2013 (10) TMI 968 - AT - Income Tax

Benefit to the concern falling u/s 13(3)(c) is right or not - Eligibility of exemption u/s 11 and 12 of the Income Tax Act - Assessee is a company registered u/s 25 of the Companies Act 1956 and also registered u/s 12AA of the Act - Held that - As per sub-section (6) a trust running an educational institution or a medical institution or a hospital shall not lose the benefit of exemption of any income other than the value of benefits of educational or medical facilities provided to the specified persons, solely on the ground that such benefits have been provided to specified persons. It should be noted that the sub-section covers,-(i) only those trusts running an educational institution or a medical institution or a hospital; (ii) the benefit extends only in respect of educational or medical facilities and not any other facility. In the present case, Assessee has entered transactions with the related concerns - Assessee is not an educational institution or a hospital or medical institution as it is not engaged in dispensing medical facility though it is engaged in running a blood bank - Assessee cannot be considered to be engaged in medical facilities so as to be entitled to exemption of income Decided against the Assessee.

Issues Involved:
1. Denial of exemption under Sections 11 and 12 of the Income Tax Act due to alleged undue benefit to an associated concern under Section 13.
2. Disallowance of depreciation claimed by the Assessee.
3. Disallowance of net application of income by purchase of fixed assets.
4. Disallowance of business loss carry forward.
5. Charging of interest under Sections 234B/C/D.
6. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

Issue 1: Denial of Exemption under Sections 11 and 12
The Assessee, a company registered under Section 25 of the Companies Act and Section 12AA of the Income Tax Act, filed its return declaring a total income of Rs. Nil. The Assessing Officer (AO) determined the total income at Rs. 75,73,403/- after scrutiny. The AO observed that the Assessee had provided Fresh Frozen Plasma (FFP) to an associate company, Celestial Biologicals Ltd (CBL), at a concessional rate, which was significantly lower than the rate charged to patients. This was seen as an undue benefit under Section 13 of the Income Tax Act, leading to the denial of exemption under Sections 11 and 12.

The AO concluded that the Assessee's activities were not charitable as they provided subsidized rates to a corporate entity while charging higher rates to patients. The CIT(A) upheld the AO's decision, noting that the Assessee sold FFP to CBL at about 1/6th of the price charged to patients, which constituted an undue benefit under Section 13. Consequently, the benefit of Sections 11 and 12 was denied.

Issue 2: Disallowance of Depreciation
The AO disallowed the depreciation claim of Rs. 43,99,739/- on the grounds that the capital expenditure had already been allowed as an application of funds in earlier years. The CIT(A) did not adjudicate this issue on merits.

Issue 3: Disallowance of Net Application of Income by Purchase of Fixed Assets
The AO disallowed the net application of income by purchase of fixed assets worth Rs. 13,09,804/-. The CIT(A) also did not adjudicate this issue on merits.

Issue 4: Disallowance of Business Loss Carry Forward
The AO disallowed the business loss of Rs. 8,23,58,027/- to be carried forward, as the deduction under Section 11 was withdrawn. The CIT(A) did not address this issue on merits.

Issue 5: Charging of Interest under Sections 234B/C/D
The CIT(A) confirmed the AO's action of charging interest under Sections 234B/C/D, but the Assessee contended that this was done without proper appreciation of facts and submissions.

Issue 6: Initiation of Penalty Proceedings under Section 271(1)(c)
The CIT(A) upheld the AO's initiation of penalty proceedings under Section 271(1)(c), which the Assessee argued was done without considering the explanations and information provided.

Tribunal's Decision:
The Tribunal analyzed the facts and legal provisions, particularly focusing on Section 13, which outlines situations where exemption under Section 11 is not available. The Tribunal agreed with the AO and CIT(A) that the Assessee's transactions with CBL constituted an undue benefit, thereby disqualifying it from exemptions under Sections 11 and 12.

However, for the issues of disallowance of depreciation, net application of income by purchase of fixed assets, and business loss carry forward, the Tribunal noted that these were not adjudicated on merits by the CIT(A). Therefore, these issues were remanded back to the CIT(A) for fresh adjudication.

In conclusion, the appeal was partly allowed for statistical purposes, with instructions for the CIT(A) to reconsider the unadjudicated issues on their merits. The order was pronounced in open court on 20-09-2013.

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