TaxTMI 
TaxTMI 
2026 (7) TMI 605
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....ssessee's application for renewal of approval under section 80G of the Act. Since both the appeals arise from the same factual background and the order rejecting the approval under section 80G is consequential to the rejection of the assessee's application for renewal of registration under section 12AB, the appeals were heard together and are being disposed of by this common order. 2. In ITA No. 5374/Mum/2026, the assessee has raised following grounds: The appellant objects to the order dated 29 March 2026 ('impugned order') passed by the Commissioner of Income-tax (Exemptions), Mumbai ['learned CIT(E)'] rejecting the renewal of registration and cancelling the existing registration retrospectively under section 12AB of the Income-tax Act, 1961 ('the Act'), on the following amongst other grounds: Validity of the impugned order 1. The learned CIT(E) has erred in passing the impugned order rejecting the application to renew the registration under section 12AB of the Act. 2. The learned CIT(E) has erred in passing the impugned order cancelling the existing registration retrospectively from 23 September 2021 und....
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....ion 41AA of the Maharashtra Public Trusts Act read with the IPF scheme framed by the Hon'ble Bombay High Court. 11. The learned CIT(E) has erred in not substantiating any specific violation made by the appellant under the provisions of the IPF scheme framed by the Hon'ble Bombay High Court in accordance with section 41AA of the Maharashtra Public Trusts Act. 12. The learned CIT(E) has erred in not recognizing that the appellant has duly fulfilled conditions provided under the IPF scheme devised by the Hon'ble Bombay High Court and has complied with all the regulations therein. 13. The learned CIT(E) has erred in observing that the appellant is giving its commercial activities a color of charity by just maintaining the documentation to meet the minimum requirement set by the Hon'ble Bombay High Court under the IPF Scheme. Factual ignorance pertaining to expenditure incurred on indigent and weaker patients 14. The learned CIT(E) has erred in not recognizing that the appellant has earmarked beds in the 'Charity Wing' for the indigent and weaker section patients which is in compliance with the Hon'ble Bombay High ....
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....ear as per the approved IPF scheme. 22. The learned CIT(E) ought to have appreciated that the appellant has enough capacity to treat the Indigent/ Weaker section patient who approaches the appellant for the treatment. In event of shortage of space in the Charity Wing they are admitted in the main building. The learned CIT(E) have not brought even one instance on record where they were denied treatment by the appellant. 23. The learned CIT(E) has erred in making absurd comparison of average revenue per bed per day in the last four financial years with the estimated monthly income of an average household in India of Rs. 10,000 as per Economic Survey 2024-25. 24. The learned CIT(E) has come to unwarranted and wrong conclusion that the very object and purpose, for which the applicant Hospital Trust was established, stand fundamentally defeated. Erroneous and baseless factual observation 25. The learned CIT(E) has erred in observing that the appellant has been generating surplus in excess of Rs. 100 crores per year over the last four financial years. Further, the learned CIT(E) has failed to appreciate that the surplus reported in t....
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.... of the Act, seeking renewal of its registration under section 12AB. On verification of the application filed in Form No. 10AB, the learned CIT(E) found that the application was incomplete and that all the documents required to accompany the application had not been furnished. A notice dated 01.11.2025 was, therefore, issued to the assessee, calling upon it to furnish the complete set of documents prescribed under Rule 17A. The assessee furnished its response on 17.11.2025. 4. The learned CIT(E) thereafter referred to section 41AA of the Maharashtra Public Trusts Act, 1950, hereinafter referred to as "the MPT Act", and observed that the said provision empowered the Charity Commissioner and the State Government to issue directions to charitable hospitals for earmarking beds and making medical facilities available to poorer classes of people free of charge or at concessional rates. The learned CIT(E) reproduced section 41AA in extenso. 5. The learned CIT(E) noted that, under section 41AA, a State- aided public trust maintaining a hospital could be directed to keep admission open without discrimination; reserve and earmark 10 per cent of its operational beds and 10 per cent....
