2022 (12) TMI 444 - AT - Income Tax

Exemption u/s 11 - assessee trust as formed with the object of the establishment and maintenance of hospital in India for the benefit of public in general - trust has been registered u/s. 12A of the Act and has been granted certificate u/s. 80G - assessee trust procured an unsecured loan from one Oscar Pharmaceuticals (P) Ltd. and out of such unsecured loan gave donation amount to another associated entity - HELD THAT - Since the coordinate Bench has accepted taking loan and donating the same to the sister concern being the donation from one charitable trust to another charitable trust as not prohibited under law. We do not find any merit in the action of the AO and the finding of the CIT(A) cannot be faulted with, therefore, considering the peculiar facts of the case in light of the decision of 2021 (6) TMI 621 - ITAT DELHI we decline to interfere. The appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Treatment of Rs. 13.65 Crores as a loan.
2. Alleged misuse of trust property amounting to Rs. 15,76,60,018.
3. Non-determination of appropriate tax application/incidence by CIT(A).
4. Whether the assessee genuinely pursued charitable activities.
5. Violation of section 11(5) read with section 13(1)(d) due to shares of RLL.
6. Violation of section 13(3)(a) due to donation to an associated trust.
7. Disallowance of Rs. 13.65 Crores as application of income.
8. Penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Treatment of Rs. 13.65 Crores as a loan:
The revenue contended that the CIT(A) erred in treating Rs. 13.65 Crores as a loan and giving benefit to the assessee. The AO had disallowed the application of Rs. 13.65 Crores claimed as expenditure by the assessee, concluding that the assessee trust procured an unsecured loan of Rs. 13.65 Crores from Oscar Pharmaceuticals (P) Ltd. and donated it to Dr. Bhai Mohan Singh Foundation. The CIT(A) directed the AO to delete the addition, which was contested by the revenue.

2. Alleged misuse of trust property amounting to Rs. 15,76,60,018:
The revenue alleged that the trust deliberately transferred funds amounting to Rs. 15,76,60,018 for ulterior motives, against the spirit of exemption provisions designed to prevent unlawful disposal of trust assets. The AO observed that the trust had not made significant efforts towards its charitable objectives, leading to the denial of benefits under sections 11 and 12.

3. Non-determination of appropriate tax application/incidence by CIT(A):
The revenue argued that the CIT(A) did not provide findings on the appropriate tax application of the transaction in question, thereby taking it out of the tax net for the year under reference. The AO emphasized that the assessee had not carried out any substantial charitable activities, thus denying the benefits of sections 11 and 12.

4. Whether the assessee genuinely pursued charitable activities:
The AO concluded that the assessee was not genuinely pursuing charitable activities as professed in the trust deed. The AO noted insignificant financial inputs towards charitable activities and denied the benefits of sections 11 and 12. The CIT(A), however, was convinced that the loan constituted the application of income and directed the AO to delete the addition.

5. Violation of section 11(5) read with section 13(1)(d) due to shares of RLL:
The AO held that the assessee violated section 11(5) read with section 13(1)(d) by holding shares of RLL valued at Rs. 58,48,281 as an investment. This violation led to the rejection of exemption under sections 11 and 12.

6. Violation of section 13(3)(a) due to donation to an associated trust:
The AO found that the donation of Rs. 13.65 Crores to another associated trust violated section 13(3)(a), leading to the rejection of registration under section 12A. The Tribunal, however, noted that the donation from one charitable trust to another is not prohibited under law, and the registration under section 12A was restored.

7. Disallowance of Rs. 13.65 Crores as application of income:
The AO disallowed the claim of Rs. 13.65 Crores as application towards donation, considering it an unexplained expenditure. The CIT(A) directed the AO to delete the addition, and the Tribunal upheld this decision, noting that the donation to another charitable trust is permissible.

8. Penalty proceedings under section 271(1)(c):
The AO initiated penalty proceedings under section 271(1)(c) for willful concealment of particulars and evasion of taxes. The Tribunal did not find merit in the AO's action and dismissed the revenue's appeal.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 13.65 Crores and restore the registration under section 12A. The cross objection by the assessee was dismissed as not pressed. The order was pronounced in the open court on 08.12.2022.