TMI Blog2015 (3) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Accompanied with this, there was a huge increase in fixed assets from ₹ 63,75,577/in A.Y.200607 to ₹ 8,02,75,706/in Assessment year 200910 which was approximately an increase of ₹ 7.50 crores within four years. Petitioner's cash and bank balances also increased from ₹ 1,42,420/to ₹ 1,74,15,757/during the same period which was an increase of about ₹ 1.30 crores. The petitioner had purchased land admeasuring 8,350 sq.meters for an amount of ₹ 363.63 lacs. All these figures are borne out by the details as submitted by the petitioner before respondent no.1. The reasoning as given by respondent no.1 that all these figures go to show that there was a systematic generation of profits from the activities of the petitioner coupled with the increase in assets which would generate more income / profits cannot be said to be without any basis, arbitrary or perverse. Hence, it was not improper for the respondent no.1 to draw a reasonable inference that the petitioner is not existing solely for philanthropic purpose and for profits, in our opinion cannot be faulted. On the basis of the details as submitted by the petitioner the respondent no,.1 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealth or requiring medical aid by establishing, constructing and maintaining or assisting Charitable Dispensaries, Hospitals, Convalescent Homes, Sanitoria and Maternity Homes etc. 4. By Finance Act, 1970 Clause 10 (22A) was inserted in Section 10 of the Act with effect from 1.4.1970 so as to exclude income inter alia of a hospital offering service for treatment as provided therein. The provision reads thus : (22A): any income of a hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescenes or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit. 5. For the period 197071 to 199899 the petitioner was allowed exemption under section 10 (22A) of the Act. For the Assessment year 198990 the Income Tax Appellate Tribunal examined the issue as to whether the provisions of section 10 (22) were applicable to the petitionertrust which was running a hospital. The Tribunal by an order dated 31.10.2000 answered in favour of the petitioner and made observations that the petitioner e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 of the reasons for increase in the development fund, cash and bank balances and fixed assets and the purpose of their utilization and proposed utilization. It was stated that the surplus earned by the hospital has been utilized for incurring capital expenditure for the hospital and also for the acquisition of land at Thane for the purpose of establishing a new hospital and medical research centre. The details of receipts and payments showing surplus and deficit for Assessment years 200607, 200708, 200809 and 200910 were furnished to respondent no.1 Respondent no.1 by his letter dated 26.8.2010 called upon the petitioner to furnish further details which were duly furnished by the petitioner by its letter dated 16.9.2010. 11. Respondent no.1 by the impugned order dated 27.9.2010 rejected the petitioner's application refusing to grant approval under section 10 (23C) (via) for A.Y.200910 inter alia on the ground that the petitioner does not fulfill primary requirement for granting exemption under section 10 (23C) (via) of the Act. 12. The impugned order rejects approval of the petitioner's application under section 10 (23C) (via) on the following grounds : (a) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would indicate that the petitioner was not existing for philanthropic purposes; (ii) For the first time in A.Y.198990 in granting exemption under section 10 (23A) the authorities had held that benefit of section 10 (23A) was applicable to the hospital conducted by the petitioner and that the petitioner existed solely for philanthropic purposes. For Assessment years 19992000 to 200809 returns of the petitioners were accepted as correct and exemption was allowed under section 10 (C) (iiiae) of the Act. (iii) The respondent no. 1 had not considered the fact that surplus earned by the petitioner was ploughed back for acquisition of capital assets for hospital and for acquisition of land at Thane which was for establishing a new hospital and a medical research centre. The figures for A.Y.200607 to 200910 showed that the petitioner had no deficits in running its hospital for these Assessment years and that there was nominal surplus at the said Assessment years from medical store activity. (iv) The reasoning that the resolution of the trustees dated 28.8.2008 not specifying that the amount was to be used for establishing a hospital and a medical research centre. The respondent no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the respondent no.1 in the impugned order holding that the petitioner is not entitled for an approval under section 10 (23C) (via) of the Act is legal and valid. 16. In order to effectively adjudicate the above issue, it would be useful to refer to the provisions of section 10 (23) (via) which read thus : Incomes not included in total income. 10: In computing total income of a previous year of any person, any income falling in any of the following clauses shall not be included....................... (23C) : any income received by any person on behalf of __ (via): Any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for the purpose of profit, other than mentioned in subclause (iiiac) or clause (iiiae) and which may be approved by the prescribed authority:} (Emphasis supplied) 17. A plain reading of the aforesaid provision makes it clear that the legislature has categorised for deduction income of those inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assets were increasing. The fact that surplus was generated is not disputed by the petitioner. This surplus revenue was utilized for acquisition of assets which in the opinion of respondent no.1 was capable of generating more income. In the Assessment years 200607, 200708, 200809 