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.... IPF account was required to be utilised only for providing medical treatment to indigent and weaker section patients. g. Non-billable services such as bed, resident medical officer services, nursing care, food where provided by the hospital, linen, water, electricity, routine diagnostics and housekeeping services were required to be provided free of charge to indigent and weaker section patients. h. In the case of indigent patients, medical examination and treatment in every department was required to be provided entirely free of cost. Billable services were required to be valued at the rates applicable to the lowest class of the hospital, while medicines, consumables and implants were to be valued at the purchase price to the hospital. The bill so prepared was required to be debited to the IPF account. i. In the case of weaker section patients, medical examination and treatment were required to be provided at concessional rates. Their billable services were to be valued at the rates applicable to the lowest class of the hospital. Medicines, consumables and implants were to be charged at the hospital's purchase price, with the weaker section patient ....
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....ach Candy Hospital Trust, referred to in the impugned order as "BCHT". The bed categories and charges were reproduced in the impugned order as follows: Sr. No. Room type No. of beds available Charges per day No. of beds x charges per day 1 Suite - A 1 Rs. 32,000/- Rs. 32,000/- 2 Suite - B 1 Rs. 21,000/- Rs. 21,000/- 3 Executive 15 Rs. 16,000/- Rs. 2,40,000/- 4 Super Deluxe 48 Rs. 13,000/- Rs. 6,24,000/- 5 Deluxe - C 3 Rs. 12,000/- Rs. 36,000/- 6 Single Room - A 42 Rs. 10,500/- Rs. 4,41,000/- 7 Single Room - B 4 Rs. 8,500/- Rs. 34,000/- 8 Single Room - C 19 Rs. 7,500/- Rs. 1,42,500/- 9 Single Room - D 27 Rs. 5,000/- Rs. 1,35,000/- 10 Four Sharing 4 Rs. 3,500/- Rs. 14,000/- 11 Deluxe - A 3 Rs. 12,500/- Rs. 37,500/- 12 Deluxe - B 4 Rs. 11,000/- Rs. 44,000/- 13 Twin Sharing 2 Rs. 7,500/- Rs. 15,000/- 14 ICU 40 Rs. 14,000/- Rs. 5,60,000/- 15 NICU 9 Rs. 8,000/- Rs. 72,000/- 16 HDU 8 Rs. 10,000/- Rs. 80,000/- 17 HDU - DC 4 ....
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....amentally defeated. Average cost of treatment per patient 16. The learned CIT(E) thereafter analysed the average cost of treatment per patient under the general category and the indigent or weaker section category for the preceding three financial years. The figures reproduced in the impugned order were as under: Financial year General category: Total receipts General category : Total patients General category: Per- patient cost Actual IPF expenditure Total indigent/weker section patients Indigent/weak er section: Per- patient cost 2022-23 Rs. 2,96,30,36,144/- 8,899 Rs. 3,32,963/- Rs. 6,87,67,956/- 1,494 Rs. 46,029/- 2023-24 Rs. 3,46,80,15,653/- 11,477 Rs. 3,02,171/- Rs. 12,58,74,857/- 1,988 Rs. 63,317/- 2024-25 Rs. 4,82,63,92,548/- 14,067 Rs. 3,43,100/- Rs. 11,24,63,367/- 1,743 Rs. 64,523/- 17. After reproducing the aforesaid table, the learned CIT(E) stated that the average cost of treatment of a general category patient during the preceding three financial years ranged from Rs. 2.57 lakh to Rs. 3.05 lakh, and that the average cost of treatment of an indigent or weaker sectio....
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....d per day was approximately three to four times the average monthly household income. 22. On the basis of the aforesaid comparison, the learned CIT(E) concluded that the hospital's earnings reflected a systematic pursuit of profit and suggested that its activities were commercial rather than charitable. Nature and purpose of charitable institutions 23. The learned CIT(E) thereafter discussed the purpose behind the establishment of charitable institutions and the grant of tax benefits to them. It was observed that food, education and healthcare were foundational pillars of human well-being and that charity was viewed as a moral duty and social responsibility towards underprivileged persons who had limited resources to access these facilities and live a dignified life. 24. The learned CIT(E) observed that charitable institutions shared the constitutional responsibility of a welfare State by providing essential services, including food, education and healthcare, to citizens, particularly the underprivileged sections of society. Genuinely charitable trusts engaged in education, medical relief and relief of the poor were, therefore, described as functioning as an extende....
