2017 (2) TMI 1324 - AT - Income Tax

Allowing exemption u/s 11 - assessee Trust has violated the directions given by the Hon ble Bombay High Court in respect to doctor s fee is to be included in regard to creation of a IPF account and transfer the amount to IPF account for betterment of poor and indigent patient - Held that - We find that the assessee is a public charitable trust registered under Bombay Public Trusts Act, 1950 by the charity commissioner since 1964. The assessee is registered u/s 12A and 80G. The assessee is engaged in quality health care at affordable rates to the members of the society of all strata. This institute started cardiac services in May 1999 by foxing on quality, safety and economy. During the year under consideration assessee s gross receipts was to the tune of ₹ 37,55,60,944/- before considering the amount spent on the object trust permitted accumulation and the amount deemed to have been applied for the object of the Trust. There is no dispute about these facts. Hon ble Bombay High Court on 17-08-2006 notified a scheme applicable to public charitable trusts registered under Bombay Public Trust 1950 which are running charitable hospitals including nursing home, maternity home, dispensaries or any other centre for medical relief whose annual income exceeds ₹ 5 lakhs. This scheme stipulates to provide compulsory free and concessional medical treatment to the indigent and weaker patients. As per the scheme Trust has to credit 2% of the gross billing to the Indigent Patient Fund every year and this fund should be utilized for providing medical treatment to the poor patients. There is no single evidence which would suggest otherwise. The rationale behind the same being that the doctor s fees is not a part of the hospital s earnings, but rather a reimbursement to the hospital. The hospital merely acts as a collecting agent between the two for this particular aspect. Neither is there any evidence which would suggest the assessee s status of that of a Charitable Trust registered under the Bombay Public Trusts Act, 1950 being revoked by the Charity Commissioner. AO has no role in law by usurping the role of the Charity Commissioner and declaring that the assessee has breached the covenants of the Scheme. - Decided against Revenue.

Summary

Issues Involved:
1. Whether the assessee trust violated the directions given by the Bombay High Court regarding the inclusion of doctor’s fees in the calculation for the Indigent Patient Fund (IPF).
2. Whether the violation, if any, impacts the entitlement of the assessee trust to exemption under section 11 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Violation of Bombay High Court Directions:
The primary issue is whether the assessee trust violated the Bombay High Court's scheme for indigent and weaker section patients by excluding doctor’s fees from the gross billing while calculating the 2% contribution to the IPF. The AO noted a shortfall due to this exclusion and denied the exemption under section 11, asserting that the trust's character ceased to be charitable.

The CIT(A) observed that the scheme by the Bombay High Court does not affect the provisions of the Income Tax Act directly. The power to decide on the breach of the scheme rests with the Charity Commissioner, not the AO. The CIT(A) concluded that unless the Charity Commissioner takes an adverse view, the exclusion of doctor’s fees does not constitute a violation impacting the exemption under section 11.

2. Impact on Exemption under Section 11:
The CIT(A) emphasized that section 11 of the Income Tax Act requires a charitable organization to utilize more than 85% of its earnings towards charitable purposes. The assessee trust utilized 88% of its earnings for its charitable objectives, satisfying this requirement. The CIT(A) noted that the scheme by the Bombay High Court and section 11 of the Income Tax Act are separate legal compliances. The AO's denial of exemption under section 11 based on the alleged scheme violation was deemed unjustified.

The Tribunal upheld the CIT(A)'s decision, stating that the AO had mingled two unrelated sets of legal compliances. The Tribunal highlighted that the Charity Commissioner, not the AO, has the authority to decide on breaches of the scheme. The Tribunal also referenced several case laws supporting the principle that the AO cannot deny exemption under section 11 if the trust is registered under section 12A and adheres to the conditions stipulated by the Income Tax Act.

Conclusion:
The Tribunal dismissed the Revenue's appeals, confirming that the assessee trust's exclusion of doctor’s fees from the gross billing for IPF calculation does not violate the scheme framed by the Bombay High Court in a manner that impacts the exemption under section 11. The AO's denial of exemption was deemed beyond his jurisdiction, affirming the CIT(A)’s order to grant the exemption under section 11.