Case Law Details
Breach Candy Hospital Trust Vs ACIT (Exemption) (ITAT Mumbai)
In a case concerning exemption claims by a charitable hospital trust, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) set aside the order passed by the first appellate authority and directed that the appeal be reconsidered only after the final outcome of pending writ petitions before the Hon’ble Bombay High Court.
The assessee, a charitable trust registered with the Charity Commissioner, Mumbai and also registered under Section 12A of the Income Tax Act, had applied for approval under Section 10(23C)(via) to claim exemption for its hospital activities. The application was rejected by the Chief Commissioner of Income Tax on 15.04.2010, following which the assessee filed Writ Petition No. 2462 of 2010 before the Bombay High Court. The High Court admitted the petition and granted interim relief directing that assessments be completed on the basis that the applications under Section 10(23C)(via) were approved.
Subsequently, another application for renewal under Section 10(23C)(via) was rejected on 28.09.2012, leading to another writ petition, Writ Petition No. 1051 of 2013, before the Bombay High Court. Similar interim relief was granted in this petition as well.
For Assessment Year 2013-14, the assessee claimed exemption under Section 10(23C)(via) and alternatively under Section 11 based on its Section 12A registration. During assessment proceedings, the Assessing Officer examined the claim under Section 11 and observed that the assessee was carrying on activities like a business venture aimed at profit maximization. However, the officer still held that the assessee was entitled to exemption under Section 11, though certain deductions such as depreciation and provisions for gratuity and leave encashment were disallowed. The total income was determined at Rs. 40.73 crore, out of which exemption under Section 11(1A) amounting to Rs. 6.11 crore and exemption under Section 10(23C)(via) amounting to Rs. 34.62 crore were granted.
The assessee challenged the assessment order before the first appellate authority and repeatedly requested that the appeal be kept pending until disposal of the writ petitions before the Bombay High Court. Although the proceedings were initially kept in abeyance, the successor appellate authority ultimately disposed of the appeal. According to the assessee, the appellate authority relied on a remand report obtained from the Assessing Officer without confronting the same to the assessee.
Before the Tribunal, the assessee argued that the Assessing Officer had acted in violation of the interim orders of the Bombay High Court by examining the alternative claim under Section 11 instead of completing the assessment solely on the basis that approval under Section 10(23C)(via) existed. The assessee also contended that the first appellate authority ignored the pendency of the writ petitions and failed to consider repeated requests to defer adjudication.
The Tribunal observed that the High Court’s interim orders specifically directed the Assessing Officer to complete assessments on the basis that the applications under Section 10(23C)(via) were approved. However, instead of following those directions in letter and spirit, the Assessing Officer examined the exemption claim under Section 11 and computed income accordingly before granting reduced exemption under Section 10(23C).
The Tribunal further noted that the appellate authority had overlooked both the pendency of the writ petitions and the interim orders passed by the Bombay High Court. It also observed that the appellate authority relied on a remand report without confronting it to the assessee. Considering these facts, the Tribunal held that the appellate order deserved to be set aside.
Accordingly, the Tribunal directed the first appellate authority to proceed with the appeal only after the final outcome of the writ petitions pending before the Bombay High Court concerning the assessee’s claim under Section 10(23C)(via). The assessee was also directed to communicate the High Court’s final orders to the appellate authority after disposal of the writ petitions. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Captioned appeal by the assessee arises out of order dated 20.11.2025, passed by Additional Commissioner of Income Tax, Appeals-2, Gurugram pertaining to the assessment year (A.Y. for short) 2013-14.
2. Though multiple grounds have been raised in the appeal, however, at the very outset, Shri J. D. Mistry, learned Sr. Counsel appearing for the assessee submitted that the primary grievance of the assessee is against disposal of the appeal by ld. first appellate authority instead of keeping it in abeyance, as requested by the assessee.
3. Briefly the facts are, the assessee is a charitable Trust, registered with Charity Commissioner, Mumbai. The assessee is also registered u/s. 12A of the Income Tax Act, 1961 (‘the Act’ for short). Since, the assessee is running a hospital for providing medical care, it made an application seeking approval u/s. 10(23C)(via) of the Act for enabling it to claim exemption under the said provision. However, the said application was rejected by the Chief Commissioner of Income Tax vide order dated 15.04.2010. Challenging the said rejection order, the assessee filed a writ application before the Hon’ble Bombay High Court registered as Writ Petition No. 2462 of 2010. While admitting the said writ application, Hon’ble High Court granted certain interim relief to the assessee. Subsequently, the assessee filed another application for renewal of approval u/s. 10(23C)(via) of the Act. However, the said application was also rejected by Chief Commissioner of Income Tax vide order dated 28.09.2012. Challenging the said order, the assessee filed another writ application before the Hon’ble Bombay High Court registered as Writ Petition No. 1051 of 2013. While admitting the said writ petition, Hon’ble High Court granted similar interim relief as was granted in Writ Petition No. 2462 of 2010 filed by the assessee earlier.
4. Be that as it may, in the return of income filed for the impugned assessment year, the assessee claimed exemption u/s. 10(23C)(via) of the Act. Alternatively, the assessee also claimed exemption u/s. 11 of the Act on the strength of registration granted u/s. 12A of the Act.
5. In course of assessment proceeding, the Assessing Officer (A.O. for short) called upon the assessee to justify its claim of exemption u/s. 11 of the Act. In this context, the A.O. called for various information from the assessee and examined them. After verifying the details, the A.O. observed that the assessee is basically carrying out its activities like a business venture for attaining profit maximization. Though, he concluded that the assessee is entitled to exemption u/s. 11 of the Act but certain deductions claimed cannot be allowed.
