In a recent ruling, the Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) chaired by Rama Kanta Pande, Accountant Member and Laliet Kumar, Judicial Member held that the ruling of Commissioner of Income Tax (Exemption) [CIT(E)] is appropriate by rejecting the exemptions to the Fernandez Foundation. Thus, the tribunal rejected the appeals of the assessee.
The assessee, Fernandez Foundation, filed an appeal in response to a CIT(E) ruling that involved proceedings under Sections 12AA(1)(b)(ii), 80G(5)(vi), and 10(23C)(vi) of the Income Tax Act of 1961. The authority had denied the application in the impugned order.
The assessee was a private limited company and converted the said company into a Section 8 Company (Charitable company) under the Companies Act, 2013 and changed the name to “Fernandez Hospital”.
The original memorandum of association was requested by the CIT(E) for verification and informational purposes. The assessee’s statement and proof were insufficient to adequately explain the situation to the CIT(E).
The CIT(E) rejected the registration application under Sections 12AA(1)(b)(ii), 80G(5)(vi), and 10(23C)(vi) of the Income Tax Act, treating it as non-est since the assessee company’s name and director list were ambiguous.
The CIT(E) also discovered that the assessee is involved in activities which are in the nature of trade and provides services at market rates.
S. Ravi, the assessee’s counsel, contended before the bench that the assessee’s actions were charitable in nature, that the CIT(E) erroneously denied the assessee’s request for registration under Section 12AA of the Income Tax Act, and that the order made by the CIT(E) was against the law.
He also noted that it is impossible to dig into the Company’s past when it wasn’t engaging in charity endeavours. Therefore, whatever information that the department may have looked into regarding the assessee’s business prior to the conversion of the company is irrelevant.
The name of the assessee is different from the ROC record and the PAN is different from Form 10A/10G, according to Rajendra Kumar, the representative of the department. He also claimed that there is ambiguity regarding the name of the assessee and its directors, which is clear from the declarations made by the assessee.
The counsel also claimed that although the assessee had said in its objects that it provided medical assistance through maternity homes, they remained billing patients at market rates for their treatment.
Additionally, a claim was made that the assessee continued the same rates after converting from a private company to a Section 8 company under the Companies Act.
The Tribunal noted that the CIT(E) was accurate in determining that the assessee is billing patients at commercial rates, whether indoors or outside, and that the assessee has failed to show that the charges it imposed were premised on a justifiable markup on the cost.
The bench determined that there was no error after taking the facts into account and upheld the CIT(E)’s decision.
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