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TMI Blog2019 (9) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... f its liabilities have been taken over by the same therefore there is a fact that there is no undue benefits of the use of trust property have been taken by any other persons. Similarly, there is no diversion of income of the trust as per Explanation of Sec. 13(2)(d) and 13(2)(g) of the Act as the trust has been benefitted greatly and its deficit of trust duly reduced to a great extent. We also observed that some erroneous presentation of Form No. 10B report does not disentitle the trust for claiming exemption u/s. 11 of the Act. Similarly, the amount of advance of 54,35,71,980/- in favour of SCPL appearing in the balance sheet was not advance but the reimbursement of the expenses. In the light of the aforesaid facts and circumstances, we are of the considered opinion that the CIT(A) has analyzed the facts correctly and given a judicious finding which does not call for any interference from outside. Allowance of set off brought forward losses of the trust against the current year surplus - HELD THAT:- We find that the Ld. CIT(A) has given detailed reason for allowing a set off losses and carry forward of losses on the basis of rulings of Hon ble Jurisdictional High Court of Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation on the assets, the cost of which has already been allowed as a deduction on account of application of income, would amount to double deduction in view of the decision of the Hon'ble Supreme Court in the case of Escorts Ltd., 199 ITR 43. vii) Whether, on the facts and in the circumstances of the case, deduction of depreciation u/s. 32 which falls under the head ""Profit and Gains from business and profession' of the Income Tax Act, 1961, would be available to a charitable trust whose income is otherwise not assessable under the above head. viii) On the facts and circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals) ought to have upheld the order of the Assessing Officer. ix) It is, therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals) may be set aside and that of the Assessing Officer be restored." 3. Ground No. I to iii relates to granting exemption of ₹ 28,72,316/- by holding that the assessee has not violated any of the conditions of Sec. 13 of the Act and also holding that incomplete Form No. 10B was not a ground for disallowance. Since these grounds of appeal are interlinked hence, same are being considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany (SCPL), the said loan appeared as liability in the balance sheet of SCPL, and SCPL being a company, the said loan can no longer be considered as application of income for the purposes of attaining objects of the trust. Instead, it is treated as property of trust used to serve the business interests (provide benefits) of the person referred in section 13(3) of the Act. On the alternative, it makes the agreement against the interest of the trust as the additional assets worth ₹ 19,57,39,819/- have been transferred to the said company. * Apart from that, the trust has transferred fixed assets worth ₹ 4,70,15,328.95/- from the balance sheet of Adarsh Foundation, over and above the fixed assets worth ₹ 3,44,74,281/- transferred from the balance sheet of SHMI to SCPL. Therefore, the quantum transferred is even beyond the terms of the agreement as para 3.1 of the agreement empowers transfer of movable assets from the balance sheet of SHMI (and not the Adarsh Foundation). Therefore, the property of the trust has been applied for the benefit of SCPL, the person covered u/s 13(3) as per the relevant clauses of subsections 13(1) and 13(2) quoted above. * As per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28-44)." 5. Being aggrieved the assessee filed appeal before the Ld. CIT(A). Wherein detail submissions made by the assessee which has been reproduced at Para 4 to 4.7 and considering these above facts the Ld. CIT(A) has given his finding at Para 4.9 to Para 7 of his appellate order which are reproduced as under:- "4. The A.O in his order has pointed out via para 3.1.2.2 that the appellant trust has entered into the following transactions: "(a) Transfer of all movable and immovable assets (except land) from the balance sheet of Sal Hospital and Medical Institute (hereby referred to as SHMI) to Sal Care Private Limited (hereby referred to as SCPL) an associate concern set up on the principles of profit maximization, out of accumulated tax free income. It includes transfer of fixed assets worth ₹ 3,44,74,281/- from balance sheet of SHMI to SCPL. (b) Over and above transfer of fixed assets appearing in the balance sheet of SHMl as on 04.2008, the trust has transferred Fixed Assets worth ₹ 470,15,328.95/- from the Balance Sheet of Adarsh Foundation to SCPL.(Not covered in terms of agreement) (c) Without any rational consideration all benefits of contracts en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years and then transferring the same by floating a company to earn huge profits. Hence the referred agreement is rejected per se." 43. During the course of appellate proceedings, the appellant submitted as under: "To safeguard the trust activities and its assets because of huge losses, the trustees had to take a prudent decision whereby the liabilities can be discharged, adequate income assured for its objects and at the same time, its brand image and immovable properties remain unaffected. The trustees had also to consider that reputed Doctors who can be invited to its institutions do not leave the institutions and more such Doctors can join the institutions which was not possible unless the institutions could be run and expanded through some corporate management by which the benefit of expert management, the able personnel and effective skilled management could be obtained. It was in these circumstances, that an agreement was entered into between the trust and SAL Care Pvt. Ltd under which the trust was immensely benefited by retaining its immovable properties and at the same time, transferring its huge liabilities to the said company while being assured of