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2015 (4) TMI 186 - ITAT DELHI

2015 (4) TMI 186 - ITAT DELHI - [2015] 40 ITR (Trib) 1 (ITAT [Del]) - Withdrawal of approval/registration granted u/s 12A - Appellant Society was not a charitable organization, as the property/hospital of the Appellant- Society were taken over by Max Group, by creating various financial and legal obligations on the Appellant Society and the Max Group was running the hospital with a profit motive as held by DIT(E) - Held that:- DIT(E) has passed a well-reasoned speaking order on the issue. He has .....

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e charitable organization.

Imparting education and health services to the weaker sections of the society was one of the main charities in good old times. However, in recent times, imparting of education and running a hospital have become one of the main commercial activities. Under the guise of charity, the people are exploiting the charitable institutionally commercially. Although in this case of the assessee, there is no conclusive evidence or material on record to conclude that the .....

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the whole planet, i.e., the corporate Max Group of companies. It was not charitable towards the society or public at large but, in fact, it was “uncharitable”. It conducted its affairs in such a way that inspite of charging the most exorbitant fees etc. from its patients in the capital city of the country, if not the highest rates so charged, siphoned off its receipts to commercial corporate companies by entering into a number of agreements with them, to make itself liable to the entire amount o .....

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-charitable manner and not in accordance with its object as detailed in its memorandum of association. - Decided against assessee. - ITA No.1027/Del/2012 - Dated:- 31-3-2015 - Shri G. C. Gupta And Shri Tarvinder Singh Kapoor,JJ. For the Appellant : Shri M.S. Syali, Senior Advocate with Shri Tarandeep Singh & Shri Harkunal Singh, Advocates. For the Respondent : Smt. Poonam Khaira Sidhu, CIT-DR and Smt. Parminder Kaur, Sr.DR. ORDER Per G. C. Gupta, VP : This appeal by the assessee is directed .....

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llant Society under section 12A of the Income-tax Act, 1961 ( the Act ). 2. That the DIT(E) erred on facts in law in alleging holding that Appellant Society was not a charitable organization, as the property/hospital of the Appellant- Society were taken over by Max Group, by creating various financial and legal obligations on the Appellant Society and the Max Group was running the hospital with a profit motive. 2.1 That the DIT(E) erred on facts in law in observing that the Appellant Society und .....

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s off profit earned from operating hospital to companies belonging to Max Group. 3. That the DIT(E) erred on facts in law in holding that the Appellant Society was not for charitable purpose , alleging that the appellant did not fulfill the minimum criteria of providing concessional/free treatment to patients from Economically Weaker Sections ( EWS ) category, as per the criteria notified by the Delhi High Court to be implemented by the Health Department of Delhi. 3.1 That the DIT(E) erred on fa .....

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vide order dated 23.06.1994 with effect from 01.03.1994. The DIT(E), vide its impugned order dated 28.12.2011, has cancelled the registration granted under Section 12A since 01.03.1994 by holding that the assessee was not entitled to the exemption under Section 11 as its activities would not be classified as charitable activities since inception, against which, the present appeal has been preferred by the assessee before the Tribunal. The learned senior counsel submitted that the Revenue has so .....

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hearing of the writ petitions was sought to be adjourned by the assessee on the ground that the main issue on the basis of which the Revenue sought to reopen the assessment in these three cases was withdrawal of registration under Section 12A of the Act which is pending examination by the Tribunal. The Hon'ble Jurisdictional High Court, vide its order dated 04.12.2014, has directed the Tribunal to decide the issue in the appeal pending before it at the earliest convenience and preferably wit .....

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bmitted that in case of violation of provision of Section 13 in the case of a charitable trust, the same would not be stretched by the CIT/DIT(E) to say that there was a violation of the provision of Section 12AA(3) of the Act. He referred to the show cause notice under Section 12AA(3) for withdrawal of registration under Section 12A dated 18.11.2011 issued by the DIT(E), a copy of which has been filed in the compilation filed before us. He submitted that the DIT(E) has wrongly taken the area al .....

