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2016 (3) TMI 690 - HC - Income TaxExemption under Section 10(22A) - whether the assessee had lent money on interest to different companies - dominant or primary purpose of the institution - Held that:- Applying the test laid down in Pulikkal Medical Foundation (1993 (8) TMI 16 - KERALA High Court) one has to ask the question as to what is dominant or primary purpose of the institution. The answer according to us is that the assessee was incorporated with the idea of tax planning by the Apeejay group. The assessee has merely been sub-serving that purpose. Originally the return was filed showing net surplus of ₹ 42,14,772/-. The expenditure incurred in reimbursing the medical costs to the three group of companies was not shown. By a revised return it was clarified that total income arising out of interest was ₹ 53,87,985/- out of which ₹ 11,02,965/- was spent in reimbursing the medical cost of the three companies and a sum of ₹ 70,247/- was incurred by way of expenditure. Thus the surplus was ₹ 42,14,772/- (53,87,985/- - 11,02,965/- = 42,85,020/- - 70,247/-). CIT(A), in the second reason assigned by him, though he held that “to qualify for the exemption what is needed is existence of a hospital or other institution solely for philanthropic purposes” but omitted to notice that there was in fact no hospital or other institution for philanthropic purposes. The hospital and health units were in the tea gardens of the three tea companies who had provided the welfare fund of ₹ 4 crores. The assessee had merely reimbursed a sum of ₹ 11,02,965/- to those companies incurred in providing medical facilities to their employees. The predominant objective of the activity undertaken in the relevant year was to earn profit and not to render any act of philanthropy. Therefore, the first reason, quoted above by us, assigned by the CIT(A) is also wrong. The third reason given by the CIT(A), quoted above, is equally unsound because during that period the learned Tribunal was under the impression, on the basis of evidence adduced, that the assessee had rendered benevolent medical services to the inhabitants of the area besides providing medical assistance to the employees of the tea gardens. The fourth ground assigned by the CIT(A) that “it cannot probably be said that for the purpose of Section 10(22A) the benefit should, in fact, be aimed at or available to the public as a whole” is not a correct statement of law. We already have expressed our views in that regard which need not be reiterated. The learned Tribunal was wrong in proceeding on the basis that the facts and circumstances in the relevant assessment year were the same as in the assessment years 1986-87 and 1987-88. Going by the test laid down by a Division Bench of this Court in the case of Economic & Enterpreneurship Development Foundation (1991 (1) TMI 126 - CALCUTTA High Court ) it cannot in any event be said that the assessee existed in the relevant year for philanthropic purposes because the assessee admittedly accumulated its income. It is true that the expression used in the section is “any income of a hospital or institution”. But there has to be a nexus between the income and the hospital before any claim for exemption can be made. The nexus is altogether missing. The dominant or primary purpose of the institution should be to render any one or more of the five activities indicated above. Such a purpose cannot be said to exist in this case because neither of the five activities has been undertaken by the assessee. The income admittedly has no nexus with any one of the aforesaid five activities. Therefore the income is not an income of any hospital or an institution engaged in any one of the five activities. It is true that the statute does not provide that the income should have been derived from hospital or any of aforesaid five activities outlined above in order to qualify for exemption. But the statute does not provide that the income should have accrued to a hospital or an institution engaged in any one of the five activities. Therefore existence of a nexus between the hospital or an institution engaged in any one of the five activities, and the income is essential. This nexus is missing in this case. This is in addition to the other reasons discussed above why is the assessee not entitled to exemption. - Decided against assessee
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