ITAT Sets Aside Revision Order Over ₹5.65 Crore COVID-19 Relief Donation To Medica Hospitals

On 26 October, the Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) quashed revision proceedings initiated against Eastern India Healthcare Foundation over its donation of Rs. 5.65 crore to Medica Hospitals Private Limited for COVID-19 relief activities.

A Bench comprising Accountant Member Rajesh Kumar and Judicial Member Pradip Kumar Choubey held that the Commissioner cannot invoke Section 263 of the Income Tax Act, 1961, merely to disagree with a legally permissible view adopted by the Assessing Officer (AO) after due examination, allowing the foundation's appeal for Assessment Year 2022-23. It said:

“The impugned donation to Medica was completely for carrying out the charitable object of granting COVID-19 relief to the suppressing masses and had nothing to do with any related party benefit extendable by the appellant. The AO having accepted the claim of the appellant, after due examination of all the materials on the basis of equities/verification conducted by him, the impugned order cannot be called erroneous in as much as the Explanation 2(a) of Section 263 of the Act requirement was fully satisfied.”

The foundation had received Rs. 14.40 crore from Germany-based Deutsche Investitions- und Entwicklungsgesellschaft MBH (DEG) under its develPPP.de COVID-19 programme for pandemic relief activities. Of this amount, Rs. 5,65,56,841 was donated to Medica Hospitals Private Limited.

The Commissioner alleged that Medica Hospitals was a related party and that the donation violated Section 13(3) of the Income Tax Act. He also contended that the AO had allowed the foundation's claim without conducting the necessary enquiries into the transaction and its compliance with the Foreign Contribution (Regulation) Act, 2010 (FCRA).

The foundation challenged the revision order, arguing that the AO had specifically examined the foreign contribution and its utilisation during the original assessment proceedings. In response to notices issued under Section 142(1) of the Act, it had furnished details of its charitable activities, the funding arrangement with DEG, the estimated and actual expenditure on COVID-19 relief, and supporting documents.

The Tribunal noted that the AO had issued notices seeking information about the foreign donation and its utilisation. The foundation had submitted detailed replies, including a cost calculation and funding ratio certified by a chartered accountant. The AO subsequently accepted the foundation's returned income at nil.

Relying on the Supreme Court's decision in CIT v. Max India Ltd., it reiterated that an assessment order cannot be treated as erroneous and prejudicial to the interests of the Revenue merely because the Commissioner disagrees with a legally permissible view adopted by the AO.

Further, the Bench examined whether the donation attracted the restrictions under Sections 13(1)(c)(ii) and 13(3) of the Income Tax Act, which restrict tax exemption where a charitable trust's income or property is applied for the benefit of specified persons. It noted that the Commissioner had failed to establish how Medica Hospitals fell within the category of specified persons under Section 13(3) or how the donation had benefited any such person.

It also noted that Medica Hospitals had contributed Rs. 13.35 crore towards COVID-19 relief activities, while DEG had contributed Rs. 14.40 crore and other corporate entities had contributed Rs. 10 crore.

Moreover, the Tribunal also took note of the foundation's submission that it had obtained FCRA registration on 9 July 2021 and filed the requisite return in Form FC-4. The foundation had further submitted that the FCRA authorities had not raised any objection to the utilisation of the funds for COVID-19 relief activities. It said:

“The Ministry of Home Affairs, Foreigners Division (FCRA Wing) has right to inspect the activities carried on by the assessee trust from time to time. FCRA wing has not raised any objection to the activities carried on by the assessee trust after receiving funds from DEG, Germany. Hence it is not understood on what basis the Ld.CIT(E) has held that the donation to Medica is in violation to FCRA 2010.”

Lastly, the Bench concluded that the AO had conducted the necessary enquiries and that the Commissioner had failed to establish that the assessment order was erroneous and prejudicial to the interests of the Revenue. It also found that the Commissioner had not established how Medica Hospitals fell within Section 13(3) or what benefit had been transferred to any specified person. It noted:

“it stands establish that the ld.CIT(E) has initiated this present proceeding without application of mind to the case of the assessee. The ld.CIT(E) failed to establish how Medica Hospitals Pvt Ltd fall under persons referred to in section 13(3) of the Act. The ld.CIT(E) also failed to establish what benefit has been transferred to the Persons referred to Section 13(3) of the Act.”

Accordingly, the ITAT quashed the revision proceedings and the Commissioner's order, allowing the foundation's appeal.

For the Appellant: S. K. Tulsiyan, Advocate, and Lata Goyal, Chartered Accountant

For the Respondent: Raman Garg, CIT-DR