TMI Blog2017 (3) TMI 1245X X X X Extracts X X X X X X X X Extracts X X X X ..... it and pass necessary orders in accordance with law, within four weeks from today. The writ petition is allowed in these terms. - W.P.(C) 7147/2012 - - - Dated:- 8-3-2017 - MR. S. RAVINDRA BHAT MS. DEEPA SHARMA JJ. Petitioners Through: Sh. Ajay Vohra, Sr. Advocate with Ms. Kavita Jha and Sh. Vaibhav Kulkarni, Advocates. Respondent Through: Sh. P. Roychoudhuri with Ms. Vibhooti Malhotra, Advocates. MR. S. RAVINDRA BHAT 1. The petitioner is registered under the Societies Registration Act, 1860 and formed with the objective of rendering comprehensive eye care services, inclusive of all forms of ophthalmic services. To further its objects, it established the Venu Eye Institute and Research Centre in Delhi , with five satellite hospitals and seven vision centers in Haryana, Uttar Pradesh, Uttarakhand and Rajasthan. Its claim is that its objects, for assessment years 2005-2006to 2009-2010 were charitable in terms of Section 2(15) of the Act. However, for 2011-2012 its application in Form 56D for grant of exemption under Section 10(23C)(via) of the Act was rejected by the respondent by its impugned order, dated 27 April, 2012. It, therefore, seeks quashing of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society has made a collaboration agreement with Sant Bhagat Singhji Maharaj Charitable Hospital with regard to satellite hospital at Faridabad. The society has also made collaboration agreement with Om Indu Jain Charitable Trust with regard to satellite hospital at Dhankot. As per the terms and conditions of the agreement with Om Indu Jain Charitable Trust the applicant society had to invest ₹ 10 lakh for construction of the ground floor of the premise at Dhankot and had to provide complete infrastructure facilities for establishment of an eye hospital including equipment and other resources including man power. The period of both these agreements was 20 years. One of the conditions in these agreements is that the applicant society can also treat the patients at these satellite hospitals on payment basis. The inclusion of this clause itself proved the profit motive of the applicant society. 4. The DGIT then discussed the teaching and training aspect of the petitioner's activities and after noticing the fees charged as well as the facilities provided (on the basis of what was listed in the petitioner's website as well as the details provided by it) held as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re used for treatment. In the absence of any material to show that generally there was a profit, it cannot be said that the petitioner does not exist solely for the philanthropic purpose but exists for the purpose of profit. 7. It is pointed out that the petitioner society was also granted exemption under Section 80G and 35AC of the Act and the Assessing Officer (AO) for the years 2005-06 to 2009-10 held its activities to fall within the purview of Section 2(15) of the Act, i.e., charitable purpose. It is contended that the satellite hospitals run by the petitioner have no profit element in them. The petitioner entered into an arrangement with the Indira Gandhi National Open University (IGNOU) to provide training courses for para-medicals and nursing staff. IGNOU charges a fee of which a nominal amount is given to the petitioner. This activity is incidental and in furtherance of achieving the main objective. Again, there is no profit element involved and the expenditure incurred is way more than the amount collected by way of fees. The petitioner points out that it has other objectives too, but the presence of incidental objectives in the memorandum does not preclude it from c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,243/ and (-) ₹ 14,91,647/- respectively. All these, according to the Revenue, clearly show that the petitioner is engaged in business activities. 10. The Revenue highlights that the petitioner claimed exemption under Section 11 in respect of part of its income, i.e., Grants and in respect of income/receipts from Hospital and Vision by Venu it claimed the benefit of exemption under Section 10(23C)(vi) during the same year. It was also seen that in respect of grants, it claimed the benefit of accumulation or set apart for future use under Section 11(2) of the Income Tax Act, 1961. The petitioner did not have the exemption under Section 10(23C)(vi) in AY 2008-09 to 2010-11 but it claimed that under Section 10(23C)(vi) for these years. 11. From these facts, submitted the Revenue, it is clear that besides running the hospital and doing charitable activity, the petitioner was also engaged in imparting education/training on regular basis. It provided various facilities to the students and charged fees. Although, education may be a charitable activity yet that is not in consonance with the petitioner's objective to attract the provisions of Section 10(23).Also, the society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Activity Reports for the period April, 2005to March, 2011 containing details and report on activities carried out by the Society. (iv) Newspaper cutting from the Times of India dated 24.09.2009, containing report on survey by Health Department which clearly mentioned that the hospital run by the petitioner society was the only hospital with maximum occupancy of free beds (63 beds) against the quota of 42 beds specified by the Delhi Government. 