2014 (1) TMI 1500 - AT - Income Tax

Eligibility for exemption u/s 11of the Act Investment of surplus fund in FDRs Whether the earning of interest on surplus funds can be treated as educational or charitable activity Held that - The decision in DIT(Exemption) v. Dalmiya Shiksha Pratishthan 2008 (2) TMI 312 - DELHI HIGH COURT followed - The assessee has invested its funds in FDRs on which the assessee earned interest, which is applied towards the objects of the assessee society - The funds invested in FDR have been shown in the balance sheet and is the property of the assessee-society - Merely because the assessee earns interest on its surplus/corpus funds would not lead to the fact that the assessee exists for profit purpose - The claim of the assessee has been correctly allowed by the CIT(A) Decided against Revenue. Claim of deduction u/s 10(23C)(iiiea) of the Act Held that - The assessee's maternity hospital would have been facilitating the deliveries, i.e., a natural process of God thus, it can in no way be said to be any illness to be treated in the assessee's hospital as envisaged u/s. 10(23C)(iiiae) - the ingredients of section 10(23C)(iiiae) being not fulfilled - the CIT(A) has rightly disallowed the claim of assessee Decided against Assessee.

Summary

Issues:
1. Departmental Appeal: Whether interest income earned on surplus funds invested in FDRs is eligible for exemption u/s. 11 of the IT Act.
2. Cross Objection: Whether the assessee qualifies for deduction u/s. 10(23C)(iiiae) of the IT Act as a hospital for maternity services.

Departmental Appeal Analysis:
In the departmental appeal, the Revenue challenged the ld. CIT(A)'s decision allowing exemption for interest income earned on surplus funds invested in Fixed Deposit Receipts (FDRs) under section 11 of the IT Act. The assessee, a charitable trust running a maternity hospital, claimed that the interest income was directly incidental to its main activities and should be exempt. The AO disallowed a portion of the income, but the ld. CIT(A) found in favor of the assessee citing relevant case law. The ITAT upheld the ld. CIT(A)'s decision, stating that the interest income was applied towards the trust's objectives and did not indicate profit-making intent, thus dismissing the departmental appeal.

Cross Objection Analysis:
Regarding the cross objection, the assessee sought deduction u/s. 10(23C)(iiiae) of the IT Act as a general hospital providing maternity services. However, the ld. CIT(A) denied the claim, stating that the hospital did not cater to mental illness or rehabilitation as required by the section. The AO also noted that maternity services do not constitute treatment for illness or mental defectiveness. The ITAT agreed with the ld. CIT(A), emphasizing that maternity, being a natural process, does not fall under the purview of the section. Despite the arguments presented by the assessee, including details of operations conducted, the ITAT upheld the denial of the claim under section 10(23C)(iiiae), resulting in the dismissal of the cross objection.

In conclusion, both the departmental appeal and the cross objection were dismissed by the ITAT, affirming the decisions of the ld. CIT(A) in the respective matters. The judgment clarified the eligibility criteria for exemptions under different sections of the IT Act based on the nature of activities conducted by the charitable trust in question.