2026 Supreme(Online)(ITAT) 11952

INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
DCIT(EXEMPTIONS)-1(1) MUMBAI MUMBAI – Appellant
Versus
ADITYA BIRLA FOUNDATION MUMBAI – Respondent
ITA 6000/MUM/2025[2013-14]

The judgment establishes that a charitable trust's income under Section 11 is computed based on real commercial principles, not Chapter IV heads. Standard deduction under Section 24 is not allowable, and a provision for a fund is not 'application' of income unless actually spent.

Headnote:(A) Income-tax Act, 1961 - Sections 11, 12A, 13(1)(c), 13(2)(a) and (b), 13(3), 13(3)(d) and (e), 24, 24(1), 145, 164(2), and 234B - Maharashtra Public Trust Act, 1950 - Section 36(1) and 41AA - Charitable Trust - Denial of exemption under Section 11 on ground of inadequate rent from related concern - Provisions of Section 13(3) requiring substantial interest (threshold of 20% shareholding) - Where trustees of trust held only 30 shares out of total 50,000 shares of lessee company, far below the statutory threshold, the lessee is not a 'related concern' - Once Section 13 is not attracted, substitution of actual rent with notional rent based on District Valuation Officer's report is not permissible - Section 24 standard deduction - Income of a charitable trust is computed under Chapter III (Sections 10 to 13B), a self-contained code; computation provisions under Chapter IV (including Section 24) do not apply - Application of income is based on real receipt, not notional deductions - Depreciation on assets purchased during the year - Where cost of such assets is not claimed as application of income, depreciation is allowable under Section 11(6) - Provision for Indigent Patient Fund (IPF) - An ascertained liability created by book entry and parked in fixed deposits does not constitute 'application' of income for charitable purposes unless actually spent/utilized - Only actual reimbursement/payment to beneficiaries is allowable as application. (Paras 5.2, 5.4, 6.1, 11.2, 11.4, 11.5, 14, and 14.3)

(B) The appeal of the Revenue on the issue of denial of exemption under Section 11 and on the issue of taxing interest income on accrual basis was dismissed, following the coordinate bench's decisions in the assessee's own case for earlier years. (Paras 5.4 and 6.2)

Facts of the case:
The assessee, a charitable trust, had constructed a hospital complex on 16 acres of land in Pune. Lacking expertise to run the hospital, it leased the building to a company for 29 years. The Assessing Officer denied exemption under Section 11, alleging violation of Section 13(1)(c) r.w.s. 13(2)(a) and (b) on the ground that the lessee was a related concern and the rent charged was inadequate. He adopted a notional rent based on a District Valuation Officer's report. The assessee also claimed a standard deduction under Section 24 for rental income and claimed a provision made for an Indigent Patient Fund (IPF) as an 'application' of income. (Paras 3, 3.1, 10, and 13)

Findings of Court:
The Tribunal held that the lessee company was not a related concern under Section 13(3) as the trustees’ shareholding was far below the 20% threshold. Consequently, the denial of exemption under Section 11 based on Section 13 was unjustified, and the Assessing Officer could not substitute actual rent with notional rent. The Tribunal also held that a charitable trust's income is computed under the provisions of Chapter III, making the computation provisions of Chapter IV, including Section 24, inapplicable; thus, the standard deduction was not allowable. The claim for provision towards the IPF was rejected as a mere book entry not constituting actual application of income; only actual reimbursements were allowed. (Paras 5.4, 11.4, 11.5, and 14.3)

Issues: The main issues were whether the lessee was a related concern under Section 13(3) justifying the denial of exemption under Section 11, whether standard deduction under Section 24 is allowable to a charitable trust, and whether a provision made for an Indigent Patient Fund constitutes 'application' of income. (Paras 2, 5, 11, and 14)

