TaxTMI 
TaxTMI 
2026 (9) TMI 1233
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....ration regime. Consequentially, by a separate order impugned in ITA No. 4200/Mum/2026, the learned CIT(E.) rejected the assessee's application for approval under section 80G of the Act solely on the premise that the assessee was no longer entitled to registration under section 12AB. Since both the appeals arise out of common proceedings, involve identical factual background, overlapping issues of law and challenge findings recorded in the same course of proceedings, they were heard together and are, therefore, being disposed of by way of this consolidated order. 2. Although the controversy has arisen from orders passed under sections 12AB and 80G of the Act, the questions which fall for our adjudication travel considerably beyond the correctness of the individual findings recorded by the learned CIT(E.). The appeals raise issues of considerable importance touching upon the true scope and ambit of the jurisdiction exercisable by the Commissioner (Exemptions) while considering an application for registration under section 12AB; the legislative distinction maintained by Parliament between institutions engaged in "medical relief" and those pursuing the residuary object of "advanceme....
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....d recognised under the Income-tax Act for several decades. Registration under section 12A was originally granted on 20.11.1974 and continued uninterruptedly thereafter. The assessee also enjoyed approval under section 80G and recognition under section 10(23C), reflecting a consistent acceptance by the Revenue of the charitable nature of its objects and activities. Consequent upon the comprehensive amendments introduced by the Finance Act, 2020 replacing the earlier registration regime under sections 12A and 12AA with the substituted framework under section 12AB, all existing charitable institutions were required to migrate to the new statutory regime. In compliance with the amended provisions, the assessee applied for registration under the substituted framework and was granted registration and consequential approval under section 80G by orders dated 24.09.2021, valid for the prescribed period. Upon the expiry of the said validity, the assessee submitted fresh applications on 27.09.2025 seeking continuation of registration under section 12AB and renewal of approval under section 80G in accordance with law. Thus, the present proceedings do not concern a newly established institution....
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.... of utilisation of the Indigent Patients Fund, reimbursement of expenditure incurred on foreign travel by doctors, details of academic conferences attended, particulars regarding implementation of the provisions of section 41AA of the Maharashtra Public Trusts Act and various other operational aspects of the hospital. The assessee, in response, filed comprehensive replies accompanied by voluminous supporting documentation including month-wise summaries of beneficiaries under the IPF Scheme, acknowledgements evidencing submission of statutory reports before the office of the Charity Commissioner, inspection reports of the Monitoring Committee constituted pursuant to the directions of the Hon'ble Bombay High Court, statistical statements regarding free and concessional treatment, details of discretionary charity extended beyond the statutory mandate, illustrative patient records, specimen bills, internal implementation guidelines and explanatory notes dealing with every issue raised during the proceedings. The assessee also specifically stated that the complete monthly reports furnished before the Charity Commissioner ran into several thousand pages and, therefore, only representativ....
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....nd 12AB, the nature of institutions engaged in medical relief and the limits of the jurisdiction exercisable by the Commissioner (Exemptions), this Tribunal had enunciated certain governing principles applicable to charitable healthcare institutions. Since the controversy involved in the present appeals substantially overlaps with those legal principles, while independently appreciating the facts, evidence and statutory issues arising herein, we shall be guided by the legal framework explained in the aforesaid decision. At the same time, our conclusions in these appeals shall rest upon an independent evaluation of the record before us and the specific findings recorded in the impugned orders, which require separate examination on their own merits. 9. During the course of hearing, the learned Senior Counsel appearing on behalf of the assessee assailed the impugned orders both on facts and in law and submitted that the entire approach adopted by the learned CIT(E.) proceeds on an erroneous understanding of the statutory scheme governing section 12AB of the Act. At the very outset, it was submitted that the assessee is not a newly constituted institution seeking registration for th....
