The assessee is a trust registered u/s 12A of the IT Act, 1961, engaged in providing medical facility/aid. CIT noted that the assessee trust was carrying on Medical Profession, in the form of a Multi-speciality Hospital, on commercial basis wherein fixed amount of fees was charged for treatment given and facilities provided from all patients and discount given to the patients were claimed as charity. The surplus was diverted towards the trustees under guise of Salary, Rent, Professional Fees, etc. and was subsequently utilized for personal benefits of trustees. CIT issued a show-cause notice to the assessee u/s.12AA(1)(b)(ii) of the I.T. Act, pointing out major fraudulent discrepancies and cancelling the registration. The assessee filed an appeal challenging the order of the CIT u/s 12AA(3) canceling the registration granted to the assessee trust and pleaded for award of costs u/s 254(2B) on the ground that the action of the department of canceling registration was illegal and was an abuse of powers and that it had caused serious prejudice and injustice to the assessee. On the basis of facts, judgment held in favour of the appellant. No costs were awarded as CIT passed the order during the course of discharge of duty as CIT.
Parkar Medical Foundation – Appellant – Versus – Deputy Commissioner of Income Tax - Respondent
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH “B”, PUNE
ITA Nos. 861 & 1423/PN/2012
Parkar Medical Foundation,
828 ParkarHospital, Shivajinagar,
Dy. Commissioner of Income Tax,
Ratnagiri Circle, Ratnagiri
Assessee by: Shri Sunil Ganoo
Revenue by: Shri A.K. Modi
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
Date of Hearing: 07-07-2014
Date of Pronouncement : 31-07-2014
PER R.K. PANDA, AM:
ITA No. 861/PN/2012 filed by the assessee is directed against the order dated 29-03-2012 passed by the CIT-II, Kolhapur u/s. 12AA(3) of the Income Tax Act, 1961 cancelling the registration granted to the assessee trust u/s. 12A of the I.T. Act. ITA No. 1423/PN/2012 filed by the assessee is directed against the order dated 09-05-2012 passed by the CIT-II, Kolhapur withdrawing approval accorded u/s. 80G(5)(vi) of the IT. Act, 1961. For the sake of convenience both the appeals were heard together and are being disposed of by this common order.
ITA No. 861/PN/2012:
2. Facts of the case, in brief, are that the assessee is a trust, engaged in providing medical facility/aid. It was created by Dr. Almiya Dawood Parkar, and his wife Dr. (Mrs.) Mumtaj Alimiya Parkar, who were engaged in medical profession in their personal capacity, prior to creation of the trust. Latter on they created the assessee trust vide trust deed dated 28-03-2002, appointing themselves as the only trustees, in the capacity of Managing Trustees, and Secretary & Treasurer, respectively. Subsequently, vide resolution dated 10-09-2007, three new trustees were appointed.
2.1 The trust was granted registration u/s. 12A of the I.T. Act, 1961 by the CIT, Kolhapur, vide Certificate No. KOP/HQ.III/217-P- 123/62/247/2002-03, on 03-12-2002 as a Charitable Trust. Subsequently, the Ld. CIT verified the records available and noted that the assessee trust was engaged in carrying on Medical Profession, i.e. Multi-speciality Hospital, on commercial basis wherein fixed amount of fees was charged, on the basis of treatment given and facilities provided, from all the patients. She noted that the discount given to the patients were claimed as charity, and the surplus was actually diverted towards the trustees under the guise of Salary, Rent, Professional Fees, Utilization Fees, etc. and was subsequently utilized for personal benefits, including education of Son and Daughter-in-law of the trustees. She, therefore, issued a show-cause notice to the assesse on 19-12-2011 under provisions of Sec. 12AA(1)(b)(ii) of the I.T. Act pointing out the above discrepancies and asked the assessee to explain as to why the registration granted earlier should not be withdrawn.
3. The assessee objected to the above show-cause notice on the ground that the same was based on observations of the A.O in the assessment orders for A.Ys. 2004-05, 2005-06 & 2008-09. It was explained that the assessee trust had advantage of well-established hospital of the trustees, along with flourishing business. The founder trustees, being motivated by philanthropic consideration are taking only nominal portion of fees collected by the trust for their services rendered. It was argued that the surplus of the trust is not distributed amongst the trustees but is retained for the charity and expansion of the hospital. Relying on a number of decisions including the decision of Hon’ble Kerala High Court in the case of CIT Vs. Pulikkal Medical Foundation (P) Ltd. reported in 210 ITR 299 and the decision of Hon’ble Bombay High Court in the case of VanitalVishram Trust Vs. CCIT reported in 327 ITR 121, the assessee requested to drop the proceedings.
4. However, the Ld. CIT was not convinced with the submission made before her. She noted that the show-cause notice was issued on the basis of examination of records by herself and not on the basis of observation of the A.O. in the assessment order. She also rejected the submission of the assessee that the Charity Commissioner has not objected to the reasonableness of certain expenditure which were pertaining to the trustees and held that the same is not binding on the Commissioner of Income Tax and she is free to arrive at her own findings, particularly with respect to provisions relating to Income Tax Act, 1961. She noted that for the A.Y. 2008-09 the assessee has shown the following income:
(i) Other Income (medical & other professional fees): Rs.2,13,84,461
(ii) Bank Interest: Rs.13,477/-
Similarly, she noted that the assessee has shown the following amounts paid to the trustees:
Professional Fees: Rs.3336000/-
Utilization charges: Rs.160250/-
Building Rent: Rs.840000/-
Remuneration to son of the Trustees: Rs.120000/-
Remuneration to Daughter-in-law of the Trustee: Rs.120000/-
4.1 From the above details she noted that the assessee has siphoned out almost 26% of the total receipts under one pretext or the other. It is for purely personal benefits of the trustees which show that the trustees of the assessee trust are running a commercial medical establishment, with a profit making intention, under the guise of the Charitable Trust. She further noted that the trust has also agreed to pay fees to the extent of Rs.13.50 Lakhs for the post-graduation studies of the son of the trustees, who is also working with the trust as a residential doctor. Similar amount is agreed to be paid in the case of Daughter-in-law of the trustees for pursuing the post-graduation, who is also working with the trust. Further the assessee trust has given advance of Rs.6,48,216/-to M/s. Image Diagnostics, a firm where the chief trustee is also a partner, and is conducting its business from the same premises. According to her there is a clear contravention of provisions of Sec.11(5) of the I.T. Act, 1961. She further noted that the assessee trust is charging fixed amount of fees, depending on the basis of treatment given and facilities provided, from all the patients. There is a fixed schedule for various items of professional consultancy provided. According to Ld.CIT, the so called discount given by the assessee in the bills claiming to be charity has not been explained by the assessee as genuine charity. The assessee failed to substantiate its claim by providing concrete figures of the actual bill amount, the percentage of discount provided, and the final amount of bill collected from patients. It has not established, with sufficient evidence that such discount insubstantial, when compared to the total turnover, running into Cores of Rupees. Further there are no set of governing rules for providing such discounts. According to her, it is not the case that such discounts are provided to all the patients, or certain class of patients, at a fixed rate. Such discount is available to random patients, at the will and whims of the trustees, and therefore, the same cannot be treated to be charity within the meaning of Sec. 2(15) of the I.T. Act.
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