TaxTMI 
TaxTMI 
1994 (11) TMI 101
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.... the assessee is entitled to the exemption under section 10(22A) of the Act. The two questions raised by the assessee relate to its claim for exemption under section 11 of the Act, which was negatived by the Tribunal in the view that clauses (bb) and (c) of sub-section (1) of section 13 were attracted to the case and, therefore, the assessee was not entitled to exemption under section 11. The question of exemption under section 11 does not arise for any of the subsequent years, where the claim was limited only to section 10(22A). The questions referred are as follows : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-trust was established for the purposes mentioned in section 10(22A) of the Income-tax Act, 1961, and that it will be an institution entitled to claim exemption in respect of its income under the said section ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right, in any case, in holding that the assessee-trust is an institution entitled to claim exemption in respect of its income under section 10(22A) of the Income-tax Act, 1961, with regard to the assessment year 19....
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....of the Act and thereafter the object of the trust was only the establishment and running, etc., of hospitals. We may mention here itself that the assessee-trust has not, after its constitution, embarked on any object other than the establishment and running of a hospital, at any time, and all its funds were being utilised only for that purpose. That this fact was not in dispute has been recorded by the Tribunal in more than one place in its order in paragraphs 9.4, 9.8, 10.2 and 10.3. This has also been admitted in paragraph 4 of the enclosure to the Commissioner's application for reference. The foundation for a hospital to be run by the trust was laid in 1973 and it was opened on April 25, 1978. For the purpose of augmenting the income available for the purpose of the hospital, the trust became a partner in three firms, namely, Beena Enterprises, Coimbatore, from April 1, 1972, Chandrika Agencies, Bangalore, from April 1, 1976, and Chandrika Enterprises, Irinjalakuda, from July 1, 1976. The trust, however, ceased to be a partner in Chandrika Agencies, Bangalore, before March 31, 1979, though it continued in the other two firms. The Tribunal has found as a fact that the trust join....
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.... object with which section 10(22A) was introduced is explained as follows in the Notes on Clauses to the Finance Bill, 1970 : " Sub-clause (b) seeks to insert a new clause (22A) in section 10 of the Income-tax Act. The effect of the proposed amendment will be that the income of hospitals or other medical institutions will be completely exempt from tax, notwithstanding that such income is not fully spent during the year in which it is earned." The Memorandum explaining the provisions of this Bill explains the matter further : " 34. Exemption from tax of the income of hospitals and other medical institutions.--At present, universities and other educational institutions existing solely for educational purposes and not for purposes of profit enjoy complete exemption from tax on their incomes. However, in the case of hospitals and similar other institutions for treatment of illness, there is no specific exemption from tax unlike in the case of universities. Medical institutions come under the category of charitable institutions and have to satisfy the conditions relating to application of not less than 75 per cent. of their current incomes to their objects in the same year in order t....
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....ferred to in section 10(22A). In the case of hospitals and similar institutions, if the surplus is used for philanthropic purposes, the income of the institution will be eligible for exemption under section 10(22A). It is not necessary that the surplus should be used for medical purposes only." This gives the backdrop of the exemption and its scope and purpose. It is manifest that the object was to exempt the income of hospitals and similar institutions from the levy of tax, even if any surplus was derived, provided the surplus was used for philanthropic purposes, which need not be medical purposes. In other words, what was intended was a benefit to hospitals and to trusts or societies running them, provided the institution was not one run for profit. We may reiterate here that the Department has no case that the hospital run by the assessee-trust is one run with the motive of profit. The first question that arises for consideration is whether the assessee-trust could claim to be a hospital or other institution falling within the purview of section 10(22A). Senior standing counsel for the Revenue would find a dichotomy between the trust and the hospital, and according to him, the....
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....ion under section 10(22). It is immaterial whether the society itself is an educational institution or it runs an educational institution. In rendering this decision, the Calcutta High Court referred to the decision of the Madras High Court in Addl. CIT v. Aditanar Educational Institution [1979] 118 ITR 235, which was also a case of a society registered under the Societies Registration Act constituted to establish, run, manage or assist colleges, schools and other educational organisations existing solely for educational purposes. The assessee received donations from a trust. It started a college and utilised the entire donation for the college. The question was whether the assessee was an educational institution entitled to the exemption under section 10(22). The Departmental view was that this provision applied only to educational institutions as such and not to anyone else who might be financing the running of the institution. In that context, the High Court upheld the assessee's plea, holding that the purpose for which it had come into existence was education at the level of colleges and schools. In order to effectuate its objects, the assessee had necessarily to impart educat....
