TaxTMI 
TaxTMI 
2026 (7) TMI 783
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....n of a charitable institution. At its core lies an issue of considerable jurisprudential significance, namely, the scope and limits of the jurisdiction vested in the Commissioner of Income Tax (Exemptions) while examining an application for registration or renewal under section 12AB; the distinction between regulation of charitable institutions under the Income Tax Act and supervision of public trusts under the Maharashtra Public Trusts Act, 1950; the legal meaning and contours of the expression "medical relief" appearing in section 2(15); and the extent to which considerations such as affordability of healthcare, hospital tariffs, premium medical facilities, financial receipts and alleged non-compliance with regulatory obligations can influence the determination of charitable status under the Income Tax Act. The appeal assumes even greater significance because the impugned order does not merely reject the assessee's application for renewal of registration. The learned Commissioner of Income Tax (Exemptions), Mumbai [hereinafter referred to as "the learned CIT(E)"], after rejecting the application filed in Form No.10AB, has proceeded further to cancel the registration already g....
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....etrospective effect from 23.09.2021, by alleging that (i) the activities carried on by the Appellant are not charitable activities as defined in Section 2(15) of the Act, and (ii) are not in compliance with the MPT Act. 5. Erred in cancelling the existing registration with retrospective effect from 23.09.2021, without following due process of law. 6. Erred in cancelling the existing registration with retrospective effect from 23.09.2021, in an order passed for disposing of application filed for renewal of registration, which is without jurisdiction. 7. Erred in cancelling the existing registration without issuing any specific show-cause notice setting out the alleged defaults and without affording the appellant an effective opportunity of being heard and without granting personal hearing, in gross violation of section 12AB(1)(b)(ii)(B) of the Act and thus in violation of the principles of natural justice. 8. Failed to appreciate that there is regular compliance with the office of the charity commissioner and there is no adverse order for non-compliance by any authority under any law as required u/s explanation (f) to Section 12AB(4) of the Act." ....
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....at the trust deed contains non-charitable objects or that the hospital itself is a sham or fictitious institution. The controversy, therefore, does not concern the existence of medical activities, but rather the legal character and consequences of the manner in which such activities are carried on. 5. The record reveals that the assessee was originally granted registration under section 12A of the Act vide order dated 30.04.2014 and was also granted approval under section 80G by order dated 10.07.2014. Subsequently, upon the introduction of the new registration regime under section 12AB by the Finance Act, 2020, all existing charitable institutions were required to migrate to the newly introduced framework. In pursuance thereof, the assessee applied for registration under section 12AB and was granted registration on 28.05.2021. Approval under section 80G was also granted thereafter on 23.09.2021. Both registrations were valid up to 31.03.2026. Since the validity period was approaching expiry, the assessee filed applications in Form No.10AB on 30.09.2025 seeking renewal of registration under section 12AB and continuation of approval under section 80G. At that stage, the proceedin....
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....nstitution is in substance operating as a commercial healthcare enterprise rather than as a genuinely charitable institution. The reasoning of the learned CIT(E) broadly rests on two pillars. The first pertains to what he perceives as the commercial nature of the hospital operations, evidenced by tariff structures, treatment costs, revenues and financial indicators. The second pertains to alleged non- compliance with section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme (IPF) framed pursuant to the directions of the Hon'ble Bombay High Court. 8. The first and most extensive part of the impugned order is devoted to an analysis of the hospital's tariff structure. The learned CIT(E) noted that the hospital has 251 operational beds, including ICU beds, and categorised them into various classes ranging from economy beds to premium suites. According to him, while economy beds are available at comparatively lower charges, a significant number of beds are categorised as Deluxe Rooms, Premium Deluxe Rooms, Junior Suites, Grand Suites and Premium Suites, carrying charges ranging from several thousand rupees per day to as high as Rs.75,000 per day. ....
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.... than Rs.1,18,000 per day in another year. These figures were again juxtaposed against average income levels in the country. According to the learned CIT(E), such revenues, coupled with organised management systems and high-end healthcare facilities, indicate that the institution functions in a manner more akin to a premium healthcare enterprise than a charitable hospital. He therefore concluded that the activities are imbued with a commercial character notwithstanding the charitable form in which the institution is constituted. 11. The learned CIT(E) also analysed the financial statements of the trust and referred to the receipts generated from hospital operations, donations, fund balances and amounts reflected in the accounts. According to him, the scale of receipts, the financial resources available with the institution and the overall financial profile of the hospital indicate that the institution is operating on commercial principles. Though the assessee had furnished detailed explanations regarding utilisation of donations, transfers to designated funds and accounting treatment of various receipts, the learned CIT(E) was of the view that the financial position of the insti....
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....ted to medical relief. 14. The second major limb of the impugned order concerns alleged non-compliance with section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme. The learned CIT(E) referred to the scheme approved by the Hon'ble Bombay High Court, which requires charitable hospitals to reserve 10% of their operational beds for indigent patients and another 10% for economically weaker section patients, besides maintaining an Indigent Patient Fund funded by prescribed contributions. He analysed the data furnished by the assessee regarding the number of patients treated under these categories and concluded that the actual percentage of indigent and economically weaker section patients treated by the hospital was significantly lower than what, according to him, ought to have been achieved under the scheme. 15. According to the learned CIT(E), the data for Financial Years 2022-23, 2023-24 and 2024-25 revealed that the percentage of patients treated under the indigent and economically weaker section categories ranged approximately between 2.78% and 7.35%, which, according to him, was substantially below the benchmark of 20%. Proceeding on the ba....