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....olations under section 11(1)(c), none of which, according to him, could legitimately furnish a ground either for refusing registration or for retrospectively cancelling a registration already granted unless the statutory conditions specifically prescribed under section 12AB stood demonstrably attracted. It was thus argued that the learned CIT(E.) travelled beyond the legislative contours of his jurisdiction and virtually substituted assessment proceedings by registration proceedings, an approach which finds no support either from the language of the statute or from the settled principles governing registration of charitable institutions. 11. The principal challenge was directed against the finding recorded by the learned CIT(E.) regarding alleged violation of section 11(1)(c) of the Act. The learned Senior Counsel submitted that the entire foundation of the impugned finding rests upon reimbursement of expenditure incurred by certain doctors for attending international medical conferences, specialised training programmes, workshops and academic seminars organised abroad by globally recognised medical institutions and professional bodies. It was argued that these conferences were ....
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....n of the Indigent Patients Fund, details of free and concessional treatment, specimen patient records and explanatory notes regarding the methodology adopted by the hospital for implementation of the Scheme. It was emphasised that the complete reports submitted before the Charity Commissioner extended into several thousand pages and, therefore, representative compilations together with official acknowledgements had been furnished before the learned CIT(E.), accompanied by an express offer to produce any original record or report as and when required. According to the learned counsel, not a single communication issued during the proceedings called upon the assessee to produce any specific report which remained uncomplied with. It was therefore contended that the observation that the assessee had failed to furnish the relevant material is demonstrably inconsistent with the record and has been recorded without appreciating the voluminous documentary evidence already available before the authority. 13. Developing the submission further, it was contended that even otherwise the learned CIT(E.) assumed unto himself a jurisdiction which the statute never contemplated. The implementatio....
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....of realistic charges from patients capable of bearing such expenditure is the very mechanism through which the institution is able to sustain sophisticated healthcare infrastructure while simultaneously extending free and concessional treatment to indigent and economically weaker patients. It was argued that the financial model adopted by the assessee is one of cross-subsidisation and not profit maximisation. Every surplus generated by the institution, according to the learned counsel, stands reinvested in furtherance of its charitable objects by expanding medical facilities, acquiring new technology, upgrading infrastructure, supporting research, strengthening educational programmes and enlarging charitable outreach. It was, therefore, submitted that neither the charging of higher tariffs nor the generation of operational surplus constitutes the statutory test for determining charitable character, particularly in the case of institutions engaged in medical relief, which Parliament has consciously treated as an independent category of charitable purpose under section 2(15). 15. Summing up his submissions, the learned Senior Counsel contended that the impugned order proceeds upon....
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.... CIT(E.) is fully justified in refusing continuation of registration. It was submitted that the findings recorded in the impugned order are based upon an appreciation of the material available on record and cannot be characterised either as arbitrary or as travelling beyond the jurisdiction conferred by section 12AB. 17. The learned Departmental Representative submitted that the learned CIT(E.) has not proceeded merely on isolated instances but has examined the functioning of the hospital in its entirety. Referring to the financial statements and various operational details, it was argued that the tariff structure adopted by the hospital, the charges recovered from patients for specialised treatment, diagnostic services and surgeries, together with the substantial surplus generated year after year, clearly indicate that the institution is being managed substantially on commercial principles. According to the learned Departmental Representative, although generation of surplus by itself may not always be decisive, the cumulative effect of the financial indicators examined by the learned CIT(E.), read along with the manner in which the hospital was being operated, justified the con....
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....gislative framework within which section 12AB operates, the object sought to be achieved by the registration provisions, the distinction consciously maintained by Parliament between registration proceedings and assessment proceedings, and the separate treatment accorded by the statute to institutions engaged in medical relief. Unless these foundational aspects are properly understood, the individual issues arising in the present appeals may not be appreciated in their correct statutory perspective. 20. Before embarking upon the examination of the individual findings recorded by the learned CIT(E.), we may also observe that substantially similar questions concerning the scope of enquiry under section 12AB in the case of a charitable hospital had earlier arisen before this Tribunal in the case of Reliance Foundation Hospital Trust. In that decision, after an elaborate consideration of the statutory framework governing sections 2(15), 11 and 12AB of the Act, this Tribunal explained the principles regulating the grant and continuation of registration to institutions engaged in medical relief and delineated the limits of the jurisdiction exercisable by the Commissioner (Exemptions). ....
