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TMI Blog2016 (3) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances of the case the Tribunal was justified in law in holding that the assessee fulfilled the conditions stipulated in Section 10(22A) of the Income Tax Act, 1961 and directing to allow deduction under Section 10(22A) of the Act? The facts and circumstances of the case briefly stated are as follows:- The asessee is a company under the Apeejay Group, controlled by Mr. Jeet Pal and Surindra Pal, which was incorporated as a public limited company on 27th March, 1984. Pursuant to a resolution and subsequent permission by the Central Government the assessee has been registered as a private limited company on 17th July, 1984. During the first accounting period relevant to the assessment year 1986-87, the paid up capital was Rs. 5,040/-. Soon after incorporation as a public limited company, between 28th March, 1984 and 30th March, 1984 the assessee raised a welfare fund of Rs. 4 crores from Assam Frontier Tea Limited, Singlo (India) Co. Ltd. and Empire Plantation (India) Ltd. All the aforesaid three companies also belonged to Apeejay Group of Companies and controlled by the same Mr. Jeet Pal and Mr. Surindra Pal. The said Assam Frontier Ltd., Singlo (India) Co. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the corpus was utilized for the purpose of earning interest and not for any "philantrophic purposes and medical welfare as claimed." The assessing officer went on to hold that the assessee "was an investment company engaged in money lending business." The CIT(A) reversed the order of the assessing officer refusing exemption under Section 10(22A) of the Act on the following grounds:- (A) The premise that the corpus had been lent to the companies of the Apeejay Group could not lead to the conclusion that the assessee was an investment company nor could that premise lead to the conclusion that the assessee existed only for profit and not to serve any philantrophic purpose. (B) To qualify for the exemption what is needed is existence of a hospital or other institution solely for philantrophic purposes. (C) The assessee is also entitled to exemption for the relevant assessment year on the basis of the order dated 9th December, 1992 passed by the learned Tribunal for the assessment years 1986-87 and 1987-88, inter alia, because the "basic facts relevant for the assessment year under appeal are essentially the same as were considered by the Tribunal in relation to the appeals for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10(22A) of the Income Tax Act. Mr. Kapoor, learned senior advocate, on the other hand contended that the assessee exists solely for the philanthropic purposes and not for any purpose of profit. The commercial activities envisaged in the memorandum of association are not the real objects of the company. There are the powers which can be exercised for the purpose of feeding the philanthropic purposes. He submitted that it has been clearly recorded in the memorandum of association that the profits are not to be distributed by way of dividend among the members. We shall examine the rival contentions in our judgment and shall have occasion to advert to the submissions of the learned counsel during discussion to be made hereafter. Section 10(22A) of the Act at the relevant time was as follows:- "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 convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit." From the aforesaid Section the following ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit them from an educational, religious, moral, physical or social standpoint. This term is synonymous with 'beneficent', 'benevolent'. And 'eleemosynary'." Ramanatha Aiyar's Law Lexicon, 1987 edition, explains the meaning of the word 'philanthropic' as follows: "...an act cannot be said to be philanthropic unless it indicates goodwill to mankind at large. Still, it seems to me that 'philanthropic' is wide enough to comprise purposes not technically charitable. (Stroud 1479)." This meaning is taken from the judgement of Stirling J., in Re Macduff. [1896] 2 Ch 451 (CA). Shorter Oxford English Dictionary, 3rd edition, "philanthropic": "Characterized by philanthropy ; benevolent, humane." Law Lexicon Cum Digest, Vol. III, by N. M. Mulchandani, "Philanthropic purpose"; "It is not always necessary that a 'philanthropic use' must be such as may be beneficial to the humanity at large but it could be limited to the welfare or benefit of fellow human beings belonging to a well defined class or community, who are joined together by comon bonds of religion, race, social, or economic unity. After all, the purpose which is beneficial to a section of the public, is in the larger c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king is not the real object" (emphasis supplied). We wholly endorse these observations. The application of this test may be illustrated by taking a simple example. Suppose the Gandhi Peace Foundation which has been established for propagation of Gandhian thought and philosophy, which would admittedly be an object of general public utility, undertakes publication of a monthly journal for the purpose of carrying out this charitable object and charges a small price which is more than the cost of the publication and leaves a little profit, would it deprive the Gandhi Peace Foundation of its charitable character? The pricing of the monthly journal would undoubtedly be made in such a manner that it leaves some profit for the Gandhi Peace Foundation, as, indeed, would be done by any prudent and wise management, but that cannot have the effect of polluting the charitable character of the purpose, because the predominant object of the activity of publication of the monthly journal would be to carry out the charitable purpose by propagating Gandhian thought and philosophy and not to make profit or in other words, profit making would not be the driving force behind this activity. But it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to the same effect, observed Krishna Iyer, J. in the Indian Chamber of Commerce case [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] when he said: "An undertaking by a business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negative .... A pragmatic condition, written or unwritten, proved by a prescription of profits