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....e with the IPF Scheme collectively demonstrate that the institution has drifted away from its charitable mandate. 19. The impugned order contains several observations reflecting the broader philosophy adopted by the learned CIT(E). He observed that a charitable hospital ought to be accessible to ordinary citizens and not merely to those capable of paying premium charges. He further observed that maintaining a limited component of concessional treatment cannot compensate for a broader operational model which, according to him, is oriented towards affluent patients. He repeatedly emphasised that genuine charity must be reflected in the actual beneficiaries of the institution and not merely in its formal constitution. 20. The learned CIT(E) also expressed the view that substantial receipts, premium facilities and high-end healthcare services are indicators of a commercial orientation. According to him, where the predominant character of an institution resembles that of a luxury healthcare provider, the mere existence of charitable objects in the trust deed cannot justify continuation of tax exemption. He therefore viewed the overall operational profile of the assessee as being i....
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....objects are charitable, whether the activities are genuine and whether any of the statutorily prescribed circumstances warrant denial or cancellation of registration. The learned CIT(E), however, according to the learned Senior Counsel, has travelled far beyond these statutory limits and has proceeded to examine affordability of healthcare, comparative income levels of Indian households, desirability of premium hospital facilities, economic accessibility of tertiary care treatment and other considerations which may have relevance in public policy discourse but have no place within the statutory framework of section 12AB. It was submitted that the impugned order effectively rewrites the conditions of registration by introducing tests which Parliament itself has never enacted. 25. The learned Senior Counsel thereafter drew our attention to section 2(15) and submitted that the learned CIT(E) has failed to appreciate the distinction consciously maintained by the legislature between institutions engaged in "medical relief" and institutions claiming charitable status under the residual limb of "advancement of any other object of general public utility". Reliance was placed upon the ju....
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....haritable character so long as the institution continues to exist for medical relief and its income is applied towards charitable purposes. 27. The learned Senior Counsel then addressed the bed tariff analysis undertaken by the learned CIT(E) and submitted that the comparison of hospital charges with median household income represents perhaps the most striking example of the impugned order travelling beyond statutory boundaries. According to him, no provision of law mandates that the tariff structure of a hospital should be judged against average income statistics in order to determine charitable status. The Income Tax Act does not prescribe any affordability index. Neither the Maharashtra Public Trusts Act nor the IPF Scheme incorporates any such criterion. The learned CIT(E), according to the assessee, has therefore introduced a wholly new test of his own creation. It was argued that if such a standard were accepted, every tertiary care institution, every transplant centre, every advanced oncology facility and every super-speciality hospital would automatically lose charitable status merely because modern healthcare is inherently expensive. The law, however, does not require a....
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.... 2021-22 - 11,27,45,065 11,27,45,065 2022-23 1,74,00,00,000 14,21,56,485 1,88,21,56,485 2023-24 1,17,00,00,000 17,90,06,054 1,34,90,06,054 2024-25 1,50,00,000 21,66,05,717 23,16,05,717 Such amounts are not available for private gain and cannot be equated with commercial profits. The conclusions drawn by the learned CIT(E) are unsupported by the financial statements themselves. 30. The learned Senior Counsel further submitted that a proper examination of the financial records demonstrates that the hospital has incurred operational deficits in several years and has depended substantially upon philanthropic support. Detailed reference was made to the income and expenditure statements, annual reports and fund utilisation statements forming part of the paper book. Summary of Operating Income, Operating Expenditure & Capital Expenditure (Rs. in Crores) Sr. No. Particulars F.Y. 2024-25 (FPB - Pg No: 21-22) F.Y. 2023-24 (FPB - Pg ....
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.... - 153.14 - - 6 Amount transferred to specific funds 23.16 17.90 14.22 11.27 - 66.55 Transfer to Medical Support Fund Account 1.50 - - - 1.50 0 Transfer to Indigent / Weaker Patient Fund Account 21.66 17.90 14.22 11.27 65.05 0 7 Surplus / (Deficit) post transfer to above funds (5-6 ) -67.44 61.74 115.87 -23.58 - 86.59 8 Capital Expenditure for the year 98.96 174.01 125.75 159.17 - 557.89 FPB Pg ref (Pg 25) (Pg 32) (Pg 40) (Pg 49) ....
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....inancial profile of the institution cannot constitute valid grounds either for denial of renewal or for cancellation of registration. 33. The learned Senior Counsel thereafter turned to what he described as the central legal issue in the present appeal, namely the findings recorded by the learned CIT(E) with reference to section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme. According to him, the impugned order proceeds upon a complete misunderstanding of both the statutory provision and the scheme framed pursuant to the directions of the Hon'ble Bombay High Court. He submitted that section 41AA and the IPF Scheme require charitable hospitals to reserve and earmark a prescribed percentage of operational beds for indigent and economically weaker section patients. The obligation is one of reservation and availability. It is not an obligation to ensure that a fixed percentage of all patients admitted during the year necessarily belong to those categories. The learned CIT(E), however, has equated actual utilisation with reservation and has thereby substituted the statutory requirement with a requirement that does not exist in law. 34. Elaborat....