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....peciality healthcare services at an exorbitant price to a limited section of society under the cover of charitable activities. 30. The learned CIT(E) compared the assessee's model to an imaginary restaurant providing premium food services, while reserving 10 to 20 per cent of its receipts for supplying food to poor persons at subsidised rates and thereafter claiming that its entire activity was charitable for obtaining tax exemption. Accumulated surplus funds 31. The learned CIT(E) thereafter referred to the financial statements furnished by the assessee and observed that substantial funds had accumulated with the trust. The surplus funds appearing in the balance sheets were reproduced as under: Sr. No. Financial year Surplus fund 1 2021-22 Rs. 1,13,54,81,102/- 2 2022-23 Rs. 1,24,75,86,031/- 3 2023-24 Rs. 1,29,84,61,886/- 4 2024-25 Rs. 1,20,30,45,064/- 32. The learned CIT(E) observed that the assessee had consistently generated surplus funds exceeding Rs. 100 crore during each of the four financial years. Despite the availability of such funds, it was stated that the assessee had provided only limited services ....
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.... the IPF Scheme had made it mandatory for every public charitable hospital to reserve a specified percentage of beds and a percentage of gross billing for treatment of indigent and weaker section patients. However, according to the learned CIT(E), the true object and spirit of the IPF Scheme was not merely to maintain documents and satisfy minimum requirements, but to make medical services genuinely accessible to persons belonging to the lower strata of society who lacked the financial capacity to afford expensive treatment. 40. The learned CIT(E) held that the reservation of 10 per cent of beds for indigent patients, a further 10 per cent for weaker section patients, and allocation of 2 per cent of billing to the IPF represented only the minimum requirements prescribed by the Hon'ble Bombay High Court and not the maximum extent of the charitable obligation. 41. It was observed that, under the guise of satisfying these minimum requirements, the assessee had restricted the accessibility of its healthcare services to a select class of persons who could afford high-cost premium services. The learned CIT(E) reiterated that only four beds were available under the four- sharing....
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....f the assessee were not genuine, since they were not carried on in accordance with the intent of charitable purposes or in furtherance of its stated objects. The activities were held to have been carried on color a commercial basis with a manifest intention to earn substantial profit on a regular basis and in a systematic and well-organised manner. 48. The learned CIT(E) concluded that the overall activities of the assessee were in the nature of a business of providing high- end and super-speciality healthcare services for commercial consideration and did not exhibit the characteristics genuinely associated with a charitable hospital. 49. It was further held that the assessee had failed to comply, in their true spirit, with section 41AA of the MPT Act and the IPF Scheme approved by the Hon'ble Bombay High Court. In view of the aforesaid findings, the learned CIT(E) held that there was no option but to reject the application seeking registration under section 12AB of the Act. Grounds of rejection and operative conclusion 50. The learned CIT(E) held that the assessee's application in Form No. 10AB for renewal of registration was not allowable for the followin....
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....egistration had been cancelled retrospectively, and the applications for renewal of approval under section 80G had consequently been rejected. 55. The learned AR submitted that the Co-ordinate Bench, after examining the statutory scheme and the aforesaid grounds of rejection, held that an institution engaged in providing medical relief does not cease to be charitable merely because it maintains modern infrastructure, provides premium facilities, charges fees from paying patients or generates substantial receipts. The Co- ordinate Bench further held that the financial scale, tariff structure and generation of surplus, in the absence of diversion of income, private enrichment or application of funds for non- charitable purposes, could not by themselves establish a profit motive or render the activities non-genuine. 56. The learned AR further submitted that the Co-ordinate Bench held that the learned CIT(E) could not independently adjudicate an alleged violation of section 41AA of the Maharashtra Public Trusts Act or the IPF Scheme in the absence of any adverse determination by the competent authority under the said enactment. It was also held that proceedings initiated for rene....