Ratio Decidendi: For the purpose of Section 13(3), a concern is 'related' only if the specified persons hold substantial interest, which requires at least 20% shareholding. Income of a charitable trust under Section 11 is computed based on real commercial income, not the head-wise computations under Chapter IV. 'Application' of income under Section 11 requires actual spending or utilization for charitable purposes, not mere creation of a reserve or provision through book entries. Result : The appeals filed by the Revenue were dismissed. The appeal filed by the assessee was partly allowed, with the Tribunal allowing the claim for depreciation on new assets but dismissing the claims for standard deduction under Section 24 and for the provision towards the Indigent Patient Fund. (Para 17)

ORDER

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

These captioned appeals filed by the Revenue and assessee are against the orders of CIT(A) / National Faceless Appeal Centre (NFAC), Delhi, vide order nos.-

i. ITBA/NFAC/S/250/2025-26/1078104301(1), dated, 02.07.2025, passed against the assessment order by Income- tax Officer (E)-1(1). Mumbai, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 31.03.2016, for Assessment Year 2013-14.

ii. ITBA/NFAC/S/250/2025-26/1078306290(1), dated, 08.07.2025 passed against the assessment order by Deputy Commissioner of Income-tax (Exem.)-I(1), Mumbai, u/s. 143(3) of the Act, dated 23.12.2016, for Assessment Year 2014-15.

iii. ITBA/NFAC/S/250/2025-26/1080751796(1), dated, 15.09.2025, passed against the assessment order by Income- tax Officer (Exem.)-1(1), Mumbai, u/s. 143(3) of the Act, dated 25.12.2017, for Assessment Year 2015-16.

2. The present set of four appeals comprises of three appeals by the Revenue and one by the assessee. Issues raised by the Revenue in these appeals are common except for variation in the quantum under consideration. Owing to such commonality, we take up the entire set of four appeals together for adjudication by passing this consolidated order. The common issues raised in the appeals by the Revenue with their respective ground numbers are tabulated below:

3. Brief facts of the case are that assessee was settled by the Deed of Trust, dated 23.09.1994 with charitable objects inter alia, of giving medical relief to the poor. Assessee is registered u/s. 12A of the Act with Registration No. TR-30884, dt. 28.12.1994. Assessee is also registered with the Charity Commissioner as a charitable trust under the Maharashtra Public Trust Act, 1950.

3.1. Assessee had acquired 16 acres of land in Pune and constructed hospital complex consisting of hospital building including the service structure and staff quarter as per the plan sanctioned by the Pimpri- Chinchwad Municipal Corporation. As the assessee did not have the necessary expertize to maintain, administer and run the full-fledged hospital, it decided to lease out the hospital building to another entity for management, administration and maintenance of the hospital. Accordingly, assessee initially entered in to a Memorandum of Understanding dated 30.03.2005 for proposing to grant lease of 29 years lease to Aditya Birla Health Services Ltd. (ABHSL) of the said property, subject to approval of Charity Commissioner as mandatorily required under section 36(1) of the Maharashtra Public Trust Act, 1950. As per clause (5) of the MOU, the proposed lessee was required to pay the lease rental at Rs. 4.10/- per sq. ft. per month for the built-up area of the hospital building and Rs.3.00 per sq. ft. per month for the built- up area of staff housing building. It further provided that the lease rent shall be increased by at least 5% after every block of 5 years or by such further amount as may be mutually agreed between the parties.

4. Broadly, there are only two issues which needs to be adjudicated upon in the three appeals by the Revenue, one relating to claim of exemption u/s.11 which has been denied on account of violation of provisions of section 13(1)(c) r.w.s. 13(2)(a) and (b) and section 13(1)(3) of the Act along with its consequential effects and second relating to taxing interest income on accrual basis as against stance of the assessee to be taxed on receipt basis.

4.1. Ld. Counsel for the assessee at the outset put forth that both these issues are squarely covered by the decisions of Coordinate Benches in assessee’s own case for Assessment Year 2011-12, 2012-13, 2016-17 and 2017-18, there being no change in material facts and relevant law. The decisions of Coordinate Benches for the aforesaid four Assessment Years in assessee’s own case which covers both the issues contested by the Revenue before us are listed as under:

i. DCIT(E)-1(1) v. Aditya Birla Foundation (A.Y. 2011-12) in ITA 4065/Mum/2019, dated 16

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