2014 (2) TMI 1369 - AT - Income Tax

Exemption u/s 11 - Applicability of provisions of clause (via) of sub-section (23C) of section 10 - charitable activity u/s 2(15) - HELD THAT - When we examine the provisions of section 10(23C) and section 11, we find that the Provisions of section 11 read with section 2(15) are general provisions referring to medical relief in general whereas the provisions of section 10(23C)(vi) are specific provisions regarding hospital. Therefore the income of a hospital has to be considered for exemption u/s 10(23C)(via) as per specific provisions of that section and not u/s 11 read with section 2 (15) being general provisions for all types of medical relief. For all other assessees providing medical relief excluding running of hospital, the claim of exemption should be considered u/s 11 of the Act. As per the judgment of Hon'ble Kerala High Court SAHRUDAYA HOSPITAL 2010 (10) TMI 844 - KERALA HIGH COURT cited by learned A.R. of the assessee, we have seen that this judgment is in fact rendering help to the Revenue because when the hospital has not obtained approval u/s 10(23C)(via) of the Act, the income of the hospital is taxable as can be inferred from this judgment. In the present case, it is factual position as is admitted by learned A.R. of the assessee that the assessee is not running any other charitable activity and, therefore, as per this judgment cited by learned A.R. of the assessee, it has to be held that the profit from running of hospital is to be held to be taxable because the same has not obtained approval u/s 10 (23C) (via) and since the assessee is not running any other charitable activity, such income of the hospital cannot be claimed to be exempt u/s 11 for utilization of the income from hospital in respect of other charitable activities. Hospital was being run by the appellant for profit - Exemption for a hospital has to be exempt only under the provisions of section 20(23C)(via) of the Act and not u/s 11 and since the assessee has not obtained approval u/s 10(23C)(via) of the Act, there is no merit in these grounds of the assessee and the same are accordingly rejected. Claim for exemption of the surplus - As decided in ADITANAR EDUCATIONAL INSTITUTION VERSUS ADDITIONAL COMMISSIONER OF INCOME-TAX 1997 (2) TMI 3 - SUPREME COURT after meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to be one existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity. Treating the utilization in acquisition of fixed assets as application of income - Since it is held that the assessee is not eligible for exemption either u/s 10(23C)(via) because the assessee could not obtain the approval and the assessee cannot get exemption u/s 11, this ground of the assessee has no merit and therefore, the same is rejected.

Summary

Issues Involved:
1. Applicability of provisions of clause (via) of sub-section (23C) of section 10 of the Income Tax Act.
2. Interpretation of section 11(1)(a) read with sections 11(4) and 11(4A) of the Income Tax Act.
3. Interpretation of the definition of "charitable purpose" as defined in section 2(15) of the Income Tax Act.
4. Requirement of notification under section 10(23C)(via) for availing exemption despite registration under section 12A.
5. Whether the hospital was being run for profit.
6. Treatment of surplus income and its application towards acquisition of fixed assets.

Detailed Analysis:

1. Applicability of Provisions of Clause (via) of Sub-section (23C) of Section 10:
The CIT(A) upheld the applicability of section 10(23C)(via) as invoked by the Assessing Officer. The CIT(A) reasoned that the income from the hospital is not derived from property held under trust but from the skill of doctors, and thus, the claim of exemption must be examined under section 10(23C). The Tribunal agreed, emphasizing that the specific provisions of section 10(23C)(via) for hospitals override the general provisions of section 11.

2. Interpretation of Section 11(1)(a) Read with Sections 11(4) and 11(4A):
The CIT(A) interpreted that the income from the hospital does not qualify as income derived from property held under trust and must be examined under section 10(23C). The Tribunal supported this view, stating that the scope of "medical relief" in section 2(15) is broader than the specific provisions for hospitals under section 10(23C)(via). Thus, the hospital's income should be assessed under the specific provisions of section 10(23C).

3. Interpretation of the Definition of "Charitable Purpose":
The CIT(A) and the Tribunal found that the hospital's activities, while charitable under section 2(15), must be specifically examined under section 10(23C)(via) due to the specific nature of the provisions for hospitals. The Tribunal detailed that the term "medical relief" includes various forms of medical aid, but the hospital's activities extend beyond this scope, necessitating examination under section 10(23C).

4. Requirement of Notification under Section 10(23C)(via):
The CIT(A) held that the appellant must be notified under section 10(23C)(via) to avail exemption, despite being registered under section 12A. The Tribunal upheld this, stating that exemption for hospitals must be claimed under the specific provisions of section 10(23C)(via) and not under the general provisions of section 11.

5. Whether the Hospital was Being Run for Profit:
The CIT(A) and the Tribunal concluded that the hospital was run for profit, as evidenced by the consistent surplus in income. The Tribunal noted that the hospital's activities and the nature of services provided indicated a profit motive, disqualifying it from exemption under section 10(23C)(via) without the requisite approval.

6. Treatment of Surplus Income and Its Application Towards Acquisition of Fixed Assets:
The CIT(A) and the Tribunal rejected the appellant's claim that the surplus used for acquiring fixed assets should be considered as application of income. The Tribunal emphasized that without approval under section 10(23C)(via), the hospital's income is taxable, and the acquisition of fixed assets does not qualify as application of income for exemption purposes.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s decision that the appellant's income from the hospital must be assessed under section 10(23C)(via) and not under section 11. The Tribunal emphasized the specific nature of the provisions for hospitals under section 10(23C)(via) and the necessity of obtaining the requisite approval for exemption.