Income Tax Appellate Tribunal - Lucknow
Smt. Kulwanti Bhatia Charitable Trust ... vs Commissioner Of Income Tax ... on 15 March, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH "A", LUCKNOW
BEFORE SHRI. A. D. JAIN, VICE PRESIDENT
AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
ITA No.149/LKW/2018
Assessment Year: N.A.
Smt. Kulwanti Bhati Charitable v. CIT (Exemptions)
Trust Society Lucknow
117/N/8, Kakadeo
Kanpur
TAN/PAN:AAATK6074E
(Appellant) (Respondent)
Appellant by: Shri Rakesh Garg, Advocate
Respondent by: Shri A. K. Bar, CIT (DR)
Date of hearing: 26 02 2019
Date of pronouncement: 15 03 2019
ORDER
PER A. D. JAIN, V.P.:
This is assessee's appeal against the order of the ld. Commissioner of Income-tax (Exemptions), Lucknow passed on 19/1/2018, cancelling registration under section 12A of the Act, taking the following grounds of appeal:-
01. Because the CIT (Exemptions) has erred on facts and in law in arbitrarily cancelling the registration granted under section 12A dated 20.11.1984 of the Income-tax Act, 1961 without appreciating the facts and circumstances of the case, the order rejecting the grant of registration is bad in law and be quashed.
02. Because the CIT (Exemptions) has erred on facts and in law not appreciating that all the activities being genuine and being carried out in accordance with the objects of the institution, the order cancelling the grant of registration is bad in law, be set aside and registration already granted u.s.12A be restored.ITA No.149/LKW/2018 Page 2 of 24
03. Because the CIT(E) has failed to appreciate the facts, misinterpreted the working/activities of the society, holding that the same is not genuine and is not being carried out in accordance to the objects of the society, and has thereby erred in cancelling the registration already granted U/S.12A of the Act of the CIT(E) be quashed. ;
04. Because the CIT(E) has wrongly inferred and concluded that charge of fees from the patients, payments made to the doctors and for pathological services, as well as letting out of space on rent for medical store and ATM, etc, are all commercial in nature, not in accordance With the objects of the society and the provisions of law; are all findings based on non-appreciation of the facts and evidences as submitted and filed by the assessee, the order passed by CIT(E) registration u/s.12AA(3) cancelling the registration be quashed and the registration granted to the society u/s.12A be restored.
05. Because there being no violation of the provisions of section 13(1)(c) of the Act, 1961, the registration granted u/s.12A, the registration granted be restored.
06. Because there being no change in the objects of the institution and the nature of the activities ever since the institution has been established, and the same having been accepted by the department year after year, the CIT(E) was not justified in reviewing the same cancelling the registration granted u/s:12A. The order of the CIT(E) be quashed.
2. The ld. CIT (Exemptions), has cancelled the registration granted to the assessee by holding as follows:-
"1. A report was received from Income Tax Officer (Exemption), Kanpur vide letter F.No.lTO(Exemption)/KNP/Kulwanti/767 dated 22.02.2017 forwarded by the JCIT(Exemptions), Ghaziabad vide letter F.No.JCIT(E)/GZB/u/s 12A rejection/2016-17/2985 dated 02.03.2017 wherein the AO recommended for cancellation of registration u/s 12AA as the assessee was found to be indulged in various non-charitable activities.
2. A show cause notice for the cancellation of registration under section 12AA(3) of the Income Tax was issued to the above ITA No.149/LKW/2018 Page 3 of 24 named trust (Kulwanti Bhatia Charitable Trust Society)on 02.03.2017 for compliance 17.03.2017. On that date i.e. 17.03.2017, Shri. V.K. Mawkin, FCA appeared on behalf of the applicant and filed a letter. On perusal of the material available on record, it was found that there are 12 visiting Doctors against whom a charge of Rs. 100/- is levied by the assessee society, however the doctors are free to charge the patients as per their will which establishes the fact that the claim of charity on part of the applicant is a mere pretence which does not have any substance. It is also important to note that Paliwal Diagnostics Limited, Kanpur (PDPL) gives 50% to trust on all receipts. (F.Y. 2015-16 Rs. 18.28L). Further it was also found that the assessee society has entered into a rent agreement for the basement of the hospital of the assessee about 1000 square feet. And two rooms on ground floor measuring about 200 sq. ft. w.e.f. 15.12.2015 for a period of 5 years on a monthly rental of Rs. 25,000/- to M/s Kulwati Skill Academy Private Limited which has two society members of the assessee society as directors. Shri. Mawkin sought an adjournment to produce the Rastogi Medical Rent Agreement, OPD charges with receipts for the current year and the bank account details for 18.04.2017. On that date i.e. 18.04.2017, Shri. Mawkin appeared and filed a letter. It was found from the material available and the submissions of the assessee that no l.D./Address/Contact No. of Patient (who have been claimed to be treated free) are available for 0.P.D. Further it is also observed that commercial activities of ATM are also being carried out. Also the claim of the assessee, that it is providing medical treatment to the needy free of cost, is based on false notions as although the assessee claims that each patient is charged a nominal cost of O.P.D of Rs.100/- each time however the doctor attending the patient in the OPD is charging a separate fee as per his discretion which shows that the said arrangement is