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TMI Blog2020 (12) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has erred in law in deleting the addition made by the AO on account of the professional fees paid to Dr. R.S. Chahal without appreciating the evidence on record. iv. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition made by the AO on the basis of disallowance of loss in Kinder woman hospital without appreciating the fact that rent paid is not attributable to the purpose of the trust." 3. A perusal of the record along with the above grounds of appeal would indicate that though Revenue has taken four grounds of appeal but its grievance revolve around solitary issue, whether the assessee is to be treated as a "charitable institution" and entitled for benefit under sections 11 and 12 of the Income Tax Act, 1961 for assessment of its income ? 4. Brief facts of the case are that the assessee is a registered society under the Societies Registration Act, 1860. It has applied for grant of registration under section 12AA of the Income Tax Act. The registration was granted to the assessee by the Commissioner of Income-Tax, Jalandhar vide registration No.JUDL/TRUST/23097 dated 21.03.1991. Copy of registration certificate has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In other words, the AO was of the view that on account of Dr.R.S. Chahal's relationship with the Society, undue benefit is being extended to him on account of higher payment of professional charges, (iv) the assessee has another women kinder hospital where it has suffered loss, and such loss are not to be allowed to the assessee, (v) the ld.AO has made reference to section 11(4A) of the Act and observed that if a charitable trust or society runs any other unit for business purpose, which gives rise to profit, then separate books of accounts are to be maintained. According to the AO, such books of accounts were not maintained for the chemists shop. On the basis of above reasoning, the ld.AO has denied the benefit of sections 11 and 12 to the assessee. He determined taxable income of the assessee at Rs. 2,75,41,048/- as against NIL income shown by it. The ld.AO mainly made additions under the following heads: a) Rs. 37,56,251/- Shown as net profit and claimed exempted u/s.11 - disallowed by AO b) Rs. 1,72,42,642/- Loss from kinder women hospital (a unit of the trust) - disallowed by AO c) Rs. 65,42,155/- Payment to Dr.RS.Chahal (relative of trustee) disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... More so the same A.O. accepted profit rate of 9% during the previous year as reasonable. 2 Comparison of rates with SGL and , National Kidney Hospital and Indian Kidney Hospital. SGL Hospital is not comparable with the assessee , as the same received donations and grants from Govt and the maximum rates quoted are in respect of heart bypass, eye care , ortho , Neuro, MRI,CT Scan and our society is not receiving donations, Govt grant or providing any of the above said services. The rates of other hospitals in respect of OPD and ICU rent are more or less either same or more than our society as per chart at Page -21 of the asstt order . Even the charges of each institution depends upon the infrastructure and the facilities. Our each department is being looked after by Doctor having DM Qualification where as in other local /comparable hospitals they are more or less M.D./M.S. The society has utilized more than 85% of the total funds during each year right from the inception of the trust till date. Earning of profit is not fatal for claiming exemption u/s 11 . Kindly see CIT VS CT education Society,253 CTR page 518 , 391ITR Page 73(ALL Punjab High Court) Page 6 to 10. Of our writt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including rent and professional charges were paid through account payees cheque from the start of this unit till its closure. 2 Rent paid without using the building The rent was paid to SH.G.S.Ghosal (PAN:AAWPG0188M) .This building was taken on rent in March 2012 with a lock in period of three year upto March 2015..The rent deed is duly registered with the sub-registerrar, Jalandhar. Copy of rent deed filled with A.O. The building was used by the trust and DR.Arun Kumar Sharma (PAN: BCOPS5796J) was the incharge of this unit. TDS on both the payment was deducted and deposited .The loss of this unit was accepted by the department during the assessment year 2013-2014 and by the same A.O. during the assessment year 2014-2015. I have gone through the assessment order passed by the AO, detailed submissions made by the appellant and find that there are four issues which have been raised in the assessment order- (a) The Hospital run by the trust is also running a pharmacy and selling medicines on a profit; (b) The trust is engaged in commercial activities and earning profits from hospital; (c) Payments have been paid to persons covered u/s 13(l)(c) or u/s 13(3) of the IT Act and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for previous years would continue on the principle of consistency the assessee finds support from the decision reported in 245 ITR 492, 264 ITR 276. It is stated that exemption had been granted to the assessee u/s 11 from the A.Y. 1991-92 consistently for twenty six years. There is absolutely no change of circumstances and there was no occasion for a different approach to be taken for the assessment year in question when the activities have continued uninterruptedly since the time of inception of the institution and the fact that the assessee is a non-profit organization and it has not been disputed. 