N.R.S. Ganesan, Judicial Member - This appeal of the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-VII, Chennai, dated 16.6.2014 and pertains to assessment year 2010-11.
2. The only issue arises for consideration is exemption u/s 10(23C) of the Act.
3. Dr. B. Nishal, ld. Departmental Representative submitted that the assessee-society was registered u/s 12AA of the Act as charitable institution. According to the ld. DR, the assessee received rental income of Rs. 4,16,532/- from house property situated at Govindappa Naicken Street, Chennai. The assessee has also received from another house property Rs. 8,95,886/- in same street, at Chennai. The assessee claimed standard deduction in respect of income received from the house properties. However, the Assessing Officer disallowed the claim of the assessee on the ground that deduction u/s 24(a) of the Act is inconsistent to the principles of revenue recognition involving charitable organizations. According to the ld. DR, in case of charitable organization, the income and expenditure has to be real one corresponding to inflow and outflow. Therefore, the Assessing Officer disallowed the claim of the assessee. However, on appeal by the assessee, the CIT(A) has allowed the claim of the assessee on the basis of the decision of this Tribunal in the assessee's own case for assessment year 2008-09 in I.T.A. No. 1843/Mds/2011 dated 20.7.2012. According to the ld. DR, the income from house property cannot be allowed as exempt u/s 10(23C)(iiiae) of the Act.
4. On the contrary, Shri Philip George, ld. Counsel for the assessee submitted that an identical issue came up before this Tribunal in the assessee's own case for assessment year 2008-09. This Tribunal, after considering the provisions of section 10(23C)(iiiae) of the Act, found that the assessee is eligible for exemption u/s 10(23C) of the Act. This Tribunal has also found that simply because the assessee was receiving rental income and accumulating such income for spending the same for attainment of its objects by itself does not prove that the assessee was acting with a profit motive. Therefore, according to the ld. Counsel, the issue is covered by the order of this Tribunal in favour of the assessee.
5. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the assessee-society is running a hospital and registered u/s 12AA of the Act. From the orders of the lower authorities it appears that the assessee has two house properties at Govindappa Naicken Street, Chennai and receiving rental income. After claiming standard deduction of 30% allowed u/s 24(a) of the Act, the assessee scaling down the rental income to Rs. 8,12,049/-. The Assessing Officer found that the claim of standard deduction u/s 24(a) of the Act is inconsistent to the principles of revenue recognition involving charitable organizations. After referring to the order of this Tribunal in the assessee's own case for assessment year 2008-09, the Assessing Officer found that this Tribunal granted relief to the assessee after adjudicating on the aspect as to whether the society was engaged in profit motive or not. The characteristics of the income derived by the society were never put forth before this Tribunal. Accordingly, the Assessing Officer found that the relief was granted to the assessee on totally different set of facts. After referring to section 10(23C)(iiiae) of the Act, the Assessing Officer found that in order to claim exemption u/s 10(23C)(iiiae), the income should be derived from medical facility and if income is derived from other sources, it would not be eligible for exemption u/s 10(23C)(iiiae) of the Act. We have carefully gone through the provisions of 10(23C)(iiiae) of the Act. For the purpose of convenience, we reproduce below section 10(23C)(iiiae) of the Act:
"10(23)C : Any income received by any person on behalf of - (iiiae) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed; "
A bare reading of the above provision clearly shows that if the aggregate annual receipts of hospital or institution for treatment do not exceed Rs. 1 crore is entitled for exemption u/s 10(23C)(iiiae) of the Act. The Assessing Officer finds that the income shall be derived from the medical facility provided by the assessee. The Act does not say that the income shall be derived from the hospital or other institution. The language employed by the Parliament clearly says that "any income" and "aggregate annual receipts". Therefore, it means that the aggregate annual receipts of the institution/hospital from all sources including the running of the hospital received by the assessee for providing treatment should be covered by section 10(23C)(iiiae) of the Act. When the hospital has house property which was held under the trust, the income earned by the assessee from such house property shall also form part of the aggregate annual receipts of the institution provided the same is utilized for providing treatment. It is well settled principles of law that the taxation law has to be interpreted without adding any word to the language employed by the Parliament. When the Parliament does not say that the income shall be derived from hospital for medical relief, it may not be proper for the Assessing Officer to say that income shall be derived from the hospital. When the assessee has income from other sources including the income from house property and the aggregate annual receipts exceeds Rs. 1 crore, the assessee is not entitled for exemption u/s 10(23C)(iiiae). However, if the annual receipts do not exceed Rs. 1 crore, the assessee is definitely entitled for exemption u/s 10(23C)(iiiae) of the Act.
6. The next objection of the Assessing Officer is regarding standard deduction allowed u/s 24(a) of the Act while computing income from house property. The Parliament, in its wisdom, allowed 30% deduction for maintenance of the house property u/s 24(a) of the Act. This deduction could be claimed by all institutions including charitable institution when the income is not exempt u/s 11 or 10(23C) of the Act. When the assessee claimed exemption u/s 11 or 10(23C), this Tribunal is of the considered opinion that the standard deduction provided in section 24(a) is not available to the assessee. This is for the simple reason that the Parliament provided for standard deduction of 30% for maintenance of house property. When the assessee is a Charitable Trust/Society, its income is exempted u/s 11 or 10(23C) on application. In other words, the income received by the assessee shall not form part of the total income provided the same is applied for carrying out the objects of the trust. Hence, any part of the income received by the assessee from house property is applied for maintenance of the very same house property, the same is allowed as application u/s 11 and 10(23C) of the Act. This Tribunal is of the considered opinion that sections 10 and 11 of the Act override sections 22 to 27 of the Act. Therefore, the gross rent received from house property shall be taken as income of the Trust/Society. The computation of income from house property u/s 24 of the Act fails when the assessee claims exemption u/s 10 or 11 of the Act. In case, the income is not exempted u/s 10 or 11, the income from house property has to be computed u/s 24 of the Act. In view of the above, the assessee is not entitled for standard deduction of 30% as provided in section 24(a) of the Act. If the standard deduction is allowed, it would amount to double deduction. Therefore, this Tribunal is of the considered opinion that the assessee is entitled to claim the actual expenditure on maintenance of the house property as application of income, however, not entitled for standard deduction u/s 24(a) of the Act. We have also carefully gone through the order of this Tribunal in the assessee's own case. In fact, there is no much of discussion in the order of this Tribunal in the assessee's own case for assessment year 2008-09. This Tribunal has taken note of the fact that the assessee is receiving rental income from house property and found that there is no profit motive. As observed by the Tribunal for assessment year 2008-09, it is not the case of the Assessing Officer that the assessee has diverted its funds to the personal benefits of any members of the society.
7. In view of the above discussion, this Tribunal is of the considered opinion that the gross income from house property has to be taken without allowing any deduction u/s 24(a) of the Act. Accordingly, the order of the lower authority is set aside and the Assessing Officer is directed to take the gross rental income from house property without any deduction u/s 24(a) of the Act. However, it is made clear that the actual expenditure incurred by the assessee for maintenance of the building shall be allowed as application of income either u/s 11 or 10(23C) of the Act.
8. In the result, the appeal of the Revenue is partly allowed.