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....ities actually carried on are genuine and in furtherance of those objects. The enquiry at this stage is essentially institutional in character. On the other hand, questions relating to computation of income, application of income, accumulation, allowability of expenditure, violation of section 13, denial of exemption in respect of particular receipts or expenditure, or the taxability of specific items of income, fall within the province of assessment proceedings undertaken by the Assessing Officer. The statutory scheme thus maintains a clear distinction between the recognition of the charitable character of the institution and the determination of the tax consequences flowing from its activities during a particular assessment year. It is this legislative distinction which must constantly guide the exercise of jurisdiction under section 12AB. Whether, in the facts of the present case, the learned CIT(E.) remained within these statutory limits while passing the impugned orders is the principal question that now falls for our consideration. 23. At this stage, it would be apposite to first examine the statutory architecture governing charitable institutions under the Act. Section 2(....
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....erational surplus should automatically lose its charitable character, nothing prevented it from expressly incorporating similar restrictions in respect of institutions engaged in medical relief. The absence of any such restriction is itself indicative of the legislative intent that the commerciality tests applicable to the residuary category cannot be mechanically imported into institutions whose dominant purpose is rendering medical relief. Therefore, while examining the functioning of a charitable hospital, the enquiry cannot begin with the tariffs charged or the surplus generated; it must begin with the statutory purpose for which the institution exists and the genuineness of the activities undertaken in furtherance of that purpose. 25. This distinction also explains why the jurisdiction conferred under section 12AB is necessarily limited in its scope. The Commissioner (Exemptions) is undoubtedly required to satisfy himself that the institution continues to exist for charitable purposes and that its activities are genuine. However, the expression "genuineness of activities" cannot be understood in isolation divorced from the statutory context. The enquiry contemplated under s....
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....d ordinarily not arise. This distinction becomes particularly relevant in the present case where the impugned order proceeds substantially upon alleged violations relating to individual items of expenditure and regulatory compliance rather than upon any finding that the assessee has ceased to carry on the activity of providing medical relief. 27. Another important aspect which deserves emphasis is that the Income-tax Act itself contemplates separate statutory consequences for different kinds of defaults. Questions concerning application of income outside India, violation of section 13, benefit to specified persons, accumulation of income beyond permissible limits, investment of funds in prohibited modes or other infringements of the exemption provisions are specifically dealt with within the statutory scheme governing assessment of income. The Act prescribes distinct consequences for such defaults, including denial of exemption to the extent contemplated by law. It does not follow that every alleged violation of those provisions necessarily results in extinction of the charitable character of the institution itself. Registration under section 12AB operates at a different concept....
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....ceeds upon a fundamental misconception regarding both the scope of section 11(1)(c) and the nature of the expenditure incurred by the assessee. Section 11(1)(c) is attracted where income derived from property held under trust is applied to charitable purposes outside India, except in the circumstances specifically recognised by the statute. The legislative focus, therefore, is upon the place where the charitable purpose itself is carried out and not merely the geographical location where a particular expenditure happens to be incurred. There is an obvious distinction between carrying on charitable activities outside India and incurring expenditure outside India in furtherance of charitable activities ultimately performed within India. The two expressions cannot be treated as synonymous. If such a broad construction were to be accepted, every payment made abroad for acquisition of medical equipment, procurement of scientific literature, subscription to international medical journals, participation in specialised training programmes or engagement of foreign experts would automatically become application of income outside India, a consequence which neither flows from the language of t....