4.10 The appellant has submitted that hospital is running a chemist shop which is an integral part and is also approved by the CIT while giving approval to the trust and has been there since 1991. It is also stated that a complete list of concession of Rs. 24.78 lacs which includes medical camp, free OPD etc has been given to the AO, which is not disputed. It is submitted that profit rate of 22.43% has been accepted during previous year and therefore profit of 20.02% on chemist shop in this year is not unreasonable as no benefit has been derived by the trustees on account of this. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat appellant trust is claiming the benefit of exemption of income u/s 11 of the IT Act for the last more than 25 years. I find that as regards the nature & purpose of activities carried out by the trust are concerned, the amount of profit earned there-from has to be viewed as a whole rather than segment wise because at times surplus of one segment would help in meeting the deficit of other segment. For this purpose, it would be appropriate to compare the aggregate receipts, expenses and net surplus for period of 5 years which would involve 2 years preceding and 2 years succeeding the year under consideration. The comparative results are as under:- Asstt year Total Receipts Revenue Expenditure Capital Expenditure % of utilisation Net Profit Of NP 2012-13 16,70,35,839 15,84,11,623 10,71,38,157 158.97% 86,24,216 5.2% 2013-14 22,24,44,203 20,23,32,884 1,50,74,392 97.74% 2,01,11,319 9.0% 2014-15 24,78,08,876 24,40,52,624 3,23,57,155 111.54% 37,56,252 1.5% 2015-16 26,08,99,385 25,92,25,608 1,64,88,843 105.68% 16,73,777 0.6% 2016-17 24,87,55,805 24,39,23,365 6,86,68,148 125.66% 48,32,440 1.9% 4.16 It is seen from the above table, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of payment of professional charges to Dr. R.S. Chahal is concerned, the finding given by the AO that payments made to the doctor 11.52% of total professional charges claimed is stated by the appellant to be not rect. The appellant had filed a chart of payments made to different doctors :- Dr. VijayNanda : Rs. 68,60,728 Dr. Ravi Angral : Rs. 68,57,756 Dr. R.S. Chahal : Rs. 65,42,155 Dr. Manoj Chaudhary : Rs. 54,31,589 Dr. Atul Khullar : Rs. 46,61,318 Dr. Satish Mishra : Rs. 80,28,920 4.21 Further, it is seen that payments in the same range have been made to the doctor R.S. Chahal who is a reputed professional in his area of Specialization and also payments of similar amounts or even higher amount have been made to other doctors as well. The appellant has also submitted an evidence of ITRs being filed by the doctor wherein the income earned has been declared after making payment of due taxes. Further, it is seen that payments of Rs. 61,94,562 made to Dr. R.S. Chahal in the preceding year has been accepted by the AO. The appellant has also submitted that payments to other related parties on account on rent have been made after deducting tax at so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; **** **** Section 11(4A) Sub-section (1) or sub-section (2) or sub-section (3) or subsection (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. **** **** 13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) any part of the income from the property held under a trust for private religious p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that such institution/trust should get itself registered under section 12AA of the Act. Section 12AA of the Income Tax Act provides that on receipt of an application for registration by the Pr.Commissioner/Commissioner from a trust/institution under this section he will call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about; (i) genuineness of the activities of the trust/institution, (ii) compliance of such requirement of any other law for the time being in force by the trust or institution as material for the purpose of achieving its objects. The ld.Commissioner thereafter may make such inquiry as he may deem necessary in this behalf. Once he has satisfied with the genuineness of activities of the trust or institution, and also satisfied with the objects and compliance of any other laws, then he would pass an order in writing registering the trust or institution. 