TaxTMI 
TaxTMI 
2018 (3) TMI 795
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.... aid etc. It is the case of the petitioner 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 There is no dispute about the fact that the certificate dated 28th December 1988 is still in force and it has not been revoked.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 u....
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....459 (Bombay), he urged that there is a distinction 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 Charitab....
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....t is applicable to any hospital or other institutions for reception and treatment of 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....
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....opagation of Gandhian thought and philosophy, which would admittedly be an object of general public utility, undertakes 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 exa....
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....n activity for profit.' And to the same effect, observed Krishna Iyer, J. in Indian Chamber of Commerce case [Indian Chamber 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 infe....
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....to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied - the purpose 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 als....
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....e some surplus in some areas and deficit in other areas. Cross subsidization is not unknown. Even in state function, cross subsidies are provided for. The hospital under the petitioner is one unit run at one place 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.....
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....ind at large. Still, it seems to me that 'philanthropic' is wide enough to comprise purposes not technically charitable. (Stroud 1479)". This meaning is taken from the judgment of Dyitling J. Macduff, In re 1896, 2 Ch 451. Shorter 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. ....
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....poses. All cumulative factors will have to be taken into consideration in order to decide whether the institution exists for philanthropic purposes and not for purposes of profit. Neither the fortuitous factor of having a large surplus in any particular year, nor the fact of diverting some income to objects which 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 ....
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....e fact that the correctness of the view taken by the said High Court is not accepted by this Court in the case of Vanita Vishram Trust v/s. Chief Commissioner of Income Tax and another 327 ITR 121, considering the nature of the activity undertaken by the petitioner society, unless, some surplus is created, it will be difficult 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....
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....(g) was an object clause, whereas clause 7(e), referred to above, indicated the power of the trustees to invest in business. That, the predominant object was in clause 1(g). In the circumstances, it was held by the Supreme Court, applying the above test, that clause 1(g) came within the ambit of the words "relief of the poor, education and medical relief" 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 ....
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....eatment at a concessional rate, it will be a factor to be considered in favour of the petitioner. Merely going by percentage of receipts spent on giving medical treatment to economically weaker section patients may not be a full proof test. On this aspect, we find that the petitioner has not produced relevant details before the first respondent. It is true that it was the 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 ho....
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....ctors are permitted to negotiate with the patients for fixing the procedure/surgery charges. In paragraph 2 of the letter, the specific case of the petitioner was that liberty is granted to the doctors to negotiate with the patients for fixing the procedure charges and surgery charges and not in respect of room charges. In fact 10% of the negotiated charges are taken by the petitioner. The negotiated amount of fees is collected by the petitioner. After deducting 10% affiliation charges, remaining amount is sent to the doctors through ECS. If in a particular year, very large number of such patients are treated, it is a different matter. If in a given year, only few such cases are entertained by the petitioner, it will not militate against the character of the activities of the petitioner. On this aspect neither the petitioner has placed details on record nor the first respondent called upon the petitioner to produce the details. 22 Therefore, in our view, all grounds which are held against the petitioner, except the two grounds held against the petitioner set out in paragraphs 17 to 22 above, have no basis and on those grounds, the claim of the petitioner could not have been reje....