TaxTMI 
TaxTMI 
2015 (4) TMI 186
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....That the DIT(E) erred on facts in law in alleging holding that Appellant Society was not a charitable organization, as the property/hospital of the Appellant- Society were taken over by Max Group, by creating various financial and legal obligations on the Appellant Society and the Max Group was running the hospital with a profit motive. 2.1 That the DIT(E) erred on facts in law in observing that the Appellant Society undertook huge/adverse financial obligations by entering into agreements for construction and maintenance of hospital building, supply of medical equipments, provisions of medical staff/services with companies belonging to Max Group, which was a colourable device to transfer profits to such companies. 2.2 That the DIT(E) erred on facts in law in observing that the Assessee Society was merely a "special purpose vehicle" to take advantage of concessional land allotted by the State Government and to pass off profit earned from operating hospital to companies belonging to Max Group. 3. That the DIT(E) erred on facts in law in holding that the Appellant Society was not for 'charitable purpose', alleging that the appellant did not fulfill the minimum criteria of pro....
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.... to cancel registration where activities of the trust were not genuine or the activities were not in accordance with the objects of the trust. However, if a trust has allowed use of its property in violation of provision of Section 13, the cancellation after 01.10.2014 would be under Section 12AA(4) and not under Section 12AA(3) of the Act. He submitted that in case of violation of provision of Section 13 in the case of a charitable trust, the same would not be stretched by the CIT/DIT(E) to say that there was a violation of the provision of Section 12AA(3) of the Act. He referred to the show cause notice under Section 12AA(3) for withdrawal of registration under Section 12A dated 18.11.2011 issued by the DIT(E), a copy of which has been filed in the compilation filed before us. He submitted that the DIT(E) has wrongly taken the area allotted to M/s Max Health Care Ltd. (hereinafter referred to as 'M/s MHC') as 1500 sq.mtrs. although the same was only 1500 sq.ft. for the exclusive use of MHC and its personnel. He submitted that M/s MHC is not a group company of the assessee trust. The learned senior counsel argued that the assessee filed its submissions on 27.12.2011 running in abo....
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.....Ltd.) was to complete the construction of the building as per the project site including the civil construction, finishing work, plumbing, electrical works etc. in conformity with the specifications or any amendments thereto as may be agreed upon between the assessee and the contractor. The agreement further provides that the contractor shall perform and execute its obligations under this agreement as an independent contractor and none of its officers, directors, employees or agents shall be deemed to be the agents, representatives, employees or servants of the owner (the assessee). It further provides for performance guarantee on the part of the contractor who shall deposit Rs. 3,91,50,000/- with the owner as guarantee for the performance of its obligations under the agreement. The agreement dated 10.12.2001 between the assessee and M/s MMK Investments Pvt.Ltd. provides that the agreement may be terminated at any time solely at the option of the company by giving 30 days' notice to the user in terms of clause 13.3 of the agreement. Clause 18 of the said agreement provides for the performance guarantee. Clause 20 of the agreement provides for indemnification by the user to the com....
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.... liability whatsoever to any third party. The learned senior counsel referred to the minutes of the meeting of the governing body of the assessee dated 06.09.2008 to show that the affairs of the hospital were conducted by the assessee only. He referred to the written submissions filed before the DIT(E) by the assessee dated 27.12.2011, copy of which has been filed in the compilation filed before the Tribunal. 5. The learned senior counsel for the assessee submitted that the reasoning of the Revenue that the assessee was not providing free beds to poor sections of the society was unsustainable for the simple reason that the assessee has made provision for free beds but if the poor people do not come forward and avail the facility of free medical services, the assessee could not be blamed. He submitted that on monthly basis, the details of the free beds have to be filed before the Health Department and the authorities appointed under the statute have checked the same and the Income-tax Department could not sit over their judgment. He relied on the decision of Delhi Tribunal in the case of Civil Services Society Vs. DIT(E), Delhi - [2013] 143 ITD 408 (Delhi-Trib.). He referred to t....