and 200910, the percentage of transfer of gross surplus to the development fund was at 19.12 % 28.37 % 73.17 % and 12.12 % respectively. Accompanied with this, there was a huge increase in fixed assets from ₹ 63,75,577/in A.Y.200607 to ₹ 8,02,75,706/in Assessment year 200910 which was approximately an increase of ₹ 7.50 crores within four years. Petitioner's cash and bank balances also increased from ₹ 1,42,420/to ₹ 1,74,15,757/during the same period which was an increase of about ₹ 1.30 crores. The petitioner had purchased land admeasuring 8,350 sq.meters for an amount of ₹ 363.63 lacs. All these figures are borne out by the details as submitted by the petitioner before respondent no.1. The reasoning as given by respondent no.1 that all these figures go to show that there was a systematic generation of profits from the activities of the petitioner co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 183865 165500 18365 13 141265 125960 15305 22 192350 172185 20165 32 315070 288030 27040 41 485860 422575 63285 44 448205 411270 36935 Total:288 2727930 2464910 263020 2007-08 No.of poor/ needy patients Gross Concessional Amt receivable Amt received from the poor patients Amount of relief provided to concessional 35 272865 251030 21835 32 372355 319260 53095 53 434450 407705 26745 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200910 the percentage of net concessional treatment to the total receipts is as under : A.Y. Total Receipts Net Concessional Treatment Net concessional treatment to the total receipts 2007-08 73,76,592 2,63,020 3.56% 2008-09 88,76,534 5,73,231 6.45% 2009-10 1,36,18,406 6,06,359 4.45% Thus, on the basis of the details as submitted by the petitioner the respondent no,.1 has rightly come to a conclusion that the concessional treatment as given by the petitioner for the above assessment years being meagre 3.56 %, 6.45% and 4.45% respectively, definitely does not speak of the existence of the petitioner for philanthropic purposes. 22. One more factor which needs to be noted is in regard to the resolution dated 28.8.2008 passed by the petitioner which does not specify the purpose of acquisition of the land but only authorises the acquisition of the land at a particular price from one Birla India Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any material to show that generally there was a profit in the hospital activities of the petitioner therein. In this context, it was held that it cannot be said that the petitioner did not exist solely for philanthropic purpose but, for the purpose of profit and the rejection of the application of the petitioner therein was held not valid. However, situation in the present case is quite different. In petitioner's case there is accumulation of surplus and there is utilization of this surplus for generation of assets. 25. The reliance of the petitioner on the decision of the Division bench of this Court in Tolani Educational Institution vs Director of Income Tax (Exemption) (supra) also is of no avail. In this case, activities of the petitioner were educational and the surplus was utilized towards upgrading college facilities. It was held that with the advancement of technology no college or institution can afford to remain stagnant and hence applying the provisions of section 10 (23C) (vi) it was held that it does not require that the college must maintain status quo, as it were, in regard to its knowledge based infrastructure. It was observed that educational institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity was given to the petitioner to place all the material to show that the petitioner becomes eligible to the deduction as claimed for the assessment year in question. A personal hearing was also granted to the petitioner 's representative to present the facts of the case on 23.9.2010. After taking into consideration the entire material respondent no.1 has passed a detailed order giving reasons as to why application of the petitioner has not been accepted. The petitioner has not made out any case of a prejudice it has suffered for want of hearing. We are therefore of the clear opinion that respondent no.1 in passing the impugned order has in no manner acted in breach of the principles of natural justice. 27. Learned counsel for the Respondents has appropriately relied on the decision of the Supreme Court in S.H.Medical Centre Hospital vs State of Kerala ors (supra). The Supreme Court was considering an issue as to whether income derived from a building can be said to be used for charitable purpose by running of a free medical aid to the needy and poor in the context of tax exemption under Municipal laws. It was held that income derived from the building was being applied f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 for the year 2004-2005. It is not clearly mentioned that social work and charities is. Furthermore, an exemption is provided for that area in which free medical aid is provided by the appellant Hospital. The appellant has not produced cogent material evidence before the competent authority or the State Government or before the High Court to show that the entire building has been used for charitable purpose by rendering free medical aid to the needy poor people of society. The fact is that the details furnished in the documents produced would go to show that the appellant Hospital is earning money by charging from patients and therefore the claim of the appellant that the entire area taxed is used for charitable purpose is not reflected in the documents produced. Hence, we are not inclined to interfere with the impugned orders. The High Court has correctly interpreted the Explanation clause to section 3 (1) of the Act to hold that charitable purpose means relief of the poor and free medical relief . (Emphasis supplied) In the petitioner's case it may be that the memorandum of association shows that it is established for philanthropic purpose but as to whether such ..... 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