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....td. v. CIT [1979] 117 ITR 1 (SC) to contend that where a specialised statute creates a regulatory framework and vests supervisory powers in a designated authority, the Commissioner cannot independently determine alleged violations under that statute and substitute his own conclusions for those of the competent authority. The learned Senior Counsel submitted that the Maharashtra Public Trusts Act constitutes a complete code in relation to administration and supervision of public trusts and therefore any alleged breach of section 41AA must necessarily be determined by authorities functioning under that enactment. 37. According to the learned Senior Counsel, the legal position has now been further clarified by the present scheme of section 12AB itself. The concept of "specified violation" and the statutory safeguards incorporated by Parliament demonstrate that the Income Tax authorities are not intended to function as parallel regulators under every law applicable to a charitable institution. The impugned order, however, proceeds on precisely such an assumption. The learned CIT(E) has interpreted the Maharashtra Public Trusts Act, examined compliance with the IPF Scheme, computed a....
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....section 41AA and the IPF Scheme is unsustainable. The statutory requirement of reservation has been confused with actual utilisation; the regulatory framework administered by the Charity Commissioner has been supplanted by an independent determination of the learned CIT(E); the financial analysis of the IPF Fund has been undertaken on an incorrect basis; and the alleged violations themselves have been recorded in the absence of any determination by the competent authority. Consequently, the entire foundation upon which the learned CIT(E) invoked alleged non-compliance with another law stands vitiated both on facts and in law. 41. The learned Senior Counsel thereafter invited our attention to what, according to him, constitutes the most decisive statutory provision governing the present controversy, namely Sec.12AB(1)(b)(i)(B), which provides for compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects. The Learned Senior Counsel submitted that this requirement is para materia with one of the Specified Violations prescribed in Explanation (f) to section 12AB(4) of the Act. He ....
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....occurred are all matters entrusted by law to the authorities administering that enactment. In the present case, however, no order of the Charity Commissioner, no direction of any authority under the Maharashtra Public Trusts Act and no decree of any competent forum has been brought on record holding that the assessee has violated section 41AA or the IPF Scheme. In the absence of such a determination, it was submitted, the jurisdictional foundation contemplated by Section 12AB(1) read with Explanation (f) to Section 12AB(4) is completely absent. 43. The learned Senior Counsel submitted that the learned CIT(E) has effectively treated himself as the primary adjudicator under the Maharashtra Public Trusts Act and has undertaken an exercise which the statute never intended him to undertake. He has interpreted the IPF Scheme, analysed patient data, computed alleged deficiencies, concluded that there exists a shortfall, held that there is a breach of section 41AA and thereafter proceeded to impose the drastic consequence of cancellation of registration. Such an approach, according to the assessee, directly defeats the legislative scheme because it renders redundant the requirement inco....
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....thereafter invited our attention to the speech of Finance Minister dated 05.07.2019 while introducing the Finance Bill, 2019 in order to understand the legislative intent underlying the introduction of the present framework. It was submitted that Parliament introduced the concept of specified violation not to enlarge the powers of the Commissioner but to create a structured and objective framework governing cancellation of registration. The purpose was to avoid arbitrary action and ensure that registration once granted is not disturbed except in clearly identifiable circumstances supported by objective material. The impugned order, according to the assessee, travels in the opposite direction because it substitutes objective statutory criteria with subjective assessments regarding affordability, accessibility and perceived compliance under another law. 47. Proceeding further, the learned Senior Counsel submitted that even assuming that the requirements of section 41AA are material for achieving the objects of the trust, the learned CIT(E) was still required to satisfy the additional conditions embedded in the statutory framework before invoking such alleged non-compliance. The pr....
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....ng section 41AA suffer from a foundational jurisdictional defect. The question is not merely whether his conclusions are factually correct or incorrect. According to the assessee, the more fundamental question is whether he possessed the authority to reach such conclusions in the first place. Once it is accepted that no competent authority under the Maharashtra Public Trusts Act has recorded any finding of violation and that the Commissioner has independently undertaken the adjudicatory exercise, the entire foundation of the impugned order becomes unsustainable. 51. The learned Senior Counsel accordingly submitted that the issue relating to Explanation (f) is not a peripheral or subsidiary argument but goes to the very root of jurisdiction. If the assessee's interpretation is accepted, the findings relating to violation of section 41AA collapse irrespective of the factual debate concerning patient ratios, reserved beds or utilisation of funds. In that event, one of the two principal pillars upon which the impugned order rests would stand completely demolished. In any case, the provisions of sec.41AA and IPF scheme are not "Material" provisions for the purpose of achieving th....
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....edical relief". Paragraph 18 of IPF Scheme provides penalty for non-compliance of the scheme and the same reads as under :- "18. In case of breach of the Scheme and/ or the terms and conditions of section 41AA by any Charitable Hospitals, besides the penal action as is provided under section 66 of the BPT Act, the Charity Commissioner shall make report to the State Government recommending withdrawal of the exemption granted to the concerned hospitals during the next preceding year in payment of contribution towards P.T.A Fund and the amount of contribution towards P.T.A Fund be recovered from the said hospital. The Charity Commissioner may also request the Government to withdraw any other concessions/ benefits given to the said hospital." 51.3. For non-compliance of the provisions of IPF Scheme, a charitable hospital is punished with withdrawal of certain concessions given to it. It does not prohibit carrying the activity of providing medical relief by running the hospital. Hence, the compliance of IPF Scheme cannot be considered as "material one" within the meaning of sec. 12AB(1)(b)(i)(B) for achieving the objects of the assessee trust. Similarly, the provisions of se....
