Supreme Court’s judgment on aspect of remuneration to Doctors in context of charitable institutions need a reconsideration.
2021 (9) TMI 1056 - SC ORDER
ASHWINI SAHAKARI RUGNALAYA & RES. CENTRE VERSUS CHIEF COMMISSIONER OF INCOME TAX. & ORS. ( for short case of Ashwini)
S. 10(23C)(via) benefit is for charitable and philanthropic hospitals
Benefit of exemption of income according to the above provision are available to any hospital existing solely for philanthropic purposes and not for purposes of profit. There cannot be doubt on this aspect.
However, when any hospital can be considered as existing for such purposes is a debatable matter because in ground reality many aspects can be considered as philanthropic purpose even if there is some earnings from some of activities which are incidental to main object. The profit making activities , as incidental activity can be supportive to charitable activity and in pursuit of attaining purpose of charitable activity.
Earlier exemption was allowed u.s. 10(22A) up to AY 1998-99 however there was no requirement of approval of institution. To enforce regulations on availment of exemption amendment was brought w.e.f. 01.04.99 vide the Finance (No.2) Act,1998 for educational institutions and hospitals by insertion of sub-clauses (vi) and (via) in S.10.23C and corresponding provisions contained in S.10(22) and 10(22A) were made not applicable w.e.f. 01.04.1999 by omitting those clauses w.e.f. 01.041999 and re-enacting corresponding provisions in S.10.23C with some amendments for regulation.
In the case of Ashwini exemption u.s. 10(23C) (via) was not allowed for two reasons namely, as per words used in the judgment:
“There is a dual reasoning permeating both the orders which seek to deny the exemption. Firstly, that remuneration has been paid from the earnings of the IPD to the doctors who may not be working in that department and, secondly, that the rates being charged by the appellant are at par with other hospitals which run on commercial basis.”
The second reason that is charges being levied similar to other hospitals which run on commercial basis is prima facie indicator that the hospital is running for profits and gains. Although in spite of such charges similar to other hospitals, there may not be profits if capacity utilization is low- below breakeven point ( level where all fixed costs are recovered and contribution towards profits start thereafter only). Furthermore, the charges being levied by Ashwini , though similar to other commercial hospitals may still be lower for the reason that Ashwini might be better equipped as specialty hospital and its services might be qualitatively better. However, this aspect was not explained by Ashwini before lower authorities and it was admitted fact in the WP before the High Court, in affidavit filed. If this was no so, and Ashwini had pointed out differences before lower authority and High Court, perhaps decision could be in its favor. If authority did not consider such explanation, if it was on record, the Courts might be inclined to restore the matter to concerned authority to reexamine the same.
About the first reason , with due respect , author feels that remuneration of doctors should not be a criterion for the purpose of determining whether hospital is running for charity or for profits. As per author this is because :
- Doctors are working for their livelihood and future savings and they have devoted long period and high costs in studies and training for medical profession.
- Doctors are not working for charity and not claiming exemption like the hospital.
- Doctors and hospital are separate legal entities and separately treated and assessed under the Income-tax Act, 1961.
- Hospital has to offer good remuneration with incentives to doctors to keep them for long period and to avoid their move to other hospitals and private practice. In popular words to keep attrition at reasonably, low level. This is a very fundamental for success of hospitals because goodwill of doctors play a big role in footfalls of patients in hospitals. A hospital having frequent changes of doctors and large portion of new doctors is not preferred by patients.
- Doctors are rendering services to hospital under employment contract as a salaried person or as a professional. Major responsibilities are undertaken by hospitals and generally hospital will be answerable to patients because role of doctor is limited whereas role of entire team , infrastructure , facilities and quality of services provided by hospital are major role player in treatment , recovery and convalescence of patients.
- A remuneration policy is required in a manner that it take care of individual working of doctors as well as team working to provide incentives for team work and to reduce idleness and increase productivity.
- Some indirect role of other doctors in the hospital like doctors who are available at all times in hospitals in laboratories, diagnostic facilities, emergency services to render services and to take care of patients is equally important. Therefore, sharing of revenue by other department is due to expedient remuneration policy to provide incentives for the teamwork.
It appears that with such a view the hospital has formulated remuneration policy which allow sharing of revenue, as part of remuneration even for other departments, in which particular doctor has not worked. In this way, a sharing of efforts made by entire team is considered as a part of remuneration cum incentive package for doctors. This may be a common practice in hospitals whether running for charity or for profits. However, it seems that by avoiding answer to queries of departmental authority, and by not properly explaining these aspects, the assesse invited harsh action in form of denial of exemption.