2022 (2) TMI 868 - AT - Income Tax

Revision u/s 263 by CIT - direction to the AO to compute income of the appellant Trust without allowing exemption u/s. 10(23C)(iiiae) - Whether in the absence of any receipt from any hospital or other institution for the reception and treatment of persons suffering from illness, the allowability of exemption u/s. 10(23C)(iiiae) of the Act is prima facie, erroneous and prejudicial to the interest of the Revenue ? - Whether 'other income' of a philanthropic entity is eligible for deduction u/s. 10(23C)(iiia e) ? - HELD THAT - There is no requirement of provision Section 10(23C)(iiiae) of the Act that the income should be earned from such philanthropic activity, rather it is otherwise that the institution/Trust has done such an activity purely for charitable/philanthropic purposes and under such circumstances expectation of income from such activity will be against the spirit of the aforesaid statutory provision. There is no allegation that the institution is doing any activity other than the aforesaid medical dispensary. The annual income of the appellant Trust is out of the interest income from the investment has been made of surplus lying with it. However, there is no allegation that such surplus is applied for any purpose other than the charitable activity. Now, the only allegation is that the appellant Trust has applied only 12% of its receipts and accumulated 88%. We find that under the provision of Section 10(23C)(iiiae) of the Act, there is no limit prescribed for application of receipts and accumulation of receipts. Appellant Trust is within its rights to accumulate the receipts as per its requirement. It had been explained by the assessee Trust to the Ld. CIT(E) that the surplus of investment was being accumulated for spending in future years for the objects and purposes of the Trust like building of hospital, nursing home or any other similar medical institution. All the conditions as prescribed u/s.10(23C)(iiiae) of the Act, have been fulfilled by the appellant Trust and there is no allegation that the appellant Trust is involved in any other activity for profit or does not exist for philanthropic purposes. Even in this case, all the facts are on the file, therefore there was no need for any further investigation by the A.O. as alleged by the Ld. CIT(E). The action of the Ld. CIT(E) in directing the A.O. to disallow the exemption granted u/s. 10(23C)(iiiae) of the Act was not justified - Appeal of the appellant Trust stands allowed.

Summary

Issues:

1. Allowability of exemption u/s. 10(23C)(iiiae) of the Income Tax Act, 1961.
2. Eligibility of 'other income' of a philanthropic entity for deduction u/s. 10(23C)(iiiae) of the Act.
3. Existence for profit due to surplus income and expenditure ratio exceeding 15% for consecutive financial years.

Issue 1: Allowability of exemption u/s. 10(23C)(iiiae) of the Income Tax Act, 1961

The appeal was filed against the order of the Ld. Commissioner of Income Tax (Exemption) under section 263 of the Act, setting aside the assessment order and directing the Assessing Officer to compute the income without allowing exemption u/s. 10(23C)(iiiae) of the Act. The appellant Trust, a society formed for philanthropic purposes, ran a medical dispensary providing free treatment. The Ld. CIT(E) found the A.O.'s action erroneous, initiating proceedings and disallowing the exemption due to lack of nexus between income and expenditure. The Trust argued that their activities were charitable, with income from investments solely for philanthropic purposes. The Ld. CIT(E) directed disallowing the exemption, leading to the Trust's appeal.

Issue 2: Eligibility of 'other income' of a philanthropic entity for deduction u/s. 10(23C)(iiiae) of the Act

The Ld. CIT(E) questioned whether 'other income' of a philanthropic entity is eligible for deduction u/s. 10(23C)(iiiae) of the Act. The Trust, emphasizing their charitable nature, argued that income from investments was used for providing free medical services, with no part benefiting individuals. They highlighted that surplus income was accumulated for future charitable purposes, not for profit. The Ld. CIT(E) found the lack of nexus between income and the dispensary's operation as grounds for disallowing the exemption, despite the Trust's explanations.

Issue 3: Existence for profit due to surplus income and expenditure ratio exceeding 15% for consecutive financial years

The Ld. CIT(E) raised concerns about the Trust's existence for profit due to the surplus income over expenditure exceeding 15% for consecutive financial years. Citing the decision in a Supreme Court case, the Ld. CIT(E) directed disallowing the exemption u/s. 10(23C)(iiiae) of the Act. However, the Trust argued that their activities were solely philanthropic, with income from investments earmarked for charitable purposes. The Appellate Tribunal found that the Trust fulfilled all conditions under the Act, operating purely for philanthropic purposes without any profit motive. The Tribunal quashed the Ld. CIT(E)'s order, allowing the Trust's appeal.

This detailed analysis of the judgment showcases the issues raised, arguments presented, and the final decision rendered by the Appellate Tribunal in favor of the appellant Trust.