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....ociety. She submitted that since the assessee has admittedly not undertaken any research work, it could not be said that the assessee was running its affairs as per the main objects of the society, as detailed in its memorandum of association and, accordingly, since the assessee was not running as per the main objects of the society, the assessee was rightly denied the exemption under Section 12A/12AA of the Act. She submitted that the issue is covered in favour of the Revenue with the decision of Bangalore Tribunal in D.R. Ranka Charitable Trust Vs. Director of Income-tax (Exemptions) - [2010] 3 ITR (Trib) 151 (Bangalore). She submitted that on this ground alone, the assessee was not entitled to exemption under Section 12A and the order of the DIT(E) denying the exemption should be confirmed. 7. Learned CIT-DR submitted that the land on which the hospital of the assessee-society is situated was allotted to them by the Government of India vide perpetual lease deed dated 5th June, 1996 executed between on behalf of President of India and the assesseesociety and the terms of the perpetual lease deed was to provide 10% totally free indoor treatment and 20% free OPD for the weaker s....
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....assessee-society was to pay 6% of its annual turnover on account of repairs and maintenance to the Max Group. The repayment schedule of the construction cost of the hospital building was designed by the assessee-trust in a way to give maximum benefit to the Max group of companies. She submitted that the assessee was not doing any charitable activities and its employees were only of the lower category and the doctors and technicians etc. were all belonging to the Max Group. She referred to clause 8.03 of the said agreement wherein the term 'Gross Annual Turnover' of the hospital for any particular financial year has been defined to include every receipt from whatever source of income. She referred to supplementary agreement between the assessee-society and M/s Max Medical Services Limited (formerly known as MMK Investments Private Limited) dated 21.02.2009 wherein the "Adjusted Turnover" has been defined. She referred to the agreement between the assessee-trust and M/s MMK Investments Pvt.Ltd. dated 10.12.2001 wherein the term 'Use of Equipment' by the hospital has been detailed and it specifically provides that M/s MMK Investments Pvt.Ltd. could terminate the agreement at any time ....
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....ow the assessee has undertaken any research work as provided in its main object in the memorandum of association when there is a specific bar to utilize the funds of the hospital including all its receipts of whatever nature only for the purpose of the management and operations of the hospital. She submitted that the agreement is so drafted in favour of M/s MHC that clause 8(a) of this agreement provides that the assessee-society undertakes that it shall be responsible and solely liable for any action that may be initiated against the assessee or even M/s MHC with respect to the services being provided at the hospital and that MHC shall have no liability whatsoever in respect of the claim asserted against the assessee or MHC by any third party including government or bodies for any act of omission whatsoever. The Annexure-1 to the said services agreement provides that MHC shall be paid services fees at Rs. 12 crores in each of the first three years and Rs. 15 crores in each year from the fourth year up to the ninth year and Rs. 20 crores in each year from the ninth year onwards from the effective date, if the invoiced amount net of all taxes falls below the specified amount of Rs. ....
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.....)(URO). (xiii) Tamil Nadu Cricket Association Vs. DIT(E) - [2013] 57 SOT 439 (Chennai-Trib.). (xiv) Daulat Ram Public Trust Vs. CIT - [2000] 244 ITR 514 (Delhi). (xv) DDIT(E) Vs. Mool Chand Kharaiti Ram Trust - [2012] 52 SOT 42 (Delhi). (xvi) Board of Control for Cricket in India Vs. ITO - [2012] 136 ITD 301 (Mumbai). (xvii) Ideal Publications Trust Vs. CIT, Calicut - [2008] 305 ITR 143 (Kerala). 9. The learned CIT-DR referred to the minutes of the meeting of the members of the governing body of the assessee-society on 06.09.2008 resolving that the society do provide and create charge by way of hypothecation over its current assets on pari passu basis with working banking capital and exclusive charge over its fixed assets in favour of IIBL to secure its obligation etc. She referred to the agreement dated 15.12.2005 between the assessee-trust and M/s Vascard Healthcare and Services Limited (hereinafter referred to as 'M/s Vascard') whereby M/s Vascard was to provide doctors who have specialized knowledge and experience in the heart and vascular field. It further provides that on execution of the agreement, the assessee-society shall pay M/s Vascard on a Sign on Bo....