basically a pretence of charity and in reality large fee is being extorted from the patients for which neither has the assessee revealed any amount nor has the assessee been able to produce the requisite receipts. In the interest of natural justice, the assessee society was accorded another opportunity of presenting its case and a show cause notice for the cancellation of registration under section 12AA(3) of the Income Tax was issued ITA No.149/LKW/2018 Page 4 of 24 to the above named trust (Kulwariti Bhatia Charitable Trust Society) on 28.09.2017 for compliance 23.10.2017. However on that date i.e. 23.10.2017 no one appeared nor was any application for adjournment received. In the interest of natural justice, the assessee society was accorded another opportunity of presenting its case and a show cause notice for the cancellation of registration under section 12AA(3) of the Income Tax was issued to the above named trust (Kulwanti Bhatia Charitable Trust Society) on 24.10.2017 for compliance 06.11.2017. On that date i.e. 06.11.2017, Shri. V.K Mawkin appeared and filed a write up but could not produce the requisite documents. Subsequently, a letter was issued to the assessee society 08.01.2018, for providing a copy of the agreements made with Paliwal Diagnostics Limited, Kanpur by 19.01.2018 vide post. On that date i.e. 19.01.2018, copies of the agreement dated 08.08.2011 and 01.09.2014 (notarized) with M/s Paliwal Diagnostics Private Limited, Kanpur and a lease rent agreement dated 15.12.2015 with M/s Kulwanti Skill Academy Private Limited, Kanpur, in which two trustees are interested was presented by Shri. V.K. Mawkin, FGA who also filed a letter. It is pertinent to note here that the society has made an agreement with PaliWal Diagnostics Limited, Kanpur (PDPL) vide agreement dated 08.08.2011 that society will provide the space to PDPK to run its business whereas nowhere it is mentioned that the trust shall make an agreement for providing space to a third party for business activities. Consequently, the patients are being charged heavily for various tests and it is being shared by the assessee trust as PDPL. On being queried regarding the same, the applicant has failed to provide any clarification regarding the agreement for sharing profits and has submitted a reply as under:-
".....certain space was provided to PDPL to facilitate to do basic pathology testing of patients of Kulwanti Hospital at urgent basis and as collection centre for specialized testing.......arrangement with PDPL is ancillary to the objects of the Society i.e. providing instant medical facilities to the patients. Further the surplus received from them also utilized for the primary object to our society".ITA No.149/LKW/2018 Page 5 of 24
The above argument of the assessee trust holds no ground as the pretext of providing a pathology testing partner for alleged pathology tests on urgent basis does not warrant sharing of the receipts of the alleged pathology partner company which is the assessee trust in this case. Moreover the assessee states that the arrangement with PDPL is ancillary to the objects of the society which is not true as on perusal of the objects set forth in the trust deed, it is found that nowhere it mentioned that the society shall make an arrangement for providing space to a third party applicant has also stated as per object at serial III(15) "To amalgamate or work in cooperation with any institution; society or association having objects altogether or in part similar to those of the society". However neither has the applicant been able to justify the sharing of receipts of PDPL was even remotely associated with any act of Charity nor has the applicant been able to prove that the objects of PDPL, Kanpur has objects altogether or in part similar to those of the assessee society. Thus the entire arrangement is primarily enshrouded in ulterior motives of providing benefits to the society itself devoid of any element of charity as per the claimed objectives. It is worth mentioning that the aforementioned agreements with (M/s Paliwal Diagnostics Kanpur regarding sharing of receipts and with M/s Kulwanti Skill Academy Private Limited, Kanpur (where 2 asssesee society members are directors) regarding lease rent agreements have been executed after the assessee society was accorded with registration u/s 12AA of the Income Tax Act, 1961 which clearly goes to prove that floating of loft ideals was a mere camouflage under the garb of which the applicant indecorously aspired for registration. However it was after the said registration was granted that the applicant showed its true colour regarding its commercial intent by entering into collaboration with other profit- aiming entities which are under the umbrella of the same set of individuals which are currently the society members of the applicant society, the applicant contends this fact that by stating that the said agreements are incidental to the attainment of the objectives of the society which don't appear to be remotely true as nowhere do the objects of the society lay down the fact that the assessee aims to augment its income by collaborating with commercial entities that are profit oriented. Thus it is quite clear ITA No.149/LKW/2018 Page 6 of 24 that the applicant has created a subterfuge whereby it managed to get this intended registration by floating lofty ideals and subsequently after securing the registration has indulged in activities which are not only contradictory to its decared objects but are also grossingly divergent from the line of activities which lead to the according of registration to the assessee in the first place.
