2019 (11) TMI 83 - ITAT DELHI

Exemption u/s 11 - Withdrawing registration granted earlier u/s 12A - proof of charitable activity u/s 2(15) - assessee foundation has not been operating as a charitable institution as the trust has allowed the property/hospital of the society to be taken over by Max group by creating various financial and legal obligations and has virtually handed over the activity of the hospital to Max group which are corporate bodies established with a clear intention of profit motive which, according to him, is against the basic principles of charitable organizations - the assessee trust did not fulfill the minimum notified criteria of providing 25% of OPD and 10% of beds in IPD as free treatment to the economically weaker section - Whether activities of the assessee society fall within the meaning of ‘charitable purpose’ u/s 2(15) read with section 11? - HELD THAT:- There is nothing on record to suggest that the hospital is operated by the said companies or by the Board of Management/Directors or shareholders of those companies. From the various details furnished by the assessee in the paper book, it is noticed that the hospital activities were always under the control and supervision of its management/Board of Trustees.

A perusal of the analysis of the percentage of payment made by the assessee to Max group of companies vis-àvis the total expenditure incurred by the assessee in various years shows that the same was maximum of 25% in the financial year 2005-06 which has gradually reduced to 20% in financial year 2013-14. The above details furnished by the assessee in the paper book suggest the independence of the assessee vis-à-vis Max entities with gradual decline in the obtaining of services from them over a period of time. This also substantiates that the assessee society was incurring substantial expenses on its own account other than the payments made to Max entities. We find force in the argument of the ld. counsel for the assessee that the assessee, due to lack of own funds and expertise in the field of construction of hospital and rendering medical services being a highly specialized and technical field, has entered into the agreements with Max group of companies who were already engaged in the said field which not only helped the assessee in building the state of the art facility, but, also to attract talent in terms of specialized doctors and other paramedical staff. Under these circumstances, we are of the considered opinion that it is difficult to agree with the allegation of the DIT(E) that there is diversion of the control of the property of the assessee i.e., the hospital in favour of Max group of companies.

Various details furnished by the assessee such as minutes of the meeting of the governing body of the assessee society substantiating that various financial and operational decisions were taken by the said body without involvement of Max entities. The copy of various approvals applied and allotted were in the name of the assessee society without any indication of Max entities.

We find the organizational structure of the assessee society/hospital shows that the assessee had independent management and heads of various departments looking after its various operations which were independent from Max entities and no involvement of Max entities have been brought on record. None of the members of the governing body/trustees of the assessee and the directors/board of management of Max are persons specified u/s 13(3) of the IT Act - we are of the considered opinion that the trust has not handed over the management of the hospital to the Max group of concerns.

Since there is no allegation by the Revenue that the activities of the trust/society are not genuine or are not being carried out in accordance with the objects of the trust and since the ld. counsel for the assessee before us has demonstrated clearly that the management and control of the hospital was always with the assessee society and the assessee society has not virtually handed over the management of the hospital to the Max group of concerns which are corporate bodies established with the clear intention of profit motive and since the Revenue also failed to bring on record any material to suggest that the assessee trust has refused any patient from the economically weaker section of the society in violation of the guidelines laid down by the Hon'ble Delhi High Court, we find no justification on the part of the Ld.DIT(E) for withdrawing the registration granted u/s 12AA of the Act with retrospective effect. - Decided in favour of assessee