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....newal of registration under section 12AB and continuation of approval under section 80G. The assessee approached the authority on the premise that the registration already granted was valid up to 31.03.2026 and that, in accordance with the statutory scheme, the same required renewal. The proceedings, therefore, commenced as renewal proceedings and not as proceedings for cancellation of an existing registration. According to the learned Senior Counsel, this distinction is of fundamental significance because the statutory consequences flowing from rejection of renewal and cancellation of an existing registration retrospectively are entirely different, both in their nature and in their legal impact. 54. The learned Senior Counsel submitted that throughout the course of proceedings, the assessee furnished voluminous replies, explanations and supporting documents addressing the queries raised by the learned CIT(E). However, at no stage was the assessee put to a specific and unequivocal notice that the learned CIT(E) proposed not merely to reject renewal but to cancel the registration already granted with retrospective effect from 23.09.2021. According to him, there is a vast differen....
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.... by Parliament. 56. The learned Senior Counsel then invited our attention to the reasoning adopted by the learned CIT(E) while cancelling the registration retrospectively from 23.09.2021. According to him, a careful reading of the impugned order demonstrates that the discussion therein primarily relates to patient data, financial information and alleged deficiencies pertaining to subsequent years. Yet, despite examining events occurring years after the grant of registration, the learned CIT(E) has proceeded to cancel the registration from the very date on which it was originally granted. It was submitted that such retrospective cancellation necessarily presupposes that the registration was liable to be denied at its inception or that the very foundation upon which it was granted stood vitiated from the beginning. However, the impugned order contains no such finding. There is no allegation that the assessee obtained registration by fraud, misrepresentation, suppression of material facts or furnishing of false particulars. There is equally no allegation that the objects of the trust were different on the date registration was granted. In the absence of such findings, retrospective....
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....While such perceptions may legitimately inform policy debates, they cannot substitute the statutory criteria governing cancellation of registration. The issue before the learned CIT(E) was not whether the assessee's model of healthcare delivery was ideal or desirable but whether the statutory conditions for renewal or cancellation stood satisfied. 60. The learned Senior Counsel submitted that the principles of natural justice acquire even greater importance in the context of charitable institutions because registration under section 12AB forms the foundation of their entire fiscal structure. A decision affecting such registration has far-reaching consequences not only for the institution but also for donors, beneficiaries, patients and ongoing charitable activities. Therefore, before taking an action of such magnitude, the authority must scrupulously adhere to procedural safeguards and must clearly establish the jurisdictional basis for the proposed action. According to the assessee, the impugned order falls short on both counts. Neither the procedural safeguards nor the jurisdictional prerequisites necessary for retrospective cancellation have been satisfied. 61. Summari....
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....rned Senior Counsel submitted that when the financial performance of the hospital is examined in the manner in which a healthcare institution is ordinarily evaluated, namely by comparing operational income with operational expenditure, an altogether different picture emerges. Detailed reference was made to the hospital's income and expenditure statements for the relevant years and it was pointed out that the healthcare operations themselves have not generated the kind of commercial profits assumed in the impugned order. On the contrary, the hospital has incurred operational deficits in last four years and has depended substantially upon philanthropic support received through donations and contributions. According to the assessee, the learned CIT(E) has ignored this distinction and has combined operational receipts, donations and other non-operational items into a single pool before characterising the resultant figure as evidence of commercial surplus. Such an approach, it was submitted, distorts the true financial position of the institution and creates a misleading impression regarding the nature of its activities. 64. The learned Senior Counsel further submitted that the l....
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....ipts generated by the hospital. According to him, there exists a fundamental difference between receipt generation and profit generation. A tertiary care hospital equipped with advanced infrastructure, transplant facilities, intensive care units, diagnostic laboratories, emergency services and specialised departments necessarily handles large volumes of transactions. Consequently, gross receipts may be substantial. However, such receipts must be viewed in conjunction with the enormous expenditure incurred on infrastructure, technology, manpower, consumables, patient care services and regulatory compliance. The learned CIT(E), according to the assessee, has focused almost exclusively on the receipt side of the Income and Expenditure account while altogether ignoring the corresponding expenditure required to sustain a modern healthcare institution. 67. Proceeding further, the learned Senior Counsel submitted that one of the most significant errors in the impugned order relates to the treatment of philanthropic donations. He pointed out that the hospital receives substantial support from charitable contributions and donations made with the intention of enabling the institution to c....
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.... examined, the very foundation of the finding disappears. 70. The learned Senior Counsel also submitted that the assessee has consistently complied with the requirements relating to application of income under sections 11 and 12 of the Act. Detailed reference was made to the returns of income, audit reports, assessments completed in earlier years and the financial statements demonstrating utilisation of funds for charitable purposes. It was pointed out that the Revenue has never alleged diversion of funds, private enrichment or application of income for non-charitable purposes. The institution has continued to deploy its resources towards healthcare infrastructure, patient services, medical research, community outreach programmes and other charitable activities. Therefore, even on the touchstone of application of income, the assessee continues to satisfy the essential requirements of a charitable institution. Same can be seen from the below table submitted by the assessee. Summary of Computation / Return of Income Particulars Mar-25 (FPB - Pg No : 1-2) Mar-24 (FPB - Pg No : 3-4) Mar-23 (FPB - Pg No : 5) Mar-22 (FPB - Pg No : 6) Gross Income 1....