3, It has come to the notice of this office that the society is presently not involved in performance of any charitable cause and its activities are not being carried out in accordance with the objects of the trust. The report submitted to this office by the Income Tax Officer(Exemption)) Kanpur states that the society has made an arrangement Society has made an arrangement with Paliwal Diagnostics Limited, Kanpur (PDPL) void agreement dated 08.08.2011. In the agreement it has been resolved that the society will provide the space to PDPL in lieu of which PDPL shall share the various charges received from the patient at different levels. In the agreement the main object of charity is absent for which the society has been registered as the said arrangement is nothing but a mere pretence on the part of the assessee whereby it intends to generate rental income under the garb of charity. On perusal of the objects stated in the Memorandum of the society it is nowhere mentioned that the society shall make an agreement for providing space to third party and share fee for the same. This clearly shows that the assessee is engaged in activities that have not Seen specified in the objects stated by it but are being pursued with a commercial end in mind devoid of any charitable motive. It has also been mentioned in the report of the Income Tax Officer (Exemption), Kanpur that upon enquiry it was found that the hospital fun by the society has failed in achieving its stated charitable objectives. The OPD charges that are being collected from the patients stand at Rs.150/- per patient by the resident doctors and Rs. 250/- to Rs. 400/- are being charged by the outside doctors which implies that the claim of the assessee that it is levying a meager fee for treatment of patients is based on false notions as in reality hefty fees is being charged from the patient which makes the assessee no different from a commercial organization that is providing certain services and charging heavily ITA No.149/LKW/2018 Page 7 of 24 for the same.lt was also found upon enquiry that the hospital being run by the society charge room fee from Rs.1000/- to Rs.4000/- per day for double bed rooms. For single bed room the hospital charges Rs.2000/- to Rs.4500/- per day. The said rate is definitely comparable with what is being offered by medical organizations operating on commercial lines and thus the said figures clearly quash the claims of the applicant that it exists for the purposes of charity. The Income Tax Officer (Exemption), Kanpur has further reported that upon enquiry it was found that the hospital run by the society charges tine ultrasound fees at Rs. 800/- per patient while in other charitable hospitals it is charged in the range of Rs. 400/- to Rs. 600/- which clearly shows the differential between the hospitals operating on charitable lines and the ones that operate in a commercial as is currently being done by the assessee. On perusal of the material available on record, it is found that the assessee society has executed an arrangement with Purushottam Ladda and others to allot space for running Medical Store in the premises of the hospital on rental and commission basis. The society has also authorized the proprietor of the medical store to sell the medicines at the printed rates whereas in the open market some discount is usually given to the patients. On going through the agreement it reflect that the hospital is running exclusively for making profit aid the sole purpose of charity has been defeated. It is also worth noting that at clause 5 of the objects stated in the memorandum of the society the assessee has mentioned to assist, frame, support, found, establish and maintain institution meant for relief of the poor. However the society has neither established nor maintained even a single institution meant for relief of poor and thus has failed to comply with the objects stated in the memorandum which goes to prove that the said memorandum of objects is a fake recital with no practical implications. Similarly on going through the para 7 of the Memorandum of the society, it is found that the assessee has promised to open, frame, establish, assist or contribute to the maintenance of orphanage, widow homes, leper and lunatic asylum, poor house, work hostels, girls hostels, hostels for blind, deaf and dumb, labour clubs, journal hostels and health centers. However the society has failed to achieve the above stated objects and nothing could be found which certify the ITA No.149/LKW/2018 Page 8 of 24 assumption that the society was even willing to pursue any charitable activity in this direction. Likewise at para 8 of the memorandum, the assessee society has promised to give monetary aid or other help for relief from natural calamities like floods, cyclones, famine, earthquakes however on examining the records of society nothing was found by which it could be established that the society had actually carried out any sort of activity in this regard. After carefully examining the objects it appears that there is hardly any field of human endeavor that the applicant intends not to engage in. The recital of the object suffers from the voice of vagueness. While it is true that it is for the applicant to define its objects it is equally true that the recitals of the object should not become an empty formality whereby the applicant includes anything and everything in a deed. Such a deed becomes a meaningless-ritual. There is literally no material available on record so as to form even the slightest satisfaction regarding the genuineness of the activities carried out, if any, by the applicant. It becomes imperative here to note that registration was accorded to the society on the belief that the society shall run preferably for the welfare of the poor and needy person. Unfortunately the society has failed in achieving the cause for the which the society was created. It is clear from the facts mentioned above that the activities of the society are not genuine and are not being carried out in accordance with the stated objects of the society and it has become an instrument for extending benefits to its members by indiscriminately applying its income and property for their personal profits and gains and the modus operand! of the society is that of a closed ended institution having no independent and transparent control and management.
