2022 (8) TMI 19 - AT - Income Tax

Exemption u/s 11 - Voluntay contributions by Deendayal Memorial Hospital ( DMH ) as a contributory within the meaning of section 13(3)(b) - HELD THAT - Admittedly the assessee received donation from prohibited person in terms of section 13(3)(b) of the Act that being so the arguments of ld. AR is not accepted. We find the CIT(A) discussed the same in Para No. 16 of the impugned order and rightly held that the said explanation could have been accepted that if the donation could have been received from a person other than prohibited person. Further there is no dispute about the fact that DMH had made a substantial contribution to the assessee and the said contribution so made up to the end of the previous year relevant to the assessment year under consideration being Rs.65, 00, 000/- far exceeding Rs.50, 000/-. There is also not disputed about the fact that DMH applied the said sum for the benefit of assessee. Therefore the provisions under Sub-section (3) of section 13 is attracted as rightly held by the AO by placing reliance on the decision of Hon ble High Court of Bombay in the case of Champa Charitable Trust 1994 (12) TMI 56 - BOMBAY HIGH COURT Therefore taking into consideration the submissions of ld. AR and ld. DR and our discussion made hereinabove paras we find no infirmity in the order of CIT(A) in holding the DMH is a prohibited person u/s. 13(3)(b) and consequently denying exemption u/s. 11 of the Act for violation of provision u/s. 13(1)(c) of the Act to the assessee. Thus ground Nos. 1 to 6 raised by the assessee are dismissed. Denying exemption u/s. 11 of the Act in the light of provisions u/s. 13(6) - As decided in AUDYOGIK SHIKSHAN MANDAL PUNE 2018 (12) TMI 1344 - BOMBAY HIGH COURT observed that the law laid down by the Hon ble High Court of Karnataka FR MULLERS CHARITABLE INSTITUTIONS 2014 (2) TMI 1033 - KARNATAKA HIGH COURT in holding the benefit of section 11 of the Act will not be available to diverted income and also observed that in order to come to such conclusion the Hon ble High Court of Karnataka placed reliance on the decisions of High Courts of Bombay and Delhi in the cases of Sheth Mafatlal Gagalbahai Foundation Trust 2000 (10) TMI 26 - BOMBAY HIGH COURT and Agrim Charan Foundation 2001 (8) TMI 78 - DELHI HIGH COURT respectively. Therefore respectfully following the law laid down by the Hon ble High Court of Bombay we hold that the denial of exemption u/s. 11 of the Act is restricted only to Rs.65, 00, 000/- which was received from prohibited person. Thus ground No. 7 raised by the assessee is allowed.

Summary

Issues Involved:
1. Whether Deendayal Memorial Hospital (DMH) is a contributory within the meaning of section 13(3)(b) of the Act.
2. Whether the denial of exemption under section 11 of the Act is justified.
3. Whether the denial of exemption should be restricted only to the amount received from the prohibited person.
4. Whether the donation of Rs.65,00,000/- received towards the Trust corpus should be treated as a capital receipt.

Issue-wise Detailed Analysis:

1. Contributory Status of DMH:
The primary issue raised by the assessee was the challenge against the CIT(A)'s decision that Deendayal Memorial Hospital (DMH) is a contributory within the meaning of section 13(3)(b) of the Act. The assessee, a charitable trust registered under section 12A, allowed DMH to use its building for running a hospital. The AO observed that DMH made a donation of Rs.65,00,000/- towards the corpus of the assessee and considered DMH as a prohibited person under section 13(3)(b) of the Act, thereby denying the exemption under section 11. The CIT(A) confirmed the AO's view, stating that the donation was a consideration for the benefit received by DMH in using the assessee's building.

2. Denial of Exemption under Section 11:
The assessee argued that the donation from DMH was a voluntary contribution for a specific purpose and should not be considered as a contribution with an expectation of benefit in return. The assessee contended that both entities entered into an MOU in 1995 to achieve their common objective of providing medical relief. The CIT(A) and AO held that the donation was a consideration for the benefit received, thus violating section 13(1)(c) read with section 13(3)(b) of the Act, and denied the exemption under section 11.

3. Restriction of Denial of Exemption:
The assessee argued that the denial of exemption under section 11 should be restricted only to the amount received from the prohibited person. The Tribunal referred to the case of Audyogik Shikshan Mandal, where the Hon'ble High Court of Bombay held that the denial of exemption should be limited to the diverted income. Consequently, the Tribunal concluded that the denial of exemption under section 11 should be restricted to Rs.65,00,000/-, the amount received from DMH.

4. Treatment of Donation as Capital Receipt:
The assessee raised a ground challenging the CIT(A)'s action in treating the donation of Rs.65,00,000/- as a contribution towards the Trust corpus, arguing it should be considered a capital receipt. However, since the Tribunal had already addressed the issue by restricting the denial of exemption to the amount received from the prohibited person, this ground became academic and required no further adjudication.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that DMH is a prohibited person under section 13(3)(b) and denied the exemption under section 11 for the donation received. However, it restricted the denial of exemption to the amount of Rs.65,00,000/- received from DMH, following the precedent set by the Hon'ble High Court of Bombay in the case of Audyogik Shikshan Mandal. The appeal was partly allowed, with the denial of exemption limited to the specific amount received from the prohibited person.