IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES , MUMBAI BEFORE SHRI B.R. MITTAL, J.M. AND SHRI RAJENDRA SINGH, A.M. ITA No. 5352/Mum/2010 Assessment Year : 2007-08 Income tax Officer(E)-II(1) Lilavati Kirtilal Medical Trust Room No.509, Piramal A/791 Bandra Reclamation Chambers, Labaug, Parel Bandra (W) Mumbai-400 012. Mumbai-400 050. Vs. PAN No. AAATL 1398 Q (Appellant) (Respondent) Cross Objection No.84/Mum/2011 Arising out of ITA No. 5352/Mum/2010 Assessment Year : 2007-08 Lilavati Kirtilal Medical Trust Income tax Officer(E)-II(1) Mumbai-400 050. Mumbai-400 012. Vs. (Cross Objector) (Appellant in appeal) Department by : Ms. Usha Nair Assessee by : Ms. Smita Lokapur Date of hearing : 24.5.2012 Date of Pronouncement : 1.6.2012 ORDER PER RAJENDRA SINGH, AM: This appeal by revenue and Cross Objection by assessee are directed against order dated 31.3.2010 of CIT(A) for assessment year 2007-08. 2 ITA No.5352/M/10 and CO No.84/11 A.Y.07-08 2. We first take up appeal of revenue in ITA No.5352/Mum/2010. In this appeal only dispute raised by revenue is regarding allowability of exemption under section 11 of Income tax Act, 1961(the Act). 2.1 facts in brief are that AO during assessment proceedings noted that assessee trust owned hospital at Bandra, by name Lilavati Hospital which is 300 bedded multi-speciality hospital and one of elite hospitals which was known to cater to higher section of society. It was also noted that assessee for relevant year had declared gross receipts of Rs.1,94,24,75,226/- against which expenses had been claimed to tune of Rs.1,59,30,98,800/- as per details given below:- Hospital Operating Rs.194,24,75,226 Income as per income and Expenditure A/c. Less: A. Medical Expenses a. Property expenses Rs.4,42,21,405 b. Operational Rs.116,91,68,191 expenses c. Administrative Rs.37,06,90,066 expenses d. Interest on term Rs.31,16,757 loan e. Bank overdraft Rs.1,33,469 Rs.159,30,98,800 interest Net Profit Rs.34,93,76,426 3 ITA No.5352/M/10 and CO No.84/11 A.Y.07-08 2.2 There was thus net receipt of Rs.34,93,76,426/-. AO observed that receipts were amounts received from patients for services rendered and expenses had been incurred for earning of income. AO also observed that assessee had not undertaken any charitable or philanthropic activities and expenses were incurred for management of hospital. He, further, noted that assessee had shown sum of Rs.4,63,86,472/- towards free and concessional treatment given to patients which was nothing but trade discount and which did not its genesis in philanthropic concerns of trust. Further concessions had been given in large bills paid by patients who were not poor. Assessee had not spent any amount on education or charitable purpose. assessee was thus not entitled for exemption under section 11. AO, therefore, following decision taken in earlier years disallowed claim of exemption under section 11 of Act and assessed income at Rs.34,93,76,426/-. In appeal CIT(A), following decision taken by Tribunal in assessment year 2005- 06 allowed claim of assessee under section 11 of Act aggrieved by which, revenue is in appeal before Tribunal. 3. We have heard both parties, perused records and considered matter carefully. We find that same issue had arisen in case of assessee in assessment year 2006-07 in which Tribunal vide order dated 14.10.2011 in ITA No.4955/Mum/2010 noted that 4 ITA No.5352/M/10 and CO No.84/11 A.Y.07-08 assessee was registered under section 12A of Act and therefore condition that trust was charitable institution stood fulfilled. order of AO holding that assessee was not doing charitable work could not therefore, be accepted. Tribunal also observed that issue was covered by decision of Tribunal in assessment year 2004-05 in which Tribunal accepted finding of CIT(A) that trust was running hospital by engaging services of doctors, nurses, para-medical staff and also providing infrastructure facilities for benefit of public at large which was in conformity with objects of assessee trust. Tribunal thus accepted that assessee was charitable institution. Tribunal also held that expenditure on acquisition of capital asset acquired by trust was in furtherance of objects of trust and accordingly had to be considered as application of income. Tribunal therefore, held that assessee was charitable institution and expenditure incurred on capital asset for use in charitable activities had to be considered as application of income. facts in present year are identical. We therefore, hold that assessee is charitable institution which is registered under section 12A of Act and therefore, eligible for deduction under section 11 subject to fulfillment of conditions in said section. We therefore, set aside order of CIT(A) and restore matter to file of AO for passing fresh order after necessary 5 ITA No.5352/M/10 and CO No.84/11 A.Y.07-08 examination in light of observations made above and after allowing opportunity of hearing assessee . Cross Objection No.84/M/2011(By Assessee ): 5. In cross objections, issue raised by assessee is regarding disallowance of expenditure incurred on acquisition of capital assets and disallowance of depreciation on assets. We find that this issue had also been considered by Tribunal in order dated 14.10.2011 for assessment year 2006-07. Tribunal has held that expenditure incurred on acquisition of capital assets for use in charitable activities has to be treated as application of income. Tribunal also held that depreciation on assets debited to accounts will be deducted from income for computing income available for application for charitable purposes, in view of judgment of Hon'ble High Court of Gujarat in case of CIT vs. Seth Manilal Ranchhordas Vishram Bhawan Trust (198 ITR 598). Therefore, respectfully following decision of Tribunal in assessment year 2006-07, we hold that expenditure on acquisition of capital assets for use in charitable activities will be treated as application of income and depreciation on assets will be deducted from income for computing income available for application for charitable purposes. As we have already restored issue of computation of exemption under section 11 to file of AO while deciding appeal of revenue, 6 ITA No.5352/M/10 and CO No.84/11 A.Y.07-08 AO will take into account these aspects also while computing application of income for purpose of charitable work under section 11. In case AO after necessary verification finds that application of income is not up to 85%, assessee will be free to file application before AO for accumulation which will be dealt by AO as per law. 6. In result, appeal of revenue and cross objection of assessee are allowed for statistical purposes. Order pronounced in open court on 1.6.2012. Sd/- Sd/- (B.R. MITTAL ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 1.6.2012. Jv. Copy to: Appellant Respondent CIT, Concerned, Mumbai CIT(A) Concerned, Mumbai DR Bench True Copy By Order Dy/Asstt. Registrar, ITAT, Mumbai. ITO (E)-II(1) v. LILAVATI KIRTILAL MEDICAL TRUST