Case Law Details

Case Name : M/s Clara Swain Hospital Vs ITO (ITAT Lucknow)
Appeal Number : Income tax (Appeal) no. 347 of 2014
Date of Judgement/Order : 11/06/2015
Related Assessment Year :
Courts : All ITAT (4619) ITAT Lucknow (72)

Brief of the Case

ITAT Lucknow held In the case of M/s Clara Swain Hospital vs. ITO that no capital gain liability can be imposed on the assessee where he does not own the asset and more ever he has not received any payment for such transfer.

In the given case, the assessee is nowhere a party to the joint venture agreement. It was simply a hospital managing the affairs of the hospital only. It did not own the property of the hospital including the land therein as per its constitution as it was owned by Methodist Church in India. Also onetime payment of Rs.10 crore was also not made to the assessee. The payment was made to Methodist Church in India through DD issued in favour of Executive Board of Methodist Church in India. Since the assessee has not received any consideration in lieu of any transfer of the capital asset, there is no question of any capital gain in the hands of the assessee. 

Facts of the Case

The assessee i.e. Clara Swain Hospital was established in 1870 in Bareilly to provide treatment to the society without any distinction. This hospital has been an institution of the succession of Methodist Churches of United States and of India. As per the constitution, the said property shall be managed, maintained and protected by the Board of Governors of Clara Swain Hospital. A joint venture agreement was executed between Executive Board of Methodist Church in India and M/s Ritam Charitable & Education Society. As per this agreement, a joint venture was formed to expand the hospital facilities to at least 300 beds and at the same time open medical college also for imparting the education in the entire field of medicine. As per the joint venture agreement, the second party has paid a sum of Rs.10 crore to the Methodist Church in India.

This agreement was examined by the Assessing Officer and formed a view that through this joint venture agreement, the assessee has given the possession of the land to M/s Ritam Charitable & Education Society against receipt of Rs.10 crore therefore, there is transfer of land in favour of the second party i.e. M/s Ritam Charitable & Education Society. Since this is a transfer of a capital asset as per the provisions of section 2(47)(v) of the Act, the Assessing Officer has computed the capital gain in the hands of the assessee. He accordingly, while calculating the capital gain having invoked the provisions of section 50C of the Act and calculated the capital gain in the hands of the assessee at Rs.8,86,12,637/-.

Contention of the Assessee

The ld counsel of the assessee submitted that Clara Swain Hospital is not the owner of the land of which possession was given to M/s Ritam Charitable & Education Society. He has placed reliance upon the constitution of Clara Swain Hospital in support of his contention that Clara Swain Hospital is owned by Methodist Church in India and the movable and immovable property in the hospital is the property of Methodist Church in India and Clara Swain Hospital is not at all owner of the land and the property. It was simply a body managing the functioning of the hospital. A joint venture agreement was executed between Methodist Church in India and M/s Ritam Charitable & Education Society through which Methodist Church in India has handed over the possession of the land in Clara Swain Hospital to M/s Ritam Charitable & Education Society against the receipt of Rs.10 crore in order to expand the hospital facilities and also to open a medical college for imparting education in the entire field of medicine.

Through this joint venture agreement they have decided to name the medical college as Clara Swain Methodist Medical College & Research Institute. Therefore, whatever transaction was undertaken or exchanged, it was between the Methodist Church in India and M/s Ritam Charitable & Education Society. Though the assessee has filed its return of income in individual status but has no concern with the handing over the possession of the land to M/s Ritam Charitable & Education Society against the receipt of Rs.10 crore. If any capital gain is accrued, it is accrued in the hands of Methodist Church in India and not in the hands of the assessee. Therefore, the Revenue has wrongly assessed the capital gain in the hands of the assessee. 

Contention of the Revenue

The ld counsel of the revenue submitted that the assessee has filed the return of income and also got the exemption u/s 12A of the Act. The hospital was managed by the assessee and also owns the land. Since the land was handed over to M/s Ritam Charitable & Education Society against receipt of Rs.10 crore, the capital gain has accrued in the hands of the assessee.

Held by CIT (A)

CIT (A) confirmed the assessment order issued by AO.

Held by ITAT

It is clear from the constitution of Clara Swain Hospital that the Clara Swain Hospital belongs to Methodist Church in India, successor in interest of the Methodist Church in Southern Asia within the jurisdiction of North India Regional Conference as per Article I(3). As per Article II(a) of the constitution of the Clara Swain Hospital, the movable and immovable property in the Clara Swain Hospital is the property of Methodist Church in India held in trust and as per clause (b), the Board of Governors of Clara Swain Hospital are required to manage and maintain the property. Through this constitution, the Clara Swain Hospital was only empowered to manage and maintain the movable and immovable property in Clara Swain Hospital.

From joint venture agreement, we find that it is abundantly clear that there is no absolute transfer of land by the first party i.e. Methodist Church in India in favour of M/s Ritam Charitable & Education Society. Basically, it is joint venture agreement executed between the Methodist Church in India and M/s Ritam Charitable & Education Society to expand the hospital facilities and also to set up a medical college in the field of medicine. Since the first party has provided the land and immovable property owned by it to the second party for the development of the project, onetime payment of Rs.10 crore was made to second party. This onetime payment will be called to be the consideration for surrendering certain rights in the immovable property by the first party i.e. Methodist Church in India in favour of M/s Ritam Charitable & Education Society for which if any capital gain is to be accrued, it would be accrued only in the hands of Methodist Church in India.

The assessee is nowhere a party to the joint venture agreement. It was simply a hospital managing the affairs of the hospital only. It did not own the property of the hospital including the land therein as per its constitution as it was owned by Methodist Church in India. Therefore, from any angle, if the joint venture agreement and constitution of Clara Swain Hospital is seen, it would be abundantly clear that assessee has not transferred any land or any right in the capital asset in favour of M/s Ritam Charitable & Education Society.

Moreover, onetime payment of Rs.10 crore was also not made to the assessee. The payment was made to Methodist Church in India through DD issued in favour of Executive Board of Methodist Church in India. Since the assessee has not received any consideration in lieu of any transfer of the capital asset, there is no question of any capital gain in the hands of the assessee. Whatever capital gain has arisen, it is only in the hands of Methodist Church in India and not in the hands of the assessee. Therefore, we are of the view that the Revenue has wrongly assessed the capital gain in the hands of the assessee on transfer of any right in movable or immovable property or land in favour of the M/s Ritam Charitable & Education Society.

Accordingly, appeal of the assessee allowed.

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Category : Income Tax (26332)
Type : Judiciary (10602)

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