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sociation of the assessee wherein the various charitable objects were detailed along with the rules and regulations of the trust, copy of which has been filed in the compilation before the Tribunal. He referred to copies of various documents filed in the compilation before the Tribunal i.e. the agreement between the assessee and M/s MMK Investments Pvt.Ltd. dated 10.12.2001, another agreement dated 10.12.2001 between the assessee and M/s MMK Investments Pvt.Ltd., supplementary agreement dated 21 .....

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ncurred loss after giving about ₹ 40 crores to M/s MHC and the expenses on charitable purposes incurred by the assessee. He referred to pages 1073 to 1082 of the compilation filed before the Tribunal, wherein the index of about 4300 pages filed before the DIT(E) has been given. He submitted that Max Group is not a connected party of the assessee and, therefore, the provisions of Section 13(3) were not attracted even if the assessee has allowed property to some parties, not connected with t .....

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well as commercially in charge of the hospital and the activities of the trust and its financial affairs. He referred to the agreements dated 10.12.2001 between the assessee and M/s MMK Investments Pvt.Ltd. that the contractor (M/s MMK Investments Pvt.Ltd.) was to complete the construction of the building as per the project site including the civil construction, finishing work, plumbing, electrical works etc. in conformity with the specifications or any amendments thereto as may be agreed upon .....

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rmance of its obligations under the agreement. The agreement dated 10.12.2001 between the assessee and M/s MMK Investments Pvt.Ltd. provides that the agreement may be terminated at any time solely at the option of the company by giving 30 days notice to the user in terms of clause 13.3 of the agreement. Clause 18 of the said agreement provides for the performance guarantee. Clause 20 of the agreement provides for indemnification by the user to the company against any loss or damage to the equipm .....

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east 1500 sq.ft. for the hospital for the exclusive use of MHC and its personnel and not 1500 sq.mtr. as mentioned by the DIT(E). The learned senior counsel for the assessee submitted that clause (6) of the said services agreement shows that the assessee has expressly agreed and undertaken that it shall apply and obtain and renew all necessary permissions, sanctions, license, permits etc. from the appropriate authorities, governmental, municipal or otherwise as the case may be and MHC shall not .....

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ny other person etc. in India or abroad. The sub-clause (f) of clause (6) of the said agreement provides that the assessee has agreed to utilize the funds of the hospital including all its receipts of whatever nature only for the purpose of the management and operations of the hospital and shall not be diverted to or used by the assessee for any other purpose. Sub-clause (c) of clause (7) of this agreement provides that all properties in the hospital including the land comprised in the project s .....

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dated 06.09.2008 to show that the affairs of the hospital were conducted by the assessee only. He referred to the written submissions filed before the DIT(E) by the assessee dated 27.12.2011, copy of which has been filed in the compilation filed before the Tribunal. 5. The learned senior counsel for the assessee submitted that the reasoning of the Revenue that the assessee was not providing free beds to poor sections of the society was unsustainable for the simple reason that the assessee has m .....

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- [2013] 143 ITD 408 (Delhi-Trib.). He referred to the copy of the assessment order for the assessment year 2005-06 in the case of the assessee wherein assessment was framed in scrutiny assessment under Section 143(3) and inspite of similar allegations against the assessee, no adverse view was taken by the Department. He referred to the copy of the map of the hospital building, as filed in the compilation before the Tribunal and submitted that the assessee has about 880 employees of its own and .....

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ib.). 6. The learned CIT-DR has opposed the submissions of the learned senior counsel for the assessee. She submitted that the assesseesociety was registered under The Societies Registration Act, 1860 and its memorandum of association was filed at page 1 to 16 of the compilation filed by the Revenue. She submitted that as per the memorandum of association of the assessee-society, the main object of the society was to engage in medical, biological, social, environmental and allied sciences resear .....

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d that the other objects were incidental or ancillary to the attainment of the main object, i.e., research only. She submitted that for the grant of exemption under Section 12A, it is necessary to adjudicate whether the assessee-society was run as per the main objects of the society. She submitted that the assessee has failed to do any research work and has not spent any expenditure on the research work, which was the main object of the assessee-society. She submitted that since the assessee has .....

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ust Vs. Director of Income-tax (Exemptions) - [2010] 3 ITR (Trib) 151 (Bangalore). She submitted that on this ground alone, the assessee was not entitled to exemption under Section 12A and the order of the DIT(E) denying the exemption should be confirmed. 7. Learned CIT-DR submitted that the land on which the hospital of the assessee-society is situated was allotted to them by the Government of India vide perpetual lease deed dated 5th June, 1996 executed between on behalf of President of India .....

