2010 (2) TMI 1132 - HC - Income Tax

Hospital construction costs held as charitable expenditure under Income-tax Act, exempting income under section 11.

COMMISSIONER OF INCOME-TAX, MEERUT Versus MOOL CHAND SHARBATI DEVI HOSPITAL TRUST

The High Court held that the expenditure incurred by the assessee on the construction of a building for running a hospital was for charitable purposes, ... Exemption u/s 11 - assessee-trust spent a sum towards the construction of a building - assessee has its prime object of running hospitals, nursing homes etc. for medical relief to the general public - ITAT concluded that amount spent by the assessee on the construction of the building in question was an expenditure incurred by it for the purposes of carrying out the charitable objects of the assessee-society and was an application of income for charitable purposes HELD THAT:- The object of the assessee-trust is primarily to run the hospital, nursing home etc. for medical aid to the general public. We are of the view that such object falls within the purview of charitable purposes defined u/s 2(15) of the Act. Construction of building for running the hospital or dispensary is the basic necessity. Without the building hospital cannot run and the medical facility cannot be provided to the public at large. Therefore, any expenditure incurred for the construction of the building is the expenditure incurred for charitable purposes. For the construction of the building if the land is taken on lease from PMT Society on which hospital was constructed and is being run, it cannot be said that the amount incurred in the construction of the hospital building on the land taken on lease from PMT Society was not for charitable purposes. We are of the view that the object of the PMT Society is wholly irrelevant to judge the object of the present assessee. However, the fact is that the object of PMT Society has also been treated as charitable object by the appellate authority which is valid till date. The Apex Court in the case of CIT v. Gujarat Maritime Board [2007 (12) TMI 7 - SUPREME COURT] has interpreted the words “any other object of generally public utility” of section 2(15) of the Act. It has been held that the said expression is of the widest connotation. The word ‘general’ in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose. Decided in favour of assessee. Issues Involved:1. Whether the income of the assessee for assessment year 1985-86 was entitled to exemption under section 11 of the Income-tax Act, 1961.Issue-Wise Detailed Analysis:1. Facts and Background:The assessee is a charitable trust established by a Trust deed dated 11-7-1985, with the primary objective of running hospitals and providing medical relief to the general public. During the year under consideration, the assessee spent Rs. 5,62,917.77 towards the construction of a building. The Income-tax Officer (ITO) and the Commissioner of Income-tax (Appeals) [CIT(A)] held that this amount was not spent for charitable purposes, thereby denying exemption under section 11 of the Income-tax Act, 1961.2. Tribunal's Findings:The Tribunal found that the expenditure incurred by the assessee on the construction of the building was for charitable purposes. The Tribunal noted that the assessee had entered into a Memorandum of Understanding (MoU) with another society, Pt. Pyare Lal Sharma Memorial Trust Society (PMT Society), to construct a building on PMT Society's land. The building was to be used for running a hospital, which was in line with the assessee's charitable objectives.3. Legal Arguments:The learned counsel for the assessee argued that the object of the assessee-trust is the relevant consideration for the claim of exemption under section 11 of the Act, and the object of PMT Society is irrelevant. The assessee's trust was registered under section 12A of the Act, and the construction of the building was necessary for running the hospital, which serves the general public.The learned Standing Counsel for the revenue argued that the object and constitution of the PMT Society were of a political nature, and the amount spent on constructing the building for PMT Society was not for charitable purposes.4. High Court's Analysis:The High Court examined the provisions of section 2(15), section 11(1), and section 12A of the Income-tax Act, 1961, which define 'charitable purpose' and provide exemptions for income applied for charitable purposes. The Court noted that the assessee-trust was registered under section 12A, and its object of running hospitals and providing medical relief falls within the definition of 'charitable purpose.'The Court observed that the construction of the building was essential for running the hospital, and the expenditure incurred for this purpose was for charitable purposes. The Court held that the object of PMT Society was irrelevant to judge the object of the assessee-trust. However, it was noted that the appellate authority had treated the object of PMT Society as charitable, which was valid till date.5. Relevant Case Laws:The Court referred to several case laws to support its decision:- CIT v. Gujarat Maritime Board [2007] 295 ITR 561 (SC): The expression 'any other object of general public utility' has the widest connotation and includes objects that promote public welfare.- CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC): An object promoting the welfare of the general public is a charitable purpose.- CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC): An object promoting the interest of a particular trade or industry is an object of public utility.- Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 11 (SC): If the primary object of an institution is charitable, any ancillary object does not prevent it from being a valid charity.6. Conclusion:The High Court concluded that the expenditure incurred by the assessee on the construction of the building was for charitable purposes and was an application of income for charitable purposes within the meaning of section 11(1)(a) of the Act. Therefore, the assessee's income was exempt under section 11, and the amount in question could not be taxed. The question referred was answered in the affirmative in favor of the assessee and against the revenue.