IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "A", MUMBAI
BEFORE SHRI B.R. MITTAL, J.M. AND SHRI RAJENDRA SINGH, A.M.
ITA No. 5352/Mum/2010
Assessment Year : 2007-08
Income tax Officer(E)-II(1) Lilavati Kirtilal Medical Trust
Room No.509, Piramal A/791 Bandra Reclamation
Chambers, Labaug, Parel Bandra (W)
Mumbai-400 012. Mumbai-400 050.
Vs.
PAN No. AAATL 1398 Q
(Appellant) (Respondent)
Cross Objection No.84/Mum/2011
Arising out of ITA No. 5352/Mum/2010
Assessment Year : 2007-08
Lilavati Kirtilal Medical Trust Income tax Officer(E)-II(1)
Mumbai-400 050. Mumbai-400 012.
Vs.
(Cross Objector) (Appellant in appeal)
Department by : Ms. Usha Nair
Assessee by : Ms. Smita Lokapur
Date of hearing : 24.5.2012
Date of Pronouncement : 1.6.2012
ORDER
PER RAJENDRA SINGH, AM:
This appeal by the revenue and Cross Objection by the assessee
are directed against order dated 31.3.2010 of CIT(A) for the
assessment year 2007-08.
2 ITA No.5352/M/10 and CO No.84/11
A.Y.07-08
2. We first take up appeal of the revenue in ITA
No.5352/Mum/2010. In this appeal the only dispute raised by the
revenue is regarding allowability of exemption under section 11 of the
Income tax Act, 1961(the Act).
2.1 The facts in brief are that the AO during the assessment
proceedings noted that the assessee trust owned a hospital at Bandra,
by the name Lilavati Hospital which is a 300 bedded multi-speciality
hospital and one of the elite hospitals which was known to cater to
higher section of the society. It was also noted that the assessee for
the relevant year had declared gross receipts of Rs.1,94,24,75,226/-
against which expenses had been claimed to the tune of
Rs.1,59,30,98,800/- as per details given below:-
Hospital Operating Rs.194,24,75,226
Income as per The
income and
Expenditure A/c.
Less: A. Medical Expenses
a. Property expenses Rs.4,42,21,405
b. Operational Rs.116,91,68,191
expenses
c. Administrative Rs.37,06,90,066
expenses
d. Interest on term Rs.31,16,757
loan
e. Bank overdraft Rs.1,33,469 Rs.159,30,98,800
interest
Net Profit Rs.34,93,76,426
3 ITA No.5352/M/10 and CO No.84/11
A.Y.07-08
2.2 There was thus net receipt of Rs.34,93,76,426/-. The AO
observed that receipts were the amounts received from patients for
services rendered and expenses had been incurred for earning of
income. The AO also observed that the assessee had not undertaken
any charitable or philanthropic activities and expenses were incurred
for management of hospital. He, further, noted that the assessee had
shown a sum of Rs.4,63,86,472/- towards free and concessional
treatment given to patients which was nothing but trade discount and
which did not its genesis in philanthropic concerns of the trust. Further
the concessions had been given in large bills paid by patients who
were not poor. Assessee had not spent any amount on education or
charitable purpose. The assessee was thus not entitled for exemption
under section 11. The AO, therefore, following the decision taken in
earlier years disallowed the claim of exemption under section 11 of the
Act and assessed the income at Rs.34,93,76,426/-. In appeal CIT(A),
following the decision taken by the Tribunal in assessment year 2005-
06 allowed the claim of the assessee under section 11 of the Act
aggrieved by which, revenue is in appeal before the Tribunal.
3. We have heard both parties, perused the records and considered
the matter carefully. We find that the same issue had arisen in case of
the assessee in assessment year 2006-07 in which the Tribunal vide
order dated 14.10.2011 in ITA No.4955/Mum/2010 noted that the
4 ITA No.5352/M/10 and CO No.84/11
A.Y.07-08
assessee was registered under section 12A of the Act and therefore
the condition that the trust was a charitable institution stood fulfilled.
The order of AO holding that the assessee was not doing charitable
work could not therefore, be accepted. The Tribunal also observed that
the issue was covered by the decision of the Tribunal in assessment
year 2004-05 in which the Tribunal accepted the finding of CIT(A) that
the trust was running a hospital by engaging the services of doctors,
nurses, para-medical staff and also providing infrastructure facilities
for the benefit of the public at large 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
expenditure on acquisition of capital asset acquired by trust was in
furtherance of the objects of the trust and accordingly had to be
considered as application of income. The Tribunal therefore, held that
the assessee was a charitable institution and expenditure incurred on
capital asset for use in charitable activities had to be considered as
application of income. The facts in the present year are identical. We
therefore, hold that assessee is a charitable institution which is
registered under section 12A of the Act and therefore, eligible for
deduction under section 11 subject to fulfillment of conditions in the
said section. We therefore, set aside the order of CIT(A) and restore
the matter to the file of AO for passing a fresh order after necessary
5 ITA No.5352/M/10 and CO No.84/11
A.Y.07-08
examination in the light of observations made above and after allowing
opportunity of hearing the assessee .
Cross Objection No.84/M/2011(By Assessee ):
5. In the cross objections, the issue raised by the assessee is
regarding disallowance of expenditure incurred on acquisition of capital
assets and disallowance of depreciation on assets. We find that this
issue had also been considered by the Tribunal in the order dated
14.10.2011 for assessment year 2006-07. The Tribunal has held that
the expenditure incurred on acquisition of capital assets for use in
charitable activities has to be treated as application of income. The
Tribunal also held that depreciation on assets debited to the accounts
will be deducted from the income for computing the income available
for application for charitable purposes, in view of the judgment of
Hon'ble High Court of Gujarat in the case of CIT vs. Seth Manilal
Ranchhordas Vishram Bhawan Trust (198 ITR 598). Therefore,
respectfully following the decision of the Tribunal in assessment year
2006-07, we hold that the expenditure on acquisition of capital assets
for use in charitable activities will be treated as application of income
and depreciation on assets will be deducted from income for
computing income available for application for charitable purposes. As
we have already restored the issue of computation of exemption under
section 11 to the file of AO while deciding the appeal of revenue, the
6 ITA No.5352/M/10 and CO No.84/11
A.Y.07-08
AO will take into account these aspects also while computing
application of income for the purpose of charitable work under section
11. In case 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 which will be dealt by the AO as per law.
6. In the result, appeal of the revenue and cross objection of the
assessee are allowed for statistical purposes.
Order pronounced in the open court on 1.6.2012.
Sd/- Sd/-
(B.R. MITTAL ) (RAJENDRA SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 1.6.2012.
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.
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