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by the assessee to a commercial entity i.e. M/s MHC, could not be called an activity charitable in nature. 8. The learned CIT-DR submitted that as per the agreement between the assessee-society and M/s MMK Investments Pvt.Ltd. (Max Group) dated 10.12.2001, the owner, i.e., the assessee, could not terminate the contract and the contractor, i.e., M/s MMK Investments Pvt.Ltd. could terminate the contract. She submitted that all the agreements between the assessee-trust and the companies of Max Gro .....

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shall be liable to pay the contractors i.e. M/s MMK Investments Pvt.Ltd. liquidated damages amounting to the sum of ₹ 12 crores together with interest at the rate of 2% per annum over the short term prime lending rate of State Bank of India payable from the date of such termination till the date of actual payment, less the amounts already paid by the owner towards construction of the building. She submitted that it is strange that the contractor M/s MMK Investments Pvt.Ltd. was entitled to .....

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rnover in this case is over ₹ 100 crores. Further, the assessee-society was to pay 6% of its annual turnover on account of repairs and maintenance to the Max Group. The repayment schedule of the construction cost of the hospital building was designed by the assessee-trust in a way to give maximum benefit to the Max group of companies. She submitted that the assessee was not doing any charitable activities and its employees were only of the lower category and the doctors and technicians etc .....

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ment between the assessee-trust and M/s MMK Investments Pvt.Ltd. dated 10.12.2001 wherein the term Use of Equipment by the hospital has been detailed and it specifically provides that M/s MMK Investments Pvt.Ltd. could terminate the agreement at any time solely at its option by giving a 30 days written notice to the assessee. It is further provided in clause 13.2 thereof that the assessee-trust shall have no right to terminate this agreement, save and except in the case of material breach by M/s .....

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ior consultants, doctors, medical superintendent, senior OT staff and related personnel and other non-medical staff for the services in the hospital and the assessee has agreed to provide an area of at least 1500 sq.ft. in the hospital for the exclusive use of MHC and its personnel. She submitted that the mention of 1500 sq.mtr. instead of 1500 sq.ft. of area provided by the assessee to M/s MHC is merely a typographical mistake and much should not be read out of it. The clause (6) of the service .....

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erm of the agreement and MHC shall be exclusively providing the services as contained in the agreement. However, MHC shall have the option to provide the services of any kind to any other person/institute/body corporate/entity in India or abroad. She referred to clause 6(f) of the service agreement which provides that the assessee trust has agreed to utilize the funds of the hospital including all its receipts of whatever nature only for the purposes of the management and operations of the hospi .....

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favour of M/s MHC that clause 8(a) of this agreement provides that the assessee-society undertakes that it shall be responsible and solely liable for any action that may be initiated against the assessee or even M/s MHC with respect to the services being provided at the hospital and that MHC shall have no liability whatsoever in respect of the claim asserted against the assessee or MHC by any third party including government or bodies for any act of omission whatsoever. The Annexure-1 to the sai .....

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-society shall reimburse to MHC all expenses incurred by MHC on behalf of assessee-trust on monthly basis. She submitted that the totally free OPD to weaker sections of the society was raised from 20% of the total OPD to 25% by the Government of India on the direction issued by the Hon'ble Delhi High Court in a writ petition and still, the said direction was violated by the assessee-trust. She submitted that the number of free beds provided were merely 2.47% in April, 2007 and not 81.3% as s .....

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₹ 1 crore on advertisement alone every year. She relied on a series of decisions which are as under:- (i) Municipal Corporation of Delhi Vs. Children Book Trust and Safdarjung Enclave Education Society Vs. Municipal Corporation of Delhi - [1992] 3 Supreme Court Cases 390. (ii) Society for the Small & Medium Exporters Vs. Director of Incometax (Exemptions) - [2011] 139 TTJ 218 (Delhi). (iii) M. Visvesvaraya Industrial Research & Development Centre Vs. DCIT - [2002] 83 ITD 511 (Mum). .....