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....es, participate in evidence-based discussions and familiarise themselves with internationally accepted standards of patient care. The knowledge and expertise so acquired are thereafter disseminated within the institution through clinical practice, departmental discussions, academic sessions and implementation of improved treatment protocols. To regard such expenditure as constituting charitable activity outside India would, in our considered opinion, be to confuse the means adopted for improving medical services with the place where the charitable purpose is actually fulfilled. The former may involve expenditure beyond the territorial boundaries of India; the latter continues to be realised through the treatment of patients within India. 32. We also find considerable force in the submission advanced on behalf of the assessee that the learned CIT(E.) has not examined the true character of the expenditure before invoking section 11(1)(c). The impugned order does not record any finding that the foreign visits were undertaken for private purposes, that the conferences lacked professional relevance, that the expenditure was excessive or colourable, or that the reimbursement resulted ....
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....phs. 34. We are, therefore, unable to sustain the first and principal finding recorded by the learned CIT(E.). On the facts emerging from the record, reimbursement of expenditure incurred by doctors for attending bona fide professional conferences, scientific seminars, advanced training programmes and continuing medical education abroad, where such participation is directly connected with enhancement of medical services rendered by the charitable hospital in India, cannot be construed as application of the income of the trust for charitable purposes outside India within the meaning of section 11(1)(c). The charitable purpose continued to be the rendering of medical relief within India; the foreign expenditure merely represented one of the instrumental means adopted for improving the quality of that charitable activity. Consequently, the reliance placed by the learned CIT(E.) upon section 11(1)(c) for denying registration under section 12AB cannot be sustained. Having held so, we now proceed to examine the second and equally important basis on which the impugned orders rest, namely, the alleged non-compliance with the provisions governing the Indigent Patients Fund Scheme and sec....
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....competent authority under the governing statute establishing that a charitable institution has fundamentally departed from its statutory obligations so as to affect the genuineness of its charitable activities, such material may constitute a relevant circumstance while examining the institution under the Income-tax Act. However, that is materially different from the Commissioner (Exemptions) himself undertaking an independent adjudication of disputed questions arising under another enactment and recording findings as though he were exercising the jurisdiction specifically vested in the authorities constituted under that statute. Such an approach, in our considered opinion, travels beyond the statutory contours of section 12AB. 37. Even on facts, we find that the foundation on which the impugned finding rests does not withstand scrutiny. The record placed before us unmistakably demonstrates that the assessee had furnished before the learned CIT(E.) detailed material relating to the implementation of the Indigent Patients Fund Scheme. The documents included summaries of indigent and economically weaker patients treated during the relevant years, statements regarding free and conce....
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....rtunities granted. In the absence of such analysis, the conclusion ceases to have the necessary factual foundation expected of a quasi-judicial determination. 39. Another important circumstance which merits notice is that the material placed before the learned CIT(E.) was not confined merely to the minimum statutory obligations cast under the Indigent Patients Fund Scheme. The assessee had specifically explained that, apart from complying with the requirements of the Scheme, it had also extended substantial discretionary charity through its Medical Social Work Department by providing free or concessional treatment to numerous patients on the basis of socio-economic assessment, even in situations not strictly covered by the statutory framework of the IPF Scheme. The details furnished before us indicate that the charitable expenditure incurred by the assessee under these independent programmes substantially exceeded the minimum obligations arising under the Scheme. This aspect assumes considerable importance because it demonstrates that the charitable activities of the institution were not restricted merely to technical compliance with statutory requirements but extended well beyo....
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....ecord. In our considered opinion, the answer has to be in the negative. The learned CIT(E.) has repeatedly observed that the assessee failed to furnish complete particulars relating to indigent patients, economically weaker section patients and compliance with the statutory scheme. However, a careful examination of the material placed before us reveals that the assessee had, in response to successive notices, furnished comprehensive details including year-wise and month-wise summaries of beneficiaries, statistical statements, acknowledgements evidencing filing of prescribed reports before the office of the Charity Commissioner, inspection reports of the Monitoring Committee, illustrative patient records, explanatory notes and detailed submissions explaining the manner in which the Scheme was implemented. The assessee had also categorically stated that the complete monthly reports, running into several thousand pages, had already been filed before the competent authority under the Maharashtra Public Trusts Act and that, for practical reasons, representative compilations together with official acknowledgements were being furnished before the learned CIT(E.), while simultaneously expr....
