Professional Fee paid to Trustees who are Doctors allowable as Deduction: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Pune bench has held that the professional fee paid to the Trustees, who are qualified doctors are allowable as Deduction under the Income Tax Act, 1961.

The assessee was running the hospital for the charitable purpose. While concluding the assessment proceedings against the Trust, the Assessing Officer noted that the hospital was being run in Ratnagiri. Dr. Almiya D. Parkar was the Chief Medical Officer and Administrator of assessee trust and even providing medical services to patients coming to the hospital, in lieu thereof, professional fees were paid to him. The said professional fees were based on case to case basis directly relating to the fees collected from the patients. Similar was the position in respect of his wife Dr. M. A. Parkar. The total remuneration which is paid in the year under consideration was Rs. 6,52,748/-. The Assessing Officer denied the deduction to such fee paid to the assessee.

Under section 13(1)(c) of the Act, it is provided that where any part of the income of trust ensures or any part of such income or any property of the trust or the institution is, during the previous year, used or applied, directly or indirectly for the benefit of any persons referred to in sub-section (3), then such amounts are not to be allowed as deduction. The test to be applied is whether any part of income is directly or indirectly utilized for the benefit of any person referred to in sub-section (3). Admittedly, the provisions of said sub-section (3) are applicable but the issue which has to be seen is ‘whether the said payment is directly or indirectly for the benefit of such person’.

Analyzing the above provision, the Tribunal noted that the managing trustee had established the hospital and had even allowed the hospital to use medical facilities and equipment available in the hospital, for which utilization charges were paid, which is also the second issue before us, which will be addressed in later paras.

“However, it is not disputed that both trustees were professionally qualified doctors, who besides looking after the administration and running of the hospital, were also providing services to the hospital. The payment to them was also linked to the fees collected from the patients. The total professional charges paid to them were ₹ 6,52,748/-. In such circumstances, where the payment is made for rendering professional services to the assessee trust, it cannot be held to be for the direct or indirect benefit of trustees. We find no merit in the orders of authorities below in invoking provisions of section 13(1)(c) of the Act in the present set of facts. Accordingly, we hold that professional fees of ₹ 6,52,748/- paid to two trustees is to be allowed as deduction.”