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Aurolab Trust Vs. CIT, Madurai - [2011] 46 SOT 125 (Chennai)(URO). (xi) Hardayal Charitable and Educational Trust Vs. CIT, Agra - [2012] 150 TTJ 384 (Agra). (xii) Indian Nutritional Medical Association Vs. CIT-1, Kochi - [2013] 59 SOT 39 (Cochin-Trib.)(URO). (xiii) Tamil Nadu Cricket Association Vs. DIT(E) - [2013] 57 SOT 439 (Chennai-Trib.). (xiv) Daulat Ram Public Trust Vs. CIT - [2000] 244 ITR 514 (Delhi). (xv) DDIT(E) Vs. Mool Chand Kharaiti Ram Trust - [2012] 52 SOT 42 (Delhi). (xvi) Board .....

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to secure its obligation etc. She referred to the agreement dated 15.12.2005 between the assessee-trust and M/s Vascard Healthcare and Services Limited (hereinafter referred to as M/s Vascard ) whereby M/s Vascard was to provide doctors who have specialized knowledge and experience in the heart and vascular field. It further provides that on execution of the agreement, the assessee-society shall pay M/s Vascard on a Sign on Bonus of ₹ 2 crores over and above the payments contained in item .....

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he termination takes place after four years but within five years of the agreement. She submitted that it was not correct that the Assessing Officer has accepted the activities of the assessee as charitable in nature as is clear from the copy of the reasons recorded for reopening of the case under Section 147 for the assessment year 2005-06 and the assessment order passed under Section 143(3) in scrutiny assessment for the assessment year 2007-08, copy filed in the compilation before the Tribuna .....

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nt portion of the order passed by the DIT(E) refusing exemption under Section 12A in support of the case of the Revenue. She submitted that the main objects of the assessee-society remained the same and the changes were there in the ancillary objects of the assessee-trust. She submitted that the decisions relied upon by the learned senior counsel for the assessee were in the peculiar facts and circumstances of each case and are not applicable to the facts of the case of the assessee and are clea .....

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and how running a hospital for public at large was not a charitable activity. He referred to Circular No.11 of 2008 dated 19th December, 2008 issued by the CBDT, copy filed in the compilation before the Tribunal which lays down that for the purpose of charitable purpose under Section 2(15) of the Act, the words charitable purpose shall include amongst others the medical relief and it further provides that entities whose object is education or medical relief would also continue to be eligible for .....

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and has in fact incurred losses. He argued that does an assessee loses its charitable tag merely because ₹ 40/- out of ₹ 100/- were paid to Max Group, when there is no dispute that the other ₹ 60/- were spent for charitable purposes only by the assessee-society. He submitted that the provision of Section 12AA(3) applies to the case of the assessee and not Section 12AA(4) of the Act. 11. He submitted that the assessee-trust has taken permission of equitable mortgage of land allo .....

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age. For this proposition, he relied on the following decisions :- (i) CIT Vs. Ashish Rajpal - [2010] 320 ITR 674 (Delhi). (ii) Pinegrove International Charitable Trust Vs. Union of India and Others - [2010] 327 ITR 73 (P&H). (iii) Deep Malhotra and Others Vs. Chief Commissioner of Income-tax and Others - [2011] 334 ITR 232 (P&H). (iv) Mrs. Usha A. Kalwani Vs. S.N. Soni and Another - [2005] 272 ITR 67 (Bombay). 12. The learned senior counsel also relied on the decision of Hon'ble Sup .....

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that Max Group of Companies is connected to the assessee-society. He submitted that the Max is a high class medical services provider and one of the largest private healthcare companies in the country and has a network of five hospitals and has pioneered the concept of chronic disease management and its diabetic chronics care program is rated amongst the best in Delhi. He submitted that the agreement between the assessee-society and M/s Vascard, copy filed by the Revenue in its compilation befor .....

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nt year 2005-06 by the Assessing Officer and, therefore, this plea should not have been taken by the learned CIT-DR. He submitted that in fact with the engagement of MHC, it was the assessee who had benefitted due to specialized medical services. He submitted that regarding the free beds not availed by the weaker sections of the society, the relevant authorities of the Delhi Government have not objected and, therefore, the department could not sit over the judgments of the concerned authorities .....

