TaxTMI 
TaxTMI 
1998 (7) TMI 696
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....o medical research. The research institution also came to be recognised by the Government of India. The name of the hospital, after the advent of the research centre, was changed from National Hospital to "P.D. Hinduja National Hospital and Medical Research Centre". 2. The memorandum of association of the society contains the following objects for which the society was established : "(3) The objects for which the society is established are to conduct and maintain a hospital which will hereafter be named as 'Parmanand Deepchand Hinduja National Hospital & Research Centre" for the reception and treatment of persons suffering from illness or for the reception and treatment of persons during convalescence or of persons requiring medical attention and these activities are carried out solely for philanthropic purposes and not for the purpose of profit and without prejudice to the generality of the foregoing : (i) to conduct and maintain a research centre for research work in diseases, medicines and medical relief; (ii) to provide medical and surgical treatment to persons irrespective of caste, creed or religion whether as in-patients or out-patients; (iii) to pro....
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....up to and including the asst. yr. 1986-87. The medical research centre was also exempt under s. 10(21) of the Act upto and including the asst. yr. 1987-88. For the first time in the asst. yr. 1987-88, the AO took the view that in order to claim exemption in respect of the income under s. 10(22A) the assessee should be a philanthropic institution which, according to him, meant that the hospital should treat poor persons free of charge or at a highly concessional rate. Accordingly to him, the hospital was being run on commercial lines. He noticed that the assessee had a profit motive inasmuch as the treatment given to patients depended on their financial status, the charges levied depended on the classes to which they were admitted and further that service charges of 20 per cent of the bill amount were charged. The criterion of the AO for the purpose of securing exemption, in addition to what has been already stated, was that the hospital should maintain itself through donations, charities and other income, without depending on the charges collected from the patients. In his view the assessee flouted these criteria, was run on commercial lines with a view to earning profit and, there....
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....e. 7. The position for the asst. yr. 1988-89 is the same. As regards the asst. yr. 1989-90, the CIT(A) struck a different note. He held that merely because the hospital charged high rates from upper class patients for special deluxe rooms and suite, it did not follow that it existed for purposes of profit and not for philanthropy. He also recorded a finding to the effect that there was no evidence to show any diversion of the funds or profits for personal purposes of the trustees of the hospital. He also noticed that the deficit in the working of the hospital for the year amounted to Rs. 2,40,60,000. He therefore, held that the assessee was entitled to the exemption under s. 10(22A). For the asst. yr. 1990-91 the same order was followed by him and the assessee was held entitled to the exemption. 8. In respect of the asst. yr. 1991-92 a slightly different complexion arose in the case. Apart from the receipts from the hospital, the assessee was also in receipt of certain other income such as interest from banks and UTI, profit on sale of units, income from gift shop and donations received and credited to the general fund account. The CIT(A) held that even though the assessee wa....
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....e disentitled to the exemption under s. 10(22A), as long as the dominant purpose is a philanthropic one and the purpose of earning profit is to spend it for the achievement of the main philanthropic purpose by redeploying the profits in the same institution or another similar institution. It is noteworthy that in the context of s. 11, the Supreme Court has, in the decision cited supra relied on by the Kerala High Court, held that the charitable organisation is not required to carry on its activities in such a manner that it does not result in any profit, which would be an impractical task for the persons in charge of the trust. As regards the second condition, the Kerala High Court held (p. 314) that free treatment to the poor and needy cannot be the sole philanthropic activity of a hospital because eleemosynary is not one of the essential ingredients of philanthropy. 12. Hon'ble Justice Narayana Kurup wrote a separate judgment agreeing with His Lordship Justice John Mathew. In the separate judgment, His Lordship observed that the expression "philanthropic purpose" assumes importance because the section requires that the hospital or institution should not exist for purposes ....
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....a High Court, in the context of s. 10(22A), held that if the earnings of the hospital are utilised for the purposes or objects for which it was established and there is no attempt on the part of the institution to accumulate the surplus without spending the same for philanthropic purposes, then the hospital must be taken to exist not for purposes of profits. 16. The above principles have also been recognised by the CBDT in their Circular No. F. No. 194/16-17II(AI) which has been reproduced at p. 453 of, Birla Vidyavihar Trust vs. CIT (1982) 136 ITR 445 (Cal). 17. We may now turn to the facts of the case before us. As already stated, the assessee is a society registered under the Societies Registration Act. It is also required to comply with the Bombay Public Trust Act, 1950, having been registered under the said Act also. At p. 47 of the paper book, a copy of the certificate dt. 4th August, 1990, issued by the Assistant Charity Commissioner, Greater Bombay Region, Bombay, has been furnished. The certificate shows that the hospital has, apart from complying with the provisions of the Bombay Public Trusts Act and maintaining prescribed registers according to the rules framed th....
