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TMI Blog2016 (4) TMI 1307X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to submit the information on following points : 1. Details of patients treated at concessional rate/free with proof. 2. Percentage of free/concessional patients out of total patients. 3. Criteria applied for treating patients at concessional rate/free. 4. Comparative chart of rates charged for various procedure in comparison with the rates charged by any three leading hospitals in Pune. 5. Note on services rendered by the Trustees and justification of payments made to them. 6. Patient wise details of charity made. 7. Details of indigent patient fund. 8. Note on interest paid on deposits along with reasons for accepting deposits, rate of interest paid etc. 9. A note on research activity 10. A copy of contract with the persons running the canteen. 11. Details of various expenses claimed as well as income earned under various heads. 4. From the return of income furnished by the assessee for the impugned assessment year and the details furnished from time to time, the AO noted that the assessee has shown total receipts at Rs. 90,31,96,501/-. Some of the major items of income are as under : 1. Hospital fees - Rs.72.31 crs 2. Canteen receipts - Rs.02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during scrutiny was shown at 450. On that basis the Assessing Officer charged the appellant that the number of operational beds was deliberately reduced for lesser earmarking of beds for indigent patients and weaker section patients. (c) The rates charged by the appellant trust is at par with hospitals run on commercial lines, which is established from the surplus of 10.04 crores after depreciation and Rs. 16.02 crores before depreciation on the total receipt of Rs. 90 crores. (d) Assessee trust had taken deposits of Rs. 1.73 crores from public, Rs. 24.09 lakhs from employees and Rs. 19.07 lakhs from consultants, on which interest of Rs. 11.74 lakhs were paid. 2(a) The Assessing Officer thereafter, in the same show cause notice referred to above, quoted the objects of the trust, as taken out from the trust deeds and thereafter stated that the assessee hospital is also running a canteen whose total gross receipts is of Rs. 2,28,76,076 and after making an expenditure of Rs. 1,49,94,755, the gross profit was computed at Rs. 78,81,321 which was worked out at 34.4% of the gross receipts. The Assessing Officer was of the view that the canteen is run with a profit motive without any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as salary to Mr. Sachin Kshirsagar, brother of another trustee, Dr. Jitendra Kshirsagar, and Rs. 4,20,000 as honorarium and Rs. 1,80,000 as conveyance charges to Mrs. Bharati Mangeshkar, one of the trustees were made who are persons covered u/s 13(1)I and therefore, the appellant was asked to justify these payments with evidences. 5. The Assessing Officer thereafter, on the strength of the observations described in the above referred show cause notice, which has been summarized above, called upon the assessee trust to show cause as to why the exemption u/s 11 should not be denied for running the hospital as a commercial organization and for suspected violation of sec. 13(1)I. 6. The Assessing Officer further pointed out in the aforesaid show cause notice that the claim of the assessee for depreciation while computing the income u/s 11 is not allowable as per the decisions of the Hon'ble Calcutta High Court given in 199 ITR 215, based on the decision of Hon'ble Madras High Court in 135 ITR 485. As per these decisions the income and expenses has to be real. Other case laws were also relied upon to show cause why depreciation claimed should also not be disallowed. 7. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee that they have submitted all the financial statements duly audited to the Charity Commissioner is concerned, the AO held that the same is not correct since the copies of the statement filed by the assessee with the Joint Charity Commissioner shows receipts of only Rs. 21 crores. 10. As regards the submission of the assessee that the amount spent on BPL patients of Rs. 66.06 lakhs is exclusive of freeship of Rs. 5.34 crores is concerned, the AO held that the same is also not correct. He noted that the assessee's activity report submitted during the course of hearing mentions the total number of beds at 450. In the statement filed with the Charity Commissioner they have shown it as 288. 10% of these reserved for BPL patients and further 10% for weaker section patients. The assessee has stated that actual beds are 241. Thus there are different figures given at different points of time. According to the AO only one of them is correct and the assessee has given the other incorrect figure for reasons best known to them. 11. As regards the receipts from canteen is concerned it was submitted by the assessee that the profit is not Rs. 78.81 lakhs but only Rs. 18.95 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide to give Rs. 3,000/- only for the camp. Thus, it is evident that there is a prescribed fee of Rs. 3,000/- per head to participate in the camp. 13.1 Similarly, the AO noted that the trust has paid salary to Mrs. Bharati Mangeshkar and Mrs. Meena Kelkar. Mrs. Bharati Mangeshkar is a trustee of the assessee trust while Mrs. Meena Kelkar is mother of Mr. Dhananjay Kelkar, who is the trustee of the assessee trust. According to the AO the salary paid to these 2 persons is in clear violation