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of AOP and charged to tax at the maximum marginal rate and, therefore, he argued that there is no power to DIT(E) to deny exemption under Section 12A since there is alternate mechanism by way of appeal etc. against the assessment order framed by the Assessing Officer. He submitted that for the research in the advancement of medical care, the person concerned had to take samples from different hospitals at different places to test the credibility of the new medicine being introduced for the publ .....

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of Societies vide order dated 1st day of March, 1994. The assessee was also granted registration under Section 12A of the Act by the DIT(E) vide order dated 23.06.1994 with effect from 01.03.1994. Thereafter, the DIT(E) has sought to cancel the registration granted under Section 12A and issued show cause notices to the assessee on 18.11.2011 and also on 02.12.2011. The assessee complied with the notices and filed its submissions before the DIT(E). The DIT(E), after considering the submissions o .....

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the main object as under :- III. OBJECTS The objects for which the Society is established shall be : A. MAIN OBJECT OF THE SOCIETY TO BE PERSUED ON REGISTRATION : To engage in medical, biological, social, environmental and allied sciences research so as to enhance human understanding regarding the epidemiological basis of health & disease through acquisition, dissemination and sharing of new knowledge concerned with initiation, causation, diagnosis, treatment and rehabilitation of disease an .....

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ivery of health care. 2. In consonance with the main object, to engage in population science research with special reference to contraception and other scientific methods of population control. 3. To promote, establish, maintain and manage Centres/Institutions of Health/Medical Sciences to provider necessary infrastructure with required physical facilities, equipment, staff, labourers and other inputs including scientific work environment and logistics support for the design, conduct and evaluat .....

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ish collaborative linkages with national and international philanthropic, benevolent and other organizations, to share experience and expertise through joint activities/ventures/partnership etc., to provide for the reception and treatment of persons suffering from any illness or defectiveness or for the reception and treatment of persons during convalescence or of the persons requiring medical attention or rehabilitation and for this purpose to do all acts, deeds, things and steps as are necessa .....

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and test newer modes of treatment, stenting videoscopic surgery, early detection and prevention of cancer including immunotherapy, tumor markers etc. - Ultrasound facilities in high risk obstetric cases. - To impart training in various aspects of cancer care and videoscopic surgery to nurses, technicians and other paramedical personnel. - To conduct prospective and retrospective studies and compilation of diseases pattern as is prevalent in northern India. - To offer facilities of highest order .....

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d international levels and to share such knowledge with other institutions for an agreed consideration. 6. All the income earnings from movable or immovable properties of the society shall be solely utilized and applied towards the promotion of its aims and objects as set forth in the Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly or by way of dividends, bonus, profit, etc., to the present or past member of the Society or to any person claimi .....

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ce to certain identified diseases mentioned therein. The opening words of other objects were objects incidental or ancillary to the attainment of the main object had to be in consonance with the main object . The learned CIT-DR submitted that the assessee has not undertaken any research work and has not carried out any activity in accordance with the objects of the assesseesociety and, therefore, the exemption under Section 12A should be cancelled on this ground alone. The learned senior counsel .....

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ully considered the submissions of both the parties on this issue that whether the assessee-society has undertaken its activities in accordance with the objects of the society. We find that the exemption granted under Section 12A to the assessee-society could validly be cancelled on this short issue as the assessee has not undertaken its activities in consonance with the objects of the society as detailed in the memorandum of association reproduced above. The main object of the assessee-society .....

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sonance with the objects incidental or ancillary to the attainment of the main object as detailed in the memorandum of association of the assessee-society. The plea of the learned senior counsel, that in new medicine system, samples from different hospitals are taken including from the hospital run by the assessee-society and, therefore, is a research in advancement of medical care, is not acceptable since collecting the samples from the patients by commercial companies for testing the desirabil .....

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or exemption under Section 12A is granted by the DIT(E) on the basis of objects of the assessee-society as detailed in the memorandum of association and if the DIT(E) finds that the objects of the assessee are charitable in nature, and that other legal formalities are fulfilled by the assessee, DIT(E) has no other choice but to grant registration under Section 12A of the Act. However, the assessee is bound to carry on its activities in accordance with the objects of the society which were submit .....

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t the assessee has not undertaken its activities in accordance with the objects of the assessee-society as detailed in the memorandum of association and, accordingly, we hold that the assessee-society is not entitled to the benefit of exemption under Section 12A of the Act and the exemption under Section 12A was rightly cancelled by the DIT(E). We hold accordingly. 17. As regards the merits of the case, we find that the assesseesociety has not undertaken any activity worth the name, which can be .....