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.... Free patients (Rs.) 1986 24,673* 1988 14,907* Year ending 31st March, 1989 24,531* Year ending 31st March, 1990 18,975** *(Figures as per certificates issued by DHS-pp. 48 to 51 of paper book) **[Figures as per order of CIT(A) for asst. yr.1990-91] 19. We have already seen from the judgment of the Kerala High Court in Pulikkal Medical Foundation (supra) that free treatment of poor patients is not one of the essential ingredients of philanthropy. The Kerala High Court have observed that free treatment of the poor and needy cannot be the sole philanthropic activity of a hospital but have hastened to observe that one of the philanthropic activities which a hospital can pursue should be to render free treatment to the needy and poor. This test is answered in the present case as we have found that there is a scheme for treating poor patients free of cost. The details have been given in the above chart for some of the years. At our instance, the assessee has furnished before us the copies of the relevant forms which the patients requesting free or concessional treatment should fill up. The modus operandi is discussed in the order of the CIT(A) ....
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....t p. 60 of the paper book, at our instance a certificate dt. 23rd November, 1991, has been furnished by the assessee in the additional papers which shows the deficits from 1961 to 31st March, 1991, covering a period of 30 years. Following are the details of the deficits : Financial year Deficit amount for the year (Rs.) 1961 (January-December) 11,003.96 1962 32,965.66 1963 59,570.92 1964 72,442.05 1965 1,16,197.34 1966 93,989.92 1967 1,20,132.92 1968 1,07,135.89 1969 77,898.56 1970 1,19,883.46 1971 1,34,248.69 1972 2,24,800.21 1973 1,19,552.56 1974 1,98,233.13 1975 1,67,590.76 1976 85,941.55 1977 1,01,621.26 1978 62,638.09 1979 1,13,961.26 ....
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....n of Rs. 1.69 crores, hospital running expenses of Rs. 1.32 crores and other administrative expenses of Rs. 1.24 crores and after providing for depreciation on the equipment, the net deficit came to Rs. 27.20 lakhs. In the medical research centre for the same period, the deficit came to Rs. 33.17 lakhs. Thus, year after year there has been a deficit in the running of both the hospital as well as the research centre. The deficit has steadily eroded the medical fund and the medical research fund and but for the donations received from philanthropists, including the founder's family members and the Hinduja group of concerns, the corpus funds would have been wiped out long back. For instance, in the year ended 31st December, 1986, a donation of just above Rs. 4 crores was received in cheques from the Hinduja group while foreign equipment costing Rs. 1.41 crores was received as donation in kind through the Hinduja Foundation. 23. The fact that year after year for nearly 30 years the hospital has been running on deficit, sustaining itself only through donations, goes to show that profit earning has not been the motive. It is also not correct to say that the hospital is being run o....
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.... charging the tariffs for different categories of beds, such as general ward, economy, second class, first class, deluxe and super deluxe, it has been explained in writing by the assessee that the tariff is fixed to broadly cover the following : (1) Labour cost, i.e. nursing staff, house keeping staff, services of doctors for 24 hours. (2) Water tax, property tax, sewage tax, electricity charges and maintenance charges. (3) Cost of food, i.e. lunch and dinner, tea, milk and snacks. It is to be noted that the food is the same for all classes of patients and is given as regulated by the concerned doctor. Outside food is not allowed. (4) Cost of linen, i.e. daily change of bedsheets, patients' uniform, towels, napkins, etc. at least once a day and as many times in the case of they getting soiled. (5) Miscellaneous items such as cotton, gauzes, dressing material, disinfectants in the rooms, toilets, etc. (6) Depreciation on cost of beds and building. 26. The necessity to revise the bed charges periodically arises because of the increase in the dearness allowance of the staff every six months and the yearly increment consequent upon the agreement arrived at with th....