of provisions of section 13(1)(c) of the I.T. Act, 1961. The AO further noted that in respect of the salary paid to Mrs Meena Kelkar the assessee has not proved that any services are rendered by her and whether she had the requisite qualification for handling the job. He further noted that the retirement age of the employees was 58 while Mrs. Kelkar was above the age of 65. The assessee trust has bypassed the rules while appointing her. 13.2 As regards the employment of Mrs. Bharati Mangeshkar is concerned the AO noted that she is not coming regularly to the hospital. Further, Mrs. Bharati Mangeshwar has not carried out much work and the assessee has also not produced any evidence of the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Trusts is that they should provide medical relied to everybody especially to poor and needy. This is clear from the conditions laid down by the Charity Commissioner to set apart 2% of the gross receipts as Indigent Patient Fund. The assessee has not followed this as it has grossly understated its receipts in the statement furnished to the Charity Commissioner as discussed in Paragraphs 5 and 11 above. Some of the patients have paid for medical treatment or other services but receipts have been given to them treating the same as donations. If these people had claimed deduction u/s.80G, then it would amount to the Trust abetting tax evasion. As discussed in paragraph 8 above there is clear violation of section 13(1)I due the payments made to Mrs. Bharati Mangeshkar and Mrs. Meena Kelkar. In view of the above, the exemption claimed u/s.11 of the Income Tax Act , 1961 is denied to the assessee trust and penalty proceedings u/s.271(1)(c) are initiated separately for furnishing of inaccurate particulars and concealment of income. Subject to the above remarks the income of the Trust is computed as under : Particulars Amount (Rs.) Amount (Rs.) Surplus as per return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition to the charitable purposes and says "charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. Since the impugned assessment year involved is A.Y. 2008-09 he noted that the words "not involving the carrying on of any activity for profit" were not available in the definition of "charitable purposes" upto A.Y. 2008-09. W.e.f., 01-04-2009 sub-section 2 (15) has been further substituted by the new definition. 16. Relying on various decisions the Ld.CIT(A) held that merely because some surplus has been generated, no fault can be found with the activity of the assessee so long the surplus is utilized for the objects of the trust. Therefore, the objection of the AO on the issue of surplus as an evidence of hospital being run as a commercial entity cannot be accepted in the concept of charity available in the Income Tax Act for the impugned assessment year. For the above proposition he relied upon various decisions including the decision of Hon'ble Supreme Court in the case of Adinath Educational Institution reported in 224 ITR 310 and the decision of Hon'ble Bombay High Court in the vase of Vanita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 21. As regards the objection of the AO that assessee has violated the provisions of section 13(1)(c) in respect of the payment made to Mrs. Bharati Mangeshkar and Mrs. Meena Kelkar is concerned the CIT(A) held that such objection of the AO is not correct. On the basis of the various submissions and evidences including the additional evidences filed before him the Ld.CIT(A) called for a remand report from the AO. On the basis of such remand report the CIT(A) held that both these persons were rendering services to the assessee trust and therefore the payments made to them could not be held to be resulting in violation of the provisions of section 13(1)(c). 22. As regards the objection of the AO that the retirement age of the employees of the trust is 58 whereas Mrs. Meena Kelkar, 65 years of age was accommodated the CIT(A) held that there is no accommodation to Mrs. Meena Kelkar. The job of Mrs. Kelkar was earlier carried out by Mrs. Sarita Shukla who was being paid salary of Rs. 16,000/- per month whereas Mrs. Kelkar was being given salary of Rs. 10,000/- per month. 23. As regards the allegation of the AO that Dr. Dhananjay Kelkar, son of Mrs. Kelkar had accepted that Mrs. Kel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was running its hospital, canteen and other activities along commercial lines, and, therefore, could not be treated as pursuing charitable objects. 4. The Ld.CIT(A) grossly erred in diluting the concept of charity beyond recognition and in not taking any note of the spirit underlying this concept as used in the Income Tax Act, 1961. 5. The Ld.CIT(A) grossly erred in holding that the assessee cannot be considered to have violated the provisions of section 13(1)(c) of the Act. 6. The Ld.CIT(A) grossly erred in routinely dismissing the instances of violations of section 13(1)(c) brought out in the assessment order, particularly with regard to the unjustifiable payments made by the assessee to Mrs. Meena Kelkar and Mrs. Bharti Mangeshkar. 7. The Ld.CIT(A) grossly erred in dismissing the well founded conclusion drawn by the Assessing Officer, on the basis of concrete evidences and cogent reasoning, to the effect that the assessee was camouflaging medical receipts as donations and also issuing certificates u/s.80G thereby abetting taxes evasion. 