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ble Jurisdictional High Court. However, admittedly, the assessee could not comply with this condition of the very allotment of the land to the assessee-society and has not provided the required number of beds to the poor and weaker sections of the society. The assessee was allotted prime land in the heart of most expensive South Delhi area of Saket by the Government with the condition that it shall provide medical relief up to a certain percentage of patients totally free. The plea of the learne .....

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rs. In the government hospitals, the poor patients are lying in verandahs and in open space in wait for their turn for admission for days together and it is not believable that they will not come forward for treatment in the hospital providing all modern facilities free of cost. The plea of the learned senior counsel for the assessee that on monthly basis, the details of free beds have to be filed with the Health Department and the authorities appointed under the statute have checked the same an .....

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lotment of land itself to it at a nominal price. The issue before us is whether the assessee is conducting its affairs in a charitable manner or whether on commercial lines. 18. In our view, the plea of the learned senior counsel that Max group of companies is not connected to the assessee-society is also of no consequence since the assessee, a charitable society, could not make charity to a commercial organisation, although not connected with it, by paying exorbitant amounts totalling to about .....

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found or noticed in the hospital. There was no name plate to suggest the trustees names/presence, or any office of the trust in the hospital. The DIT(E) noted that no charitable activities were noticed and no free treatment of patients was found and it was found that there was no free OPD. No records/no register in this regard were found in the hospital. We find that the conduct of affairs of the assessee-society are not on charitable lines and were clearly on commercial lines. The rate schedul .....

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agement of the doctors and surgeons etc. to Max Group of Companies, which is admittedly a profitmaking concern and not a charitable institution. We find that all the agreements entered into by the assessee-society with the Max Group of Companies were highly tilted to give due and undue benefits to the Max Group. The title deeds of the immovable properties were hypothecated to the bank to raise loans to the benefit of Max Group of Companies. The assessee-society having been allotted prime land at .....

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s MMK Investments Pvt.Ltd. could terminate the contract. Clause 4.04 of this agreement dated 10.12.2001 provides that in case the contractor M/s MMK Investments Pvt.Ltd. terminates the agreement before the expiry of the term or the extended term in accordance with certain provisions mentioned in the agreement or the assessee society terminates the agreement otherwise in accordance with clause 4.02 of the said agreement, the assessee trust shall be liable to pay the contractor i.e. M/s MMK Invest .....

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f a very high amount of ₹ 12 crores along with interest thereon. As per the agreement, the cost of construction of the hospital which was ₹ 24.51 crores incurred by Max Group of companies was to be paid by the assessee trust in a period of 26.5 years along with 2% of the annual turnover of the assessee-society hospital and the turnover in this case is over ₹ 100 crores in a year. Further, the assessee-society was to pay 6% of its annual turnover on account of repair and mainten .....

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. In the agreement between the assessee-society and M/s MMK Investments Pvt.Ltd. dated 10.12.2001, the term use of equipment by the hospital has been defined and it is specifically provided that M/s MMK Investments Pvt.Ltd. could terminate the agreement at any time solely at its option by giving a 30 day s written notice to the assessee. Clause 13.2 of the said agreement provides that the assessee trust shall have no right to terminate this agreement, save and except in the case of material brea .....

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assessee has agreed to provide an area of at least 1500 sq.ft. for the exclusive use of M/s MHC and its personnel. Clause (6) of the services agreement provides that the assessee-trust shall apply and obtain and renew all necessary permissions, sanctions, license, permits etc. from the government and other appropriate authorities and that M/s MHC shall not at any time and in any way be responsible for any consequences arising out of the delay to obtain such permissions. Clause 6(c) of this agree .....

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d shall not be diverted to or used by the assessee-society for any other purposes. We find that it is not understandable that how the contractor M/s MHC could impose such a condition which binds the assessee-society to utilize its funds in a particular manner. We find that in view of this condition of utilizing the receipts of the hospital in a particular manner, it is not understandable that how the assessee could undertake any research work as provided in its main object in the memorandum of a .....

