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2015 (7) TMI 922 - HC - Income TaxDenial of exemption under Section 11 - Assessee contended that the Assessee was a charitable institution engaged in running a hospital (both Allopathic and Ayurvedic) and the same constituted a charitable purpose within the meaning of Section 2(15) of the Act - Held that plain reading of the objects indicates that it includes devising means for imparting education and improving Ayurvedic system of medicine and preaching the same . It is also expressly clarified that the Assessee is not prohibited to take help from the English, Unani or any other system of medicine for its object. Further, it is also expressly provided that according to the need, one or more Ayurvedic hospitals may be opened. It is at once clear that the object does not prohibit running of an Allopathic hospital or drawing from any the other system of medicine for improving the Ayurvedic system of medicine. The Assessee s endeavour of running a hospital providing modern techniques and treatment which would also be a source for improving Ayurvedic system of medicine would, plainly, be an activity towards the objects as specified. Merely because, running of an Allopathic hospital is not specifically mentioned, it does not necessarily mean that the same would be ultra vires the objects, as establishment of an Allopathic hospital does assist the Assessee in its object of improving the Ayurvedic system and taking assistance from the Allopathic system of medicine. Any activity reasonably incidental to the object would not be ultra vires the objects. As explained by the Assessee, the modern investigation techniques are equally utilized for treatment under Ayurvedic system. AO and the Tribunal erred in concluding that the Assessee s activities were in excess of its objects. Running an integrated hospital would clearly be conducive to the objects of the Assessee. The trustees have carried out the activities of the trust bonafide and in a manner, which according to them best subserved the charitable objects and the intent of the Settlor. Thus the activities of the Assessee cannot be held to be ultra vires its objects. The AO and the Tribunal were unduly influenced by the proportion of the receipts pertaining to the Ayurvedic Research Institute and the hospital. In our view, the fact that the proportion of receipts pertaining to the Ayurvedic Research Institute is significantly lower than that pertaining to the hospital would, in the facts of the present case, not be material. Undisputedly, significant activities are carried out by the Assessee for advancement and improvement of the Ayurvedic system of medicine in the institution established by the Assessee and though the receipts from the Allopathic treatment are larger, the same does not militate against the object for which the institution has been set up and run. - Decided in favor of assessee. Whether it was open for the AO to take a view different from the one that has been accepted by the Revenue for the past several decades? - Held that - in cases - such as the present case - where the Assessee s claim for exemption has been accepted for several decades, it would not be open for AO to think of new grounds, which at best raise contentious issues, to cast a wider net of tax. It is trite law, that if two views are possible, the one favoring the Assessee must be adopted. This rule would apply a fortiori in cases where the Assessee s claim has been consistently accepted by the Revenue in the past. Thus, in cases where the claim of an Assessee has been accepted in earlier years, unless the claim of an Assessee is found to be devoid of any basis or plainly contrary to law, it would not be open for the AO to take a view contrary to the position which has been accepted by the Revenue in earlier years and has been permitted to sustain for a significant period of time.In the facts of the present case, it is not possible to accept that grant of exemption to the Assessee for the past several decades was palpably erroneous and successive AOs were wrong in accepting that the activities of the Assessee were in furtherance of its charitable objects, entitling the Assessee to escape the levy of income tax. Depreciation on assets used for providing Allopathic systems of medicine - Held that - Revenue did not dispute that the depreciation would be allowable if the activities of the Assessee were considered to be within the scope of its objects. The Tribunal had denied the claim of depreciation, in respect of assets used for providing medical relief through Allopathic system of medicine, only on the basis that the Assessee s activity for running the hospital was ultra vires its objects. Decided in favour of the Assessee.
Issues Involved:
1. Denial of exemption under Sections 11 and 12 of the Income Tax Act, 1961. 2. Applicability of the principle of consistency in granting exemption. 3. Entitlement to depreciation on assets used for providing medical relief through the Allopathic system of medicine. Detailed Analysis: 1. Denial of Exemption under Sections 11 and 12: The primary issue was whether the activities of the Assessee, a Charitable Trust running a hospital offering both Allopathic and Ayurvedic treatments, were in accordance with its objects, thereby qualifying for exemption under Sections 11 and 12 of the Income Tax Act, 1961. The Assessing Officer (AO) denied the exemption, asserting that the Assessee's activities, predominantly Allopathic, were not in line with its objects, which primarily focused on Ayurvedic medicine. The Tribunal upheld this view, concluding that the Assessee's activities in the Allopathic system were ultra vires its objects. However, the High Court disagreed, emphasizing that the Assessee's objects included improving the Ayurvedic system with the help of other medical systems, including Allopathy. The Court noted that the Assessee's integrated approach in running a hospital providing both Ayurvedic and Allopathic treatments was conducive to its charitable objects and not ultra vires. 2. Applicability of the Principle of Consistency: The Assessee argued that its activities had been consistently accepted as charitable, and exemptions under Section 11 had been granted for several decades. The High Court acknowledged the principle of consistency, citing past Supreme Court decisions, and held that it would not be appropriate to change a long-standing position without any material change. The Court noted that the activities of the Assessee had remained the same since 1959-60, and the Revenue had accepted the Assessee's claim for exemption under Sections 10(22), 10(22A), and 10(23C) in the past. Therefore, the AO's and Tribunal's departure from this established position was unjustified. 3. Entitlement to Depreciation on Assets: The Tribunal had denied the Assessee's claim for depreciation on assets used for providing medical relief through the Allopathic system of medicine, based on the view that such activities were ultra vires the objects of the Trust. The High Court, having concluded that the Assessee's activities were within its objects, held that the Assessee was entitled to claim depreciation on these assets. The Court referenced a Division Bench decision, affirming the Assessee's right to depreciation on assets used in its charitable activities. Conclusion: The High Court set aside the Tribunal's order, ruling in favor of the Assessee on all counts. It held that: - The Assessee's activities, including running an Allopathic hospital, were in line with its charitable objects and thus entitled to exemption under Sections 11 and 12. - The principle of consistency applied, preventing the Revenue from challenging a settled position without material change. - The Assessee was entitled to depreciation on assets used for providing medical relief through the Allopathic system of medicine. The appeal was disposed of with no order as to costs.
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