TaxTMI 
TaxTMI 
2022 (8) TMI 1083
X X X X Extracts X X X X
X X X X Extracts X X X X
....ining to his Notice under Assessment No.240020 dated 08.07.2009, in respect of the Immaculate Conception Convent Hospital and to quash the same and to direct the respondents to pass an order by granting exemption from levy of property tax under Section 123(e) of the Tamil Nadu Act 25 of 1981. 3. The said Writ Petition was disposed by a learned Single Judge of this Court vide order dated 07.12.2017 after considering the order passed in the case of Sundaram Medical Foundation Vs. The Commissioner Corporation of Chennai, CDJ 2017 MHC 5265 and in the light of the decision of this Court in Masonic Charity Trust Vs. The Corporation of Coimbatore, (2010) 8 MLJ 643, with the following observations:- 11. Thus, for the above reasons, this writ petition is allowed, the impugned demand is quashed and the respondents are directed to consider the petitioner's claim for exemption vide petition dated 08.05.1995, along with the annexures and the petitioner is at liberty to submit a fresh petition enclosing the copies of earlier petition on the claim for exemption within a period of thirty days from the date on which the petition submitted by the petitioner. It is needless to state t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not proved that the profit earned by it are spent for charitable purpose, it is not entitled for exemption. In the present case too, you have not produced any proof to show that you are rendering free treatment or the profits earned by you is spent for charitable purpose. Therefore, you are not entitled to claim exemption from payment of property tax to your hospital premises under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. 5. The learned Senior Counsel for the petitioner submitted thatsince the petitioner is running a Charitable Hospital as its object is only to do charity, the petitioner is entitled for exemption from payment of property tax under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981 which has been wrongly denied to the petitioner vide impugned order. 6. The learned Senior Counsel for the petitioner has also drawn attention to the following cases: i. PSG & Sons Charities Vs. City Municipal (1997) 1 CTC 331, ii. Queen's Educational Society Vs. Commissioner of Income Tax (2015) 8 SCC 47. iii. Chief Commissioner of Income Tax Vs. St.Peter's Educational Society, (2016) 14 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his situation in the imposition of the condition that 'such society is supported wholly or in part by voluntary contributions, (and) applies its profits, if any, or other income in promoting its objectives and does not pay any dividend or bonus to its members'. The Madras enactment does not employ the same phrase and extends the exemption to all 'charitable hospitals and dispensaries but not including residential quarters attached thereto'. However, the use of the word 'charitable' would necessitate an examination of established parametres such as the following, among other tests: (i) the activity engaged in by the entity in question (ii) whether such activity is generally understood to fall within the ambit of public service and social good (iii) whether other statutory authorities, including income-tax have recognised the petitioner as being engaged in, and rendering charitable activities (iv) whether the dominant object of the institution is to render service or to earn profit (v) if the activity does generate profit or the institution earns income from other sources, is such profit/net income ploughed back into the institution or diverted to other avenue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the petitioner is a charitable hospital and since the said expression is not defined under the Coimbatore City Municipal Corporation Act, the certificate of registration granted under Section 12A of the Income Tax Act has to be recognised for the purpose of grant of exemption. It is further submitted that the hospital is 174 years old hospital and is engaged only in providing charitable premises. 15. Opposing the prayer, the learned counsel for the respondents submits that the hospital premises of the petitioner was inspected and it was found that the petitioner was collecting fees for treating patients as inpatient and outpatient and therefore, it cannot be stated that the petitioner was a charitable hospital for the purpose of Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. 16. The learned counsel for the respondent has drawn the attention to a recent decision of a learned Single Judge of this Court rendered in the case of Sundaram Medical Foundation vs. Chennai Metro Water Supply & Sewerage Board, in W.P.Nos.20992 & 20993 of 2018, vide dated 26.04.2021, wherein, it was held as follows:- "40.The above facts are not controverted and this Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... infrastructures, the petitioners are collecting huge charges from the patients and providing least services to the poor and needy. Thus, such factors are to be inspected by the Government for the purpose of ascertaining, whether the Charitable institutions are functioning for the welfare of the poor, needy and deserving people and in the event of any contra facts, all suitable actions are to be initiated. 45.As far as the provisions of the Chennai City Municipal Corporation Act is concerned, it is unambiguous that Charitable Hospitals are eligible for exemption. However, the character of the Charitable Hospitals are to be scrutinized as the loss of Revenue is detrimental to the interest of public at large. Thus, the authorities are bound to be cautious, while scrutinizing all material facts and circumstances, for taking a decision. In the present case, the respondents have conducted inspection regarding the functioning of the petitioner / Medical Foundation and formed an opinion that they are providing free Medical services to 15% of the patients and they are collecting charges from 85% and further, the charges collected from the patients are comparable on par with the es....