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..... Verma C. J. (as he then was) and Inder Sen Israni J. The assessee collected donations with the sole purpose of disbursing the same for educational institutions run under the auspices of one Agarwal Shiksha Samiti. The court held that merely because these educational institutions were not run and managed directly by the assessee-trust, it could not be stated that the assessee did not fulfil the requirements under section 10(22). Admittedly, the assessee collected money for purposes of education ; it had no profit motive at all. Therefore, it was entitled to exemption under section 10(22). The decision of the Andhra Pradesh High Court in Governing Body of Rangaraya Medical College v. ITO [1979] 117 ITR 284 is in point. The governing body of the Rangaraya Medical College was a society registered under the Societies Registration Act to manage the college which had been started by another society, the Medical Educational Society, six years earlier. The college had not been formally transferred to the assessee, as the assessee was awaiting orders from Government on its application for exemption from payment of stamp duty and registration charges. The assessee had collected compulsory ....
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....t under section 10(22). The fact that the assessee had other objects, will not disentitle it to the exemption so long as the activity carried on by it is that of running an educational institution and its activities are not for profit. The same ratio must apply to hospitals as well. The trust which is running the hospital and is existing solely for that purpose falls within the purview of section 10(22A) with exemption for its income, if the other requirements of the section are satisfied. It should be treated as the hospital itself, as it exists solely for the running of the hospital and not for any other purposes. In other words, the society cannot be dissociated from the hospital, which is run by it. They have to be treated as one and the same. We now pass on to the next question as to whether the income derived by the trust as a partner of the firms in which it had made some investments for the purpose of augmenting the resources available for the hospital is exempt under section 10(22A). In this connection, it must be mentioned that if there is an integral unity between the trust and the hospital for purposes of section 10(22A), as held above, the amount invested belongs to t....
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....cational institution cannot utilise the provision in section 10(22) as an instrument for exemption in respect of all its sources of income which had no connection with its educational activity and that there must be some correlation between the income earned and the educational institution. At the same time, it was not possible to lay down in precise terms as to what would be the income of the educational institution which will be exempt. That will depend on the facts of each case. In Birla Vidhya Vihar Trust's case [1982] 136 ITR 445 (Cal), the court expressed the opinion that the word "of" in section 10(22) envisaged the source, that is to say, the generation of a particular type of income or the source of a particular type of income. It was thus held that it is not the entirety of the income of the recipient--the trust--but the income of the particular source, namely, the educational institution in that case, that fell within the purview of section 10(22). As noted by us, the various types of income had been held exempt under section 10(22) if they were utilised for the purposes of the educational institution. Particularly in Academy of General Education's case [1984] 150 ITR ....
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....bove was treated as that of an educational institution and exempted. We may advert to a decision of the Karnataka High Court which is apposite, Mangilal Gotawat Charitable Trust v. CIT [1984] 150 ITR 682. The court held that the expression "other institutions" in section 10(22A) does not necessarily mean that patients must be admitted and treated as in-patients or that there must be facilities for such treatment in the institution for claiming the benefit of section 10(22A). The works related to the hospital of the assessee were started in the year 1973 though it became functional as a hospital only on April 25, 1978. All the activities in the meanwhile were geared to the establishment of the institution and its functioning as a hospital and, therefore, we are of the view that the income derived during the period was also the income of the hospital entitled to exemption. We may note that adoption of any other view of the matter will be to syphon off the income required for the starting of a hospital by way of tax, thereby depleting the resources available to the institution, defeating the very object behind section 10(22A). The result of the above discussion is that the Tribunal....
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....y pronounced or published or the party affected has the means of knowing it. It is not enough if the order is made, signed, and kept in the file, because such order may be liable to change at the hands of the authority who may modify it, or even destroy it, before it is made known, based on subsequent information, thinking or change of opinion. To make the order complete and effective, it should be issued, so as to be beyond the control of the authority concerned, for any possible change or modification therein. This should be done within the prescribed period, though the actual service of the order may be beyond that period." The Tribunal has not referred to this decision though it is relevant. We feel that the matter has not been considered by the Tribunal in the manner in which it should have been, particularly after advertence to the aforesaid decision. We, therefore, decline to answer the additional question referred at the instance of the assessee in Income-tax References Nos. 81 and 82 of 1986. The question involved in Income-tax References Nos. 25 and 26 of 1992 and 33 of 1993 is only regarding the entitlement of the assessee to exemption under section 10(22A). Our earlie....