4. Section 13(1)(c) of the I.T. Act, 1961 provides that where a part of income of charitable and religious trust or Institutions ensures or is used or applied directly or indirectly for the benefit of those persons specified in section 13(3), that a trust or institutions forfeits the exemptions u/s 11 even if only a small portion of money is utilized or used or applied for benefit of a person mentioned in section 13(3) and accordingly the trust denied the exclusion except as per provisions section 13(4) of the Act. Reliance is also placed on CIT vs. JarnunaLal Bajaj Seva Trust ITA No.149/LKW/2018 Page 9 of 24 (1988) 171 ITR 568. The activities of the applicant society as evident from the material available oh record come in clear violation of Section 13(1)(c) of the income Tax Act,1961 which again is detrimental to the claim of the applicant. In this instance, the burden of proof lay on the applicant but applicant has failed to provide any satisfactory reply. Being a charitable institution, there is obligation on its part to conduct its activities in more transparent and reliable manner. General public, even Government agencies are looking towards charitable organizations for various philanthropic purposes. As a consequence of such trust voluntary donations and grants are being given to such charitable institutions to carry philanthropic activities for the benefits of the general public and society at large. Further, tax incentives have been extended not duly to these charitable institutions exempting their income from tax but also the donors to these charitable institutions are given tax benefits as well. In this background His mandatory on the part of these voluntary organizations to keep their activities transparent and to maintain their books of account in reliable mariner. In the instant case, neither are the activities of the applicant genuine or in tandem with the objects set forth in the memorandum of the trust nor are the activities aimed at benefitting the public at large. Rather, the activities of the applicant are aimed at benefiting a set of distinguished individuals. This is fatal to the claim of the activity.
5. According to Section 12AA(3) of the Income Tax Act, 1961, if the CIT is satisfied that the activities of the Trust/Society are not genuine or are not being carried put in accordance with the objects of the society, he shall pass an order in writing cancelling the registration of the said society.
6. It is unfortunate to note that the society has failed to achieve cause for which it was created. In view of above facts, activities of the assessee society are not genuine and are not feeing carried out in accordance with the stated objects of the society and it has become an instrument for extending benefits to its members by indiscriminately applying its income and property for their personal benefits and gains and it is only a closed ended society having no independent and transparent control and management. Reliance is also placed in the case of the Scientific Education vs. ITA No.149/LKW/2018 Page 10 of 24 Union of India And Another decided on 10 February, 2009 CWP No. 2852 of 2009 of Hon'ble Punjab and Haryana High Court and M/s Joginpally BR Education Society, Hyderabad vs. Commissioner of Income tax (Central), Hyderabad, ITA No.585/Hyd/2012 of Hon'ble ITAT, Hyderabad. The registration granted u/s 12AA can be cancelled u/s 12AA(3) of the Income Tax Act, if the activities of the Trust are not genuine or the activities are not being carried out in accordance with the object of the Trust/ Institution. In this case, it is not and cannot be the objective of the assessee Trust to utilize the funds of the society for benefit of the interested persons. Thus the activities of the society cannot be said to be carried out in accordance with objects of the society. At the same time it can be inferred that no genuine activities are be inferred that no genuine activities are being carried out by the assessee. Accordingly, the registration granted to the Trust is liable to be cancelled in view of the above facts, provisions of the Act and judgments cited. In view of the above facts, the registration granted u/s 12AA to the assessee is cancelled w.e.f. 1/4/2016."
3. Heard. The ld. CIT (Exemptions) has recorded numerous findings in the impugned order. These findings and the assessee's response with regard to thereto have been delineated by the assessee by way of the following chart. It is the case of the assessee that the ld. CIT (Exemptions) has not afforded due, adequate and proper opportunity to the assessee to explain its case before framing of the impugned order:
Observations of the learned CIT Clarifications / Reply of the Appellant ( Exemptions) Lucknow ITA No.149/LKW/2018 Page 11 of 24
1. It has come to the notice of We would like to mention here that this office that the society is learned ITO (Exemption) ,Kanpur have presently not involved in not given us an opportunity to explain performance of any charitable our case while framing his opinion cause and its activities are not submitted in this regard and we have being carried out in accordance informed the same to learned CIT (E), with the objects of the trust. The Lucknow in para 4 of our letter dated report submitted to this office by 06.11.2017.
the Income Tax Officer The facts of agreement with PDPL are (Exemption) Kanpur that the given below:-
society has made an arrangement 1. Original agreement dated 8.8.2011 with Paliwal Diagnostics Limied, for 3 years which was renewed vide Kanpur (PDPL) a void agreement agreement dated 1.9.2014. dated 08.08.2011. In the 2.The size of the space provided not agreement it has been resolved mentioned in the agreements but about that the society will provide the 150 sq.ft. space was provided on space to PDPL, in lieu of which ground floor of the hospital. PDPL shall share the various 3. The space provided to PDPL to charges received from the facilitate to do basic pathology in house patients at different levels. In the testing of patients at urgent basis and agreement, the main object of collection centre for specialized testing. the charity is absent for which 4. PDPL charging their standard rate for the society has been registered. testing out of which they give us 40% As the said arrangement is to 50% amount from their receipts. nothing but a pretence on the 5. Arrangement with PDPL is incidental part of the assessee whereby it to the attainment of the objects of the intends to generate rental society i.e. providing instant medical income under the grab of charity. facilities to patients.
6. The PDPL have advanced technology testing equipments and professional team in a big building in Pandu Nagar, Kanpur which is about 1 Km. from our Hospital. They have collection centre at Kulwanti Hospital only to facilitate basic tests in the laboratory provided by the Hospital to give quicker reports for the immediate treatment of patients of the Hospital. In this connection we have to submit that the special testing are done by them in their main laboratory. Further we have to submit ITA No.149/LKW/2018 Page 12 of 24 that we cannot do testing at our own level as it require specialized technical staff and qualified pathologist which involve very high cost and we cannot bear it as we do not have adequate work and it will increase cost of testing against the interest of the patients to provide affordable medical facilities to achieve the object of the society.