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t to justify its claims for exemption under the provisions of the Coimbatore City Municipal Corporation Act, 1981. 26. The petitioner appears to have filed an application pursuant to the aforesaid order dated 25.04.1995 of the T.A.T. According to the petitioner, the said application is still pending before the first respondent. On the other hand, the first respondent in the counter has stated that the said application was rejected. However, details of orders have not been furnished before this Court. 27. The petitioner later received a demand notice dated 08.07.2009 from the second respondent. The petitioner was called upon to pay a sum of Rs.6,59,876/- as property tax for the period between 1998-99 to 2009-10. 28. The petitioner thereafter received another demand notice dated 09.01.2019 from the second respondent. The petitioner was called upon to pay a sum of Rs.13,60,636/- as property tax up to the date of demand. There are however no details of period for which the aforesaid amount was demanded. 29. Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981 is pari materia with Section 101(e) of the Chennai City Municipal Corporation Act, 1919 and Section....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Purpose" as follows:- "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or worship." 33. The expression "Charitable Purpose" has also been defined in Section 2(15) of the Income Tax Act, 1961. Section 2(15) of the Income Tax Act, 1961 reads as under:- 2(15) "Charitable purpose" includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. 34. Section 92 of the Civil Procedure Code uses the expression "Public Purposes of a Charitable or Religious Nature". It reads as under:- 92. Public charities.-(1) In the case of any alleged breach of any express or constructive trust created for public purposes of a charitable or religious nature, or where the direction of the Court is deemed necessary for the administration of any such trust, the Advocate-General, or two o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....here the property available by virtue of the trust and other property applicable for similar purposes can be more effectively used in conjunction with, and to that end can suitably be made applicable to any other purpose, regard being had to the spirit of the trust and its applicability to common purposes; or (d) where the original purposes, in whole or in part, were laid down by reference to an area which then was, but has since ceased to be, a unit for such purposes; or (e) where the original purposes, in whole or in part, have, since they were laid down, - i. been adequately provided for by other means, or ii. ceased, as being useless or harmful to the community, or iii. ceased to be, in law, charitable, or iv. ceased in any other way to provide a suitable and effective method of using the property available by virtue of the trust, regard being had to the spirit of the trust. 35. Section 10(22A) of the Income Tax Act, 1961 was inserted with effect from 02.09.1970. The said provision was however later deleted with effect from 01.04.1999 vide Finance (No. 2) Act, 1998. Under Section 10(22A) of the Income Tax Act, 1961, an income of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rescribes the percentage of Government grant for considering a University or a Hospital etc. as substantially financed by the Government for the purposes of Clause (23C) to Section 10 of the Income Tax Act, 1961. 40. Till about 1998, a hospital satisfying the above requirement would have been exempted from income tax under Section 10(22A) and later under Section 10(23C)(iiiac) of the Income Tax Act, 1961. There would have no necessity for claiming exemption from payment of income tax as a "Charitable Institution" if the petitioner satisfied the above requirements of these provisions. 41. A parallel exemption from the payment of Income Tax is available under Section 11 and 12, and 12A of the Income Tax Act, 1961 to such Charitable Institutions. Donations to such Charitable Institutions qualify for tax relief to the doners under Section 80G of the Income Tax Act, 196 in the form of Section 80G Certificate issued by Charitable Institution. 42. The Allahabad High Court in Secretary of State for India Vs. Radhaswami Satsang Sabha, (1945) 13 I.T.R. 520 held that the registration of a charity under the Societies Registration Act, 1860 is a prima facie evidence of valid dedicat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble although it was founded by charitable donations and made no profit. 48. In Le Cras Vs. Perpetual Trustee Co. Ltd., (1967) 3 All. E.R. 915 (P.C.), a testator bequeathed by his will two-thirds of the income of his residuary estate to the Sisters of Charity for the general purposes of St.Vincent's Private Hospital for a period of two hundred years or for so long as they should conduct the Hospital. The private hospital was having 82 beds and close to a public hospital which had 500 beds. This was also conducted by the Sisters of Charity who were a voluntary association of women devoting themselves without reward. The reason for establishing the private hospital was to relieve the pressing demand of the public for admission to the general hospital. Charges were made at the private hospital for beds, it provided accommodation and medical treatment in greater privacy than would be possible in a general hospital. There were surpluses of income over expenditure but the private hospital was not conducted for profit. The surpluses were used to contribute to the maintenance of the general hospital and for the general purposes of the Sisters of Charity. 