CIT(A) concluded that the AO's objection was not justified.

10. Receipt of Rent from Bharti Airtel for Erecting a Tower:
The AO claimed that receiving rent from Bharti Airtel for erecting a tower was commercial exploitation. The CIT(A) found that the rent was incidental to the main objects of the trust and that the space provided for the tower helped augment telecommunication signals for patients and their families.

Conclusion:
The CIT(A) allowed the claim of exemption under section 11, rejecting the various objections raised by the AO. The Tribunal upheld the CIT(A)'s order, dismissing the appeals filed by the revenue for both assessment years 2008-09 and 2009-10. The Tribunal found no infirmity in the CIT(A)'s order, which was based on a thorough analysis of the facts and applicable legal principles.

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