2019 (1) TMI 2008 - HC - Income Tax

Assessment of trust - Exemption u/s 11 - non deduction of tds - Tribunal held that 40% of professional charges paid to doctors through bearer cheques (60% paid by A/c. payee cheques) without deducting TDS cannot be disallowed u/s. 40(a)(ia) of the Act as the provisions of Section 11 of the Act was applicable to the assessee - HELD THAT -. Section 40(a)(ia) of the Income Tax Act would be applicable to the amount chargeable under the head Profit and gain of the business or profession . Section 11 is with regard to the income from property held for charitable or religious purpose. Subsequently, an explanation was inserted which would come into effect from 01.04.2019 by the Finance Act, 2018 which would clearly indicate that the application under Clause(a) or Clause(b), the provisions of sub-clause(ia) of clause (a) of Section 40 and sub-sections (3) and (3A) of Section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head Profits and gains of business or profession . Therefore it clearly indicates that the same would stand applicable only from 01.04.2019. Therefore, the contention of the Revenue cannot be accepted. Hence, we hold that the Tribunal was justified in holding the said issue in favour of the Assessee and against the revenue. Whether the Tribunal was correct in holding that professional fee paid to Apollo Hospital for managing and running BGS Medical Foundation would not attract Section 194J and Section 40(a)(ia) of the Act as the provisions of Section 11 of the Act was applicable to the assessee? - On the same analogy, with reference to the amendment in Section 11(6) of the Act amended by Finance Act No.2 of 2014, the amendment was made and deducted from the assessment year 2015-16. In the instant case, the assessment would be with effect from 1st April 2019. Therefore, on this ground also, we do not find any material to interfere in the Order passed by the Tribunal. Consequently, the second substantial question of law is answered in favour of the Assessee and against the Revenue.

Summary

Issues:
1. Depreciation claimed by the assessee.
2. Disallowance under Section 40(a)(ia).
3. Appeal against the Tribunal's decision.

Depreciation claimed by the assessee:
The charitable trust, registered under Section 12A of the Act, claimed depreciation allowance amounting to Rs. 8,41,36,636, including Rs. 4,92,10,011 for building blocks. The Assessing Officer disallowed the claimed depreciation for buildings as it was already allowed in earlier assessment years, affecting the exemption under Section 11 of the Act. The Tribunal, citing previous judgments, held that depreciation should be deducted to determine income available for charitable purposes.

Disallowance under Section 40(a)(ia):
A survey revealed that the hospital did not deduct taxes as required under TDS provisions for payments made to doctors and for operation management service charges. The Tribunal, referencing various judgments, concluded that Section 40(a)(ia) cannot be invoked for disallowing expenses where tax was not deducted at source for a trust. The Revenue challenged this decision.

Appeal against the Tribunal's decision:
The Revenue appealed the Tribunal's decision, questioning the disallowance under Section 40(a)(ia). The first substantial question of law focused on professional charges paid to doctors without TDS deduction, while the second question dealt with fees paid for managing the hospital. The Tribunal's decision was supported by the Supreme Court's judgment, and the subsequent insertion in the Finance Act clarified the application of Section 40(a)(ia) from 01.04.2019. The High Court upheld the Tribunal's decision, ruling in favor of the assessee against the Revenue.

In conclusion, the High Court upheld the Tribunal's decision in favor of the assessee, emphasizing the correct application of depreciation and disallowance provisions under Section 40(a)(ia) for a charitable trust. The judgments cited and the interpretation of relevant sections played a crucial role in determining the outcome of the appeal.