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....owards public welfare, rather than the earning of profit. According to him, the assessee was under an obligation not merely to satisfy the minimum statutory or regulatory requirements, but also to demonstrate through the actual manner of carrying on its activities that medical services were predominantly being rendered for charitable purposes and were accessible to persons belonging to the economically weaker and underprivileged sections of society. 60. The learned DR invited our attention to paragraphs 6.2 and 6.3 of the order passed by the learned CIT(E). He submitted that the learned CIT(E) had recorded that the assessee maintained substantial machinery, infrastructure and an elaborate organisational setup ordinarily associated with a private hospital carrying on healthcare services on a commercial basis. The hospital had various departments, including administration and finance, and employed a large number of workers and staff. Referring to the financial year 2024-25, the learned DR pointed out that an amount of Rs. 54.62 crore had been incurred towards salaries to office staff. 61. The learned DR further submitted that the assessee was providing healthcare services ....
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....ond the reach of an ordinary citizen. 65. The learned DR also pointed out that, according to the learned CIT(E), the assessee had not brought on record sufficient evidence to demonstrate that it had taken positive and concrete steps to publicise the availability of treatment to economically weaker sections at concessional rates. It had also not furnished a separate rate chart showing the concessional charges applicable to such patients for the various medical facilities. 66. Distinguishing the decisions of the Co-ordinate Bench relied upon by the learned AR, the learned DR submitted that the specific observations of the Hon'ble Bombay High Court in Sanjiv Gajanan Punalekar v. State of Maharashtra & Others, Writ Petition (PIL) No. 3132 of 2004, particularly those contained in paragraph 14 of the judgment, had not been considered or dealt with in the said decisions. According to the learned DR, the Co- ordinate Bench had examined the controversy principally with reference to the statutory requirements contained in section 41AA of the Maharashtra Public Trusts Act, 1950, and the jurisdiction of the learned CIT(E) to independently adjudicate an alleged violation thereof,....
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....cannot be mechanically imported while examining an institution whose admitted object and activity constitute medical relief. 71. The mere fact that fees are charged for medical treatment, that different categories of accommodation are maintained, or that the hospital possesses sophisticated medical infrastructure does not, by itself, remove the activity from the ambit of medical relief. What is relevant is whether the institution exists for private profit or whether its income and resources remain devoted to its charitable objects. 72. In this context, the Co-ordinate Bench in Reliance Foundation Hospital Trust v. CIT(E), in ITA Nos. 3798/Mum/2026 and 3799/Mum/2026, observed in paragraphs 88 to 90 as under: "88. At the threshold, it is necessary to remind ourselves of a fundamental feature of the law relating to charitable trusts which appears to have been overlooked in the impugned order. Section 11 does not proceed on the assumption that a charitable institution should not earn income. In fact, the provision proceeds on the exact opposite assumption. The very opening words of section 11 contemplate income derived from property held under trust wholly or partly....
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.... Dharmadeepti v. CIT 114 ITR 454 and the coordinate bench of the Mumbai Tribunal in case of Vanita Samaj v. ITO (Exemption). The learned CIT(E), however, appears to have approached the issue from a perspective which effectively imports into the field of medical relief considerations that belong elsewhere. The enquiry has shifted from whether the assessee is engaged in medical relief to whether the assessee's model of medical relief satisfies the learned CIT(E)'s perception of how charity ought ideally to be delivered. That, in our view, is not the enquiry sanctioned by the statute. 90. The jurisprudence developed by the Hon'ble Supreme Court over the last several decades consistently reinforces this statutory understanding. The decisions in Surat Art Silk Cloth Manufacturers Association, Aditanar Educational Institution, Queen's Educational Society and, more recently, Ahmedabad Urban Development Authority, though arising in differing factual settings, proceed upon a common jurisprudential foundation. The law does not condemn efficiency. It does not condemn scale. It does not condemn surplus. Nor does it insist that charitable activity must be carried on in ....
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....hat a charitable trust may carry on an undertaking or activity which may have the attributes of business, provided the business is incidental to the attainment of the objects of the trust and separate books of account are maintained. This provision is important because it demolishes the simplistic proposition that organised, systematic or revenue-generating activity is per se inconsistent with charity. In the case of a hospital, the carrying on of medical operations, charging of fees from patients, maintenance of accounts, employment of professional staff and acquisition of modern equipment are all integrally connected with the object of medical relief. They are not extraneous commercial adventures covered by section 11(4A). If the hospital activity itself is the mode through which the charitable object is achieved, then its organised or economically substantial character cannot by itself take it outside the charitable fold. The learned CIT(E) has not demonstrated that any activity of the assessee is independent of, or unrelated to, the object of medical relief. 131. The learned CIT(E) has also erred in treating affordability as a statutory precondition. No doubt, medical ....