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....nd financial conduct of the institution are, according to the assessee, unsupported by the accounts themselves and incapable of sustaining either denial of renewal or cancellation of registration. 72. Per contra, Shri Umashankar Prasad, learned Commissioner of Income Tax-Departmental Representative, strongly relied upon the impugned order passed by the learned CIT(E) and submitted that the order is not only legally sustainable but represents a careful and detailed examination of the actual manner in which the assessee has conducted its affairs. According to the learned CIT-DR, the controversy before the Tribunal should not be viewed through the narrow prism of whether the assessee is running a hospital, because that fact is undisputed. The real question, according to him, is whether the activities carried on by the assessee satisfy the legal requirements necessary for continued recognition as a charitable institution entitled to enjoy the extraordinary fiscal privileges granted under sections 11, 12 and 80G of the Act. It was submitted that exemption under the Income Tax Act is not an unconditional entitlement but a statutory benefit extended to institutions which genuinely func....
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....to him, charity cannot be examined in abstraction from the beneficiaries for whom the institution exists. If the overwhelming majority of services are financially inaccessible to ordinary citizens and are utilised primarily by affluent sections capable of paying substantial amounts, the authority is entitled to examine whether the institution continues to do charity for which exemption has been granted. It was submitted that the learned CIT(E) has not evolved a new statutory test but has merely used economic indicators as an evidentiary tool to evaluate the practical accessibility of the services being rendered. According to the Revenue, the data regarding treatment costs, room tariffs and average revenue per patient were relevant considerations because they revealed the true character of the institution's operations and demonstrated that the principal beneficiaries of the hospital were not the indigent or economically weaker sections of society. 75. The learned CIT-DR then addressed the repeated contention of the assessee that charging fees does not destroy charitable character. According to him, the Revenue does not dispute this proposition in the abstract. However, the pr....
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....ld ordinarily associate with a charitable hospital primarily devoted to the needs of indigent and weaker sections. The learned DR also contended that the assessee would not be protected by section 11(4A) since section 11(4A) only protects incidental business undertaken in the aid of charity and it does not protect a dominant business activity by a token benevolence. 77. Turning to the issue of section 41AA and the IPF Scheme, the learned CIT-DR submitted that the findings recorded by the learned CIT(E) are based upon data supplied by the assessee itself and not upon any conjecture or assumption. According to him, the figures relating to the number of indigent and weaker section patients treated during the relevant years were furnished by the assessee. These figures, when analysed, revealed that the actual percentage of such patients ranged approximately between 2.78% and 7.35%, which is substantially below the benchmark contemplated under the scheme. The learned CIT-DR submitted that the assessee's argument regarding reservation of beds seeks to elevate form over substance. According to him, the purpose of reserving beds is to ensure treatment of indigent and weaker section ....
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....g cognisance of such material merely because a separate order of the regulatory authority has not yet been passed. The learned CIT-DR therefore submitted that the learned CIT(E) was fully justified in examining the data available before him and arriving at his own satisfaction regarding compliance with section 41AA and the IPF Scheme. 80. On the issue of retrospective cancellation, the learned CIT- DR submitted that the assessee's challenge is largely technical in nature and ignores the substance of the proceedings. According to him, extensive notices were issued, detailed explanations were sought and the assessee was afforded ample opportunity to present its case. The assessee filed voluminous written submissions running into several hundred pages and addressed every aspect of the enquiry undertaken by the learned CIT(E). Therefore, no prejudice can legitimately be claimed. It was submitted that the principles of natural justice are intended to ensure fairness and not to create procedural obstacles where effective opportunity has in fact been granted. The learned CIT-DR further contended that where the authority, upon examination of the material on record, arrives at a conc....
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....economic benchmark or that its charges must correspond with median household income levels. The entire reasoning of the learned CIT(E), according to the assessee, remains founded upon his own policy considerations rather than statutory criteria. It was submitted that no amount of factual discussion regarding room tariffs, treatment costs or premium facilities can substitute the legal requirements expressly enacted by Parliament. The learned Senior counsel referred to Sec. 2(15) of the Act which defines the expression "Charitable purpose" as an 'inclusive definition', i.e., it starts with expression "Charitable Purpose includes relief of poor, education, yoga, medical relief ..... ". He submitted that when the expression "includes" is used in the statute, it enlarges the meaning of words or phrases, i.e., more than the general or popular meaning given to the said expression. In this context, he relied on various case laws of the Courts. He submitted further that Section 2 of the Act starts with the expression "In this Act, unless the context otherwise requires". Relying on the decision of the SC in case of ACIT vs. Ahmedabad Urban Development Authority (supra), he submitted ....
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....des advanced medical relief. The statute, however, draws no distinction between basic and advanced healthcare while defining charitable purpose. The learned senior counsel also submitted that the decisions relied upon by the learned DR are not applicable to the facts of the present case. The decision in case of Institute of Franciscan Missionaries of Mary v. Commissioner, Coimbatore City Municipal Corporation (supra) was related to property tax matter under Coimbatore city municipal corporation Act, 1981 and hence the said decision cannot be taken support in Income Tax proceedings. The decision in the case of Ferandez Foundation (supra) was rendered under peculiar facts/lapses prevailing in that case viz non reduction of fees after conversion of private hospital into a charitable hospital, diversion of funds to promoters in the shape of remuneration, power of learned CIT(E) to examine financial statement and documents etc. In the case of Gurukul Shikshan Sansthan (supra), the learned CIT(E) had rejected the registration u/s 12AB since said trust was not registered under Rajasthan Public Trust Act, which is a material condition for carrying out charitable objects. The learned senior....
