Radha Mohan Mehrotra Medical Relief ... vs Department Of Income Tax

Income Tax Officer-2(2), Vs. Radha Mohan Mehrotra Medical Relief Lucknow. Trust, Manik Chowk, Jaunpur. (U.P.) (New Address: 10/6, Madan Mohan Malviya Marg, Lucknow. (Appellant) (Respondent)

ITA No.391/LKW/2013 Assessment years:2005-06

Income Tax Officer-2(2), Vs. Radha Mohan Mehrotra Medical Relief Lucknow. Trust, Manik Chowk, Jaunpur. (U.P.) (New Address: 10/6, Madan Mohan Malviya Marg, Lucknow. (Appellant) (Respondent)

ITA No.470/LKW/2011 Assessment years:2006-07

Radha Mohan Mehrotra Vs. Income Tax Officer-2(2), Medical Relief Trust, Manik Lucknow. Chowk, Jaunpur. (U.P.) (New Address: 10/6, Madan Mohan Malviya Marg, Lucknow. (Appellant) (Respondent)

Revenue by Shri R. K. Ram, D.R. Respondent by Shri Abhinav Mehrotra, Advocate Date of hearing 20/11/2014 Date of pronouncement 07/01/2015 2

ORDER

PER A. K. GARODIA, A.M.

Out of this bunch of four appeals, there are three appeals filed by the Revenue and the remaining one appeal is filed by the assessee, which is directed against the order passed by learned CIT(A) dated 18/05/2011 and the appeals filed by the Revenue are directed against three separate orders of learned CIT(A)-I, Lucknow dated 14/03/2013 for assessment year 2008-09, dated 15/02/2013 for assessment year 2009-10 and dated 15/02/2013 for assessment year 2005-06 and all these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.

2. First we take up the appeal of the Revenue for assessment year 2005- 06 i.e. I.T.A. No.391/Lkw/2013. In this appeal, the Revenue has raised the following grounds:

"1. The Ld. CIT (A) has erred in law and on facts of the case in allowing exemption U/s 10(34) and 10(38) on dividend income and on redemption of Mutual fund units respectively without appreciating the fact of the case that the assessee has never claimed exemption under these sections, in the return of income.

2. The Ld. CIT (A) has erred in law and on facts of the case in allowing exemption U/s 10(23C)(iiiae) on interest income without appreciating the fact that the assessee has earned interest income on FDRs, which was on account of receipts of liaison office at Mumbai and not out of the income of the hospital run by the Trust."

3. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

3 4. We have considered the rival submissions. We find that in Para 4 of the assessment order, it is noted by the Assessing Officer that although the assessee trust is registered u/s 12AA with effect from 03/02/82 but in the year under consideration, the assessee claimed exemption u/s 10(23C)(iiiae) and not u/s 11 as it was clarified in writing by the assessee. On this basis, the Assessing Officer held that claim of exemption u/s 11 cannot be considered. He also noted that the trust is engaged in other activities also apart from running a hospital in Jaunpur. Thereafter, he has noted that section 10(23C)(iiiae) is applicable in case of income of a hospital and not on the entire income of the trust. Thereafter, the Assessing Officer has reproduced the income and expenditure account of the assessee on page No. 3 of the assessment order. As per the same, we find that the assessee has reported income from hospital at Rs.3.42 lacs but the assessee has reported bank interest at Rs.14.35 lacs and income from investment at Rs.62.64 lacs. On debit side, the assessee has debited cost of material at Rs.3.79 lacs, remuneration to staff at Rs.5.73 lacs, repair & maintenance at Rs.0.63 lac and administrative expenses at Rs.3.39 lacs. The assessee has also debited donation of Rs.25.08 lacs and net excess of income over expenditure was Rs.41.79 lacs. Thereafter, on page No. 5 of the assessment order, the Assessing Officer has reproduced income and expenditure account of Mumbai Liaison office as per which the credit of income side is Rs.9.12 lacs consisting of bank interest, dividend income and profit on redemption of Mutual Fund and against this, various expenses are debited by the assessee including salary to administrative staff, printing and stationery, postage and telegram, telephone expenses, travelling expenses and financial aid to poor and indigents patients at Rs.7,470/-. The Assessing Officer has allowed all other expenses except donation of Rs.25 lacs and financial aid to poor and indigent patients at Rs.7,470/- and worked out the income at Rs.71,93,691/-. Now 4

the question is whether the assessee is eligible for exemption u/s 10(23C)(iiiae) of the Act. Hence, we reproduce the provisions of relevant clause (iiiae) of section 10(23C), which is as under:

"(iiiae) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed."

4.1 From the above provisions, it is seen that any income received by any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of such hospital or institution does not exceed the amount of annual receipts as may be prescribed is eligible for exemption. In our considered opinion, the income earned by Mumbai office on account of bank interest and dividend etc. is not eligible for exemption under clause (iiiae) of section 10(23C) of the Act.

5. Now we examine the basis adopted by learned CIT(A) to decide this issue in favour of the assessee. It is noted by CIT(A) in Para 4(5)(ii) that the Assessing Officer while completing the assessment has treated the income of Rs.7.50 lac of the hospital as exempt u/s 10(23C)(iiiae) of the Act and the income of the liaison office was determined at Rs.71,93,691/-. We do not find any merit in this stand taken by CIT(A) because this expenditure of donation cannot be considered as an expense incurred for earning interest income or dividend income or capital gain. Therefore, on this aspect, we 5

reverse the order of CIT(A) and restore that of the Assessing Officer. In addition to this, the CIT(A) has directed the Assessing Officer for allowing exemption to the assessee u/s 10(34) in respect of dividend income of Rs.61.46 lacs and exemption u/s 10 (38) of Rs.1,17,262/-. On this aspect, we do not find any infirmity in the order of CIT(A) and therefore, decline to interfere in the order of CIT(A) on this issue. Thereafter in Para 4(11), it is held by CIT(A) that in his view, the hospital and liaison office are to be considered as a whole and not separately and therefore, the income generated at the liaison office having been utilized for the objects of the assessee trust, which is philanthropic u/s 10(23C)(iiiae) of the Act, is eligible for exemption under that section. Thereafter, he directed the Assessing Officer to allow exemption u/s 10(23C)(iiiae) on the entire income of Rs.71,93,691/-, which also includes income of Rs.62.64 lacs being separately exempt u/s 10(34) and 10 (38). On this aspect, we do not find any merit in the stand taken by CIT(A) because as per the provisions of clause (iiiae) of section 10(23C), only those income which are received by a hospital on account of treatment is exempt u/s 10(23C)(iiiae) and not any income received by the said entity. Hence, on this aspect, we reverse the order of CIT(A) and restore that of the Assessing Officer.

6. In the result, the appeal of the Revenue stands partly allowed in the terms indicated above.

7. Now we take up the appeal of the assessee for the assessment year 2006-07 i.e. I.T.A. No.470/Lkw/2011. In this appeal, the assessee has raised the following grounds:

"1. That the Learned CIT(A) erred in law as well as on facts in conforming the assessment order passed u/s 143(3) dated 18/12/2008 on a total income of Rs.681370/- by the A.O. 6

which is contrary to law, facts and circumstances of the case.

2. That the Learned CIT(A) erred in law as well as on facts in not holding that the entire receipts of the appellant being below Rs. 1 Crore is fully covered within the provisions of Section 10(23C)(iiiae) of the Income Tax Act 1961 and even misinterpreted the decision of the High Court in the case CIT Vs Navhinandan Digamber Jain 257 ITR 91 which is also applicable in respect of dividend income exempt u/s 10(34) of the Income Tax Act 1961 as upheld in number of cases.