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....under Section 12A may be confirmed. 10. The learned senior counsel for the assessee, in his rejoinder, submitted that the assessee is running a hospital and how running a hospital for public at large was not a charitable activity. He referred to Circular No.11 of 2008 dated 19th December, 2008 issued by the CBDT, copy filed in the compilation before the Tribunal which lays down that for the purpose of "charitable purpose" under Section 2(15) of the Act, the words "charitable purpose" shall include amongst others the medical relief and it further provides that entities whose object is "education" or "medical relief" would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to certain conditions. The learned senior counsel argued that whether the assessee charged Rs. 100/- or Rs. 1,000/- for a particular service does not make the service rendered for medical relief as not charitable. He submitted that the hospital may not cut the cost to compromise the quality of medical aid to the public. He submitted that the assessee has never earned profit in any year and has in fact incurred losses. He argued t....
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....py filed by the Revenue in its compilation before the Tribunal, has no bearing on the case of the assessee as M/s Vascard is an independent service provider. He submitted that the legal, financial and management control of the hospital is with the assessee only. He submitted that the assessee's employees were 88.18% in FY 2007-08, 90.99% in FY 2008-09 and 98.14% in FY 2009-10 of the total employees of the hospital. He submitted that the DIT(E) has not referred to the reasons recorded under Section 147 read with Section 143(3) for the assessment year 2005-06 by the Assessing Officer and, therefore, this plea should not have been taken by the learned CIT-DR. He submitted that in fact with the engagement of MHC, it was the assessee who had benefitted due to specialized medical services. He submitted that regarding the free beds not availed by the weaker sections of the society, the relevant authorities of the Delhi Government have not objected and, therefore, the department could not sit over the judgments of the concerned authorities appointed under the law. He submitted that on the same facts, the Delhi Tribunal has decided the issue in favour of the assessee in ADIT(E) Vs. RB Seth ....
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.... The objects for which the Society is established shall be : A. MAIN OBJECT OF THE SOCIETY TO BE PERSUED ON REGISTRATION : To engage in medical, biological, social, environmental and allied sciences research so as to enhance human understanding regarding the epidemiological basis of health & disease through acquisition, dissemination and sharing of new knowledge concerned with initiation, causation, diagnosis, treatment and rehabilitation of disease and disability in humans in general and with reference to : - Cardiac Speciality - Cancer detection and care - Communicable diseases - Nutritional and Deficiency disease - Diseases of Pregnancy & Newborn - Diseases of Poverty and illiteracy B. OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECT : 1. In consonance with the main object, to engage in management sciences research with special reference to methods of organization methods of financing and choice of technology in delivery of health care. 2. In consonance with the main object, to engage in population science research with special reference to contraception and other scientific methods of population control. 3. To promote, es....
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....ions by stent introduction etc. - To offer diagnostic facilities of highest order over and above the existing facilities. - To offer cancer surgery in specialized of oral and malignancies which are most prevalent in northern India. 5. To disseminate, the acquired knowledge through publications, conferences, seminars, workshops, courses, presentations, demonstrations and exhibitions organized at regional, national and international levels and to share such knowledge with other institutions for an agreed consideration. 6. All the income earnings from movable or immovable properties of the society shall be solely utilized and applied towards the promotion of its aims and objects as set forth in the Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly or by way of dividends, bonus, profit, etc., to the present or past member of the Society or to any person claiming through any one or more of the present or the past members." 15. The learned CIT-DR has emphasized on the fact that the assessee has not carried out its activities as per the main object of the society. The main object of the society as reproduced above was to en....
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.... plea of the learned senior counsel, that in new medicine system, samples from different hospitals are taken including from the hospital run by the assessee-society and, therefore, is a research in advancement of medical care, is not acceptable since collecting the samples from the patients by commercial companies for testing the desirability of introducing the new drug for public at large is not a research undertaken by the assessee-society in accordance with its objects but in fact is a commercial activity of testing the drug on humans by the pharmaceutical companies for its commercial application at large. In this case, the facts of the case lead to the only conclusion that the assessee has not undertaken any research activity in accordance with the objects of the assessee-society. It is wellestablished that the registration for exemption under Section 12A is granted by the DIT(E) on the basis of objects of the assessee-society as detailed in the memorandum of association and if the DIT(E) finds that the objects of the assessee are charitable in nature, and that other legal formalities are fulfilled by the assessee, DIT(E) has no other choice but to grant registration under Sect....
