1976 (5) TMI 40 - AT - Income Tax

Trust denied hospital exemption, but qualifies for charitable exemption. X-ray machine payment deemed charitable. Assessment overturned.

ABC TRUST. Versus INCOME TAX OFFICER.

The Tribunal held that the Trust did not qualify for exemption under section 10(22A) as it did not meet the criteria of a hospital or institution ... - Issues Involved:1. Whether the income of the assessee is exempt under section 10(22A).2. Whether the Trust is entitled to the exemption under section 11.3. Whether the payment of Rs.12,891 to Dr. Nawlakha amounts to utilizing the income of the Trust for its purposes.Detailed Analysis:Issue 1: Exemption under Section 10(22A)The primary issue was whether the income of the Trust qualifies for exemption under section 10(22A) of the Income-tax Act, 1961. The section provides that any income of a hospital or other institution for the reception or treatment of persons suffering from illness or requiring medical attention, existing solely for philanthropic purposes and not for profit, shall not be included in the total income.The Tribunal examined the definitions provided in Dorland's Illustrated Medical Dictionary and Stedman's Medical Dictionary, concluding that the Trust does not qualify as a 'hospital' because it does not treat patients but merely performs X-rays and pathological tests. These activities, while necessary for treatment, do not themselves constitute 'treatment.'Furthermore, the Tribunal noted that the Trust's activities did not meet the description of an 'institution' under section 10(22A) as it did not provide treatment for persons suffering from illness or during convalescence. The Trust's activities did not align with the requirement of 'medical attention' in the context of rehabilitation or follow-up care.The Tribunal also focused on the requirement that the institution must exist solely for philanthropic purposes and not for profit. Despite the Trust Deed stipulating no aim for profit, the Trust consistently made significant profits each year, indicating a systematic profit-making activity rather than philanthropic purposes. Therefore, the Tribunal held that the Trust is not entitled to the exemption under section 10(22A).Issue 2: Exemption under Section 11The Tribunal then considered whether the Trust is entitled to exemption under section 11 of the Income-tax Act, 1961. Section 11 provides that income derived from property held under trust wholly for charitable or religious purposes shall not be included in the total income if applied for such purposes in India.The Tribunal noted that the Trust derives income from its X-ray and pathology clinic, which are held under trust. The key points of contention were whether the Trust's purposes qualify as 'charitable' under section 2(15) and whether the income was applied for such purposes.The Tribunal concluded that the term 'medical relief' in section 2(15) is broader than the terminology in section 10(22A) and includes running a pathology laboratory and X-ray clinic, as these activities are intended for the relief of patients.The Tribunal also addressed the interpretation of 'not involving the carrying on of any activity for profit' in section 2(15), agreeing with the Karnataka and Calcutta High Courts that this phrase qualifies only the last category, 'advancement of any other object of general public utility,' and not the categories of 'relief of the poor,' 'education,' and 'medical relief.' Therefore, an institution engaged in medical relief can undertake profit-making activities and still qualify for exemption under section 11, provided the income is applied for charitable purposes.Issue 3: Utilization of Income for Trust PurposesThe final issue was whether the payment of Rs.12,891 to Dr. Nawlakha for the X-ray machine constituted utilizing the income of the Trust for its purposes. The Tribunal held that section 11(1)(a) does not restrict the application of income solely to revenue expenses but also includes capital expenditures necessary for carrying out charitable objects.The Tribunal found that the payment for the X-ray machine was for the purpose of 'medical relief,' thus qualifying as an application of income for the Trust's purposes. This conclusion was supported by the Gujarat High Court's decision in Satya Vijay Patel Hindu Dharamshala Trust vs. Commissioner of Income-tax.ConclusionThe Tribunal concluded that while the Trust is not entitled to exemption under section 10(22A), it qualifies for exemption under section 11 as it fulfills the conditions stipulated in section 11(1)(a). The Trust derives income from property held under trust for charitable purposes and has applied the income for such purposes. Consequently, the assessment was quashed, and the appeal was partly allowed.