7. We are giving discount to the patients on the diagnostic tests done by PDPL.
8. The amount received from PDPL during FY 2015-2016 amounted to Rs.18.28 lakhs was also utilized for the primary object of the society as evident from I.T.Return and annual accounts submitted.
9. We have mentioned in para 1(d) of our letter dated 19.01.2018 that without prejudice to our submissions that it was not a business activity, even for argument sake if it be considered as business activity, it is incidental to the attainment of the objective of the society and is allowable u/s 11(4A) of the Income Tax Act, 1961 and the income received was utilized for object of the society.
2.On perusal of the objects stated To give property on rent or otherwise is in the Memorandum of the covered under clause 14 of the Objects society, it is no where mentioned of the Society read as under:-
that the society shall make an agreement for providing space to To acquire, purchase, build, construct third party and share fee for the or take on lease or in exchange or hire same. any movable and immovable property or rights or privileges.
2. In Rules & Regulations of the Trust in para(ii) Board Functions (Point no.11) read as under:-ITA No.149/LKW/2018 Page 13 of 24
To acquire, build, purchase, to hold on lessor under license, any property or sell, mortgage, let, hypothecate, donate any property of the society and to take such other steps as may be deemed necessary by the Board in managing the finances, properties , Assets and liabilities of the society.
Point No.13 To enter into commercial and financial transactions of all kinds and all descriptions which in the opinion of the Board are in the interest of the society.
Point No.10 To enter into agreements , financial / commercial or otherwise of all descriptions and of all kinds provided they are in accordance with the objects of the Society.
3.The OPD charges that are being We are providing free OPD to poor collected from the patients stand patients free of charge and charge at Rs. 150/- per patient by the Rs.100/- from general public and resident doctors and Rs.250/- to Rs.50/- from students for treatment by Rs.400/- are being charged by our resident doctors for five days. If the outside doctors, which implies anybody wants for consultation with that the claim of the assessee specialist doctors available in the OPD that it is levying a meager fee for ,he/she is allowed to consult and pay treatment of patients is based on directly to them. A copy of our receipt false notions, as in reality , hefty is enclosed herewith in which it is fees is being charged from the printed that it is valid for five days.
patient , which makes the assessee no different from a We have submitted copy of OPD commercial organization that is Account in our ledger for the month of providing certain services and February, 2017 in para 4 of our letter charging for the same. dated 18.4.2017 in which OPD serial number are mentioned and in case of free patients no amount was mentioned.
ITA No.149/LKW/2018 Page 14 of 244 .The hospital being run by the We submitted a statement giving society charges room fee from comparative hospitalization charges in Rs.1000/- to Rs.4000/- per day different hospitals in Kanpur from for double bed rooms. For single which it would be observed that our bed rooms the charges are rates are much lower than the similar Rs.2000/- to Rs.4500/- per day. hospitals in Kanpur. The said rate is definitely comparable with what is being We are not getting any donation or offered by medical organizations grant for providing medical relief. operating on commercial lines, and thus he said figures clearly We are running the hospital and quash the claim of the applicant recovering the cost of running the that it exists for purposes of hospital as there is no profit motive to charity. achieve the primary object of the trust to provide medical relief and services to the general public.
The perception is to provide diversified medical facilities at reasonable cost to the general public i.e. to meet the infrastructure and to meet the contingencies i.e. acquisition of latest equipments.
5.The hospital run by the society We have charged ultrasound charges charges the ultrasound fee at as per prevailing market rate i.e Rs.800/- per patient while in Rs.800/- per case, out of which we are other charitable hospitals, it is paying Rs.400/- to doctor Radiologist charged Rs.400/- to Rs.600/- who are not in our employment and do which clearly shows the ultrasound with our machine in our differentials between the premises. He is being called when any hospitals operating on charitable patient needs ultrasound. lines and the ones that operates The Ultrasound charges charged by in a commercial, as is currently Mariampur Hospital (12A registered being done by the assessee. Hospital) who are charging Rs.750/ as per their receipt enclosed.
There is no object of profitability in such charges.
ITA No.149/LKW/2018 Page 15 of 246. The Society has executed an The original medical shop was allotted arrangement with Purshottam on 01.04.1990 and last renewed as per Ladha & Others , partners M/s agreement dated 2.3.2003 for 9 years Medicine Centre to allot space for to M/s Medicine Centre. Their running Medical Store in the arrangement has been terminated on premises of the hospital on rental 27.7.2012 and hospital had started its and commission basis. The own medical shop w.e.f. society has also authorized the 4.9.2013.However they have disputed proprietor of the medical store to the matter and finally vacated the shop sell the medicines at the printed on 22.08.2016 and discount are being rates whereas in the open market allowed. We are also allowing discount some discount is given to the on sale of medicines. Two copies of patients. cash memos are enclosed herewith.