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or any act of omission whatsoever. Annexure-1 to the said services agreement provides that M/s MHC shall be paid services fees at ₹ 12 crores in each of the first three years and ₹ 15 crores in each year from the fourth year up to the ninth year and ₹ 20 crores in each year from the ninth year onwards from the effective date. It further provides that in addition to the fees as detailed above, the assessee-society shall reimburse to MHC all expenses incurred by MHC on behalf of .....

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e agreements entered into by the assessee with Max Group of companies shows that the agreements were drafted in a way to give maximum benefit to the commercial Max Group of companies and could not be said to be in advancement of any charitable activity of the assessee-society. 20. We find that the assessee-society has even changed the name of the hospital run by it and the name of Max Super Speciality Hospital - a unit of Devki Devi Foundation , Saket. The assessee is spending a very heavy amoun .....

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dentally carry on a commercial activity subject to certain conditions. We find that the reliance on the contents of this Circular issued by the CBDT is misplaced firstly because the assessee is not running its activities in accordance with the objects of the assessee-society and, secondly, in this case, the issue is not that whether the assessee has incidentally carried on any commercial activity. In this case, the activity of the assessee in providing medical relief itself is not conducted in a .....

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ompanies and spent the balance ₹ 60/- in running the hospital, it could not be said that the assessee is not running its affairs in a charitable manner, does not have any merit. We find that the assessee has managed its affairs in a way that after paying exorbitant amount to the Max group of companies, the balance is spent for running the hospital activities and there remains no profit for taxation to the government. 21. The plea of the learned senior counsel for the assessee, that the arg .....

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for deciding the issue before the Tribunal. 22. The plea of the assessee that the legal, financial and management control of the hospital was with the assessee only is devoid of any merit as, in fact, the assessee has entrusted right from the building of the hospital to enrolment of the doctors and technicians and also the running and maintenance of the hospital to the Max Group of companies and, in fact, the management of the hospital and its financial control is in the hands of Max Group only .....

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ior counsel, that in the assessment order for the assessment year 2008-09, the Assessing Officer while framing assessment under Section 143(3) in scrutiny assessment has assessed the assessee in the status of an AOP at the maximum marginal rate of tax and has held that no charitable activities worth the name are being provided by the assessee and huge payments are being made to Max group under different heads and therefore, the DIT(E) has no power to withdraw the exemption under Section 12A sepa .....

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ibunal is not applicable to the facts of the case of the assessee as the main issue in this case before the Hyderabad Tribunal was that where the assessee-society was formed with the object of establishing schools, colleges, training institutions, hospitals, orphanages, hostels etc. for the benefit of Christian minority community in particular and others in general. The CIT rejected the assessee s application for registration under Section 12AA that the society was formed for the benefit of a pa .....

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from the students as approved by the prescribed relevant authorities of the state government every year and there was no material on record to suggest that the assessee was charging fees similar to commercial colleges. In these facts, the Delhi Tribunal allowed the appeal of the assessee and held that the activities of the assessee fall within the ambit of charitable activities as defined in Section 2(15) of the Act. This decision of the Delhi Tribunal, in our view, is not applicable to the fact .....

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hi Tribunal in this case is distinguishable as the Tribunal in this case has found as a matter of fact that there was no whisper of allegation by the Revenue in regard to any violation of the terms and conditions set out either in the allotment letter issued by Ministry of Urban Development and nor by the monitoring authority in regard to the government policy namely by the Department of Education, Government of National Capital Territory of Delhi. The Tribunal has also noted in this case that t .....

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uphold the order appealed against on the grounds other than those taken by the Commissioner in his order. In our view, there is no such issue in the case of the assessee before us. 27. The learned senior counsel has relied on the decision of Hon'ble Supreme Court in the case of Rashmi Metaliks Limited and Another (supra) which has followed the decision of Hon'ble Supreme Court in Mohinder Singh Gill Vs. Chief Election Commissioner - [1978] 1 SCC 405. We find that these decisions shall no .....

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t no such exercise was undertaken by the Revenue in this case and, therefore, this decision of the Hon'ble Supreme Court does not help the case of the assessee. 28. The learned senior counsel has also relied on the decision of Delhi Tribunal in the case of RB Seth Jassa Ram Charitable Hospital (supra), wherein the exemption under Section 11 was denied to the assessee on various grounds including that the running of the hospital was given to M/s Fortis. The Delhi Tribunal in this case has dis .....