8. The Ld.CIT(A) grossly erred in admitting the additional evidences in the form of affidavits etc. submitted by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order passed u/s.143(3) for A.Y. 2005-06 on 29-11-2007 has allowed the claim of exemption u/s.11 a copy of which is placed at page 592 and 593 of the paper book. Similarly, the AO has allowed the claim of exemption u/s.11 for A.Y. 2004-05, 2003-04 and 2002-03 in the orders passed u/s.143(3), copies of which are placed at page 596 to 605 of the paper book. However, for the impugned assessment year, the AO denied the claim of exemption u/s.11 mainly on the following grounds: (a) The assessee trust is running the hospital with an intention of making profit and huge surplus is generated. (b) The assessee trust has not properly complied with the objective of charity. There is understatement of receipts in the statements furnished to the Charity Commissioner. (c) It was running a canteen from which it was making huge profit by running it in a commercial manner. (d) Further, the assessee trust has accepted donations from patients and has paid remuneration to relatives of trustees in violation of the provisions of section 13(1)(c) of the I.T. Act. (e) The assessee trust has organized musical nights and has also received rent from Bharti Airtel by allowing them to erect tower on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the assessee drew the attention of the Bench to the IPF ledger account and submitted that the assessee on 31-05- 2010 has credited an amount of Rs. 71,77,267/- to the IPF account for the period from October 2006 to November 2009 as per the direction of the Charity Commissioner in his visit on 18-05-2010. He submitted that when the Charity Commissioner has not cancelled the registration for such shortfall and since no penalty has been levied by him, therefore, it is not understood as to how the AO can deny exemption u/s.11. He submitted that despite the submission of the above facts before the AO he ignored the contention of the assessee. Further, even after the inspection of the Charity Commissioner the assessee trust was required to include only the OPD receipts in the gross billing for the purpose of crediting the amount to the fund. Other charges like canteen, medicines and implants, doctor fees, etc. are not to be included in the gross billing. Therefore, the contention of the AO that assessee should have provided 2% of Rs. 72.31 Crs. is incorrect because even the Charity Commissioner has not directed the assessee to make such a provision. He submitted that in this ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,559 Revenue expenditure 1,073,193,775 798,643,996 674,418,995 514,885,424 386,018,823 Capital expenditure 102,427,141 47,298,406 42,605,994 188,214,534 96,298,008 Total Expenses as per computation 1,175,620,916 845,942,402 717,024,989 703,099,958 482,316,831 Excess of application over income 27,034,512 (57,254,100) (16,297,652) 151,065,806 72,664,272 % of Income Application 102 94 98 127 118 33. He submitted that even the legislature has allowed accumulation of upto 15% of the receipts and the above amount is not required to be applied immediately. Thus generation of surplus is permitted under the Act itself. He submitted that whatever surplus has been generated has been utilized by the assessee trust for the objects of the trust and such surplus has not been utilized for non medical purposes. 34. Referring to the decision of the Hon'ble Bombay High Court in the case of Vanita Vishram Trust reported in 327 ITR 121 he submitted that the Hon'ble High Court in the said decision, while delivering the judgment under the provisions of section 10(23C)(vi) of the Act, has held that a surplus may incidentally arise from the activities of the trust a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose but there is no condition that education or medical services should be provided only to the poor. So long as the trust is engaged in medical activities, it would fall within the definition of "Charitable Purpose" and the said trust can enjoy the benefit of exemption u/s 11 of the I.T. Act. 38. Referring to the decision of the Mumbai Bench of the Tribunal in the case of ITO Vs. Kaushalya Medical Foundation reported in 31 SOT 119 he submitted that the Tribunal in the said decision has held that where charitable trust running a hospital is claiming tax exemption, there is no requirement that medical aid should be provided only to the poor nor there is any requirement that some particular percentage of services should be rendered free. So long as it is not shown that the hospital was run with the object of earning profits the trust cannot be denied exemption. 39. As regards the denial of exemption on the ground that the assessee trust is running a canteen is concerned he submitted that the assessee is running a huge hospital for which canteen facility is required to be provided to the patients and for their families. Further, the rates charged for the food is very reasonable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the AO is not justified in holding that such musical nights were not required. He submitted that the AO cannot dictate the assessee as to how to conduct its affairs. 