49. In that context, it wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any property or money held in special trust shall be applied only for that purpose and not otherwise.' 54. On the construction of the trust deed, the Supreme Court held that the deed gave absolute power of selection to the trustees to choose between charitable and non-charitable objects of the trust for spending the entire income of the trust properties. The property of the trust was not held wholly for charitable and religious purposes. Hence, the donation did not qualify for exemption. 55. In East India Industries (Madras) Private Ltd. Vs. C.I.T., (1967) 65 I.T.R. 611 (S.C.) : A.I.R. 1967 S.C. 1554, the Hon'ble Supreme Court followed the Privy Council judgment in the Maulana Mohammad Ibrahim Riza Malak case referred to supra and the observations of Lawrence L. J., in Keren Kaymeth Le Jisroel Ltd. Vs. I.R.C., (1932) 17 Tax Cases 27, 40, 41 : (1932) AC 650 and held that if there are several objects of the trust, some of which are charitable and some noncharitable, and the trustees have unfettered discretion to apply the income to any of the object, the whole trust would fail and no part of the income would be exempt from tax. 56. In Municipal Corporation of Hyderabad Vs Hy....
X X X X Extracts X X X X
X X X X Extracts X X X X
....els or formulae; what is it precisely that they mean? Now there are two possible ways of looking at this problem of construction. One interpretation is that according to the definition what is necessary is that the purpose must be of such a nature that it involves the carrying on of any activity for profit in the sense that it cannot be achieved without carrying on an activity for profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit. Take for example a case where a trust or institution is established for promotion of sports without setting out any specific mode by which this purpose is intended to be achieved. Now obviously promotion of sports can be achieved by organising cricket matches on free admission or no profit no loss basis and equally it can be achieved by organising cricket matches with the predominant object of earning profit. Can it be said in such a case that the purpose of the trust or institution does not involve the carrying on of an activity for profit, because promotion of sports can be done without enga....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anised. 59. The Hon'ble Supreme Court in Municipal Corporation of Delhi Vs. Children Book Trust, (1992) 3 SCC 390 considered the grant of exemption to lands and buildings occupied and used by a society for charitable purposes under Section 115(4)(a) of the Delhi Municipal Corporation Act, 1957. The said decision was rendered in the context of Section 115(4) of the Delhi Municipal Corporation Act, 1957 which reads as under:- 115 - Premises in which property taxes are to be levied. (1) ........... ................. (4) Save and otherwise provide in this Act, the General Tax shall be levied in respect of all lands and buildings in Delhi except (a) lands and buildings or portions of lands and buildings exclusively occupied and used for public worship or by society or body for charitable purposes provided: that such society is supported wholly or in part by voluntary contribution, applies its profit, if any, or other income in promoting its objections and does not pay any dividend or bonus to its members. " 60. The Hon'ble Supreme Court in the above case held as follows:- "82. It cannot be gainsaid that the municipal ge....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ive but quantitative as well. 85. The last aspects of the matter is utilisation of the income in promoting its objects and not paying any dividend or bonus to its members. The learned counsel for the appellant and the intervener would urge that on the basis of Cane (Valuation Officer) and Another (supra) (1961 (2) Queen's Bench Division 89) the position in the instant case is the same. At Page 121 the following observation is found: "One, I think, that enriches the corporation itself or relieves it of a burden or furthers its objects or powers." 61. Thus, the following criteria has to be kept in mind:- i. The dominant objectives of the society should be charitable and not to earn profit. ii. The institution should be engaged in the dissemination of education and such activity must be in the nature of public health or philanthropy. iii. The entity seeking exemption must be supported wholly or in part by voluntary contribution. iv. The excess/surplus income must be utilised for the promotion of objectives and must not be distributed as dividend, bonus or profit to its members or diverted elsewhere. 62. This decision was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g either totally free or to a large extent subsidised, if such a hospital collects substantial charges from the affluent and rich patients out of some portion of the facilities available in the hospital extended to them, in my view, as observed earlier, such hospitals and dispensaries cannot be considered as not charitable hospitals and dispensaries. 64. A Division Bench of this Court in Municipal Corporation of Coimbatore Vs Govindasamy Naidu Hospital, 2004 SCC OnLine Mad 220: (2004) 2 CTC 155, dealt with the very same exemption from the payment of property tax under consideration of the present lis within the meaning of Section 83(e) of the Tamil Nadu District Municipalities Act, 1920 and Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. 