2015 (4) TMI 801 - AT - Income Tax

Charitable hospital - Non-fulfilment of conditions prescribed in section 2(15) of the Income Tax Act 1961 - Denial of deduction u/s 11 of the Income Tax Act 1961 - Violation of provision of section 13(1)(c) rws 13(2)(b) and 13(2)(g) of the Income Tax Act 1961 - No concessional treatment to poor peoples - Whole income not applied for trust object i.e. to provide medical relief - Held that - Where the assessee was engaged in carrying on the activities for attaining the objects of providing medical relief to people at large and surplus was generated from hospital activities for doing charitable work in the hands of the assessee does not establish the case of the Assessing Officer that it was not engaged in charitable activities. Further the assessee trust was established for the purpose of granting medical relief and the activities having been carried out as per the terms of settlement and the said activities having been recognized as charitable under the provisions of the Act even recognition given by the Bombay Public Trust Act and also by the registration granted under section 12AA of the Act we find no merit in the order of Assessing Officer in this regard. Similar ratio was laid down by Delhi Bench of the Tribunal in Manav Bharati Child Institute 5, 000/- and as per the Assessing Officer both the directors were wholly unrelated either to the managing trustee or any other trustee. As per MoU the services were provided to the patients of hospital at rates 10% less than market rate. In case we compare the two agreements for letting out the premises of the assessee trust the premises handed over to the interested party is fetching high rentals to the trust and it could not be said that the provisions of section 13(1)(c) of the Act have been violated. Another aspect of the denial of deduction under section 11 of the Act to the assessee was that the assessee had failed to provide concessional treatment to indigent / poor patients. Admittedly this was the first year of operation of the hospital and the plea of the assessee was that it could not provide free medical relief to large numbers of indigent / poor patients. However in the absence of any limit being provided in the Income-tax Act violation if any of the said limit does not entitle the Revenue authorities to disallow the claim of exemption under section 11 of the Act to the assessee trust which otherwise had carried out the activities as per its objects and hence is entitled to the deduction under section 11 of the Act. - Decided against the revenue.

Issues Involved:
1. Applicability of provisions of section 13(1)(c) read with sections 13(2)(b) and 13(2)(g) of the Income Tax Act, 1961.
2. Determination of whether the trust's activities are charitable under section 2(15) of the Act.
3. Violation of provisions of section 13(1)(c) of the Act due to benefits provided to interested persons.
4. Entitlement to exemption under section 11 of the Act.

Detailed Analysis:

1. Applicability of Provisions of Section 13(1)(c) r.w.s. 13(2)(b) and 13(2)(g):
The Revenue contended that the trust had directly applied its immovable property and income for the benefit of the Managing Trustee, violating section 13(1)(c). The Assessing Officer noted that the trust's hospital was run on commercial lines without charitable activities, and the Managing Trustee's income had increased significantly. The trust was also accused of diverting income by using its infrastructure for private gains, violating sections 13(1)(c), 13(2)(b), and 13(2)(g). The CIT(A), however, found that the trust's activities were in line with its charitable objectives and did not violate section 13(1)(c).

2. Determination of Charitable Activities under Section 2(15):
The trust was registered under section 12AA and claimed exemption under section 11. The Assessing Officer argued that the trust's hospital was run with a profit motive, not for charitable purposes. However, the CIT(A) held that the trust's activities fell within the definition of "charitable purpose" under section 2(15), as it provided medical relief. The CIT(A) cited the Supreme Court's judgment in CIT (Addl) Vs. Surat Art Silk Cloth Manufacturers Association, which held that medical relief is inherently charitable, even if it involves some profit.

3. Violation of Provisions of Section 13(1)(c):
The Assessing Officer argued that the trust's property and income were used for the benefit of the Managing Trustee and his family, violating section 13(1)(c). The trust paid consultancy fees to the trustees, including significant amounts to the Managing Trustee. The CIT(A) found that the fees were reasonable and that the trust benefited from the Managing Trustee's services. The CIT(A) also noted that the rent paid by the trust for the hospital building was below market rates, benefiting the trust rather than the Managing Trustee.

4. Entitlement to Exemption under Section 11:
The Revenue argued that the trust was not entitled to exemption under section 11 due to its profit-making activities and insignificant concessional medical relief. The CIT(A) disagreed, stating that the trust's activities were charitable and that the trust met the requirements for exemption under section 11. The CIT(A) emphasized that medical relief does not require free services and that the trust provided services at lower rates than market rates. The CIT(A) also noted that the trust treated a significant number of indigent patients, fulfilling its charitable purpose.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeals. The Tribunal found that the trust's activities were charitable under section 2(15), and there was no violation of section 13(1)(c). The trust was entitled to exemption under section 11, as it provided medical relief and met the necessary conditions. The Tribunal emphasized that the predominant objective of the trust was charitable, and any profit generated was incidental to its charitable activities.

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