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....he learned Senior Counsel reiterated that retrospective cancellation from 23.09.2021 carries consequences of a wholly different magnitude than rejection of renewal from a future date. Yet the impugned order contains no finding of fraud, misrepresentation, suppression of material facts or any circumstance ordinarily associated with retrospective withdrawal of a statutory benefit. It was therefore submitted that the Revenue's reliance upon the doctrine of substantial compliance cannot cure a jurisdictional defect or a failure to comply with the requirements of natural justice. 86. In conclusion, the learned Senior Counsel submitted that the Revenue's defense of the impugned order ultimately rests upon the same assumptions which permeate the order itself, namely that a charitable hospital must conform to a particular model of healthcare delivery conceived by the learned CIT(E), that actual utilisation of reserved beds constitutes the sole measure of compliance with the IPF Scheme, and that the Commissioner may independently adjudicate alleged violations under another statute notwithstanding the safeguards contained in section 12AB. According to the assessee, each of these a....
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....the answer to each of these questions must be sought not in subjective notions of charity but in the statutory architecture enacted by Parliament. In this context, we may refer to Sec.2 of the Act, which defines various terms used in the Act. This section starts with the expression "Unless the context otherwise requires". The effect of usage of expression "unless the context otherwise requires" would mean that the definition expressly provided in the Act shall prevail over general/popular meaning of the term as held by Hon'ble Supreme Court in the case of ACIT vs. Ahmedabad Urban Development Authority (supra). We may also refer to the definition of the term "Charitable Purpose" given in sec.2(15) of the Act. This definition is an inclusive definition. When the expression "includes" is used in the statute, it enlarges the meaning of words or phrases, i.e., more than the general or popular meaning given to the said expression, as held in the case of Commissioner of Income Tax v. Taj Mahal Hotel [1971] 82 ITR 44 (SC). 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 ....
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....a particular affordability index, maintain a prescribed tariff structure or restrict the scale of its operations. This view is supported by the CBDT Circular no. 1/2009 dated 27.3.2009, the decisions of the Supreme Court in case of ACIT v. Ahmedabad Urban Development Authority (supra), 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 Urba....
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....nt for such an assumption either in law or in reality. Medical relief in the twenty-first century is no longer confined to basic treatment or elementary healthcare. Modern medicine involves organ transplantation, robotic surgery, oncology, advanced cardiac interventions, neonatal intensive care, critical care medicine and highly specialised diagnostics. These services require enormous investment in infrastructure, technology and professional expertise. To suggest that the charitable character of a hospital diminishes as the quality and sophistication of medical care improves would be contrary to both logic and public interest. A charitable institution does not cease to be charitable because it provides the best possible treatment. Indeed, one of the noblest forms of medical charity may well be the creation of institutions capable of delivering world-class healthcare while remaining dedicated to charitable purposes. 93. The same reasoning applies to the observations made regarding organisational structure, employee strength and salary expenditure. A modern tertiary care hospital cannot function without an extensive workforce comprising specialists, surgeons, nurses, technicians, ....
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....learned CIT(E) proceeds from a concern that the hospital should be doing more for economically weaker sections. That concern, as a matter of social policy, may be entirely understandable. However, the jurisdiction under section 12AB does not authorise the Commissioner to withdraw registration because an institution falls short of an ideal model of charity conceived by the authority. The law requires compliance with statutory standards, not perfection in charitable endeavour. The distinction between a legal test and a moral expectation must always be maintained. Once that distinction is blurred, statutory adjudication gives way to subjective evaluation. 96. We are therefore of the considered view that before examining the allegations relating to section 41AA, the IPF Scheme and the specific findings recorded in the impugned order, it is necessary to firmly reiterate the governing legal principle: under the scheme of section 12AB, the central enquiry is on objects of the trust, whether the activities carried on are genuine and in furtherance of those objects and compliance with the other laws which are material for the purpose of achieving its objects. The statute does not prescri....
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....In our view, above section has to be read with clause (f) of Explanation to sec.12AB(4), which lists out "specified violations", since the purpose of both sections are same. Parliament, while introducing the present registration regime, consciously incorporated the concept of "specified violation". This was not done casually. Registration once granted carries significant legal consequences and affects the functioning of charitable institutions across multiple years. Parliament was therefore conscious that cancellation of registration should not be left to unfettered discretion tax authorities. It accordingly identified specific circumstances in which such action may be warranted and simultaneously built in statutory safeguards. One such circumstance relates to non-compliance with the requirements of any other law which are material for the purpose of achieving the objects of the trust. However, the provision does not stop at that point. It further contemplates the existence of an order, direction or decree, by whatever name called, holding that such non-compliance has occurred. This legislative formulation is of considerable significance because it reveals that Parliament did not e....
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....l jurisdiction over specialised statutory authorities. Such a consequence would be contrary to both legislative intent and principles of institutional competence. 101. There is another equally important aspect of the matter. Even assuming for a moment that the learned CIT(E) was entitled to examine whether the requirements of section 41AA were being broadly observed, the conclusions ultimately reached by him proceed upon a particular interpretation of the IPF Scheme, namely that actual utilisation of beds by indigent and economically weaker section patients constitutes the sole measure of compliance. The assessee, on the other hand, has consistently contended that the scheme mandates reservation and earmarking of beds and not guaranteed occupancy. Upon a careful examination of the material placed before us, we find substantial force in the assessee's submission that the learned CIT(E) has conflated the concept of reservation with that of utilisation. The distinction is not merely semantic. A hospital may reserve and keep available the prescribed number of beds and yet the actual occupancy may vary depending upon factors beyond its control. To automatically equate lower occup....