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....ts are not given admission for treatment by private hospitals as they cater to only the elite class of the society. These private hospitals have been made in a five star style and they do not allow even the entry to the poor people in its corridors. In the government hospitals, the poor patients are lying in verandahs and in open space in wait for their turn for admission for days together and it is not believable that they will not come forward for treatment in the hospital providing all modern facilities free of cost. The plea of the learned senior counsel for the assessee that on monthly basis, the details of free beds have to be filed with the Health Department and the authorities appointed under the statute have checked the same and the Income-tax Department could not sit over their judgement, seems to be not relevant to the issue before the Tribunal. The issue before us is not that whether any legal action should have been taken by the Health Department and the authorities appointed under the statute to check the details of free beds provided by the assessee and, in our view, any failure on the part of the authorities of the Health Department to take action, would not immune ....
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....rties were hypothecated to the bank to raise loans to the benefit of Max Group of Companies. The assessee-society having been allotted prime land at a nominal price from the Government could not hypothecate its title deeds in favour of the bank to raise loans for the benefit of a profitmaking Max Group of Companies. The assessee has even hypothecated its movable assets in favour of the bank for the benefit of the Max Group of Companies. We find that in agreement dated 10.12.2001 between the assessee-society and M/s MMK Investments Pvt.Ltd. (Max Group), the owner, i.e., the assessee could not terminate the contract and the contractor i.e. M/s MMK Investments Pvt.Ltd. could terminate the contract. Clause 4.04 of this agreement dated 10.12.2001 provides that in case the contractor M/s MMK Investments Pvt.Ltd. terminates the agreement before the expiry of the term or the extended term in accordance with certain provisions mentioned in the agreement or the assessee society terminates the agreement otherwise in accordance with clause 4.02 of the said agreement, the assessee trust shall be liable to pay the contractor i.e. M/s MMK Investments Pvt.Ltd. liquidated damages amounting to the s....
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....tendent and other personnel and the assessee has agreed to provide an area of at least 1500 sq.ft. for the exclusive use of M/s MHC and its personnel. Clause (6) of the services agreement provides that the assessee-trust shall apply and obtain and renew all necessary permissions, sanctions, license, permits etc. from the government and other appropriate authorities and that M/s MHC shall not at any time and in any way be responsible for any consequences arising out of the delay to obtain such permissions. Clause 6(c) of this agreement provides that the assessee-trust shall not make any attempt to solicit or source the services for the hospital from any third party during the term of the agreement. However, M/s MHC shall have the option to provide the services of any kind to any other person etc. Clause 6(f) of the services agreement provides that assessee-trust has agreed to utilize the funds of the hospital including all its receipts of whatever nature only for the purpose of management and operations of the hospital and shall not be diverted to or used by the assessee-society for any other purposes. We find that it is not understandable that how the contractor M/s MHC could impos....
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....assessee has relied on the Circular No.11 of 2008 dated 19th December, 2008 issued by the CBDT, copy filed in the compilation, defining the provisions of Section 2(15) of "charitable purpose". It provides that the charitable purpose shall include the medical relief and that the entities whose objects is "education" or "medical relief" would continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to certain conditions. We find that the reliance on the contents of this Circular issued by the CBDT is misplaced firstly because the assessee is not running its activities in accordance with the objects of the assessee-society and, secondly, in this case, the issue is not that whether the assessee has incidentally carried on any commercial activity. In this case, the activity of the assessee in providing medical relief itself is not conducted in a charitable manner and, therefore, the ratio of the Circular issued by the CBDT does not apply to the facts of the case of the assessee. The assessee is running its affairs of running a hospital totally on commercial lines to extract the maximum revenue from its patients and....
