Charitable hospital exemption under section 11 not denied in full for incidental concessional treatment to specified persons.

Exemption under section 11 could not be denied in entirety to a registered charitable hospital merely because concessional medical treatment was extended to directors or members. The Tribunal noted that running a hospital constitutes medical relief within section 2(15), and that sections 11 and 13 require both charitable application of income and restraint on benefit to specified persons. On the facts, the alleged concession was negligible and incidental, with no material showing diversion of income for private benefit under section 13(1)(c). Any proven violation, if established, would not justify wholesale denial of exemption on the entire income.

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Issues: Whether exemption under section 11 of the Income-tax Act, 1961 could be denied in entirety on the allegation that concessional medical facilities were extended to directors or members in violation of section 13(1)(c) of the Income-tax Act, 1961.

Analysis: The assessee was registered under section 12A and carried on the activity of running a hospital, which fell within the charitable purpose of medical relief under section 2(15) of the Income-tax Act, 1961. The statutory scheme of sections 11 and 13 requires both charitable application of income and compliance with the restrictions regarding benefit to specified persons. On the facts, the alleged concession to directors was held to be negligible and incidental in relation to the overall medical services rendered, and there was no material to show diversion of income for private benefit in the manner contemplated by section 13(1)(c) of the Income-tax Act, 1961. The objects of the trust themselves contemplated concessional medical facilities, and the reasoning accepted that any proven violation, if at all, would not justify wholesale denial of exemption on the entire income.

Conclusion: Denial of exemption under section 11 in entirety was not justified, and the assessee was entitled to exemption under section 11 of the Income-tax Act, 1961.

Final Conclusion: The appeals succeeded on the exemption issue, while the alternative loss-set-off ground did not require adjudication because it became academic.

Ratio Decidendi: A charitable institution engaged in medical relief cannot be denied exemption on its entire income merely because an insignificant and incidental benefit is extended to specified persons, and any consequence of a proved violation must be confined to the income directly relatable to that violation.

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