9. In the present case, such registration was granted way back in 1991. It is still intact. Sub-clause (iii) further empowers the Commissioner to hold an inquiry and find out if activities of such trust or institution are not genuine or not being ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h persons on account of their position in the institution/trust, then to that extent that income would not qualify for exemption, and will be brought to tax. 12. Keeping in mind, this basic scheme of Income Tax Act for assessment of charitable institution, let us revert to the facts of the present case. In the opening part of the order, we have briefly summarized the reasons assigned by the AO for denying the benefit of sections 11 and 12 to the assessee. However, it is pertinent to observe that the assessee is providing medical help. It is a charitable object as contemplated in section 2(15) of the Income Tax Act. The assessee has been enjoying registration under section 12AA, which is still intact. Taking note of these two factors, we have to evaluate, whether the AO is able to lay his hand on the material which can goad him to arrive at a conclusion that in the garb of object of providing medical relief, the assessee has been doing some commercial activities, and therefore, its activities should not be treated as charitable. Similarly, upto and until, activities of the assessee are found to be charitable and genuine by an higher authorities i.e. Commissioner, while granting re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the profit earned in such running of a pharmacy ought to be separately assessed. On the other hand, the ld.counsel for the assessee relied upon written submissions made before the CIT(A) as well as synopsis filed during the hearing before the Tribunal. We have duly considered these objections of the AO and the explanation of the assessee. The stand of the assessee is that hospital provides various services for 24-hours in various medical fields. Therefore, it becomes more necessary and forms a duty on the part of the Trust to run its medical stores to provide medicines to the patients as prescribed by the doctors. The hospital runs medical shops for 24-hours in order to meet emergency requirement of the patients, who are admitted in the emergency. According to the assessee, it has maintained separate books of accounts and those were produced before the AO. We find that the AO has not specifically rebutted the stand raised by the assessee. The maintenance of pharmacy has been considered in the past as ancillary to the object of running a hospital. It is to be appreciated that how the attendant of the patient would procure medicine from outside during emergency hours, and mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, therefore, rates of such hospital cannot be compared with rates of the assessee, who has to take care of day-to-day operational expenses, and future expansion in the area of investigative tools viz. xray machines, CT-scan etc. These equipments require higher lay out of the capital, and therefore in order to remain in competition with the hospitals, and to provide best facility to the patients, and to provide medical help, the assessee has to upgrade its investigative tools. Therefore, the rates considered by the AO are not relevant rates for determining higher range of profit in the hands of the assessee. We have made reference to submissions summarized by the ld.CIT(A) while taking note of the written submissions of the assessee. We have gone through these submissions. On an analysis of the details submitted by the assessee as well as considered by the AO, we are of the view that the AO has made reference to irrelevant claims for working out higher rate of profit in the hands of the assessee for running a hospital. After going through order of the ld.CIT(A), we do not see reason to interfere in the order on this fold of reasoning also. 15. The next reason assigned by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee has also to incur certain other fixed overhead expenses which also contributed to the increase in loss. The assessee was under obligation to run the unit for a minimum period of three years as per the registered lease agreement with the land landlord; that immediately after the expiry of lease period, assessee vacated the premises and closed down the unit in order to avoid increasing loss due to recurring and fixed overhead expenses. The ld.AO doubted contentions of the assessee and denied its claim by holding that as there is no income or activity by the assessee for the purpose of the trust. Before the ld.CIT(A), the assessee has also submitted that new unit of advance gastroenterology set up in March, 2012 on rented premises became unviable, and therefore it was to be closed down, which was very much part of the assessee hospital. The expenses as claimed by the assessee were accounted for and audited. The AO has not pointed out any defect in the books of accounts and has not brought any material on record on account of disallowance of expenses. On one hand, the AO accepted receipt of Rs. 5,09,900/-, but on other hand, disallowed entire expenditure incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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