65. The Division Bench referred to decision of the Hon'ble Supreme Court in Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, AIR 1980 SC 387, wherein it was held that the activity involved in carrying out the charitable purpose must not be motivated by a profit objective. It must be undertaken for the purpose of advancement or carrying out the charitable purpose. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the amount earmarked for fees. In the absence of production of any convincing documentary evidence, we do not agree that what ever amount paid by the patients are received as donations by the trust. 66. The Division Bench in the above case concluded as follows:- 26.For the foregoing reasons, we are of the opinion that the plaintiff/respondent cannot be construed as a charitable hospital within the meaning of Section 86(e) of the District Municipalities Act, 1920 and Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. Therefore, the Judgment and the decree of the appellate Court confirming the Judgment and decree of the trial Court is set aside and the suit is dismissed. 67. Normally, charitable institutions are dependent on the charity / bounty of philanthropist and donations from public to achieve the purpose for which they have been created. They are not expected to generate income through economic activities. They are not driven by profit motive and service is the sole motto. There is no quid pro-quo. Contribution received from persons of altruistic disposition and are used for public cause. Charitable institutions do not distribute surplus to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ioner itself was registered as Society in the year 1973. The objects in the Memorandum of Association of the petitioner's society dated 24.01.1973 indicates that the Society was established to take over the various hospitals including the petitioner hospital, namely Immaculate Conception Convent Hospital and to manage, administer, carry on, conduct hospitals and etc. for the benefit of Catholics and all other persons irrespective of the race, case, community or religion or social status. 74. Among the other objects, Sub Clause (xiii) to Clause 2 indicates that society has been registered "to levy and charge and to receive from the persons attending the hospital, nursing school, hostels and work rooms such fees and charges as prescribed, and to receive and accept, hold, expend, administer and use any gift, bequest, grant, donation or foundations, in kind or in money, or any other property and to raise money by fates and entertainment for the promotion of any of the objects of the society". 75. The facts on record also indicate that the all along the hospital has been receiving charges for the services rendered by it and only a section of the patients were receiving free se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ciety. 1. For the repair, maintenance, renovation, alteration or extension of existing buildings and structures, and for the repair and maintenance of machinery, apparatus instruments and tools, medical or otherwise and all other equipment including laboratories and libraries and all other paraphernalia belonging to the institutions of the society and for the replenishment of the old equipment and for the purchase of new ones needed to up date the equipment and requirements o the institutions of the society. 2. A reserve fund for the promotion of the activities of the society including the maintenance and the support of the members of the society, the education and training of personal needed for the purposes of the society. And to pay into such funds periodically or annually such sums as are possible and to invest the same in approved banks or securities or in any manner authorised by law. 79. Thus, a reading of the objects of the society indicates that the object of the hospital is not purely charitable in nature. The fact that the Memorandum of the Society itself authorises collection of charges from the persons receiving treatment in hospital, nurs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purposes. The law was summarized as follows:- 11. Thus, the law common to Sections 10(23-C)(iiiad) and (vi) may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases 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 profit-making 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 cease to be one existing solely for educational purposes. (5)The ultimate test is whether on an overall view of the matter in the assessment year concerned the object is to make profit as opposed to educating persons. 84....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emption under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. 90. The records filed before the Court also do not indicate that the petitioner has obtained Section 12A Certificate from the Commissioner of Income Tax, under the provisions of the Income Tax Act, 1961. The petitioner has merely filed a copy of letter dated 14.05.1974 of the Income Tax Officer certifying that an application in the Form-10A was made by the petitioner before the Commissioner of Income Tax, Madras-1 on 17.04.1973. It was filed just at about the time when the petitioner was registered as a society under the Societies Registration Act, 1860, on 24.01.1973. There are no records to show that even the income tax department has allowed exemption under Section 11 of the Income Tax Act, 1961 to the petitioner. 91. Merely because the petitioner is having certain out reach programmes which may be charitable in nature or that a section of patients are given free treatment would not automatically render the petitioner a charitable hospital. It would not mean that an exemption from payment of property tax can allowed to the petitioner. 92. Further, under the Section 135 of the Companies ....