14. The respondents rejected the exemption application by order dated 27.4.2012 under Section 10(23C)(via) of the Act, inter alia, on the grounds that firstly, the petitioner did not exist solely for philanthropic purposes but for purpose of profit; secondly, it had entered into collaboration agreements with Sant Bhagat Singhji Maharaj Charitable Hospital and Om Indu Jain Charitable Trust for running satellite hospitals with profit motive; thirdly, that it provided educational courses such as Medical Training Programmes, long term super specialty medical programme in ophthalmology, etc. and was earning profit from those activities; fourthly, the memorandum of the petitioner society contains objects other than health care; and lastl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, wholly and exclusively to the objects for which it is established and in a case where more than twenty-five per cent of its income is accumulated on or after the 1st day of April, 2001, the period of the accumulation of the amount exceeding twentyfive per cent of its income shall in no case exceed five years; and] Section 10 (22) exempts receipts and income of universities and educational institutions, in the following terms: (22) any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit. 16. ACIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC) held that the test of predominant object of the activity is to be seen to determine whether it exists solely for education and not to earn profit. However, the purpose would not lose its character merely because some profit arises from the activity. To carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit, would not only be difficult for practical realization, but would reflect unsound principles of management. In order to ascertain whether the Ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society clearly states its main objective is to render comprehensive eye care services inclusive of all forms of ophthalmic services. All other activities are incidental to carrying out of this purpose. The petitioner does not carry out any other business but only collaborates with other trusts and institutions. It has maintained its books of account as well. So the conditions have been met with. Exemption under the provisions mentioned above will be granted if the main objective of the society is relief of poor, education, medical relief and carrying on of a business with a view to fulfill these objects would not deprive them from such exemption. This was stated in CIT v. Rao Charitable Trust (1976) 102 ITR 474. 19. As to the Revenue s contention that the petitioner s collaboration with other institutions and for profit goes, clearly the dominant object or purpose test is applicable. In New Noble Educational Society Ors. Vs. Chief Commissioner of Income tax Anr. (2011) 334 ITR 303 (AP) it was held that if there are several objects of a society some of which relate to education, and others which do not, and the trustees or the managers, in their discretion, are entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 10 in respect of such income is preferred and tax on such income is avoided. This defeats the very objective and purpose of placing the conditions of application of income etc. in respect of income derived from property held under trust in the first place. The provision of Section 10(23C) also has similar conditions of accumulation and application of income, investment of funds in prescribed modes etc. Therefore, the Act was amended to provide specifically that where a trust or an institution has been granted registration for purposes of availing exemption under Section 11, and the registration is in force for a previous year, then such trust or institution cannot claim any exemption under any provision of Section 10 [other than that relating to exemption of agricultural income and income exempt under Section 10(23C)] of the Income Tax Act. Similarly, entities which have been approved or notified for claiming benefit of exemption under Section 10(23C) of the Income Tax Act would not be entitled to claim any benefit of exemption under other provisions of Section 10 of the Act; which means that one can claim exemption under Section 11 and Section 10 (23C). 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR (Del) 1 it was held that insofar as the question whether the university or educational institution exists solely for educational purposes could be denied the benefit of Section 10(22)/10(23C) (vi) on the ground that its receipts exceeded its expenditure is concerned, such question is no longer relevant. It is now well established that an educational institution existing solely for educational purposes would not cease to be so only for the reason that some of its activities have yielded surpluses. In the present case, it is observed that profit earned is incidental to the main objective of charity. It earns profit after carrying out activities which are to achieve the main purpose. Hence, the petitioner should be entitled to the exemption. Queen's Educational Society (supra) summarized the law on the issue as under:-- 1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. 2) The predominant object test must be applied - the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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