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....ed in deserving cases even where such assistance was not strictly mandated under the statutory scheme. The expenditure incurred under these independent charitable initiatives, according to the material placed before us, substantially exceeded the minimum obligations arising under the IPF Scheme. This factual aspect assumes considerable significance because it demonstrates that the charitable commitment of the institution was not confined to formal statutory compliance but extended beyond it through voluntary application of its own resources. Unfortunately, while the impugned order examines the alleged deficiencies in statutory compliance in considerable detail, it does not undertake any meaningful evaluation of this broader charitable activity, which formed an integral part of the assessee's case throughout the proceedings. 44. We also find considerable substance in the submission that the learned CIT(E.) has, to some extent, conflated two distinct issues, namely, the quantum of charges recovered from paying patients and the discharge of obligations towards indigent patients. These two aspects operate in different spheres. The tariff structure adopted by a hospital may be releva....
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.... perhaps the most substantial basis of the impugned order, namely, whether the charging of substantial fees from paying patients and the generation of operational surplus are, in law, sufficient to conclude that a charitable hospital has assumed the character of a commercial enterprise. 46. We shall now examine the third and the principal foundation upon which the impugned order rests, namely, the conclusion that the assessee hospital is being run substantially on commercial lines and has, therefore, ceased to retain its charitable character. A substantial part of the reasoning of the learned CIT(E.) proceeds upon the premise that the hospital charges considerable fees from paying patients, provides premium medical facilities, generates substantial annual receipts and consistently reports operational surplus. From these financial indicators, the learned CIT(E.) has drawn the inference that the institution is functioning predominantly as a commercial enterprise rather than as a charitable institution engaged in medical relief. In our considered opinion, this approach proceeds on an incorrect understanding of both the statutory scheme and the practical realities governing the func....
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....treatment are charged accordingly, thereby generating resources which enable the institution to provide free or substantially subsidised treatment to patients who lack such means. The paying patient and the indigent patient are thus not competing interests but complementary components of the same charitable model. Revenue generated from one category sustains the charitable obligation owed to the other. If hospitals engaged in charitable medical relief were precluded from recovering realistic costs from patients capable of paying, the inevitable consequence would be a serious erosion of their ability to maintain advanced medical infrastructure and, ultimately, a corresponding reduction in their charitable outreach itself. Parliament, being fully conscious of these practical realities, has consciously refrained from imposing any statutory ceiling on tariffs or any prohibition against generation of operational surplus in the case of institutions engaged in medical relief. The statutory emphasis continues to remain on the dominant charitable purpose and the ultimate deployment of income rather than on the quantum of receipts realised from individual patients. 49. The impugned order ....
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....haritable if that surplus is only incidental to, and ultimately deployed in furtherance of, its charitable objects. Conversely, an institution may show little or no surplus and yet pursue predominantly commercial objectives. The decisive test under the Act has always been the dominant purpose for which the institution exists and the manner in which its resources are ultimately applied. 51. We also find that the learned CIT(E.) has placed considerable reliance upon comparative financial indicators, average tariffs and broad economic data to conclude that the hospital caters predominantly to affluent sections of society. Such comparisons, though statistically possible, cannot substitute the statutory test prescribed by Parliament. The Income-tax Act does not require a charitable hospital to benchmark its tariffs against median household income, average per capita earnings or other macro-economic indicators. Nor does it prescribe that every charitable hospital must exclusively serve economically weaker sections. A hospital engaged in medical relief may legitimately cater to patients belonging to different economic strata, provided its dominant purpose remains charitable and it cont....
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....ients, details of free and concessional treatment, acknowledgements evidencing submission of statutory reports before the Charity Commissioner, reports of the Monitoring Committee, explanatory notes regarding the functioning of the Medical Social Work Department, illustrative patient records, internal implementation guidelines and detailed written submissions explaining every objection raised during the course of the proceedings. The record thus does not disclose a case where registration came to be rejected for want of cooperation or absence of material. On the contrary, it is a case where voluminous material was admittedly produced and the controversy centres around the manner in which that material came to be appreciated by the learned CIT(E.). 54. One aspect which particularly deserves notice is the consistent stand taken by the assessee regarding the monthly reports submitted under the Maharashtra Public Trusts Act. The assessee specifically explained that these reports, maintained on a continuous basis over several years, comprised several thousand pages and had already been filed before the competent regulatory authorities in accordance with the statutory requirements. Re....