7.It is also worth noting that at The Society is running a medical clause 5 of the objects stated in Hospital namely Kulwanti Hospitals & the memorandum of the society , Research Centres at Kanpur. the assessee has mentioned to In support of our charitable activities assist , frame, support, found, we submitted 22 letters of appreciation establish and maintain institution and confirmation of holding medical meant for relief of the poor and check up camps from various advancement of medical relief , associations, banks , industries and education and any other object of income tax offices vide our letter dated general public utility to run 17.3.2017 . Total 14706 patients were schools, colleges and Research provided free medical services during Centres, as an industrial activity the year ended 31.3.2016. A complete to achieve this charitable object. list of 222 pages were submitted with To provide funds for buildings or the above letter but returned to us. As maintain of Hospitals or required we also submitted copies of 3 Dispensaries or for supplying of bills as specimen where concessional free medicines for treatment of /free services were provided to indoor the poor. patients.
During hearing of our above proceedings on 18.4.2017, registers maintained at the camps were produced in which mobile numbers of patient were given and the learned CIT (Exemptions) had at random enquired from a patient on his mobile about a particular free medical camp and got the medical facility which he confirmed.
ITA No.149/LKW/2018 Page 16 of 24On his specific enquiry about charges, the person confirmed that it was free medical camps and they have not paid anything. This was mentioned in para 3 of our letter dated 6.11.2017 submitted.
Further copies of letters for health check up camps at three income tax offices expressing their appreciation were submitted with our letter dated 17.3.2017.
We are providing free medical facilities to poor patients by holding medical camps and set up free clinics at Panki Industrial Area, Kanpur and Luvkush Nagar, Bithoor, Kanpur, on regular basis where we also provide free medicines to patients as per object 2 of our memorandum of Association .
We also provide free quarterly medical check up at Vridhashram, Ratanpur, Kanpur, Shakti Sewa Dal School, Kaushalpuri, Kanpur and other social organisations. We also provide 50% discount to poor patients (BPL), recognized ashrams, old age homes etc. on hospitalization. We are holding Polio camps as per Government policies. We enclose herewith a statement giving number of patients given medical facilities at camps free of cost.
As regard other activities we have to mention here that we could not enter in the field of education or other public utility due to shortage of finances and specialised man power.
ITA No.149/LKW/2018 Page 17 of 248.On going through the para 7 of The society is running charitable the Memorandum of the society, hospital and whatever it earns have to it is found that the assessee has be invested in maintenance of the promised to open, frame, hospital and updation of the medical establish, assist or contribute to equipments for the growth of the the maintenance of orphanage, hospital to achieve its basic object to widow homes, leper and lunatic provide relief to human beings from asylum , poor house, work diseases of all modern and ancient hostels, hostels for blind, deaf methods of cure viz Homeopathy, and dumb, labour clubs, journal Ayurvedic, Unani, Allopathy and Yoga hostels and health centres. Therapy and to run Nursing Hospitals However the society has failed to as an industrial activity to achieve this achieve the above stated objects Charitable object. and nothing could be found to It will be appreciated that in the certify the assumption that the medical field new inventions and society was even willing to medical equipments are updated and pursue any charitable activity in we have to keep ourselves upto date to this direction. Likewise at para 8 give best medical services to achieve of the memorandum , the the charitable object of the society assessee society has promised to The capital expenditure incurred give monetary and other help for during last four years are given in the relief from natural calamities like Annexure for which we have also taken flood, cyclones, famine, term loans from Bank of India, Kanpur. earthquakes. However on examining the records of the As regard para 7 and 8 of the society nothing was found by memorandum we have to submit that which it could be established the these are not promises. Other objects society has actually carried out are always written in the memorandum any sort of activity in this regard. to get powers to expand its activities by the society if additional /surplus funds are available and management wants to expand its activities.. We are not able to start any new activities due to shortage of funds. Only on this ground that we have not started any new activity mentioned in the other objects cannot be a basis of cancellation of exemption granted u/s 12AA of the Income Tax Act, 1961.
ITA No.149/LKW/2018 Page 18 of 249.Section 13(1)(c) of the No income or part of income ensures , I.T.Act,1961 provides that where or is used or applied directly or a part of the income of a indirectly for the benefit of the those charitable and religious trust or persons specified in section 13(3) of Institutions ensures, or is used or the Act. The learned CIT (Exemptions) applied, directly or indirectly for have not mentioned any benefit or any the benefit of those persons instance where the specified persons specified in section 13(3) that utilize income or part of the income for trust or institutions forfeits the their personal benefit and there was no exemptions under section 11, violation of section 13(1)( c) of Income even if only a small portion of Tax Ac, 1961.
money is utilized or used or Further during the assessment year applied for the benefit of a 2015-16 and 2016-17 or in earlier years person mentioned in section the assessing officer have not found 13(3) and accordingly the trust any such case and completed the be denied the exclusion except as assessments u/s 143(3) on return per provisions section 13(4) of income with the remark as under:-
the Act. Assessment Year 2015-16 order u/s 143(3) dated 11.12.2017 passed by DCIT Exemption Circle , Ghaziabad The Society is running a charitable Hospital namely Kulwanti Hospital & Research Centre, Kanpur. The Society is registered u/s 12AA and enjoying exemption under the I.T.Act, 1961. The activities of the society are found to be genuine in nature. Thus rational behind the purpose of the society is established and the society is entitled for exemption u/s 11 of the I.T.Act.