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....ll get adjusted in the subsequent months.' The statement of account of IPF shows that the assessee has spent more than the amount transferred to the account over the years. 104. More importantly, even if one were to assume the existence of certain deficiencies in implementation of the IPF Scheme, the further leap made by the learned CIT(E) from regulatory deficiency to loss of charitable character is, in our opinion, legally unsustainable. There is a fundamental distinction between compliance with a regulatory obligation and the existence of a charitable purpose. A charitable institution may, in a given case, commit procedural lapses, accounting lapses or regulatory lapses. Such lapses may expose it to consequences under the relevant enactment. However, every such lapse does not automatically erase the charitable character of the institution itself. A careful perusal of provisions of section 12AB(1)(b(i)(B) read with clause (f) of Explanation to section 12AB(4) provides that the CIT(E) is not required to examine about non-compliance of each and every requirements of any other law, but only look into 'compliance' of any other law for the time being in force AS ARE MAT....
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....g the alleged violation of the IPF Scheme as a jurisdictionally established fact warranting cancellation of registration and also non granting of renewal of registration. In our considered opinion, the very foundation upon which the learned CIT(E) invoked alleged non-compliance with another law stands seriously undermined both on facts and in law. Having reached this conclusion, we shall now proceed to examine the second principal limb of the impugned order, namely whether the financial profile of the institution, its tariff structure, treatment costs and operational scale can legitimately lead to the conclusion that the assessee has ceased to be a charitable institution engaged in medical relief. 107. We shall now examine the second and equally important limb of the reasoning adopted by the learned CIT(E), namely that the assessee, by reason of its tariff structure, treatment costs, premium facilities, financial profile and operational scale, has allegedly crossed the boundary between charitable healthcare and commercial healthcare and therefore ceased to be a charitable institution. In our considered opinion, this conclusion suffers from a fundamental conceptual infirmity beca....
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....dation. Nor does it mandate that every patient must receive identical accommodation irrespective of personal preference or ability to pay. What is material is whether the institution exists for private gain or whether the income generated remains impressed with charitable obligations. The record before us does not reveal any allegation that the trustees have appropriated profits, that income has been siphoned away for personal benefit, or that the assets of the trust have been deployed for non-charitable purposes. In the absence of such findings, the existence of premium rooms cannot be elevated into evidence of commercial intent. On the contrary, the explanation offered by the assessee that higher category facilities facilitate cross- subsidisation of healthcare services appears both plausible and commercially rational. 110. There is another aspect which merits consideration. The approach adopted by the learned CIT(E), if accepted as a principle of law, would lead to consequences which are neither contemplated by the statute nor consistent with public policy. Many of the leading charitable hospitals in India operate advanced medical facilities, charge market-linked rates from p....
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....eiterated in Aditanar Educational Institution and Queen's Educational Society, where the Court emphasised that the decisive test lies not in the existence of surplus but in its destination. If the surplus is ploughed back into the institution and utilised for advancement of its charitable objects, it does not become profit in the commercial sense. The impugned order, however, frequently uses expressions such as "surplus", "large receipts" and "financial strength" as though these facts are self-evident indicators of commerciality. Such an approach is inconsistent with the settled jurisprudence governing charitable institutions. 113. We also find considerable merit in the assessee's contention that the learned CIT(E) has not adequately distinguished between operational receipts and philanthropic support. The material placed before us indicates that the institution has received donations, contributions and earmarked funds intended for charitable purposes and development of healthcare infrastructure. Such receipts cannot be equated with commercial profits. A charitable institution which receives substantial donations does not become less charitable because it possesses finan....
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....of 'charitable purpose' upon satisfying the conditions mentioned in the proviso, will not apply to the assessee which is providing 'medical relief. We also agree with the contention of the assessee that the decision relied upon by the learned DR are not applicable to the facts of the case of the assessee. Though the learned DR contended that there is violation of provisions of Section 11(4A) of the Act, we notice that the same is not the case of learned CIT(E) and further that the activity of providing medical relief by running a hospital, in our view, cannot be considered to be a business activity. 116. We therefore hold that the conclusions drawn by the learned CIT(E) from the tariff structure, treatment costs, premium facilities, revenue indicators, financial resources and organisational scale of the hospital do not constitute legally sustainable grounds for holding that the assessee has ceased to be a charitable institution engaged in medical relief. The record before us demonstrates that the assessee continues to run a hospital, continues to provide healthcare services, continues to apply its resources towards medical relief and continues to operate within the f....
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....ous premise, namely that the registration already granted deserves to be nullified from the very date of its grant. Such a consequence necessarily requires a far stronger legal and factual foundation than what would ordinarily be required in a simple renewal proceeding. 118. A careful reading of the impugned order shows that the entire exercise undertaken by the learned CIT(E) arose from the assessee's application seeking renewal of registration and continuation of approval under section 80G. The enquiry conducted by him was largely directed towards examining the manner in which the hospital was functioning during the subsequent years, particularly with reference to patient ratios, tariff structures, implementation of the IPF Scheme, financial statements and operational data pertaining to recent periods. The findings recorded in the impugned order are themselves founded on data relating to Financial Years 2022-23, 2023-24 and 2024-25. However, despite the fact that the entire factual examination concerns subsequent years, the ultimate consequence imposed is cancellation of registration from 23.09.2021. This, in our opinion, creates a serious disconnect between the materia....
