2023 (8) TMI 223 - AT - Income Tax

Tribunal Overturns Rejection of Co-op Society's Registration Application under Income Tax Act

Shushrusha Citizens’ Co–operative Hospital Ltd. Versus Commissioner of Income Tax (Exemp.) Mumbai

The Tribunal set aside the CIT(E)'s rejection of a co-operative society's application for continuation of registration under section 10(23C)(via) of the ... Registration u/s 10(23C)(via) - satisfaction of the condition of existing solely for philanthropic purposes and not for the purpose of profit - application for continuation of registration rejected holding that the assessee does not satisfy the conditions of existing solely for philanthropic purposes and not for the purposes of profit, as surplus year after year are generated out of the systematic activity of profit-making and therefore the assessee is running the hospital for the purpose of profit. HELD THAT:- As already decided in own case [2018 (3) TMI 795 - BOMBAY HIGH COURT] merely because a hospital or institution is getting a profit, that by itself will not attract disqualification and it will attract disqualification only if the hospital or institution exists for the purpose of gaining profit - also held that if the object of the assessee is to set up a decent hospital for providing medical facilities and medical help at a reasonable charge and for providing medical facilities to the needy and poor free of charge or at subsidised rates, it is necessary for the assessee to engage trained staff and medical practitioners, for which the professionals or other persons, who rendered services, have to be paid honorarium. There is nothing wrong if the bonus is paid to the members of the staff, as the staff and other members as well as medical practitioners are not expected to work with the assessee on a charitable basis if a decent hospital is to be maintained and good facilities are to be provided for the patients. It is not the case of the Revenue that the surplus which is generated was diverted to any non-charitable activity. The Hon’ble High Court, however, found that there are certain aspects which require further examination and accordingly remitted the matter for fresh consideration of the application for registration filed by the assessee under section 10(23C)(via). Thus CIT(E) did not analyse all the submissions made by the assessee in light of the various aspects highlighted by the Hon’ble High Court. It is pertinent to note that the matter was restored for the consideration of assessee’s application for registration u/s 10(23C)(via) and the Hon’ble High Court directed the assessee to furnish the information/details regarding the aspects as highlighted in judgment. However, the learned CIT(E) without examining all these aspects, as directed by the Hon’ble High Court, has reiterated its findings regarding the non-earmarking of any beds for indigent and weaker sections, which as noted above was held to be not a correct test by the Hon’ble High Court. The impugned order passed by the learned CIT(E) is set aside and the sole ground raised by the assessee is allowed for statistical purposes. Issues Involved:1. Rejection of the application for continuation of registration under section 10(23C)(via) of the Income Tax Act, 1961.2. Compliance with the directions of the Hon'ble High Court regarding the examination of specific aspects for registration under section 10(23C)(via).Summary:Issue 1: Rejection of the application for continuation of registration under section 10(23C)(via)The assessee, a co-operative society formed to provide medical facilities, challenged the rejection of its application for continuation of registration under section 10(23C)(via) of the Income Tax Act, 1961. The application was initially rejected on the grounds that the assessee was generating surplus year after year and was thus considered to be running the hospital for profit rather than for philanthropic purposes.Issue 2: Compliance with High Court's directionsUpon appeal, the Hon'ble High Court quashed the initial rejection order, stating that the mere generation of profit does not disqualify an institution if it exists for philanthropic purposes. The High Court remitted the matter for fresh consideration, directing the Revenue to examine specific aspects such as whether the assessee provides medical treatment at nominal or free charges to economically weaker sections, and to look into the entire record to ascertain the income received from beds/rooms and the treatment provided at concessional rates.Further Examination by CIT(E)The learned CIT(E) referred to guidelines issued by the Charity Commissioner and held that the assessee was not meeting the conditions, such as reserving 10% of beds for indigent patients and providing treatment at concessional rates. The CIT(E) reiterated that the assessee was not existing solely for philanthropic purposes, and thus rejected the application again.Tribunal's FindingsThe Tribunal found that the CIT(E) did not analyze the submissions made by the assessee in light of the High Court's directions. The CIT(E) failed to examine all the information provided by the assessee and reiterated findings that were already addressed by the High Court. Therefore, the Tribunal restored the issue to the file of the CIT(E) for de novo adjudication as per the High Court's directions. The appeal by the assessee was allowed for statistical purposes.ConclusionThe Tribunal set aside the impugned order passed by the CIT(E) and allowed the appeal for statistical purposes, directing a fresh examination in compliance with the High Court's judgment.