6. Having held so, he proceeded to compute the income of the assessee. While doing so, he disallowed claim of depreciation and provision of gratuity and leave encashment. Ultimately, he determined the total income at Rs.40,73,35,146/-, against which, he allowed exemption u/s. 11(1)A of the Act for an amount of Rs.6,11,00,272/-. Having computed the income as such, he allowed exemption u/s. 10(23C)(via) of the Act for an amount of Rs.34,62,34,874/-.
7. Against the assessment order so passed, the assessee preferred an appeal before ld. First appellate authority.
8. In course of proceedings before ld. First appellate authority, the assessee specifically submitted that pending the final outcome in the writ applications, the appeal should be kept in abeyance. Though initially, the first appellate authority kept the appeal pending, however, ultimately, the appeal was disposed of by the impugned order.
9. Before us, ld. Sr. Counsel submitted, the A.O. has passed the assessment order in complete disregard to and in gross violation of the interim relief granted by Hon’ble High Court. Drawing our attention to interim orders passed by Hon’ble High Court, he submitted, though the Hon’ble High Court had specifically directed the A.O. to complete the assessment allowing assessee’s claim of exemption u/s. 10(23C)(via) of the Act, however, the A.O. has proceeded to consider the alternative claim u/s. 11 of the Act and, thereafter, has granted exemption u/s. 10(23C) of the Act. He submitted, though, the First appellate authority was made aware of the legal position and also the fact that writ applications are pending for disposal and also requested to keep the appeal pending, however, without taking note of the submissions made by the assessee, the First appellate authority has proceeded to dispose of the appeal based on a remand report obtained from A.O. which was never even confronted to the assessee. Thus, he submitted, the order of the first appellate authority should be set aside with a direction to wait for the final outcome of the writ application and, thereafter, proceed to decide the appeal.
10. Departmental Representative (ld. DR for short) relied upon the observations of the A.O.
11. We have considered rival submissions and perused the materials available on record. A reading of the impugned assessment order itself reveals that the assessee was initially availing exemption u/s. 10(22A) of the Act between A.Ys. 1970 -71 to 1995-96. Thereafter, the assessee was granted approval u/s. 10(23C) of the Act by the Central Board of Direct Taxes (CBDT for short) vide order dated 10.04.2003 and was availing exemption for the years 1999-2000 to 2001-02. It is a fact on record that assessee’s application for renewal of approval u/s.10(23C) of the Act for A.Y. 2010-11 was rejected by the competent authority vide order dated 15.04.2010, against which, the assessee had preferred a writ application in Hon’ble Bombay High Court registered as Writ Petition No. 2462 of 2010. In the said writ application, the assessee inter alia others sought the following relief:
(d) That pending the hearing and final disposal of the present Petition, the Respondents be:
(i) restrained from giving effect to the order dated 15th April, 2010 (Exhibit ‘U’ hereto) or to bring the surplus earned by the Petitioner to tax under the Act, and
(ii) complete assessments and all other proceedings under the Act on the basis that the Petitions applications under section 10(23C)(via) are approved.
12. Vide order dated 17.01.2011, the Hon’ble High Court granted interim relief qua prayer no.(d) reproduced above. The stay was made absolute vide order dated 13.06.2011. Seeking renewal of approval u/s. 10(23C) of the Act for subsequent assessment years, the assessee again made an application to the competent authority, however, the said application was rejected. Challenging the said rejection order, the assessee filed another writ application before the Hon’ble Bombay High Court registered as Writ Petition no. 1051 of 2013 with similar prayers as was made in Writ Petition no. 2462 of 2010. Vide order dated 25.04.2014 the Hon’ble High Court granted interim relief qua similar prayer made in the writ petition. Thus, as could be seen from the aforesaid facts, while granting interim relief to the assessee, the Hon’ble High Court had clearly directed the A.O. to complete the assessment on the basis that petitioners applications seeking approval u/s. 10(23C)(via) of the Act are approved.
13. However, while completing the assessment for the impugned assessment year, instead of carrying out the directions of Hon’ble High Court in letter and spirit, the A.O. has proceeded to examine assessee’s claim of exemption u/s. 11 of the Act and after computing the income of the assessee under the said provision has granted exemption u/s. 10(23C) of the Act at a much reduced amount. It is a fact on record that against the said assessment order, the assessee had filed an appeal before the First appellate authority. Materials placed on record demonstrate that in course of proceedings before the First appellate authority, the assessee repeatedly made request to keep the appeal pending awaiting final outcome in the writ application. In fact, the multiple requests made by the assessee to keep the matter pending have been chronicled in paragraph 3 of the appellate order. In all fairness, it must also needs to be mentioned that the First appellate authority indeed kept the proceedings in abeyance for some time. However, after change of incumbent in office, the successor first appellate authority without considering assessee’s request proceeded to dispose of the appeal fully relying upon a remand report of the A.O. without even confronting it to the assessee. While dismissing the appeal, the First appellate authority has completely overlooked the fact of assessee’s claim of exemption u/s. 10(23 C) of the Act as also the fact of pendency of writ application before Hon’ble Bombay High Court on the very same issue and the interim orders passed thereon.
14. Thus, upon consideration of material facts, we are of the view that the impugned order of the First appellate authority deserves to be set aside with a direction to proceed with the appeal after the final outcome in the writ applications pending before the Hon’ble Bombay High Court on the issue of assessee’s claim of exemption u/s. u/s. 10(23C)(via) of the Act. Accordingly, the impugned order of the First appellate authority is set aside. Once the writ application is disposed of, the assessee is directed to communicate the orders of Hon’ble High Court to the First appellate authority and in terms of which, the First appellate authority may proceed to dispose of the appeal.
15. In the result, the appeal is allowed for statistical purpose.
Order pronounced in the open court on 29.04.2026
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