41. As regards the denial of exemption u/s.11 on the ground that assessee had issued donation receipts is concerned, he submitted that payments were infact made by the persons for the services obtained from the assessee. As regards the donation received from Shah family is concerned, the Ld. Counsel for the assessee submitted that the assessee trust had conducted a project called "Shwas" which was a research project analyzing the effect of Yoga on the function of the heart. There were around 104 people who participated in the said project and out of the 104 persons, only 25% gave voluntary donations to the assessee trust. Since Shah family comprises of 6 persons, they gave donation of Rs. 3,000/- per person. Referring to the affidavit of the members of the Shah family, a copy of which is placed at page 52 and 53 of the paper book, he submitted that they have clarified that the donation was given voluntarily. He submitted that had the donation been compulsory for all the persons, then in that case all the 104 person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings he submitted that the AO has not controverted the said affidavit. Referring to the contents of the affidavit he submitted that Dr. Dhannanjay Kelkar had stated in the said affidavit that Mrs. Meena Kelkar was looking after the house keeping of Sanjeevan Hospital. Referring to pages 230 to 237 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to some of the bills which have been approved by Mrs. Meena Kelkar. In one of the invoices Mrs. Meena Kelkar has even noted for reduction in the invoice amount on accounts of non-satisfactory work of the vendor. Referring to the affidavit of Shri Vishal Pavanikar, Shri Mahesh Ghatge, Shri Purushottam Anant, Shri Wadekar, Shri Paresh Garud, Smt. Megha Nair, copies of which are placed at pages 455 to 458 of the paper book he submitted that these people have confirmed that Mrs. Meena Kelkar is looking after the house keeping activity of the assessee trust. Referring to the affidavit of Shri Manoj Shelke of the house keeping department, copy of which is placed at pages 83 and 84 of the paper book, he submitted that Shri Shelke has clarified that he was reporting to Mrs. Meena Kelkar in the house keeping depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for invoking provisions of section 13(1)(c) the onus is on the AO to prove that the payments made to the trustees or the relatives is excessive and unreasonable : 1. Baba Gandha Singh Educational Trust reported Vs. CIT in 138 TTJ 1 (Chd.) 2. ACIT Vs. Surat Art Silk Cloth Manufacturers Association reported in 121 ITR 1 (SC) 3. CIT Vs. Janakiammal Ayyandar Trust reported in 277 ITR 274 (Mad.) 4. Dr.D.Y. Patil Pratisthan Vs. DCIT reported in 154 TTJ 320 (Pune) 5. ACIT Vs. Manav Bharti Child Institute & Child Psychology reported in (2008) 20 SOT 517 (Delhi). 47. As regards the objection of the AO that assessee has received rent of Rs. 2,88,100/- from various parties which includes Rs. 1,80,000/- from Bharti Airtel for allowing them to erect their tower is concerned, he submitted that the same is for supplementing the main objects of the assessee trust. By erecting the tower the signal for telecommunication has improved which indirectly help the patients and their wards and it is incidental to the main objects of the assessee trust. Further, such money has been utilized for the objects of the trust, therefore, there is no violation. He submitted that the Ld.CIT(A) has appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of 2% of the hospital receipts for IPF. According to the AO, the actual receipt of the trust is Rs. 72.31 crores as against Rs. 21.09 crores disclosed to the Charity Commissioner. Therefore, the assessee should have credited an amount of Rs. 1.44 crores to the IPF fund whereas it has credited Rs. 66.06 lakhs only. Thus there is shortfall in making provision for the Indigent Patient Fund. 50. It is the submission of the Ld. Counsel for the assessee that there had been no proper clarification regarding the interpretation of the concept of 2% of patient's receipts. According to him, the computation of gross receipts was a debatable issue with Charity Commissioner for which the hospitals association of Pune had taken up the matter with the Charity Commissioner. It is also the submission of the Ld. Counsel for the assessee that the gross receipts of the assessee was only the hospital charges excluding the OPD fees, medicine charges, doctor fees etc. for which it has made the provision of 2% of the hospital receipts for IPF. After the visit of the Charity Commissioner, he directed to include the OPD fees only to the hospital charges and medicine charges and doctor fees were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of "charitable purpose" would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution - It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment - What is inhibited by these last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object - It is not necessary that the accomplishment of the object or the means to carry out the object should that the accomplishment of the object or the means to carry out the object should not involve an activity for profit - Where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity - Exclusionary clause does not require that the activity must be carried on in such a manner that it does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the AO is that the assessee is not engaged in charitable activity since the assessee has not provided services to the underprivileged class of the society. From the various details furnished by the assessee we find the assessee has given freeships to patients. Further, it is not mandatory that the assessee should provide medical services only to the poor people. As per the provisions of section 2(15) the term "charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. Relief to the poor is one of the purpose but there is no condition that education or medical services should be provided only to the poor. In our opinion, so long as the trust is engaged in medical activities it would fall within the definition of "charitable purpose" and the said trust can enjoy the benefit of exemption u/s.11. 