3. That the Learned CIT(A) erred in law as well as on facts in completely ignoring the departmental appeal for the just preceding Assessment Year 2005-06 viz. "...the Learned CIT(A) has erred on facts and in law by allowing exemption u/s 11 to the assessee whereas the exemption was claimed u/s 10(23C) of the Act...." duly allowed for statistical purposes by the Hon'ble ITAT Bench 'A' Lucknow in ITA No.27/Luc/10 dated 23-11-2010 which is basically the assessee's case that the entire receipts are covered by the provisions of Section 10(23C)(iiiae).

4. That the Learned CIT(A) ought to have followed the Hon'ble ITAT's order in ITA No.05/Luc/10 dated 23-11- 2010 filed during the appellate proceedings and remanded the case to the A.O. for fresh adjudication by considering the claim for exemption u/s 10(34) and Section 10(23C) afresh.

5. That the Learned CIT(A) erred in law as well as on facts in observing that there was contravention of the provision of Section 11(5) and that the dividend income constituted income within the scope of Section 11(1) of the Act.

6. That the observations of the Learned CIT(A) in Para 4 & 5 of the appellate order is illegal, arbitrary and altogether conjectural which deserves to be quashed under the facts and circumstances of the case, since the entire receipts / surplus of the assessee being a medical hospital is fully exempt u/s 10(23C)(iiiae) of the Act."

7 8. It was agreed by both the sides that the issue is identical although the decision of CIT(A) is contrary to his decision in assessment year 2005-06 but the issue can be decided on similar line.

9. We have considered the rival submissions. We find that in the present year, it is noted by the Assessing Officer that the total receipt from hospital was Rs.3,41,437/- and bank interest on FDR was Rs.22,06,224/-. Thereafter, it is noted that the net surplus from hospital was declared at Rs.9,48,174/-, which was held to be exempt u/s 10(23C)(iiiae) of the Act. In addition to that, the Assessing Officer worked out the income of liaison office at Mumbai at Rs.17,88,398/- consisting of interest income and dividend income. Against this, the Assessing Officer has allowed deduction to the extent of Rs.11.07 Lacs being 15% of the gross receipts of Rs.73,10,836/- and assessed the net income at Rs.7,38,018/-. It goes to show that the income assessed by the Assessing Officer is consisting of interest income only. We have already decided while deciding the appeal of the Revenue for assessment year 2005- 06 that exemption is not allowable to the assessee u/s 10(23C)(iiiae) of the Act in respect of interest income. Hence, we decline to interfere in the order of CIT(A) on this issue.

10. In the result, the appeal of the assessee stands dismissed.

11. Now we take up the appeal of the Revenue for assessment year 2008- 09 i.e. I.T.A. No.724/Lkw/2013. In this appeal, the Revenue has raised the following grounds:

"1. The Ld. CIT(A) has erred in law and on facts of the case in allowing exemption u/s 10(34) on dividend income without appreciating the fact that the assessee has never claimed exemption under this section, in the return of income. The 8

A.O. has explicitly mentioned in assessment order that dividend has been received by Shri Chetan Mehrotra (trustee) and not the trust, hence trustee would be entitled for exemption u/s 10(34) and not the trust.

2. The Ld. CIT (A) has erred in law and on facts of the case in allowing exemption u/s 10(23C)(iiiae) on interest income without appreciating the fact that the assessee has earned interest income on FDRs, which was on account of receipt of liaison office at Mumbai and not out of the income of the hospital run by the Trust.

3. The Ld. CIT(A) has erred in law and on facts of the case in deleting the addition of Rs. 3 Lacs considering the additional evidences in violation of Rule 46A of I.T. Rules, 1962."

12. It was agreed by both the sides that the issue involved in ground No. 1 & 2 is identical to issue of Revenue's appeal for assessment year 2005-06 and the same can be decided on similar lines. Regarding ground No. 3, Learned D.R. of the Revenue submitted that there is violation of Rule 46A whereas Learned A.R. of the assessee supported the order of CIT(A).