a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HOSP1TAL& MEDICAL INSTITUTE) and in the KESAR SAL MEDICAL COLLEGE & RESEARCH INSTITUTE. (KSMC) Thus, the financial position of the trust and its institutions were in a very bad shape and the net worth was negative by crores of rupees. This dark situation was promptly visualized and the trustees had to take a prudent decision to protect the property of the trust and to ensure that without losing the valuable immovable property/ assets of the trust, the trust is ensured of a fair return for use of its other movable assets and also at the same time, relieved of its liabilities to the outsiders while being assured of continuing its Kesar Sal Medical College, the expenses for which were being reimbursed to it by the Sal care Pvt Ltd. The terms of agreement with SCPL clearly point out that there is absolutely no extraneous consideration and a very fair and attractive return is ensured to the trust by the corporate entity which by its efficient management and acumen could earn good return and consequently, the trust would also get adequate share therein while at the same time, being relieved of the responsibilities of day to day conducting the affairs of the SHMI including pecuniary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t economic rates and with quality of skilled doctors, a prompt decision to a have the benefit of a corporate entity which would not only utilize its acumen, skill and ability in expanding such activity but also ,add to the brand SAL was essential Such a decision has actually benefited the appellant trust since after allowing the Corporate management to run the institution, more renowned Doctors have joined the Hospital and the image of the institution owned by the trust has been achieved greater height. We further submit that in the written reply dated 08.12.2011, the appellant trust has clarified the misunderstanding , misconstruction and incorrect observations of the Id AO point wise on one to one basis which is reproduced by Id AO at page 27 to32 of the order. The Id AO failed to properly appreciate the submissions more particularly, the fact that along with movable assets of trust and hospital huge liabilities have also been taken over and discharged by Sal care Pvt Ltd. The Id AO also failed to appreciate that considering the factual background narrated above, the trust had made best use of its institutions while retaining its ownership and arrangement was on very fair ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation. The appellant trust has not rendered or provided any such services to the specified person and hence the question of applying s. 13 (2(d) does not arise. S. 13. (2)(g) can apply only is any income or property of the trust is diverted during the previous year in favour of any specified person. Since the trust has not diverted any income or property in favour of any specified person, this provision is not applicable. The trust has entered into the agreement and that too, as stated repeatedly, on commercial terms for adequate compensation and hence there is no question of diverting any income. On the contrary, the deficit of the trust is greatly reduced on account of receipt of agreed compensation and at the same time, the trust is relieved of huge recurring liability of interest on loans as also, repayment of principal amounts of such liabilities. Hence the provisions of s. 13(2)(g) are not at all applicable. We are attaching herewith the audited accounts of the trust for the year under appeal vide Exhibit- B page to As can be seen from the said accounts, the trust which had deficit (loss) of Rs.(-) 1,21,48,098/-from SAL Hospital and a further deficit of Rs.(-) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch before him. Again, the Id AO has erred in observing that amount worth ₹ 19.57 crores were advanced by trust to a corporate entity. The incorrect stand of the Id AO has been replied/ explained in reply dated 08.12.2011 relevant query reproduced by Id AO at Para 3.5 page 30 of his assessment order. As a matter of fact, the trust has , in accordance with its objects, utilized the amount for the purposes of SAL Hospital one of its institutions. As not only the movables but the liabilities of said institution is taken for discharge by SCPL, the said amount of current liability was accepted by SCPL as payable under the agreement Thus transfer of current liability of the institution was explained but not correctly understood by the Id AO. The provisions of s. 13(2) and 13(3) are therefore not applicable" 4.5 Further as per para 3.1.2.3, the A.O has pointed out that as per point no.1,2,4,7 and 8 of annexure no. II of form 10B report, the assessee is mandatorily required to make below mentioned disclosures in the said report, which it had failed to do: (A) Whether any land, building or other property of the trust or institution is, or continues to be, made available for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hospital is managed professionally, and in doing so, the purpose of charity is not violated, as a reputed hospital of such a huge size requires professional handling. The AO erred in holding that agreement with SAL Care Pvt Ltd was in violation of any provision of the Act and further that there was no rational and mathematical explanation about the figure of management fees though the same was determined at best and fair manner for survival of the loss making charitable institution. The appellant duly explained that this agreement was not entered into derive profit from transfer of movable assets to SCPL but to counter the huge losses incurred in running two big hospitals. To protect its position and ensure that SAL hospital's working was not affected, it was provided in the agreement to receive management fees from SCPL. These fees are determined in a fair manner, which was duly clarified by the appellant. This is because this Trust has had huge accumulated losses and there can be no goodwill in case of losses, hence the Trust shall not earn any undue profits. Thus, the activity of the trust being carried on in accordance with its objects and in the best interest of charity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of funds was made to persons u/s 13, nothing was mentioned in the form 10B report, as such. Thus lam of the view that the AO's ground that incomplete form 10B is a ground for disallowance u/s 11 is not tenable. Ground No. 5 is thus allowed. 