57. We find the Mumbai Bench of the Tribunal in the case of Kaushalya Medical Foundation (Supra) has held that where a charitable trust runs a hospital and is claiming tax exemption, there is no requirement that medical aid should be provided only to the poor nor there is any requirement that some particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is running a huge hospital and therefore canteen facility is required to be provided to the patients and their families. Thus, canteen is an essential part and a necessity. According to him, the rates charged for the food is very reasonable and much lesser than the standard rates which has been accepted by the CIT(A). He has also brought to our notice that the profit generated by the canteen is only Rs. 18.95 lakhs as against Rs. 78.81 lakhs computed by the AO. Further, the assessee has maintained separate books of account for the canteen activity. It is also his submission that even assuming that the canteen activity amounts to carrying out business, still in view of provisions of section 11(4A) the assessee can carry out a business so long as the business is incidental to the objects of the trust. 61. We find merit in the above argument of the Ld. Counsel for the assessee. The Hon'ble Supreme Court in the case of Tanthi Trust (Supra) has held that after the amendment to section 11(4A) a charitable trust can carry out a business so long as the business is incidental to the objects of the trust. It has further been held that business is incidental to the objects of the trust w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e employed, the provision must be construed in a manner that benefits the assessee. The trust, therefore, is entitled to the benefit of section 11 for the assessment year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has been employed to achieve its objectives of education and relief to the poor and that it has maintained separate books of account in respect thereof." 62. In view of the above decision and in view of the detailed reasoning given by the CIT(A) that denial of exemption u/s.11 by the AO on account of running of the canteen is not correct, we find no infirmity in his order holding that the assessee cannot be denied exemption u/s.11 of the Act for running a canteen and making profit out of it. So long as the surplus generated from the canteen is utilized for making relief, the exemption u/s.11 in our opinion cannot be denied unless it is brought on record that such surplus generated has not been utilized for charitable purposes or has been utilized for non charitable purposes. Since there is no such finding given by the AO, therefore, denial of exemption u/s.11 on account of running of the canteen is not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the various evidences furnished by the assessee before him wherein the above persons had clarified that they had given donations to the assessee trust on their own will and since the AO in the remand proceedings also could not controvert the various submissions given by the assessee, therefore, the order of the CIT(A) holding that there is no merit in the allegation of the AO that the assessee trust has issued donation receipts and has evaded tax is correct under the facts and circumstances of the case. Accordingly, we uphold the order of the CIT(A) on this issue. 65. As regards the objection of the AO that the assessee has violated the provisions of section 13(1)(c) of the Act by paying remuneration of Rs. 90,000/- to Mrs. Meena Kelkar and Rs. 6 lakhs to Mrs. Bharti Mangeshkar is concerened, we find such objection of the AO is also not correct. From the various details furnished by the assessee we find Mr. Meena Kelkar has been paid remuneration of Rs. 90,000/-. She was earlier looking after house keeping department of Sanjeevan Hospital and thus was having enough experience. Further, she was appointed in place of Smt. Sarita Shelke who was looking after the house keeping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property. We find the CIT(A) has already held that the same is for supplementing the main object of the assessee trust. We agree with the argument of the Ld. Counsel for the assessee that erection of such tower in the premises of the hospital enhances the signal for telecommunication. Further, as the rent has been shown in the books of account and has been utilized for the objects of the trust, therefore, we uphold the order of the CIT(A) on this issue and hold that exemption cannot be denied for receiving rent from Bharti Airtel for erecting tower in the hospital premises. In view of the above discussion and in view of the detailed reasoning given by the CIT(A) on various objections raised by the AO, we find no infirmity in his order allowing the benefit of exemption u/s.11 of the I.T. Act. Accordingly, the order of the CIT(A) is upheld and the grounds raised by the revenue are dismissed. 68. In the result, the appeal filed by the Revenue is dismissed. ITA No.761/PN/2013 (A.Y. 2009-10) : 69. Grounds raised by the Revenue are as under : "1. The order of the Learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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