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2015 (3) TMI 459 - BOMBAY HIGH COURT

2015 (3) TMI 459 - BOMBAY HIGH COURT - [2015] 375 ITR 152 (Bom) - Application for grant of approval under section 10 (23C) (via) rejected - whether primary requirement of section 10 (23C) that the petitioner is established for philanthropic purposes is not fulfilled by the petitioner as found evident from the creation of capital assets from the surplus funds? - main object of the petitioner in its Memorandum and Articles of Association is to relieve persons suffering from disease or illhealth or .....

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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 .....

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as 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 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 o .....

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ner under section 10 (23C) (via) of the Act is inappropriately and arbitrarily rejected by the respondent no.1 so as to warrant our interference in exercise of jurisdiction under Article 226 of the Constitution of India. - Decided against assessee. - WRIT PETITION NO.2565 OF 2010 - Dated:- 12-3-2015 - M.S.Sanklecha And G.S.Kulkarni JJ. For the Appellant : Mr.Pankaj Toprani For the Respondent : Mr.Suresh Kumar JUDGMENT (Per G.S.Kulkarni, J) 1. This petition under Article 226 of the Constitution o .....

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On 6.4.1971 the petitioner was registered as a Public Trust under the Bombay Public Trust Act, 1950. Initially the petitioner was registered in the name of 'Birla Vidhya Vihar Hospital'. In September, 1985 the petitioner was registered under the Societies' Registration Act, 1860. On 11.9.1985 name of the petitioner was changed to 'Birla Vidhya Vihar Society' and thereafter on 13.12.1988 it was changed to the present name 'Yash Society'. 3. It is the petitioner's c .....

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tment 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 th .....

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fect from 1.4.1999 section 10 (22A) was deleted and section 10 (23C) (iiiae) was inserted and was made applicable inter alia to a hospital not covered by Section 10 (23C) having annual receipts of less than ₹ 1 crore. Beginning with A.Ys. 199900, up to the A.Y. 200809 the petitioner had availed and was granted exemption under section 10 (23C) (iiiae) of the Act. 7. The provisions of section 10 (23C) (via) of the Act became applicable to the petitioner with effect from A.Y.200910 as its ann .....

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the petitioner, particulars in proforma report enclosed to the said letter. This was supplied by the petitioner by its letter dated 21.10.2009. By a further letter dated 22.7.2010 the respondent no.1 again sought details of bifurcation of the capital, work in progress for various years along with details of payments made as also a copy of the resolution of the petitioner passed for purchase of land and the purpose of acquisition. These details were furnished by the petitioner by its letters date .....

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ndent no.1 was indicative of the fact that petitioner's hospital earns substantial profits from its basic operations. 10. Petitioner's Chartered Accountant by his letter dated 23.8.2010 informed respondent no. 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 a .....

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.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 details filed by the petitioner for Assessment years 200607, 200708, 200809 and 200910 show t .....

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63.75 lacs in A.Y. 200607 to ₹ 8.02 crores in A.Y. 200910 which was an increase of approximately ₹ 7.5 crores within four years; (c) Cash and bank balances had also increased from ₹ 1,42,420/to ₹ 1.74 crores during the same period which was an increase of about ₹ 1.30 crores; (d) The land at Thane admeasuring 8350 sq.meters was purchased by the institution for an amount of ₹ 363 lacs. Resolution of the Petitioner dated 28.8.2008 did not in anyway specify the p .....

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ration capacity thereby leading to gain in more profits; (g) Amounts spent for poor and needy patients as observed from the details submitted by the petitioner was found to be meagre and which clearly indicated that the petitioner did not exist solely for philanthropic purposes. It was observed that the aforesaid factors indicated increase in asset base along with generation of surplus to show that there is systematic generation of profits from the activities of the trust and the increase in ass .....

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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 establ .....

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preamble of the said Resolution which showed that the purpose of acquisition of the land was set out. (v) The respondent no.1 has not correctly considered the percentage of concessional treatment given to poor patients. Instead of considering the net hospital receipts, the respondent no.1 considered the total gross receipts of the petitioner which included the investment while working out the percentage of net concessional treatment. (vi) The report of the Director of Income Tax (Exemption) has .....

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On the other hand, learned counsel for the revenue has supported the impugned order. He relies on the submissions as made in the affidavitinreply filed on behalf of the respondents to contend that the respondent no.1 had appropriately examined the application of the petitioner seeking an approval under section 10 (23C) (via) of the Act and that for adequate reasons as set out in detail in the impugned order, respondent no.1 has reached to a conclusion that the petitioner is not existing for phi .....

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me Tax (1997) 3 SCC 346 (3) Secondary Board of Education vs Income Tax Officer. (1972) 86 ITR 403 (ORI). 15. With the assistance of the learned counsel for the parties, we have perused the impugned order and the relevant documents as placed in the paper book. The issue which arises for our consideration in these proceedings is whether on the above facts the decision of the respondent no.1 in the impugned order holding that the petitioner is not entitled for an approval under section 10 (23C) (vi .....