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.... field of medical relief. The trust continues to be governed by the same objects. The institution continues to operate under the same statutory framework. The activities continue to be healthcare activities. There is no allegation that the trust has diverted into unrelated commercial ventures. There is no allegation that the objects have been amended in a manner inconsistent with charitable purposes. There is no allegation that the assets of the trust have ceased to be held for charitable purposes. In such circumstances, the cancellation of registration from the very date of grant appears wholly disproportionate to the findings actually recorded in the impugned order. 122. Another aspect which deserves emphasis is that the learned CIT(E) appears to have conflated concerns regarding continuance of registration with the much more serious consequence of retrospective cancellation. Even if one were to assume that the authority entertained genuine concerns regarding implementation of the IPF Scheme or the level of outreach to indigent patients, such concerns would still require examination within the framework prescribed by law. They do not automatically justify the conclusion that t....
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....ainable, the superstructure erected thereon cannot survive. Therefore, the fate of the 80G approval necessarily follows the fate of the registration under section 12AB. 126. Accordingly, upon a cumulative consideration of the factual matrix, the statutory framework and the reasoning adopted in the impugned order, we are unable to sustain the retrospective cancellation of registration from 23.09.2021. The material relied upon by the learned CIT(E) pertains to subsequent periods; no foundational defect in the original grant of registration has been demonstrated; no finding of fraud, misrepresentation or suppression of material facts has been recorded; the essential charitable character of the institution has not been shown to have undergone any fundamental transformation; and the factors relied upon by the learned CIT(E) are, in any event, insufficient to justify obliteration of the registration from its inception. We therefore hold that the action of the learned CIT(E) in cancelling the registration granted under section 12AB with retrospective effect from 23.09.2021 is unsustainable in law and on facts. 127. Before we record our final conclusion, we consider it necessary to o....
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....whether the income derived from the property and activities of the trust is applied towards medical relief and whether the institution remains devoted to that purpose. The impugned order repeatedly treats the quantum of receipts, existence of premium facilities and financial scale of operations as though they are themselves inconsistent with charity. That approach is contrary to the very design of section 11. 129. It is also important to bear in mind that section 2(15) places "medical relief" in the main body of the definition of charitable purpose. Like education, relief of the poor and preservation of environment, medical relief is not dependent upon the residual limb of "advancement of any other object of general public utility". The commerciality proviso has its principal operation in the residuary category and cannot be mechanically imported into the specific charitable limbs such as education and medical relief. The consistent judicial understanding, emanating from the decisions of the Hon'ble Supreme Court in Surat Art Silk Cloth Manufacturers Association, Aditanar Educational Institution, Queen's Educational Society and other authorities, is that where the domina....
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....or only if premium facilities are absent. A cancer hospital, a cardiac hospital, a transplant centre or a multi-speciality tertiary care institution may necessarily involve expensive treatment. That does not mean that the institution is not rendering medical relief. The law does not recognise a distinction between basic medical relief and advanced medical relief for the purpose of section 2(15). The moment the enquiry is shifted from "whether medical relief is being provided" to "whether the medical relief is sufficiently inexpensive", the authority travels beyond the statutory text. The learned CIT(E) has precisely committed this error. 132. The assessee's case also cannot be tested by isolating premium rooms or high-paying patients from the broader institutional framework. A charitable hospital may have paying patients, subsidised patients and free patients. It may use receipts from one segment to sustain services for another. It may receive donations and deploy them for infrastructure. It may charge full cost from those who can afford and provide relief to those who cannot. These are matters of institutional design and financial sustainability. The Income Tax Act does not....
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....nce of maintaining the distinction between the existence of charity and the adequacy of charity. Every charitable institution can perhaps do more. Every hospital can aspire to treat a larger number of indigent patients. Every educational institution can aspire to grant more scholarships. Every trust can seek to expand the reach of its benevolent activities. However, section 12AB does not authorise the Commissioner to cancel registration because an institution falls short of an ideal standard conceived by the authority. The enquiry is whether the institution continues to pursue a recognised charitable purpose and whether its activities are genuine. Once those conditions are satisfied, the statute does not permit registration to be withdrawn merely because the authority would have preferred a different model of operation. 136. Before we part with the legal discussion, we deem it appropriate to observe that charity in law is not measured by architectural modesty, nor by the absence of financial strength. A charitable institution does not cease to be charitable merely because it has succeeded in creating excellence. The Income Tax Act does not create a hierarchy where a small instit....
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....t no finding has been recorded of diversion of income, private enrichment or application of funds for non- charitable purposes; that alleged non-compliance with section 41AA or the IPF Scheme could not have been independently adjudicated by the learned CIT(E) in the absence of any determination by the competent authority under the Maharashtra Public Trusts Act; in any case, the assessee has complied with provisions of section 41AA and IPF scheme and further both these provisions are not material for achieving the objects of the trust in terms of Section 12AB; and that the retrospective cancellation of registration from 23.09.2021 is unsustainable. Consequently, the impugned order rejecting renewal and cancelling registration under section 12AB is set aside. The registration earlier granted to the assessee under section 12AB shall stand restored and the application for renewal stands allowed. Since the rejection of approval under section 80G is only consequential to the order passed under section 12AB, the said consequential rejection also cannot survive and is accordingly set aside. 139. Consequently, the impugned order passed by the learned CIT(E) cancelling the registration gr....