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....e assessee in the status of an AOP at the maximum marginal rate of tax and has held that no charitable activities worth the name are being provided by the assessee and huge payments are being made to Max group under different heads and therefore, the DIT(E) has no power to withdraw the exemption under Section 12A separately, is not sustainable in law. The assessment order of the Assessing Officer was passed in scrutiny assessment under Section 143(3) of the act and the registration under Section 12A of the Act is altogether separate and whose jurisdiction lies with DIT(E) and not with the Assessing Officer. 23. The learned senior counsel for the assessee has relied upon the decision of Hyderabad Bench of the Tribunal in the case of St. Joseph Academy (supra). We find that the ratio of this decision of the Tribunal is not applicable to the facts of the case of the assessee as the main issue in this case before the Hyderabad Tribunal was that where the assessee-society was formed with the object of establishing schools, colleges, training institutions, hospitals, orphanages, hostels etc. for the benefit of Christian minority community in particular and others in general. The CIT r....
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....n the case of CIT Vs. Jagadhri Electric Supply & Industrial Co. - [1981] 7 Taxman 56 (P&H). In this case, the Tribunal has set aside the order of the CIT passed under Section 263 on the plea that the Tribunal could not uphold the order appealed against on the grounds other than those taken by the Commissioner in his order. In our view, there is no such issue in the case of the assessee before us. 27. The learned senior counsel has relied on the decision of Hon'ble Supreme Court in the case of Rashmi Metaliks Limited and Another (supra) which has followed the decision of Hon'ble Supreme Court in Mohinder Singh Gill Vs. Chief Election Commissioner - [1978] 1 SCC 405. We find that these decisions shall not help the case of the assessee as it was held by the Hon'ble Apex Court in Mohinder Singh Gill's case cited supra that when the validity of an order by a statutory functionary is judged, it could not be supplemented by fresh reasons in the shape of an affidavit or otherwise. It was further observed by the Hon'ble Apex Court that otherwise an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later br....
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....aritable in nature when it is dominated and triggered by economic greed. There is no difference in what a soldier and a mercenary does, both use bullets to defend their interests, but while a soldier does it out of patriotism, a mercenary does it for monetary gain. The action is the same, and yet motivation for the actions are so materially different that the character of activity is altogether changed. Clearly, underlying motive and trigger for doing what a person does is, is important for determining whether such an action is in the course of business or charity. What is really, therefore, required to be carefully examined, in order to find whether an act of the institution is charitable or not, is not only to assess the work being done by the institutions, which claim to be pursuing charitable activities, but also the economic dynamics and motivations of such activities. 30. In the light of this fundamental position, let us take a look at what the assessee is doing and whether the manner in which activities of the assessee are being carried out indicate any compassion, benevolence or generosity towards others or as a community as a whole. When object of an institution is to h....
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.... - [2011] 46 SOT 125 (Chennai), wherein the Tribunal upheld the order of the Commissioner cancelling the registration of the assessee u/s 12A wherein the assessee carried out business incidental to charitable activities of the trust and had converted incidental objects as main objects of the assessee and did not carry on the proclaimed main object of charitable activities. We find that in the case of the assessee, the assessee-society has not carried out its main object of research in medical sciences and the activities carried out by it in the facts of the case could not be said to be charitable in nature and, therefore, the exemption u/s 12A was rightly cancelled by the DIT(E). 34. We find that the DIT(E) has passed a well-reasoned speaking order on the issue. He has recorded a finding that the assessee's foundation has not been in operation as a charitable institution as the trustees allowed the property as to be taken over by the Max group by creating various financial and legal obligations as detailed in the foregoing paragraphs of his order. He has further recorded that the hospital is virtually run by the Max Group of concerns which are corporate bodies established with t....
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....le institutions are rendering exemplary services to the weaker sections of the society as charity is a part of Indian culture right from time immemorial. We are of the considered view that no hard and fast rule to distinguish between the societies/trusts rendering real service of charitable nature and the institutions being run on commercial lines could be laid down. The facts and circumstances of each case have to be evaluated in a judicial manner and in its entirety to come to a right conclusion that whether the assessee-society/trust is carrying on its activities for charitable purposes in accordance with the objects of the society. There could not be any exhaustive list of such tests but the following may be found relevant to decide the issue along with other tests that may be relevant :- (i) Whether the society/trust was running its activities in accordance with the objects of the society/trust as has been given at the time of registration of the society/trust; (ii) Whether the conditions provided in the lease deed of the land allotted or any other benefit derived by the society/trust from the government or semi-government or from any section of the society have been com....