or by long years, of invariable practice or spelt from some strong surrounding circumstances indicative of anti-profit motivation - such a condition will qualify for charitable purpose." Now we entirely agree with the learned Judges who decided these two cases that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose. But we find it difficult to accept their thesis that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for profit and the charitable purpose involves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be taken into account according to the judgement in the case of Surat Art Silk Cloth Manufacturers Association (supra). The predominant object of the activity in the relevant year was not to carry out any act of charity or goodwill or bvenevolence. It was on the contrary to earn interest. In the case of Birla Vidya Bihar Trust -Vs- CIT reported in (1982) 136 ITR 445, the question was whether the income arising out of the two schools run by the trust was exempt under Section 10(22) of the Act. In deciding that question a Division Bench of this Court also noticed the object behind Section 10(22A) and the corresponding circulars issued by the CBDT which are as follows:- "...We may get some light on this aspect in respect of the intention of the Legislature in introducing sub-s. (22A) which also speaks of any income of a hospital or institution for the reception and treatment of persons. Sub-section (22A) along with sub-s. (20A) was introduced by the Finance Act of 1970, and in cl. (4), which sought to amend s. 10 of the I.T. Act, it was explained in the memo of the Finance-Bill, 1970, as follows: "Sub-clause (a) seeks to insert a new clause (20A) in section 10 of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax altogether, as in the case of universities and other educational institutions at present." We may also refer to the Circular of the Central Board of Direct Taxes being Circular No. F. No. 194/16-17II (AI), which stated as follows: "A number of instances have come to the notice of the Board where action to assess educational institutions and hospitals have been taken on the ground that they are making profit and, therefore, the exemption u/ss. 10(22) and 10(22A) is not available to them. 2. U/s. 10(20) income of an university or other educational institutions existing solely for educational purposes and not for purposes of profit is exempt. U/s. 10(22A) income of a hospital or other institution referred to therein which exists solely for philanthropic purposes and not for purposes of profit is also exempt. 3. The question for consideration is whether an educational institution existing solely for educational purposes but which shows some surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of the proprietor thereof, then the income of the educational institution will be subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3,70,279 for the year under consideration. It is not disputed that the health centre run by the assessee is an institution for reception and treatment of persons suffering from illness or requiring medical attention. A separate account has also been made out for the health centre which was filed before the Income-tax Officer. It is true that the surplus shown is included in the overall surplus of the combined accounts and has been adjusted in that combined account against the deficits brought forward from the earlier years. But the assessee, as we said, spent a substantial amount of Rs. 12,59,646 for another health centre. The earning made by the assessee in the health centre was utilised for the construction of another health centre. It cannot be said that the health centre did not exist for philanthropic purposes, as the surplus has not been accumulated. The surplus of one health centre has been utilised for philanthropic objects by establishing another health centre. This has been done in furtherance of the philanthropic objects. It is not necessary that the income which has been derived from one health centre has to be ploughed back in the same centre and the assessee cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he resources available for the hospital is exempt under section 10(22A). In this connection, it must be mentioned that if there is an integral unity between the trust and the hospital for purposes of section 10(22A), as held above, the amount invested belongs to the hospital and the income derived on such investment is also b. that of the hospital. A hospital is not merely the building in which it is housed. or the equipment that is contained in it, but something more. It is an institution, and that institution belongs to the trust. In dealing with the question whether the income is that of the hospital, the significance of the expression "any income of a hospital" in section 10(22A) has to be noted. In our opinion. both the words "any" and "of" carry a meaning. It is not income from a hospital that is exempt but any income of a hospital". If the word had been "from". the position would have been that the income should have been derived from the actual running of the hospital itself. What appears to be relevant is that the income should reach the hospital to be utilised by it for philanthropic purposes and not for purposes of profit. The stress appears to be on the recipient of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... welfare fund. In the light of the aforesaid discussion we find that the 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 Rs. 4 crores. The assessee had merely reimbursed a sum of Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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. In the case of CIT -Vs- Kamakhaya Narayan Singh & Ors. reported in AIR 1949 PC 1 question arose whether income arising out of interest on arrear rent was an agricultural income. The definition of agricultural income permitted rent derived from land which is used for agricultural purpose to be treated as an agricultural income. To be precise the definition of agricultural income was as follows:- (I) 'agricultural income' means:- "(a) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in British India or subject to a local rate assessed and collected by officers of the Crown as such." Their Lordships answered th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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