TaxTMI 
TaxTMI 
2018 (3) TMI 795
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.... that it is running a hospital providing medical facilities at subsidised rates. It is the case made out by the petitioner that the services provided are available to members of the general public. To poor and needy patients, services are being rendered free. The petitioner has been granted a certificate under section 12A of the said Act. There is no dispute about the fact that the certificate dated 28th December 1988 is still in force and it has not been revoked. The case made out in the petition is that earlier, the petitioner enjoyed the benefit of section 10 (22A) and in the past, applications made by the petitioner under section 10 (23C) have not been rejected. 2 The order impugned in this writ petition has been passed by the first respondent on an application made by the petitioner for grant/continuation of exemption under section 10 (23C) (vic) of the said Act on 4th March 2010, for the Assessment Year 200910. On the basis of the said application, the office of the first respondent called upon the petitioner to furnish certain information. Thereafter, a show cause notice dated 18th March 2011 was issued to the petitioner calling upon the petitioner to show as to how it sati....
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....on between the objects and powers of the society. His submission is that only on the ground that the petitioner is having surplus, it is not disentitled to the benefit of exemption. He submitted that it is erroneous to hold that the petitioner was not engaged in philanthropic activities. He pointed out that in the past, the petitioner always enjoyed exemption under section 10(22A). All along the petitioner enjoyed exemption under 80G of the said Act. The contention is that even the applications for exemption under section 10 (23C)(via) made by the petitioner have never been rejected in the past. He invited our attention to various decisions of this Court and the Apex Court. He relied upon a decision of the Division Bench of this Court in the case of Breach Candy Hospital Trust vs. Chief Commissioner of Income Tax [2010] 322 ITR 246 (Bombay). The learned counsel for the petitioner also invited our attention to the decision of the Apex Court in the case of Queen's Educational Society vs. Commissioner of Income Tax [2015] 372 ITR 699 (SC). Our attention was also invited to the decision of Delhi High Court in the case of Venu Charitable Society vs. Director General of Income Tax [2....
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....persons suffering from illness or mental defectiveness or for reception and treatment of persons during convalensce. To attract the provision, hospitals or institutions must exist solely for the philanthropic purposes and not for the purpose of profit. Therefore, for the applicability of the provision, both the conditions must exist together. Hospitals or institutions must exist solely for philanthropic purpose and not for the purpose of profit. We may note here that merely because a hospital or institution is getting profit, that by itself will not attract disqualification. It will attract disqualification if a hospital or institution exists for the purpose of gaining profit. In the light of this discussion, firstly it will be necessary to advert to the decision of the Apex Court in the case of Queen's Educational Society (supra). In this case, the Apex Court was dealing with clause (iiiad) of section 10 (23C) of the said Act. This was a case where the application made by the appellant before the Apex Court (Queen's Educational Society) for grant of exemption under section 10 (23C) (vi) of the said Act was rejected. As the name indicates, the appellant before the Apex Cour....
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....ndertakes publication of a monthly journal for the purpose of carrying out this charitable object and charges a small price which is more than the cost of the publication and leaves a little profit, would it deprive the Gandhi Peace Foundation of its charitable character? The pricing of the monthly journal would undoubtedly be made in such a manner that it leaves some profit for the Gandhi Peace Foundation, as, indeed, would be done by any prudent and wise management, but that cannot have the effect of polluting the charitable character of the purpose, because the predominant object of the activity of publication of the monthly journal would be to carry out the charitable purpose by propagating Gandhian thought and philosophy and not to make profit or in other words, profit-making would not be the driving force behind this activity. But it is possible that in a given case the degree or extent of profitmaking may be of such a nature as to reasonably lead to the inference that the real object of the activity is profit-making and not serving the charitable purpose. If, for example, in the illustration given by us, it is found that the publication of the monthly journal is carried on w....
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....amber of Commerce v. CIT, (1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] when he said: (SCC pp. 332 & 335, paras 14 & 23) '14. ... An undertaking by a business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negatived. *** 23. ... A pragmatic condition, written or unwritten, proved by a prescription of profits or by long years of invariable practice or spelt from [some] strong surrounding circumstances indicative of anti-profit motivation - such a condition will qualify for "charitable purpose".' Now we entirely agree with the learned Judges who decided these two cases that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose. But we find it difficult to accept their thesis that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for [ From the Judgment and Order dated 24-9-200....
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....of education should not be submerged by a profitmaking motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons." (emphasis added) 9 Thus, the emphasis laid by the Apex Court was on the application of predominent object test. The distinction has to be drawn between the institutions working 'for profit' and the institutions incidentally earning profit while carrying on an activity which is predominantly charitable. 10 Reliance was also placed on the decision of this Court in the case of Breach Candy Trust vs. Chief Commissioner of Income Tax (supra). This was also a case where an application was made by a the hospital for gra....