13. We have considered the rival submissions. We find that while deciding the appeal of the Revenue for assessment year 2005-06, we have held that the exemption u/s 10(34) is allowable in respect of dividend income and therefore, we approve the order of CIT(A) on this issue. Regarding the direction of CIT(A) that the assessee is eligible for exemption u/s 10(23C)(iiiae) on interest income also, we have held in that year that interest income is not eligible for exemption u/s 10(23C)(iiiae) and therefore, on this aspect, we reverse the order of CIT(A) and restore that of the Assessing Officer. Ground No. 1 is rejected and ground No. 2 is allowed.

9 14. Regarding ground No. 3, we find that this issue was decided by CIT(A) as per Para 8 of his order, which is reproduced below for the sake of ready reference:-

"8. In ground no. 4, the appellant has objected to the addition of Rs.3 lakhs under the head donation to trust outside India ignoring the material evidences brought on record. The AO has stated that the trust has donated Rs.3 lakhs to M/s Lions Clubs International Foundation which is located at 300, 22 nd street, Oak Brook, Illinois, USA. As per section 11(1)(a) of the Act, the income is to be applied for charitable purposes in India only for, claiming exemption. Since the income was applied outside India the same was added to the total income of the trust. The appellant has submitted that the cheque of Rs.3 Lakhs has been issued in favour of Lions Club International Foundation which has its office at 144, Free Press House, Nariman Point, Mumbai. The amount has been given towards the project of campaign sight first-II. It has also been submitted that Lion Clubs International Foundation is assessed in India under PAN AAAAL1691F. I have considered the submissions of the appellant and I find that income has been properly applied for charitable purposes in India as per provisions of section 11 of the Act and no addition is warranted on this account."

14.1 From the above Para from the order of CIT(A), we find that this issue was decided in favour of the assessee on the basis of this fact that the donnee M/s Lions Clubs International Foundation is having office at Mumbai also. This amount has been given towards the project of campaign sight first- II. It is also noted by CIT(A) that M/s Lions Clubs International Foundation is assessed in India under PAN AAAAL1691F. He has given a clear finding that the income has been properly applied for charitable purposes u/s 11 of the Act and no addition is warranted. Learned D.R. of the Revenue could not controvert this finding of CIT(A). Regarding the technical objection that there is violation of Rule 46A, we are of the considered opinion that for a small amount and after such a clear finding, no purpose will be served by restoring 10

the matter back to the Assessing Officer and therefore, we decline to interfere in the order of CIT(A) on this issue.

15. In the result, the appeal of the Revenue stands partly allowed.

16. Now we take up the appeal of the Revenue for assessment year 2009- 10 i.e. I.T.A. No.392/Lkw/13. In this appeal, the Revenue has raised the following grounds:

"1. The Ld. CIT (A) has erred in law and on facts of the case in allowing exemption U/s 10(34) on dividend income without appreciating the fact that the assessee has never claimed exemption under this section, in the return of income.

2. The Ld. CIT (A) has erred in law and on facts of the case in allowing exemption U/s 10(23C)(iiiae) on interest income without appreciating the fact that the assessee has earned interest income on FDRs, which was on account of receipts of liaison office at Mumbai and not out of the income of the hospital run by the Trust."

17. It was agreed by both the sides that the issue is the same and facts are identical as in the appeal of the Revenue for assessment year 2005-06 and the same can be decided on the similar line.

18. We have considered the rival submissions. We find that the issue regarding exemption u/s 10 (34) of dividend income has been decided in favour of the assessee in Revenue's appeal for assessment year 2005-06 and 2008-09 and therefore, this issue is decided in favour of the assessee in this year also. Ground No. 1 is rejected.

19. Regarding ground No. 2 for allowability of exemption u/s 10(23C)(iiiae) of the Act on interest income, the issue was decided by us against the assessee and in favour of the Revenue in assessment year 2005-06 and 2008- 11

09. Accordingly, in this year also, this issue is decided against the assessee. Ground No. 2 is allowed.

20. In the result, the appeal of the Revenue stands partly allowed.

21. In the combined result, the appeal of the assessee is dismissed and all three appeals of the Revenue are partly allowed.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member

Dated:07/01/2015 *C.L.Singh

Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Asstt. Registrar