2022 (2) TMI 938 - AT - Income Tax

Exemption u/s 11 - violation of section 13(3) r.w.s. 13(1)(c) and 13(2) - addition on account lease rent holding that the rent received is very low as compared to lease registration document - HELD THAT - We note that the lease agreement was duly approved by the charity commissioner and bids for the lease have been obtained after due advertisement. On the touchstone of Hon ble Bombay High court decision in the case of Verendra Vs. Appropriate authority 2008 (9) TMI 515 - BOMBAY HIGH COURT this now cannot be disputed by revenue Hence if the expenditure has been approved by appropriate authority, the AO cannot take the divergent view. Moreover, we also note that ld. CIT(A) has given the finding that the bid for the lease was obtained by due advertisement in news papers. There is also due provision for security deposit of ₹ 5 crores. In this regard assessee has also submitted valuation by a Government approved valuer report in this regard. Hence, these factors duly corroborate that the lease rent in this case is not only approved by the charity commissioner, but also supported by the other facts, which show that the lease was awarded after due advertisement and making provision for appropriate security deposit. Hence, in the background of aforesaid decision and the facts of the case, we do not find any infirmity in the order of ld.CIT(A) in this regard. Trustees are related to the party to whom lease has been awarded - We note that this issue will not arise once, it is held that it cannot be said that lease rent is undervalued. In any case, ld.CIT(A) has given the detailed finding, how the AO s finding in this regard is not correct. The revenue has not brought any cogent material to rebut these findings. Disallowance of reimbursement of expenses to/from PDNHRC - We note that similar issue has already travelled to the Hon ble Bombay High court in the case of PDNHRC 2019 (2) TMI 1454 - BOMBAY HIGH COURT . In the said case of Hon ble High Court has held that these reimbursements do not attract TDS. Once, the payment has been subject matter of examination by the Ho nble Bombay High Court, AO has no jurisdiction to make any comment whatsoever. Moreover, the CIT(A) has given due finding that these are due reimbursement. This fact is also arising out of the detailed observation of the Hon ble Bombay High court referred in the order of Ld.CIT(A) above. Disallowance on account of religious expenditure - We note that it also comprised of ₹ 3,58,200/- given to ISKON. Ld. CIT(A) has given the detailed finding as to how these expenditures were for food programme and not meant for religious activity. No cogent material was brought to our notice rebutting the same. Hence, we do not find any infirmity in the order of ld.CIT(A) in this regard. On the basis of same transactions for a long time from earlier years, AO has not taken any adverse inference against the assessee. Without change in facts on law the AO is not justified to take a divergent view as held by various courts including the Hon ble Supreme court as referred above. Apart from the above three expenditures, the other aspect of AO s observation that the assessee is involved in profit motive is not at all sustainable and correct. These are only surmise and conjectures of the AO dehorse facts. In fact, Ld. Counsel of the assessee has pointed out that there is no element of suppression of profits as the assessee has actually incurred losses for the past several years. Further, the ld.CIT(A) has given due finding that assessee is duly utilizing the fund for the objects of the trust. No cogent rebuttal was made by the revenue in this regard. - Decided against revenue.

Summary

Issues Involved:
1. Violation of Section 13(3) r.w.s. 13(1)(c) and 13(2) of the Income Tax Act.
2. Deletion of addition of ?1,98,71,842/-.
3. Allowing relief of ?3,58,200/- for donations to religious trusts.
4. General observations regarding the charitable nature of the trust's activities.

Issue-wise Detailed Analysis:

1. Violation of Section 13(3) r.w.s. 13(1)(c) and 13(2) of the Income Tax Act:
The Assessing Officer (AO) held that the assessee-trust violated Section 13(3) r.w.s. 13(1)(c) and 13(2) by leasing its hospital to M/s. Hinduja Healthcare Pvt Ltd (HHPL), a related concern, at a lower lease rental value. The AO argued that this arrangement benefited HHPL, a profit-making entity, at the expense of the trust's charitable activities. The AO also noted that the lease agreement was registered at a value three times higher than the value taken by the assessee. However, the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that the lease agreement, approved by the Charity Commissioner, was at arm's length and did not violate Section 13(3). The CIT(A) emphasized that the lease rent was determined through public bidding and supported by a government-approved valuer's report.

2. Deletion of Addition of ?1,98,71,842/-:
The AO disallowed ?1,98,71,842/- as reimbursement expenses from PD Hinduja National Hospital & Research Centre (PDHNHRC), arguing that these were donations in nature and not genuine reimbursements. The CIT(A) found that the assessee had provided sufficient documentation, including ledger accounts and debit notes, to demonstrate that these were legitimate reimbursements for services provided by senior functionaries. The CIT(A) also referenced a Bombay High Court decision that confirmed these transactions as reimbursements, not subject to TDS.

3. Allowing Relief of ?3,58,200/- for Donations to Religious Trusts:
The AO disallowed ?4,24,481/- in donations to religious trusts, arguing they were not in line with the trust's charitable objectives. The CIT(A) partially upheld this disallowance, confirming ?66,281/- as religious expenditure but allowing ?3,58,200/- given to ISKCON for philanthropic activities and feeding the poor. The CIT(A) noted that ISKCON's activities, such as the Food Relief Programme, aligned with the trust's charitable objectives.

4. General Observations Regarding the Charitable Nature of the Trust's Activities:
The AO questioned the trust's charitable nature, citing that the hospital was virtually run by HHPL, a profit-making entity, and that the trust's activities were not genuinely charitable. The CIT(A) rejected this argument, noting that the trust had been consistently spending accumulated income on its specified charitable objects. The CIT(A) also highlighted that the AO had allowed deductions for charitable activities, contradicting the claim that the trust was not engaged in charitable work.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s findings, dismissing the revenue's appeal. The ITAT agreed that the lease agreement was at arm's length, the reimbursements were genuine, and the donations to ISKCON were for charitable purposes. The ITAT also emphasized that the AO's divergent view, without changes in facts or law, was unjustified. The order of the CIT(A) was upheld, and the appeal by the revenue was dismissed.