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oval and consent of the trustees of the assesseesociety. We find that this decision of Delhi Tribunal is distinguishable since, in the case before us, there is an excessive payment of funds by the assessee-society to M/s Max Group of Companies and the activities of the assessee-society were not in accordance with the objects of the assessee-society as detailed in the memorandum of association. There is no evidence brought on record by the assessee that all the decisions taken by Max group of com .....

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entitled to the benefit of exemption under Section 12A of the Act. The soul of charity is benevolence and generosity towards others and the community at large. Of course, it is important as to what are the activities of a charitable institution but what is even more important is what is the predominant motivation for such activities. No activity, by itself, could be charitable in nature when it is dominated and triggered by economic greed. There is no difference in what a soldier and a mercenar .....

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ined, in order to find whether an act of the institution is charitable or not, is not only to assess the work being done by the institutions, which claim to be pursuing charitable activities, but also the economic dynamics and motivations of such activities. 30. In the light of this fundamental position, let us take a look at what the assessee is doing and whether the manner in which activities of the assessee are being carried out indicate any compassion, benevolence or generosity towards other .....

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values. Similar is the position with regard to other operational policies adopted by an institution. An analysis of these operational policies can give us clear pointer to the predominant motivations and triggers for the activities carried on by that institution and whether such activities are truly charitable in nature or not. 31. The learned CIT-DR has relied on the decision of Hon ble Supreme Court in the case of Municipal Corporation of Delhi Vs. Children Book Trust and Safdarjung Enclave Ed .....

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of the case of the assessee. If we ignore the exorbitant amounts paid by the assessee to Max Group of companies and restrict them to a reasonable level, the result shall be that the assessee-society has generated huge positive income from the fees and other charges received from the patients by running the hospital and, therefore, the hospital was not for charitable purpose but for commercial purpose. 32. The learned CIT-DR has also relied upon the decision of Bangalore Tribunal in D.R. Ranka C .....

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the Tribunal upheld the order of the Commissioner cancelling the registration of the assessee u/s 12A wherein the assessee carried out business incidental to charitable activities of the trust and had converted incidental objects as main objects of the assessee and did not carry on the proclaimed main object of charitable activities. We find that in the case of the assessee, the assessee-society has not carried out its main object of research in medical sciences and the activities carried out by .....

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aragraphs of his order. He has further recorded that the hospital is virtually run by the Max Group of concerns which are corporate bodies established with the clear intention of profit motive and this is against the basic principles of the charitable organization. The learned DIT(E) has recorded that huge payments to the Max group concerns were made under various agreements totalling to over ₹ 40 crores in assessment year 2008-09 which shows that the assessee was working only for the mone .....

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tiple corporate entities was analysed and compared. He has given a finding that free treatment of indoor patients was 0.3% to 2.4% which was below the prescribed guidelines of the Delhi Government and the directions of Hon ble Delhi High Court. 35. We find that imparting education and health services to the weaker sections of the society was one of the main charities in good old times. However, in recent times, imparting of education and running a hospital have become one of the main commercial .....

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oup of companies to exploit the same commercially and, in a non-charitable manner for reasons best known to the trustees of the assessee-society only. 36. We find that whether a particular society or trust is running its affairs in a charitable manner or not depends on the facts and circumstances of each case. It is a matter of common knowledge that even educational institutions or hospitals are being sold like vegetables these days. It is not that none of the charitable institutions are doing s .....

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anner and in its entirety to come to a right conclusion that whether the assessee-society/trust is carrying on its activities for charitable purposes in accordance with the objects of the society. There could not be any exhaustive list of such tests but the following may be found relevant to decide the issue along with other tests that may be relevant :- (i) Whether the society/trust was running its activities in accordance with the objects of the society/trust as has been given at the time of r .....

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siphoning of funds is present in the payments made by the society/trust to any person whether connected with the assessee or not; (vi) Whether the activities of such society/trust were genuine; (vii) Whether the society/trust exists for the relief of the poor or the society at large or whether it exists for the benefit of its author/trustees or persons in whose favour it has created undue obligations against the interest of its own society/trust; (viii) Whether the activities of the trust are b .....

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