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....t of medical institutions, the Pune Bench of the Tribunal in ITO v. Lata Mangeshkar Medical Foundation (83 taxmann.com 69), subsequently affirmed by the Hon'ble Bombay High Court and against which the SLP preferred by the Revenue was dismissed by the Hon'ble Supreme Court, held that medical relief need not be confined only to poor persons and that so long as the institution is engaged in medical activities, it falls within the ambit of charitable purpose. Similar principles were recognised by the Mumbai Bench in ITO v. Kaushalya Medical Foundation (31 SOT 119). 81. Applying the aforesaid principles to the facts of the present case, we find that there is no dispute whatsoever that the assessee is engaged in providing medical relief. The learned CIT(E) has not disputed the charitable objects of the trust. He has not held that the hospital is not functioning. He has not held that the medical services rendered are not genuine. He has not recorded any finding that the trust has abandoned its objects or diverted its activities towards non-charitable purposes. 82. On the contrary, the entire impugned order proceeds on the admitted position that the assessee is ru....
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....nefit, siphoned off, or applied for an object unconnected with medical relief. There is also no finding that the assessee has abandoned its objects or that the hospital is not providing medical treatment. 78. The observations regarding the magnitude of the assessee's receipts, the amount of salary expenditure, existence of super- speciality departments, provision of different room categories, average cost of treatment and the amount appearing under the head of accumulated surplus do not, in the absence of any finding of private enrichment or diversion of income, establish that the assessee was carrying on its activities for profit. 79. The impugned order refers to the balances appearing in the accounts as though the assessee had generated a fresh surplus exceeding Rs. 100 crore in each financial year. The assessee has specifically contended that the amounts reflected in the balance sheet represented cumulative funds accumulated over the years. Be that as it may, even the existence of a surplus cannot, by itself, be regarded as destructive of charitable character. The relevant enquiry is whether the surplus remained available for, and was applied or accumulated toward....
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.... objects. The statute does not prescribe a cap on income, a ceiling on receipts, a limit on infrastructure, a restriction on organisational scale or an affordability benchmark for healthcare services. Any analysis which proceeds substantially on those considerations, without first demonstrating diversion from charitable objects or failure of statutory conditions, risks travelling beyond the boundaries of the jurisdiction conferred by Parliament. It is in the light of these principles that we shall now examine the findings of the learned CIT(E) concerning section 41AA, the IPF Scheme and the alleged violation of other laws. 97. Having delineated the statutory contours of sections 11, 2(15) and 12AB, we now turn to what, in our considered opinion, constitutes the central pillar of the impugned order, namely the alleged violation of section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme, which has ultimately been treated by the learned CIT(E) as constituting non-compliance with another law material for achieving the objects of the trust. At the outset, it is important to appreciate that the learned CIT(E) has not merely referred to section 41AA....
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....siderable significance because it reveals that Parliament did not envisage the Commissioner becoming the primary adjudicator under every law applicable to a charitable institution. Rather, the scheme contemplates recognition of a violation determined by the authority competent to administer that law. 99. In the present case, despite extensive arguments advanced by the Revenue, we have not been shown any order of the Charity Commissioner, any determination by an authority functioning under the Maharashtra Public Trusts Act, any decree of a competent forum, or any final adjudication holding that the assessee has violated section 41AA or the IPF Scheme. This fact assumes immense significance because section 41AA is not a provision under the Income Tax Act. It forms part of a specialised regulatory framework governing charitable hospitals in the State of Maharashtra. The legislature has entrusted administration of that framework to specific authorities possessing expertise, statutory powers and institutional responsibility under that enactment. The learned CIT(E), however, has independently interpreted the scheme, analysed patient ratios, computed alleged deficiencies, conclud....