Assessment Year 2016-17 order u/s 143(3) dated 15.12.2018 passed by ITO Exemption Ward, Kanpur The assessee society is registered with Registrar of Society U.P. under Societies Act vide certificate no.
346/1984-85 dated 27.06.1984 and renewal for further period of 5 Years was granted with effect from 27.06.2016. The said society's activities ITA No.149/LKW/2018 Page 19 of 24 are for benefit of General Public by way of providing medical facilities through hospital and medical camps. The registration u/s 12A of the Act was granted to the assessee charitable society by the Ld.Commissioner of Income Tax of Income Tax -1, vide R.No. 250/12A/CIT-1/T/84 dated 17.11.1985.
Also during the course of examination of documents submitted on line , the assessee has not been found involved in carrying on any of the activities which are hit by newly inserted provisions u/s 2(15) of the Income Tax Act, therefore, no adverse inference has been drawn. Accordingly, assessment is completed u/s 143(3) of the Income Tax Act,1961 at NIL.
10.Being a charitable institution, The activities of assesee are genuine as there is obligation on its part to mentioned in para above and 14706 conduct its activities in a more patients were attended in the camps transparence and reliable besides poor patients in the Hospital to manner. General public, even whom discounts for Rs.46.15 lakhs Government agencies are looking were allowed during the year ended towards charitable organizations 31.03.2016 and Rs.75.18 lacs during for various philanthropic the year ended 31.03.2017 properly purposes. As a consequence of disclosed in annexure -9 Hospital such trust, voluntary donations Services Receipts in The Balance Sheet and grants are being given to filed.
such charitable institutions to As for as accounts of the Society and carry philanthropic activities for the Hospital are concerned, these are the benefits of the general public maintained on the integrated computer and society at large. Further tax system in a transparent manner and incentives have been extended, are regularly accepted by the assessing not only to these charitable officers. There was not a single institutions, exempting their instance in the long history of more income from tax, but also to than 30 years of the Society when any donors to these charitable objection was raised by any assessing institutions are given tax benefits officer on the accounts or accounting as well. In this background , it is systems. The accounts are duly audited ITA No.149/LKW/2018 Page 20 of 24 mandatory on the part of these and income tax returns are always filed voluntary organizations to keep within statutory time limit u/s 139(1) of their activities transparent and to the Act. In the circumstances proper maintain their books of accounts books of accounts are being maintained in a reliable manner. In the in a transparent manner as expected instant case , neither are the from charitable institutions.
activities of the applicant
genuine, or in tandem with the Further we would like to mention here
objects set forth in the that we have not received any donation
memorandum of the trust nor are or grant for the society.
the activities aimed at benefiting
the public at large. Rather, the We have taken interest free unsecured
activities of the applicant are loans from trustees and their relatives
aimed at benefitting a set of and friends in various years and
distinguished individuals. This is present outstanding of Rs.44.15 lakhs
fatal to the claim of the activity. as on 31.03.2016 besides secured loans
for Rs.98.88 lakhs from Bank of India
taken for modernization purposes. The
activities of the society is running in
efficient manner keeping in view the
main object to combat the disease for
the suffering humanity irrespective of
Caste, colour or Creed .The medical
benefits are given to poor patients by
way of discounts also.
11.It was found that there was 12 We are providing free OPD to poor
visiting Doctors against whom a patients free of charge and charge
charge of Rs.100/- is levied by the Rs.100/- from general public and
assessee society, however doctors Rs.50/- from students for treatment by
are free to charge the patients as our resident doctors for seven days. If
per their will which establishes the anybody wants for consultation with
fact that the claim of charity on specialist doctors available in the OPD,
part of the applicant is a mere he is allowed to consult and pay directly
pretence which does not have any to them.
substance.
12.It is important to note that 1. Original agreement dated 8.8.2011 that M/s Paliwal Diagnostics for 3 years which was renewed vide Private Limited ,Kanpur (PDPL) agreement dated 1.9.2014. gives 50% to trust on all receipts. 2.The size of the space provided not (FY- 2015-2016- Rs.18.28 lakhs ) mentioned in the agreements but about 150 sq.ft. space was provided on ground floor of the hospital.
ITA No.149/LKW/2018 Page 21 of 243. The space provided to PDPL to facilitate to do basic pathology in house testing of patients at urgent basis and collection centre for specialized testing.
4. PDPL charging their standard rate for testing out of which they give us 40% to 50% amount from their receipts.
5. Arrangement with PDPL is incidental to the attainment of the objects of the society i.e. providing instant medical facilities to patients.
6. The amount received from them during FY 2015-2016 amounted to Rs.18.28 lakhs was also utilized for the primary object of the society as evident from I.T.Return and annual accounts submitted.
7. We have mentioned in para 1(d) of our letter dated 19.01.2018 that without prejudice to our submissions that it was not a business activity, even for argument sake if it be considered as business activity, it is incidental to the attainment of the objective of the society and is allowable u/s 11(4A) of the Income Tax Act, 1961 and the income received was utilized for object of the society.
