Income Tax Appellate Tribunal - Mumbai
Lilavati Kirtilal Mehta Medical Trust , ... vs Department Of Income Tax on 23 September, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'A' : MUMBAI
BEFORE SHRI D. MANMOHAN, (VICE PRESIDENT [MZ]) AND
SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER)
ITA No.4955/Mum/2010
Assessment Year : 2006-07
Income tax Officer-(E)-II(1)
Room No.509, Piramal Chambers
Lalbaug, Parel
Mumbai-12. .....(Appellant)
Vs.
Lilavati Kirtilal Mehta Medical Trust
A/791, Bandra Reclamation
Bandra (West)
Mumbai-400 050. .....(Respondent)
P.A. No.(AAATL 1398 Q)
C.O. No.83/Mum/2011
Arising out of ITA No.4955/Mum/2010
Assessment Year : 2006-07
Lilavati Kirtilal Mehta Medical Trust
A/791, Bandra Reclamation
Bandra (West)
Mumbai-400 050. .....(Cross Objector)
Vs.
Income tax Officer-(E)-II(1)
Room No.509, Piramal Chambers
Lalbaug, Parel
Mumbai-12. .....(Appellant in appeal)
Department by : Smt. Usha Nair
Assessee by : Apurva R. Shah
Date of hearing : 23.9.2011
Date of pronouncement : 14th October, 2011
2 ITA No.4955 & CO-83/M/10
A.Y:06-07
ORDER
Per RAJENDRA SINGH (AM).
This appeal by the revenue and cross objection by the assessee are directed against the order dated 25.2.2010 of CIT(A) for the assessment year 2006-07. The dispute raised in these appeals is regarding exemption under section 11 of the Income tax Act.
2. Briefly stated, the facts of the case are that the assessee is a charitable trust registered under section 12A of the I.T. Act. The main object of the assessee trust as mentioned in the assessment order is to offer medical relief and spread of medical science and establishment and maintenance and support of hospitals, health centres, dispensaries with or without medical school and nursing institutions or any of them for treatment of patients suffering from diseases, accidents etc. The trust owned a hospital at Bandra known as Lilavati Hospital which is a 300 bedded multi-specialty hospital. The AO noted that total operating income of the trust for the year under consideration was Rs.1,61,78,54,770/-. The trust had incurred expenses to the tune of Rs.1,31,70,69,605/- as per details below :- 3 ITA No.4955 & CO-83/M/10
A.Y:06-07
i) Property expenses Rs. 4,17,52,477/-
ii) Operation expenses Rs.97,28,71,513/-
iii) Administrative expenses Rs.28,96,93,096/-
iv) Interest of term loan Rs. 1,27,52,519/-
Total Rs.1,31,70,69,605/-
2.1 The AO thus computed net profit of Rs.30,07,85,165/-. The AO observed that the receipts were the amounts received from patients for services rendered and the expenses had been incurred for earning of income. AO also observed that the assessee had not undertaken any charitable or philanthropic activities and the expenses were incurred for the management of hospital. AO further observed that the assessee had also shown sum of Rs.5,06,47,668/- towards free and concessional treatment given to patients which was nothing but trade discount and which did not have its genesis in philanthropic concerns of the trust. Further, the concessions had been given in respect of large bills paid by patients who were not poor. Assessee had not spent any amount on any educational or medical relief or any other charitable purposes and therefore the assessee was not entitled to exemption under section 11. He also referred to earlier orders in which claim of exemption under section 11 had been denied to the assessee. Accordingly the AO assessed surplus of Rs.30,07,85,165/-
as business income.
4 ITA No.4955 & CO-83/M/10
A.Y:06-07 2.2 In appeal, the CIT(A) noted that similar claim had been denied in assessment year 2004-05 which was not upheld by the Tribunal in ITA No.1843/M/2008 in order dated 22.7.2009. The Tribunal accepted the case of the assessee, that it was a charitable trust registered under section 12A of the I.T. Act and expended amount for charitable purposes. The Tribunal also held that expenditure incurred on acquisition of capital asset was in furtherance of charitable purposes for which the trust had been constituted and after considering the same it was found that the assessee had spent 85% of the receipt on charitable purposes during the year and condition of section 11 were fulfilled and accordingly exemption was allowed. The Tribunal also noted that the order of the Tribunal in assessment year 2004-05 had been upheld by the Hon'ble High Court in the Income tax Appeal No.2990/2009 vide order dated 9.2.2010. In so far as the present year was concerned the CIT(A) noted that gross receipts were of Rs.162.53 crores against which amount spent was Rs.138.82 crores including the purchase of equipment of Rs.6,94,43,011/- and therefore, expenditure was more than 85%. The CIT(A) therefore, allowed claim of the assessee aggrieved by which revenue is in appeal. The assessee has also raised cross objection in which the order of CIT(A) has been disputed for not adjudicating the ground relating to disallowance of 5 ITA No.4955 & CO-83/M/10 A.Y:06-07 depreciation on assets, treating exchange rate difference as income and in taxing the entire excess of income over expenses.
