2010 (10) TMI 844 - HC - Income Tax

Assessment of income - whether the Tribunal was justified in holding that assessee cannot be separately assessed for the income from a hospital merely because it was not entitled to exemption under section 10(23C)(via) respondent-assessee is a hospital owned and managed by a society granted registration as a charitable institution u/s 12A - Held that - As society is engaged in several charitable activities, including running of Old Age Home for the poor, Training Institute for Mentally Challenged, and a hospital for rendering medical assistance to the poor. Even if one of the branches of operations leads to gain or profit, still the society is entitled to exemption, if the funds were applied for other charitable purposes, the claim of exemption or liability should have been considered at the hands of the person who owns and manages the hospital, which is a society, hospital is run by the society which is a charitable institution. Inspite of the claim made by the assessee, the Assessing Officer has not considered whether the institution, that is, the assessee, namely, society, runs the institution for the purposes for which it was granted exemption under section 12A. On the other hand, even the return filed is not seen considered by the Assessing Officer in the assessment of the society. All what the Tribunal has held is that separate exemption need be claimed by the society for the hospital when it is assessable for all other income which does not arise here because of section 12A registration granted to the society. We are in complete agreement with the finding of the Tribunal on this issue. However, if there is violation of the scheme of exemption granted under section 12A it is always open to the department to bring to tax such of the income that could be assessed under the Act after issuing notice to the assessee, Appeals are dismissed with these observations

Summary

Issues:
1. Whether the Tribunal was justified in holding that the respondent-assessee cannot be separately assessed for the income from a hospital due to lack of exemption under section 10(23C)(via) of the Income-tax Act.

Analysis:
The High Court of Kerala addressed the issue of whether the respondent-assessee, a hospital owned by a society granted registration as a charitable institution under section 12A of the Act, could be separately assessed for income from the hospital. The Assessing Officer had demanded tax on the entire income, citing lack of approval under section 10(23C)(via) for the hospital. The Tribunal, however, opined that as a charitable institution, the society need not seek separate exemption under section 10(23C)(via) for income from the hospital. The High Court concurred with the Tribunal's view, emphasizing that the society's entitlement for exemption under section 12A was not in dispute. The Court highlighted that exemption for charitable institutions under section 11 is contingent on funds being applied for charitable purposes, and any misapplication could lead to tax liability. The Court noted that different branches of operations, even if profitable, do not preclude exemption if funds are utilized for charitable activities. The Assessing Officer's failure to consider the society's charitable status and the purpose of the hospital's operations was criticized, as the society, as a legal entity, should be assessed, not individual branches. The Court upheld the Tribunal's decision and advised the department to tax any income violating the exemption scheme under section 12A after issuing due notice to the assessee.

In conclusion, the High Court dismissed the appeals, affirming the Tribunal's findings and emphasizing the need for proper assessment based on the society's charitable status and compliance with exemption criteria under section 12A.