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..... In the assessment, the MRC claimed exemption under s. 10(21) of the Act and the claim was also accepted, as the assessee has been approved for the purposes of s. 35(1)(ii) of the Act. There was no appeal on this issue before the CIT(A). However, in the course of the appeal, the CIT(A) required the assessee to show why the income of the MRC which was shown as "other income" in Schedule XV of the accounts should not be included in the total income. The CIT(A) was prima facie of the view that the income had no connection with the research activities. After considering the assessee's explanation, the CIT(A) held that the following income of the MRC did not enjoy exemption : Rs. (1) Service charges from Indian Overseas Bank 1,00,000 (2) Interest on SB account 9,457 (3) Interest on BEST deposit 1,32,970 (4) Interest on investment 5,98,746 (5) Miscellaneous income 5,310 Total 8,46,483 29. It appears that there is a totalling error and the amount is wrongly mentioned as Rs. 9,46,483 in the order of the CIT(A). The correct amount however, is Rs. 8,46,483. In the opinion of the CIT(A) the aforesaid items of receipts had no c....
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....ain modifications. There is no reference to any of such provisions having been contravened by the MRC. But the more important aspect is that the entire income including the aforesaid income of the research centre has been applied only for the research purposes as can be seen from the income and expenditure account. The income and expenditure account for the year ended 31st March, 1991, of the MRC is as under : Expenditure Rs. Income Rs. Medical expenses 19,42,049 Other income 1,04,68,630 Employees remuneration 54,73,442 Net deficit 1,74,79,745 Research centre running Nurses College expenses 30,03,944 expenses 7,34,875 Other administrative expenses 97,01,484 Depreciation 70,92,579 2,79,48,375 2,79,48,375 32. From the above account it is clear that the entire receipts and much more than that have been applied only for the purposes of the medical research centre and not for any other object. The various items of expenditure have all been given in detail in the schedules to the printed accounts and even from such details we are unable to find any expenditure not relating to the research activity....
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....h will be fruitful to the field of medicine generally and to the hospital run by the assessee, in particular. Since both are closely connected to each other, it would be more appropriate to view both the institutions as forming part of the same object which is being pursued by the society. Therefore, though for the sake of administrative convenience and as a matter of accounting policy the accounts of both the wings are kept separate, in the larger context of the purpose for which both have been established and are being run, it would be proper to view both as falling within the exemption under s. 10(22A). We have already seen that a part of the receipts-a substantial part-of the medical research centre consists of notional charges paid to it by the hospital for us of its assets. We have also seen that the application of the income by the medical research centre is more than its income and there is a huge deficit at the end of the year which has been debited to the medical research centre fund. Sec. 10(22A) says that any income of a hospital or other institution is exempt, if it exists solely for philanthropic purposes and not for purpose of profit. The Calcutta High Court in the c....
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....d by the assessee in its appeals because they would arise from decision only if the main ground relating to s. 10(22A) is held against the assessee. Further, certain grounds have been taken by the assessee such as allowance of depreciation, etc. in its appeals which would also arise for decision only if the applicability of the provisions of s. 11 is to be considered which in turn would arise only if the exemption under s. 10(22A) is denied. 38. However for the sake of completeness and since there are certain other grounds in some of the years it is necessary to dispose of the appeals yearwise with reference to the grounds raised in each of the years by both the parties. Asst. yr. 1987-88 39. In the assessee's appeal the main ground relates to the exemption under s. 10(22A) which we have accepted. The only other ground relates to an income of Rs. 5,000 from house property. It is contended that the property was agreed to be sold and the vendee was also put in possession of the same and was in receipt of the rent. Having regard to the recent judgment of the Supreme Court in CIT vs. Podar Cement (1997) 226 ITR 625 (SC), the vendee must be taken to be the owner of the prop....
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....dismissed. Asst. yr. 1988-89 44. In the assessee's appeal the grounds are identical to those for the asst. yr. 1987-88 and in line with our decision for that year, we accept the grounds and allow the appeal. 45. In the Departmental appeal the first ground is with regard to the deletion of the addition of Rs. 14,70,960 as net profit on account of issue of medicines to the patients. This ground does not call for decision in view of our decision to exempt the assessee under s. 10(22A). The ground would arise only if the exemption is not available to the assessee and the income has to be computed under s. 11 of the Act. Since that is not the position the ground becomes academic. It is dismissed. 46. The second ground relates to depreciation and in tune with our decision for the asst. yr. 1987-88 in respect of a similar ground taken by the Department, we dismiss the same. 47. Thus the appeal by the Department is dismissed. Asst. yr. 1989-90 48. The assessee has not filed any appeal for this year. 49. In the Department's appeal the first ground is against the decision of the CIT(A) exempting the assessee under s. 10(22A). In line with our decision for the ....