7. As far as advance amounting to ₹ 5,43,571980/- in favour of SCPL appearing in the balance sheet of the trust, I am of the view that it does not result in misapplication of income for objectives other than those for which registration and establishment of trust u/s 12AA is obtained, as the same form part of reimbursement of various expenses of Kesar Sal Medical College, which has been appropriately explained by the appellant, hence the AO's stand is overruled." 6. Being, aggrieved the assessee filed this appeal before the Tribunal. The Ld. Sr. DR has took as per the assessment order and findings of the AO. The Ld. Sr. DR contended that as per agreement, the SCPL will pay management fees amounting to ₹ 1 crore or 40% of the net profit before tax (which is higher) in lieu of takeover of the trust. However, there is no rational has been provided for arriving at such a funding. The assessee has failed to furnish any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from SCPL as management fees which have been duly reflected at Paper Book Page 11 in the Income and Expenditure account of the trust. The Ld. Counsel further submitted that the amount of ₹ 5.43 crore was not loan and advances but it was the reimbursement of expenses. Therefore, relying upon the finding of the CIT(A) the Ld. Counsel submitted that the CIT(A) elaborately discussed all aspects and given his finding in accordance with law and same required to be sustained. 8. We have heard the rival submissions and perused the relevant material on record. We have gone through the findings of the AO as well as CIT(A) part of which are reproduced above in this part of the order. We find that the CIT(A) has arrived on the basic fact that agreement was entered with the company was to secure trust is interest and nor to indulge in the losses and for the purpose of reimburse the expenditure of Kesar Sal Hospital. The object of the transfer agreement with SCPL was to ensure that the hospital is managed professional, and in doing so the purpose of charity is not violated as a reputed hospital of such huge size requires professionally handling. We are also observed that the agreement was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought forward losses of A.Y. 2006-07 worth ₹ 39,68,311/- and A.Y. 2008-09 worth ₹ 51,12,346/- was disallowed and assessee carry forward of losses/deficit of A.Y. 2008-09 worth ₹ 3,70,60,272/- was also disallowed. 11. Being aggrieved the assessee carried the matter before the CIT(A). Wherein after placing the reliance on the decision of Hon'ble Jurisdictional High Court in the following cases CIT vs. Shree Plot Swetamber Murtipujak Jain Mandal 211 ITR 293 (Guj) and similarly on following judgment CIT vs. Sacred Heart Church 278 ITR 180 (Guj) claim that the action of the AO was not in accordance with law. Considering these facts the Ld. CIT(A) has allowed the same by observing as under:- "7.4 I have considered the order of the AO and the submission made in this regard. The AO has not allowed set off of brought forward deficits amounting to ₹ 39,68,311/- pertaining to A.Y. 2006-07 and ₹ 51,12,346/- pertaining to A.Y. 2008-09 as claimed to the extent of income (Totalling to ₹ 90,80,657/-) and balance deficit of ₹ 3,70,60,272/-. In my opinion, AO has not interpreted the law correctly. The AO has not taken cognizance of the language of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng opinion that the issue is covered in favour assesse. Ld. Counsel further submitted that the issue is settled by the Hon'ble Supreme Court in the case CIT(E) New Delhi vs. Subros Educational Society in Miscellaneous Application No. 941/2018 in Civil Appeal No(s). 5171/2016 dated 16.04.2018. Accordingly, the findings of the CIT(A) does not call any interference from our side and accordingly the same is upheld. Therefore, this ground of appeal is dismissed. 15. Ground No. (v), (vi), (vii) & (viii) relating to deleting the disallowance of depreciation of ₹ 1,27,63,514/-. 16. The brief facts of the case are that the assessee has claimed depreciation of ₹ 1,27,63,514/- in the income and expenditure account which include depreciation amounting to ₹ 9,15,531/- pertaining to Adarsh Foundation and amount worth ₹ 1,18,47,984/- pertaining to Kesar SAL Medical College. The assessee was specifically asked to furnish the profit and loss account and balance sheet as per the Indian Accounting Standards ,but the assessee has failed to do so. The AO was also of the view that capital expenditure incurred on fixed assets has been allowed as expenditure in earlier year as ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed the claim following the judgment passed by the Hon'ble Supreme Court in the case of Escorts Ltd. (supra). We find the Hon'ble High Court Punjab and Haryana has distinguished the judgment of the Hon'ble Supreme Court in the case of CIT vs. Tiny Tots Education Society 330 ITR 21 (P&H) in view of the fact that the issue has already been settled by the Hon'ble High Court of Punjab and Haryana respectfully following the ratio laid therein we had no infirmity into the impugned order of the Ld. CIT(A). Therefore, the present appeal stands dismissed. We find no infirmity in the order of the Ld. CIT(A). Therefore, the present appeal stands dismissed. We find no infirmity in the order of the Ld. CIT(A). In view of the above, the appeal of the Revenue is dismissed." 22. In view of the above facts, respectfully following the various decisions of Hon'ble High Courts and Hon'ble Gujarat High Court as relied upon by the Ld. CIT(A) and Co-ordinate Bench of Ahmedabad Tribunal mentioned above. We do not find any infirmity in the order of Ld. CIT(A). Accordingly, this Ground Nos. (v) to (viii) are dismissed. 23. In the result, the appeal of the Revenue is dismissed. 24. The order pronoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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