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....y vary depending upon factors beyond its control. To automatically equate lower occupancy with statutory violation would require a clear mandate in the scheme itself. We do not find such a mandate reflected in the material brought before us. 102. We also find that the learned CIT(E) has largely approached the issue from the standpoint of actual percentages of patients treated, whereas the statutory framework appears to focus upon availability of facilities and maintenance of the prescribed infrastructure for indigent and weaker section patients. The object of the scheme is undoubtedly to ensure meaningful access to healthcare. However, while interpreting a regulatory framework, one must be careful not to replace the language of the scheme with an ideal outcome which, though desirable, may not be expressly mandated by the provision. The distinction assumes particular importance in the present case because the entire conclusion regarding non-compliance is substantially founded upon the alleged gap between actual patient percentages and what the learned CIT(E) considered to be the intended benchmark. In our view, before such a serious conclusion can be reached, there must exi....
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....er law, but only look into 'compliance' of any other law for the time being in force AS ARE MATERIAL FOR THE PURPOSES OF ACHIEVING ITS OBJECTS. The object of the assessee, herein, is providing medical relief and for achieving the same, it is running a hospital. It has complied with all material requirements stipulated under MPT Act to run the hospital. We noticed that the section only mandates the CIT(E) to see as to whether the assessee has complied with all the requirements for it to lawfully run the hospital. The learned CIT(E) appears to have proceeded on the assumption that once a perceived shortfall under the IPF Scheme is identified, the conclusion that the institution is no longer charitable follows almost automatically. We are unable to subscribe to such a proposition. Further, it was brought to our notice that non-compliance of provisions of sec. 41AA of MPT Act and IPF Scheme will not incapacitate the assessee in achieving its objects. In that case, it cannot be said that the provisions of sec. 41AA and IPF Scheme are material ones referred to in Section 12AB(1)(b)(i)(B) of the Act." 85. The Co-ordinate Bench reiterated the jurisdictional position in paragraph....
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....y, the impugned order does not record even a single instance where an eligible indigent or weaker section patient approaching the assessee was denied admission, medical examination or treatment. It is also not the case of the Revenue that the assessee had refused to reserve or make available beds for such patients. 90. The Scheme requires reservation and earmarking of beds and availability of facilities for indigent and weaker section patients. The actual occupancy of the reserved beds may depend upon the number of eligible patients approaching the hospital, their medical condition and other factors beyond the control of the hospital. In the absence of any statutory provision requiring that the reserved beds must remain occupied at all times, lower utilisation cannot automatically be treated as non-compliance. 91. The observation that the assessee had not sufficiently publicised the concessional facilities or furnished a separate rate chart may, at the highest, warrant verification or appropriate directions by the authority administering the Scheme. It cannot, without more, establish that the activities of the assessee were not genuine or that the assessee had ceased to exist....
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....judicate whether a charitable hospital has violated the IPF Scheme. The Scheme approved pursuant to the judgment contains its own obligations, reporting requirements, supervisory mechanism and consequences for breach, which are to be administered and enforced through the statutory machinery under the Maharashtra Public Trusts Act. The exhortation of the Hon'ble Bombay High Court that public charitable hospitals must remain conscious of the human service for which they came into existence undoubtedly guides the interpretation and faithful implementation of the Scheme. It does not, however, dispense with the requirement that an alleged breach must be examined and determined by the authority competent under the governing enactment before such breach can be relied upon for the consequences contemplated under section 12AB of the Act. 96. We are also unable to accept the contention that the principles emerging from the decision in Reliance Foundation Hospital Trust were confined only to the bare language of section 41AA and did not address the object or spirit of the Scheme. Paragraph 97 of that decision expressly recognises that ensuring availability of healthcare to indigent and....
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....eligible patient. 101. The proceedings before the learned CIT(E) arose from an application filed by the assessee seeking renewal of an existing registration. The assessee approached the learned CIT(E) on the footing that a valid registration already subsisted and required renewal under the statutory regime. 102. The learned CIT(E), while rejecting the renewal application, proceeded further to cancel the existing registration retrospectively with effect from 23.09.2021. Such retrospective cancellation has serious civil and fiscal consequences and cannot be sustained in the absence of a specified violation established in the manner contemplated under section 12AB. 103. In the present case, the conclusions concerning commerciality and alleged violation of section 41AA and the IPF Scheme have been found by us to be unsustainable. The very foundation for rejection of renewal and cancellation of the existing registration thus ceases to exist. 104. Moreover, the impugned order does not establish any distribution of profit, private enrichment, diversion of income, abandonment of charitable objects, or activity unrelated to medical relief. The assessee continues to run a hospita....