3. Before us the ld. AR for the assessee submitted that the issue was covered by the decision of the Tribunal in assessee's own case in assessment year 2004-05 in Income tax Appeal No.1843/M/2008 in which the Tribunal accepted the finding of CIT(A) that the Tribunal was running hospital by engaging services of doctors, nurses, para-medical staff and also providing infrastructural facilities for public at large which amounted to medical relief and which was in conformity with the objectives of the assessee trust. The Tribunal also held that the capital expenditure incurred was for furtherance of the objects of the trust and therefore, there was application of more than 85% of income and conditions of section 11 were fulfilled. The order of the Tribunal allowing the claim was also upheld by the Hon'ble High Court in the order dated 9.2.2010 in Income tax Appeal No.2990 of 2009. The ld. AR submitted that in this year also the application of income was more than 85% details of which were given as under:-
Total receipts as per income & 1,62,53,18,251 Expenditure Account Total expenditure as per schedules to I & E account Property rates and taxes 4,17,52,477 Operating expenses 97,28,71,513 Administrative Expenses 28,96,93,096 Interest 1,27,52,519 6 ITA No.4955 & CO-83/M/10 A.Y:06-07 Exchange Difference on purchases, 17,12,357 etc. Capital Expenditure during the 6,94,43,011 year 1,38,82,24,973 Application as % of income 85.41% Surplus 23,70,93,278 14.6% 3.1 Citing the above figures, the ld. AR submitted that conditions of section 11 were fulfilled and therefore, claim of exemption under section11 should be allowed. The ld. AR also submitted that in case the claim of the assessee that application of income is more than 85% is not accepted then the assessee should be given opportunity to request for accumulation of the same for application in subsequent year as earlier the assessee could not exercise the option. The ld. DR on the other hand placed reliance on the order of the AO.
4. We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of exemption under section 11, of the income tax Act. Under the provisions of section 11 the income of charitable institution which is registered under section 12A of the IT Act is exempt subject to the condition that at least 85% of income in a particular year is applied and accumulation for application in future does not exceed 15% of the assessed income. In the present case, there is no dispute that the 7 ITA No.4955 & CO-83/M/10 A.Y:06-07 trust had been registered under section 12A of the IT Act and therefore the condition that the trust is charitable institution stands fulfilled. The order of the AO holding that the assessee was not doing charitable work cannot therefore be accepted. In fact the issue is concluded by the decision of the Tribunal in assessment year 2004-05 in which in identical situation the Tribunal accepted the finding of CIT(A) that the trust was running a hospital by engaging services of doctors, nurses, para-medical staff and also providing infrastructural facilities for benefit of public at large which amounted to providing medical relief which was in conformity with the objects of the assessee trust. The Tribunal thus accepted that the assessee was a charitable institution. The Tribunal also held that the expenditure on acquisition of capital assets acquired by the trust was in furtherance of the objects of the trust and accordingly same was considered as application of income. Therefore, following the decision of the Tribunal in assessee's own case in assessment year 2004-05 (supra), we hold that the assessee had to be considered as charitable institution and expenditure incurred on capital asset for use in charitable activities shall be considered as application of income. The details of income and expenditure for this year as given by the assessee has been reproduced in para-3 earlier which shows that application of income is more that 85% of total income. The ld. DR however pointed out that 8 ITA No.4955 & CO-83/M/10 A.Y:06-07 auditors in the audit note have pointed out that advances of Rs.25,26,93,188/- including Rs.7,76,00,000/- for purchase of residential property and medical equipments had been outstanding for more than a year. The auditors have also pointed out that a Civil Suit has been filed by the trust before the Hon'ble Bombay High Court for recovery of advances given towards residential property but they are unable to opine whether the amounts advanced towards residential property could be recovered or not. It is not clear whether any of the advances relate to this year. In case the trust had given any advances for purchase of any capital asset for use in charitable activities and if the assets had not been actually acquired, the genuineness of transaction is required to be looked into. The details of capital expenditure shown by the assessee therefore, requires proper verification. We, therefore, set aside the order of CIT(A) and restore the matter back to AO for passing a fresh order after necessary examination in the light of the decision of the Tribunal in assessment year 2004-05 (supra) and observations made by this Bench in this order and after allowing opportunity of hearing to the assessee.
5. In the cross objection No.83/Mum/2010 the assessee has raised disputes regarding allowability of deduction on account of depreciation on assets. The C.O. is also in support of CIT(A) allowing deduction on 9 ITA No.4955 & CO-83/M/10 A.Y:06-07 account of exchange rate difference and on account of acquisition of capital asset. The assessee has also made a request that in case income is found not spent up to 85% or more the assessee may be given opportunity for accumulation of income. 5.1 We have heard both the parties in the matter. We agree with CIT(A) that any loss arising on account of foreign exchange rate difference in relation to transaction for charitable activities will be allowed as a deduction while considering the application of income.
Similarly, depreciation on assets debited to the accounts will also be required to be deducted from the income for computing the income available for application for charitable purposes in view of the judgment of the Hon'le High Court of Gujarat in case of CIT vs. Seth Manilal Ranchhorddas Vishram Bhawan Trust (198 ITR 598). As regards acquisition of capital asset, we have already held while dealing with the appeal of the revenue that acquisition of capital asset for charitable trust will have to be treated as application of income. However, this aspect has been restored to AO for necessary verification. In case the AO after necessary verification finds that the application of income is not up to 85%, the assessee will be free to file application before AO for accumulation of income which will be dealt by the AO as per law.
10 ITA No.4955 & CO-83/M/10
A.Y:06-07
6. In the result, both, the appeal of the revenue and the Cross Objection filed by the assessee are allowed for statistical purposes. Order pronounced in the open court on 14.10.2011.
Sd/- Sd/-
(D. MANMOHAN) (RAJENDRA SINGH )
VICE PRESIDENT ACCOUNTANT MEMBER
Mumbai, Dated: 14.10.2011.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.