2015 (4) TMI 186 - AT - Income Tax

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 recorded a finding that the assessee s foundation has not been in operation as a charitable institution as the trustees allowed the property as to be taken over by the Max group by creating various financial and legal obligations as detailed in the foregoing paragraphs 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. 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 hospital itself has been given away by the trustees of the assesseesociety to Max group of companies to exploit the hospital commercially, but, the facts of this case do raise a reasonable suspicion that the hospital itself has been given out by the assesseesociety to Max group 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. The assessee-society was charitable to only one entity out of 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 of its excess of income over expenditure and even more and after deducting allowable expenditure, the net income was negative i.e. a loss , year after year. The reason for such modusoperandi is best known to the assessee-society itself or to be investigated by the concerned agencies or the government allotting the prime land to the assessee-society on certain conditions, never fulfilled by the assessee-society. Thus no hesitation in holding that the assessee has conducted its activities in a non-charitable manner and not in accordance with its object as detailed in its memorandum of association. - Decided against assessee.

Summary

Issues Involved:
1. Cancellation of registration under Section 12A of the Income-tax Act, 1961.
2. Allegations of non-charitable activities and profit motive.
3. Non-fulfillment of criteria for providing free/concessional treatment to Economically Weaker Sections (EWS).

Issue-wise Detailed Analysis:

1. Cancellation of Registration under Section 12A:
The appeal was directed against the order of the Director of Income Tax (Exemptions) [DIT(E)], Delhi, dated 28th December 2011, which canceled the registration granted to the assessee under Section 12A of the Income-tax Act, 1961, since the inception of the trust. The DIT(E) canceled the registration on the grounds that the activities of the assessee were not genuine and were not in accordance with the objects of the trust. The Tribunal upheld the DIT(E)'s order, stating that the assessee did not undertake activities in consonance with its main object, which was to engage in medical, biological, social, environmental, and allied sciences research. Instead, the assessee was found to be running a hospital on commercial lines, which was not in accordance with its stated charitable objectives.

2. Allegations of Non-Charitable Activities and Profit Motive:
The DIT(E) alleged that the assessee was not a charitable organization as its property/hospital was taken over by Max Group, which was running the hospital with a profit motive. The Tribunal noted that the agreements between the assessee and Max Group were highly tilted in favor of the Max Group, indicating that the hospital was being run on commercial lines. The Tribunal found that the assessee had entrusted the construction of the hospital building, supply of equipment, and engagement of doctors to Max Group, a profit-making entity, and that the agreements were designed to give maximum benefit to Max Group. The Tribunal concluded that the assessee was not conducting its affairs in a charitable manner and was instead operating on commercial lines.

3. Non-Fulfillment of Criteria for Providing Free/Concessional Treatment to EWS:
The DIT(E) held that the assessee did not fulfill the minimum criteria of providing concessional/free treatment to patients from Economically Weaker Sections (EWS) as per the criteria notified by the Delhi High Court. The Tribunal noted that the assessee failed to comply with the condition of providing 10% totally free indoor treatment and 20% free OPD for weaker sections of society, which was later raised to 25% by the Delhi Government. The Tribunal rejected the assessee's plea that poor patients did not come forward to avail free medical services, stating that it was not believable given the condition of government hospitals. The Tribunal emphasized that the assessee's failure to fulfill this condition indicated that it was not operating in a charitable manner.

Conclusion:
The Tribunal upheld the DIT(E)'s order canceling the registration under Section 12A, concluding that the assessee was not conducting its activities in accordance with its stated charitable objectives and was instead operating on commercial lines. The appeal of the assessee was dismissed.