Case Law Details
Brief of the Case: Delhi High Court In the case of Mool Chand Khairati Ram Trust vs DIT (Exemptions) viewed that it was not possible to accept that grant of exemption to the Assessee for the past several decades was palpably erroneous and successive AOs were wrong in accepting that the activities of the Assessee were in furtherance of its charitable objects, entitling the Assessee to escape the levy of income tax. Therefore, it was inter-alia held that the Assessee would not be entitled to exemption under Section 11 of the IT Act if its activities are outside the scope of its objects, even if its activities are charitable in nature.
Facts of the Case: Late Lala Khairati Ram executed a Will in 1927 and Codicil in 1928. In terms of the said Will, certain properties were settled in trust for furtherance of the objects as set out in the Will. In furtherance of the objects, the Assessee set up a hospital named Shri.Mool Chand Khairati Ram Hospital and Ayurvedic Research Institute in Lahore (then in undivided India). After the partition of the country in 1947, the Assessee applied for allotment of land to the Government of India, Ministry of Rehabilitation and Urban Development, in order to continue its activities of running a hospital and an Ayurvedic Research Institute. Pursuant to the application, the Assessee was allotted land at Lajpat Nagar-III, New Delhi and in the year 1958, the Assessee set up an institution known as Shri Mool Chand Khairati Ram Hospital and Ayurvedic Research Institute, which included a hospital dispensing treatment under the allopathic system of medicine. The Assessee has been running a hospital and Ayurvedic Research Institute from the site at Lajpat Nagar-III, since 1958 and it is not disputed that there has been no significant change in the nature of the activities undertaken by the Assessee since 1958. The Assessee was granted registration under Section 12A of the Act in December 1974.
In the assessment order dated 30th December, 2008, the AO noted that in the financial year 2005-06 the Assessee had received a total sum of Rs.18,97,65,365/- out of which the receipts pertaining to Ayurvedic Research Institute were only Rs.55,41,423/-. The AO further found that total expenditure shown by the Assessee for the said financial year was Rs.27,96,97,610/- out of which only an amount of Rs.53,30,595/- was spent on operating expenses pertaining to the Ayurvedic Research Institute. In the circumstances, the AO held that the primary activity of the Assessee was running an Allopathic hospital. According to the AO, this was not in accordance with the object of the trust set out in the Will of Late Sh.Mool Chand Khairati Ram. The AO had denied the exemption claimed by the Assessee under Section 11 and 12 of the IT Act as the AO was of the view that the activities of the Assessee were not in accordance with its objects. In addition, the AO also denied the Assessee’s claim for depreciation on assets purchased by the Assessee by application of its income that was exempt under Section 11 of the IT Act.
Aggrieved by the assessment order, the Assessee preferred an appeal before the CIT (Appeals). The contentions of the Assessee were accepted by the CIT (Appeals).
The Revenue appealed against the aforesaid decision of CIT (Appeals) before the Tribunal, which accepted the contentions of the Revenue.
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