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Trust applying 85 Percent of its income

Trust applying 85 Percent of its income

Trust applying 85 Percent of its Income

Court : HIGH COURT OF BOMBAY  

Brief :
Section 11 of the Income tax Act, 1961 Charitable or religious trust Exemption of income from property held under Assessee trust claimed exemption under section 11 Assessing Officer disallowed claim on ground that 85 per cent of net income had not been spent on charitable activities Facts revealed that after deducting running expenses and capital expenses on purchase of medical equipment from gross receipts, percentage of profit was 14.6 per cent, which was lower than 15 per cent permitted to be accumulated as per Act Whether since 85 per cent of trust income had been applied towards object of trust, assessee would be entitled to exemption under section 11 Held, yes [Para 10] [In favour of assessee]

Section 32, read with section 11, of the Income tax Act, 1961 Depreciation Allowance/ Rate of (Charitable trust Position prior to 142015) Whether depreciation on capital assets would be allowed as deduction in computing income under section 11 Held, yes [Para 10] [In favour of assessee]

Judgement :
1. These two Appeals by the Revenue raise identical question. They challenge the order of the Tribunal for the relevant Assessment Years. The Assessee before us is a Trust running a super specialty hospital styled as “Lilawati Hospital” in Mumbai. Surprisingly in the statement of facts in these memo of Appeals, the Revenue refers to the object of the Trust and which is to offer medical reliefs and spread medical science, to establish and maintain and support hospital health centre, dispensaries with or without medical schools and nursing institutions or any of them for treatment of patients suffering from diseases or accident etc.

2. A return of income was filed and the Assessee declared the income as Nil. The return was processed and scrutinized. There was an exemption under section 11 of the Income Tax Act, 1961 claimed by the Assessee. However, the Assessing Officer arrived at a conclusion that the application of the Assessee seeking approval for exemption under section 10(23)(c)(iv) of the Act for the Assessment Years 200506, 200607 and 200708 had been rejected by the Chief Commissioner of Income Tax by his order dated 29 August 2008. Accordingly the Assessing Officer examined the claim of exemption under section 11 of the IT Act. He observed that 85% of the income from the property derived from the Trust should be applied for charitable purposes so as to claim this exemption. The Assessee’s claim was that the gross receipts of the hospital from the patients represent its income and all the running expenses represented the application of income. If these expenses were more than 85% of the income, the entire income would be entitled to exemption.

3. Calculations were provided, but the Assessing Officer proceeded to reject this claim and observed that the gross receipts from the patients cannot constitute the income and the Assessee was running abusiveness venture. Receipts were amounts collected from the paitents for the services rendered by the hospital and the expenses are incurred for earning their income. From the same figures, which have been provided by the Assessee, the Assessing Officer concluded that the net income of Rs.30,07,85,165/should have been the base and 85% of the same ought to be spent for the charitable purposes and that has not been done.

4. In regard to other question, as well, the Assessing Officer denied the reliefs.

5. The matter was carried before the Commissioner of Income Tax and in the order of the Commissioner of Income Tax, he referred to earlier proceedings between the parties. However, and pertinently the Commissioner referred to the order of the Income Tax Appellate Tribunal and delivered in the case of the very Assessee, being ITA No.1843/Mum/2008 decided on 22 July 2009. The Commissioner held that against this order and which was in favour of the Assessee, the Revenue’s Appeal was dismissed by this Court being Income Tax Appeal No.2990 of 2009 and decided by this Court on February 9, 2010.

6. The Commissioner found that the receipts of Rs.162.53 crores and as against which expenditure amount spent is Rs.138.82 including capital expenditure on purchase of equipment of Rs.6,94,43,011/, percentage of profit is 14.6%, which is lower than 15% permitted to be accumulated as per the Act, whereas 85% of Trust income had been applied and towards the object of the Trust. Therefore, the Tribunal as also this Court’s order cannot be brushed aside and relief should be granted.

7. It is this conclusion of the Commissioner which is upheld by the Tribunal in the impugned order. In relation to that the Tribunal’s attention having been invited to its own order for the Assessment Year 200405, the rejection of the Appeal against the same by this Court. It concluded that the situation and position is in no way different as was noted in the earlier order of the Tribunal and pertaining to the same Assessee. The details of income and expenditure for the Assessment Year 2006-07 as given by the Assessee and reproduced in para 3 of the Tribunal’s order shows that 85% thereof is applied and for the purposes of charitable activities. It is, in these circumstances, that the Tribunal concluded that the Revenue’s Appeal will have to be dismissed. 8. The Commissioner’s finding was, thus, upheld. In regard to other claim and which is for the purpose of claiming the depreciation, the Tribunal has merely referred to the facts and in para 5.1 invited the attention of the concerned officials to the judgment of the High Court of Gujarat in the case of CIT v. Seth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 198 ITR 598/[1993] 70 Taxman 228. It is in such circumstances that the issue was remitted back to the Assessing Officer for
necessary verification. We do not find that such order of the Tribunal can raise any substantial question of law. The repeated exercise by the Revenue and attempt of Mr.Chotaray to get over these binding orders does not impress us at all.

9. It has been consistently observed and equally in some other cases of charitable and philanthropic activities and institutions carrying on the same that the income which has been spent for acquisition of assets would not mean that thereafter the depreciation on these assets in subsequent years cannot be taken into account. Our attention has rightly been invited to an order passed by the Division Bench, to which one of (S.C.Dharmadhikari, J.) was a party in Income Tax Appeal No.797 of 2012 decided on 26 September 2014. 10. We are, therefore, of the view that even the second question and which is projected as substantial question of law cannot be termed as such. It is not that the Tribunal followed the course and unknown to law. The Tribunal was justified in allowing the depreciation on capital assets as deduction in computing the income. That was in consonance with the view taken and consistently by this Court. That apart, if this is the understanding of the Revenue, we can say nothing more. If reasons in para 5.1 of the impugned order are taken into consideration, what the Tribunal has done is to merely sent issue back to the Assessing Officer and while doing so it has invited the Assessing Officer’s attention to the position in law. However, if this is taken to be a conclusive opinion and binding, then that is in consonance with the view taken by this Court.

11. As a result of the above discussion, we do not find any merits in both these Appeals. They are dismissed.

Trust applying 85 Percent of its Income

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