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....and it is not the case of the respondent there are multiple units and one unit is subsidizing the other. In the same unit, payment is collected for different services rendered which may result in some cross subsidy. Ultimately, the entire receipts are used for treatment of the patients and medical care. In the absence of any material to show that generally there was a profit, it cannot be said that the petitioner does not exist solely for the philanthropic purpose but exists for the purpose of profit." (emphasis added) 11 Before we deal with the other decisions, it will be necessary to come back to the factual aspects of the case. After having perused the impugned order, broadly there are 4 to 5 grounds on the basis of which the prayer made by the petitioner has been rejected. One ground is that the ByeLaws provide for payment of certain amount to nonmembers on account of rendering services. The ByeLaws also allow payment of bonus to the employees of the petitioner. The other ground with which the first respondent was impressed is that the petitioner was having surplus during last 2 to 3 years. It was also found that in the ByeLaws, certain objects have been incorporated regard....
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....r Oxford English Dictionary, 3rd edition, "philanthropic" : "Characterized by philanthropy ; benevolent, humane." Law Lexicon Cum Digest, Vol. III, by N.M. Mulchandani, "Philanthropic purpose" ; "It is not always necessary that a 'philanthropic use' must be such as may be beneficial to the humanity at large but it could be limited to the welfare or benefit of fellow human beings belonging to a well defined class or community, who are joined together by common bonds of religion, race, social, or economic unity. After all, the purpose which is beneficial to a section of the public, is in the larger context beneficial to the human society, but an act solely for the benefit of a few individuals or group of persons would not fall within the purview of charitable or philanthropic use." Chambers' Dictionary: "Philanthropy love of mankind esp. as shown in services to general welfare. 'Philanthropic' doing good to others, benevolent." Thus, on an understanding of the meaning of the words "philanthropic purposes", it is clear that the establishment and running of a hospital by the assessee is a philanthropic purpose. However, the main question is whether....
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....ch are not philanthropic in itself would be decisive of the matter." (underline supplied) 14 The main judgment was delivered by John Mathew,J. and there is a concurring judgment by Narayana Kurup,J. In paragraph 34 of his judgment, Kurup,J. observed that though the expression philanthropy is of a popular usage, its legal connotation is not properly understood. In the said decision, the learned Judge also considered the question whether it is synonymous with the word "charity" or is it something different from "charity"? The learned Judge proceeded to observe that the said Act refers to charity as well as philanthropy and, therefore, a different meanings will have to be assigned to the word philanthropy. 15 In the impugned order, the first respondent appears to have been impressed by what is provided in the Byelaws of the petitioner. Byelaws provide for payment of honoraria to the persons who are not members. The activity undertaken by the petitioner is of running a hospital. The object of the petitioner is to provide the citizens better facilities for medical help at a reasonable charge by providing a decent hospital, dispensaries and other uptodate scientific medical and surg....
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....cult for the petitioner to maintain the medical facilities and to update the medical facilities. It is not the case of the first respondent that the surplus which is generated was diverted to any noncharitable activity. As observed earlier, the test will be for what purpose the surplus or the profits earned are being applied. Therefore, the said ground taken by the first respondent has no relevance at all in the facts of the case. It is true that there are various objects enumerated under clause (3) of the ByeLaws of the petitioner. One of the objects is to establish, manage, continue, administer, maintain and conduct hospital which is named in subclause (c). The other object in subclause( d) is to purchase, take on lease or in exchange, hire or otherwise acquire any other property and in particular medical, surgical and all other allied plants, vehicles, etc. One clause provides for sale, lease, mortgage or disposal of the property. These two clauses are not the objects of the petitioner. The same are the powers of the petitioner. The relevant issue which was to be decided was; whether the petitioner is existing solely for philanthropic purposes and not for the purposes of profit.....
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....f" under Section 2(15) of the IT Act, and not to earn profit and in the circumstances, the fourth limb of Section 2(15) stood excluded. According to us, the judgment of the Supreme Court squarely applies to the facts of our case. 11. Basically, one has to read the objects under the constitution in the light of the facts of the case. In this case also, as stated hereinabove, we have to keep in mind, the historical perspective behind the establishment of the institution and if one keeps the historical background in mind, then it is clear that subclauses A to E constituted the object whereas clauses F, G and H gave power to the trustee to plan a colony for the members so that those members could take part in the promotion of sports, gymnastics and sportsmanship. The colony was set up only 1923. Once the locality developed, the assessee has not put up any further colonies. In 1993, clause G has been deleted. Therefore, keeping in mind the peculiar historical facts of this case, we are of the view that the majority view of the Tribunal was erroneous; that they erred in construing clause 3G as an object of the trust. We hold that there was no profit motive involved in this case vide t....
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....he duty of the petitioner to produce the details. However, it appears that virtually it is an admitted position that till the year for which the application was made, the petitioner was granted benefit of exemption. On this aspect, the case of the petitioner needs reconsideration at the hands of the first respondent. 19 Lastly, one factor which is considered against the petitioner is on the basis of letter dated 16th March, 2011 submitted by the petitioner to the Income Tax Officer. In paragraph 2 of the said letter, the petitioner has stated thus: "The hospital has provided small cabins with patient examination tables in the out patients department for consultants. The hospital has got control over the fees charged to the patients. Consultation fees and visits fees charged to patients are fixed by the hospital. Procedure Charges and Surgery Charges are negotiable to nonmember patients admitted in Room Category only. These fees are collected by hospital and payable to doctors after deducting affiliation charges @ 10% p.m. through ECS. Negotiable fees are paid in the subsequent month and nonnegotiable fees are paid after 3 months. Fees for the patients referred by institutions ar....