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....ivil consequences. 56. Another feature emerging from the record is that the assessee had consistently asserted, and supported its assertion with documentary material, that the expenditure incurred by it towards free and concessional treatment was not confined to the minimum obligations prescribed under the Indigent Patients Fund Scheme. The Medical Social Work Department independently evaluated patients facing financial hardship and recommended financial assistance in deserving cases even where such cases did not strictly fall within the statutory parameters of the Scheme. Thus, the charitable activity undertaken by the assessee operated on two parallel planes first, compliance with the statutory obligations under the Maharashtra Public Trusts Act, and secondly, voluntary charitable assistance extended from its own resources in furtherance of its broader philanthropic objects. In our opinion, while evaluating the genuineness of the activities of a charitable institution under section 12AB, the authority is expected to examine the institution's charitable conduct in its entirety. Concentrating exclusively upon alleged deficiencies in one segment of its activities while overlookin....
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.... not intended to remain perpetually vulnerable to retrospective withdrawal merely because, at a later stage, the Commissioner entertains a different opinion regarding the manner in which certain expenditures have been incurred or certain statutory provisions ought to have been interpreted. The legislative scheme proceeds upon the principle that once an institution has been recognised as existing for charitable purposes, that recognition continues unless the statutory conditions warranting cancellation are clearly established on the basis of cogent material. The power of cancellation, therefore, is undoubtedly an important supervisory power, but it is equally a power which carries grave civil consequences and must consequently be exercised within the narrow confines prescribed by the statute. It cannot be converted into an instrument for reopening the settled charitable status of an institution on debatable issues which properly belong to the domain of assessment. 59. The expression "activities are not genuine" or "are not being carried out in accordance with the objects", which forms the statutory foundation for cancellation of registration, has acquired a well-understood legal ....
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....They do not furnish a legal foundation for retrospectively extinguishing the charitable status of an institution which has continued to pursue the very objects for which it came into existence. 61. The retrospective nature of the impugned action renders the matter even more serious. Retrospective cancellation does not merely affect the year in which the alleged irregularity is noticed; it unsettles the legal status of the institution for earlier years during which it had functioned on the legitimate assumption that its registration continued to remain valid. Such a consequence necessarily has cascading implications for exemption under section 11, accumulation of income, donor confidence, approvals granted under allied provisions and several completed assessments. It is precisely because of these far-reaching consequences that the statutory power of cancellation cannot be exercised on assumptions, general observations or debatable legal interpretations. The existence of clear, objective and convincing material demonstrating cessation of genuine charitable activities becomes an indispensable pre-condition before such an extraordinary power can be invoked. We do not find any such m....
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....f the assessee's registration under section 12AB and the consequential rejection of approval under section 80G. For the reasons discussed in the foregoing paragraphs, our answer to that question is unequivocally in the negative. The impugned orders, therefore, cannot be sustained. 64. Having carefully considered the entire factual matrix, the statutory scheme governing sections 12AB and 80G of the Act, the documentary evidence placed before the learned CIT(E.) as well as before us, and the reasons assigned in the impugned orders, we are unable to sustain the conclusions reached therein. None of the grounds relied upon by the learned CIT(E.), whether relating to reimbursement of expenditure incurred by doctors for attending professional conferences and training programmes abroad, the alleged non-compliance with the provisions of section 41AA of the Maharashtra Public Trusts Act and the Indigent Patients Fund Scheme, or the financial model adopted by the assessee in charging paying patients and generating operational surplus, either individually or collectively, establishes that the activities of the assessee are not genuine or that they are not being carried out in accordance wit....