13.The assessee society has The premises was given on rent to M/s entered into a rent agreement for Kulwanti Skill Acadamy Private Limited the basement of the hospital of in which two trustees are interested, on the assessee about 1000 sq.ft. higher than market prevailing rent of and two rooms on ground floor Rs.25000/- per month. In support of measuring about 200 sq. ft. w.e.f. prevailing market rent we submitted a 15.12.2015 for a period of five certificate from a broker M/s Jai Durge years on a monthly rental of Properties, Kanpur, who stated Rs.25000/- to M/s Kulwanti Skill estimated rent from Rs.12.00 to Acadamy Private Limited which Rs.16.00 per sq.ft. .There is no bar on has two society members of the building given on rent on reasonable society as directors. fair market rent to a company in which two trustees are interested as director.
ITA No.149/LKW/2018 Page 22 of 2414.No ID/ Address/ Contact No. We have submitted copy of OPD of Patient ( who have been Account in our ledger for the month of claimed to be treated free) are February, 2017 in para 4 of our letter not available for OPD. dated 18.4.2017 in which OPD serial number are mentioned and in case of free patients no amount was mentioned.
15.Commercial activities of ATM Certain space was provided for ATM of are also being carried out. Bank of India as per agreement with M/s FIS Payment Solutions and Services for which monthly rent was received.
During the year ended 31.03.2016 total rent of Rs.3,38,400.00 was received and utilized for the primary object of the society as evident from I.T.Return and annual accounts submitted. There is no bar on building given on rent particularly to a nationalised bank.
16. The society is presently not In support of our charitable activities we involved in performance of any submitted 22 letters of appreciation and charitable cause and its activities confirmation of holding medical check are not being carried out in up camps from various associations, accordance with the objects of the banks , industries and income tax trust. offices vide our letter dated 17.3.2017 .
Total 14706 patients were provided free medical services during the year ended 31.3.2016. A complete list of 222 pages were submitted with the above letter but returned to us. As required we also submitted copies of 3 bills as specimen where concessional /free services were provided to indoor patients.
During hearing of our above proceedings on 18.4.2017, registers maintained at the camps were produced in which mobile numbers of patient were given and the learned CIT Exemptions) had at random enquired from a patient on his mobile about a particular free medical camp and got the medical facility which he confirmed.
On his specific enquiry about charges, the person confirmed that it was free medical camps and they have not paid ITA No.149/LKW/2018 Page 23 of 24 anything. This was mentioned in para 3 of our letter dated 6.11.2017 submitted.
Further copies of letters for health check up camps at three income tax offices expressing their appreciation were submitted with our letter dated 17.3.2017.
17.The society has executed an The original medical shop was allotted arrangement with Purshottam on 01.04.1990 and last renewed as per Ladha & Others , partners M/s agreement dated 2.3.2003 for 9 years Medicine Centre to allot space for to M/s Medicine Centre. Their running Medical Store in the arrangement has been terminated on premises of the hospital on rental 27.7.2012 and hospital had started its and commission basis. The society own medical shop w.e.f. has also authorized the proprietor 4.9.2013.However they have disputed of the medical store to sell the the matter and finally vacated the shop medicines at the printed rates on 22.08.2016. whereas in the open market some discount is given to the patients
18.The society charged heavy We submitted a statement giving room rent charges from patients. comparative hospitalization charges in It is mentioned in the order that different hospitals in Kanpur from which the said rate is definitely it would be observed that our rates are comparable with what is being much lower than the similar hospitals in offered by medical organizations Kanpur.
operating on commercial lines and thus the said figures clearly quash the claims of the applicant that it exists for the purpose of charity.
4. The grievance raised by the assessee is justified. A a perusal of the above contentions of the Society evinces that it has not been provided adequate opportunity by the ld. CIT (Exemptions), to support its case. The submissions made before the ld. CIT (Exemptions) have not been taken into consideration, resulting in the passing of the impugned order, which is a result of misreading and non-reading of the submissions and material documentary evidence brought on record by the Society. These submissions were made vide replies dated ITA No.149/LKW/2018 Page 24 of 24 17/3/2017 (APB: 95-98), 18/4/2017 (APB: 27-28), 6.11.2017 (APB: 22-
24) and 19.1.2018 (APB: 5-8).
5. In view of the above, the matter, in the interest of justice, is remitted to the file of the ld. CIT (Exemptions), to be decided afresh in accordance with law, on affording due, adequate and proper opportunity of hearing to the assessee to support its case. The assessee, no doubt, shall co-operate in the fresh proceedings before the ld. CIT (Exemptions). All pleas available under the law shall remain so available to the assessee. Ordered accordingly.
6. In the result, for statistical purposes, the appeal of the assessee is treated as allowed.
Order pronounced in the open Court on 15/03/2019.
Sd/- Sd/-
[T. S. KAPOOR] [A. D. JAIN]
ACCOUNTANT MEMBER VICE PRESIDENT
DATED: 15/03/2019
JJ:2602
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
By order
Assistant Registrar