DCIT Vs Adarsh Foundation (ITAT Ahmedabad)
ITAT Ahmedabad held that agreement for transfer of operations, management and movable assets didn’t violated the purpose of charity and hence exemption under section 11 and 12 of the Income Tax Act duly available.
Facts- The assessee, Adarsh Foundation Trust, is registered u/s. 12A(a) of the Income Tax Act. In an effort to address financial difficulties faced by the assessee, and mounting liabilities, the assessee Trust entered into an agreement on April 1, 2008, with SAL Care Pvt. Ltd. (SCPL). The agreement involved the transfer of the operations, management, and movable assets of SHMI to SCPL. The agreement was seen as a means to ensure the assessee Trust’s survival and continued charitable activities, as SCPL took over the hospital’s operations and liabilities.
However, during the assessment proceedings, AO scrutinized the agreement and found that it violated the basic principles of charity for which the Trust had been granted it’s registration u/s. 12AA of the Act. Consequently, the Trust’s claim for tax exemptions under sections 11 and 12 was denied.
CIT(A) allowed the appeal of the assessee. Being aggrieved, the present appeal is filed by the revenue.
Conclusion- Held that agreement was entered with the company was to secure trust is interest and nor to indulge in the losses and for the purpose of reimburse the expenditure of Kesar Sal Hospital. The object of the transfer agreement with SCPL was to ensure that the hospital is managed professional, and in doing so the purpose of charity is not violated as a reputed hospital of such huge size requires professionally handling. We are also observed that the agreement was not entered into to derive profit from transfer of movable to SCPL but to counter the huge losses incurred in running two big hospitals. Therefore, the CIT(A) has correctly held that the activity of the trust to carried on in accordance with its objects and in the best interest of charity, therefore, the exemption u/s. 11(1)(a) has rightly allowed by the Ld. CIT(A). Similarly, the CIT(A) has clearly held that the Sec. 13((1)(c)(ii) can apply only if any part of the charitable income of the trust has been used or applied for the benefits of the said persons during the previous year. But, since no portion of the income of the assessee has been applied for said person, therefore, the case of the assessee falls outside the scope of this section. Further, the trust is in receipt of income by way of management charges from SCPL and also all of its liabilities have been taken over by the same therefore there is a fact that there is no undue benefits of the use of trust property have been taken by any other persons. Similarly, there is no diversion of income of the trust as per Explanation of Sec. 13(2)(d) and 13(2)(g) of the Act as the trust has been benefitted greatly and its deficit of trust duly reduced to a great extent.