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eatment 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 categoris .....

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ore granting an approval may call for such documents, including audited annual accounts or information and as it may think necessary in order to satisfy itself about the genuineness of activities of such a trust or fund and may make such inquiries as may deem necessary in that behalf. It is the further requirement of the provision that an assessee should apply its income solely and exclusively for the objects for which it is established. Rule 2CA of the Income Tax Rules lay down the guidelines f .....

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ering as a service to the society and solely for philanthropic purpose and not for the purpose of profit. An existence of the institution ostensibly for a philanthropic purpose and in reality for profit, would not qualify an institution for a deduction under this provision. This would not mean that such an institution cannot incidentally have a reasonable surplus which it utilizes for philanthropic purposes. 19. In the light of the above legal requirement, we now proceed to examine the facts of .....

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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 .....

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o.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. 20. We have also perused the s .....

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07, 200708 and 200809 shows the very negligible percentage of poor/needy patients receiving treatment in the hospital of the petitioner. What is more glaring are the details in the two columns namely 'Gross Concessional Amount Receivable' and 'The amount Received from Poor patients.' These figures in no manner would inspire any confidence or make a prudent person believe that the petitioner is in fact existing for philanthropic purposes. We say so, for the reason, that it is inco .....

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5 20280 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 51 486490 444410 42080 74 829035 762610 66425 67 487325 445105 42220 65 699018 619935 79083 33 339000 318 .....

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17775 39540 60 641265 596760 44505 68 539638 486308 53330 Total:670 7430568 6824209 606359 For the A.Y. 200708, 200809 and 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 ri .....

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rice from one Birla India Ltd. The contention on behalf of the petitioner that the preamble of the resolution is required to be taken into consideration is misconceived and cannot be accepted seen from the totality of the circumstances. The alarming figures of large surplus as generated by the petitioner and the utilization of those surplus for acquisition of assets would speak against the petitioner existing solely for philanthropic purpose and not for profit. This would disentitle the petition .....

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ner under section 10 (23C) (via) of the Act is inappropriately and arbitrarily rejected by the respondent no.1 so as to warrant our interference in exercise of jurisdiction under Article 226 of the Constitution of India. 23. The contention on behalf of the petitioner that looking to the manner in which the exemption was allowed in the past, respondent no.1 ought to have granted its application under section 10 (23C) (via) of the Act, in our opinion, is completely misconceived and contrary to the .....

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ner so as claim this deduction as a matter of right for A.Y.200910 and thereafter. We therefore, reject this submission as urged on behalf of the petitioner. 24. The decision of the Division Bench of this Court in the case of Breach Candy Hospital vs CCIT & ors (supra) as relied on behalf of the petitioner is of no assistance to the petitioner. The Division Bench in the facts of the case had held that there was absence of any material to show that generally there was a profit in the hospital .....

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cision 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 mai .....

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he case that the petitioner had not spent on educational activities but, for some other purpose outside the parameters of educational activity which was the sole object of the petitioner. However, in the present case, the petitioner has successively incurred a meagre expenditure on philanthropic activity namely expenditure towards treatment of weaker sections of the society and major amount was utilized for generation of assets. These facts therefore, completely differentiate the case of the pet .....

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tisfaction of this twin test by an institution claiming a deduction would entitle it for the benefit of the provisions of section 10 (23C) (via) of the Act. In the petitioner's case, from the details of the accounts as submitted by the petitioner, this position remains hardly satisfied so as to enable the respondent no.1 to grant an approval for the purpose of the petitioner claiming exemption under the said provisions. 26. The decision of the Division Bench in the case of Rukmarani Educatio .....

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t ample opportunity 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 .....

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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 for charitable purpose was to be clearly proved and that the fact that the institution is set up for charitable purpose as stated in the Memorandum of Association cannot be enough to hold that income is necessarily applied for charitable purposes. In this context, the Supreme Court i .....

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s offered free medical care vis-a-vis the number of patients who pay for the services. The argument that the income is applied for charitable purposes can be accepted only if it is known what portion of the income goes into charity i.e. Free medical services. Does the percentage of patients receiving free medical services increase every year. If we hold that the income derived from a building is applied for charitable purposes then that has to be clearly proved and the fact that the institution .....

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at all medical services relate to the assistance of those in need. This is a valid interpretation but cannot be accepted for the purposes of tax. If these medical services in the present case were being offered free to a majority of the patients rather than a minority of patients, then the conclusion could have been reached that the buildings are principally used for charitable purposes. Further, an amount of approximately ₹ 26,00,000 of the expenses are towards social work and charities a .....

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itable 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 .....

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