2019 (8) TMI 1819 - AT - Income Tax

Denial of grant of exemption u/s 11 - AO held that the donation made to the hospital was not in pursuance to its objects of carrying out religious activities and further was for the benefit of a person which was related to the assessee trust - HELD THAT - We find are not sufficient to establish this charge. Undisputedly, the amount was paid to the hospital which had also been granted registration u/s 12A - The consistent pleading of the assessee before the AO and the CIT(A), we find, has been that the donation was made was in consonance with its stated religious objects which included service to humanity and humanitarian purpose. In this backdrop, we find, the facts relating to the hospital need further investigation whether it was being run on purely charitable lines with very low fees or no fees being charged from patients or otherwise. Since it is only then it can be said that the donation made by the assessee was in furtherance of its religious objectives of serving humanity. As far the denial of exemption for the reason that by virtue of this donation a related person of the assessee had been benefited, the Ld. DR himself pointed out that there is no finding of fact as to how the hospital was related to the assessee society in terms of the definition so provided u/s 13 (3) - In the absence of this essential fact the applicability of section 13 (1) (c) of the Act cannot be enforced. For the aforesaid reasons we consider it fit to restore the issue back to the CIT(A) to adjudicate the issue afresh after bringing out all relevant facts on record as pointed above and any other facts considered necessary by him for adjudicating the issue at hand. Needless to add the assessee be granted adequate opportunity of being heard and the issue thereafter be decided in accordance with law. - Appeals of the assessee and the Revenue are allowed for statistical purposes.

Summary

Issues:
1. Denial of grant of exemption u/s 11 of the Income Tax Act to the assessee trust.
2. Disallowance of exemption u/s 11 of the Act to the extent of income applied by way of donation to its sister concern.
3. Dispute regarding the disallowance of exemption by the AO to the entire surplus generated by the assessee.

Analysis:

Issue 1: Denial of grant of exemption u/s 11 of the Income Tax Act to the assessee trust:
The AO denied the exemption u/s 11 of the Act to the entire income of the assessee trust, treating it as an 'Association of Persons' (AOP). This denial was based on the grounds that the donation made to a hospital was not in line with the trust's religious activities and was for the benefit of a related person. However, the CIT(A) restricted the disallowance of exemption only to the extent of application of income that violated the trust's stated objects and purpose. The CIT(A) found that the AO's disallowance was not justified and directed to allow the claim of exemption of surplus income u/s 11 of the Act.

Issue 2: Disallowance of exemption u/s 11 of the Act to the extent of income applied by way of donation to its sister concern:
The assessee challenged the disallowance of exemption u/s 11 of the Act to the extent of income applied by way of donation to its sister concern. The grounds of appeal included arguments that medical relief is part of religious activities, and the AO failed to hold consistency as the expenditure had been accepted in previous years. The Revenue challenged the CIT(A)'s decision to restrict the disallowance to a specific amount, arguing that the diversion of money benefited a specified person under section 13(3) of the Act. The Tribunal found that further investigation was needed to determine if the donation was in line with the trust's religious objectives.

Issue 3: Dispute regarding the disallowance of exemption by the AO to the entire surplus generated by the assessee:
The Revenue challenged the CIT(A)'s decision to restrict the disallowance to a specific amount, citing the application of section 13(1)(c) and the fact that any part of income applied for the benefit of specified persons should not be excluded from total income. The Tribunal noted that there was no finding on how the hospital was related to the assessee society as per the Act's definition. As a result, the Tribunal decided to restore the issue back to the CIT(A) for further investigation and adjudication based on all relevant facts.

In conclusion, both the appeals of the assessee and the Revenue were allowed for statistical purposes, and the issue was remanded for further consideration by the CIT(A) to ensure a fair and comprehensive decision based on all relevant facts and legal provisions.