2016 (4) TMI 466 - HC - Income Tax

Appeal admitted on substantial question of law as framed at question (b). Whether, on the facts of the case and in law, the Tribunal was right in allowing the assessee s claim of exemption u/s. 10(23C) (via) of the Act without appreciating the fact that the assessee is running separate business activity of Gymansium, Cafeteria and Pharmacy which does not come under the ambit of charity of Hospital and all these activities are business activities and not charitable activity as claimed by the assessee and for these business activities separate books of account were also required to be maintained as per the approval given u/s. 10(23C) (via)?

Issues involved:
1. Interpretation of provisions under Section 11 and 12A of the Income Tax Act, 1961 for a Charitable Trust.
2. Eligibility of exemption under Section 10(23C) for separate business activities of a charitable trust.
3. Determination of charitable status of a hospital engaging in business activities.
4. Application of the principle of double deduction in income tax assessments.

Analysis:

Issue 1 - Interpretation of provisions under Section 11 and 12A:
The case involved a Charitable Trust registered with the Charity Commissioner, Maharashtra, seeking exemption under Section 11 of the Income Tax Act. The Assessing Officer initially rejected the exemption claim due to an amendment in the trust deed. However, the Commissioner of Income Tax (Appeals) and the Tribunal found that despite the amendment, the trust's objectives remained unchanged, leading to a decision in favor of the trust. The Court upheld this decision, emphasizing that the amendment did not alter the core charitable nature of the trust, distinguishing it from precedents cited by the Revenue.

Issue 2 - Eligibility of exemption under Section 10(23C) for separate business activities:
The Assessing Officer questioned the eligibility of the trust for exemption under Section 10(23C) due to its separate business activities like a Gymnasium, Cafeteria, and Pharmacy, which were deemed non-charitable. However, the CIT(A) and the Tribunal found that over 85% of the trust's income was applied for charitable purposes, including income from these activities. The Court agreed that the trust's primary objective was charitable, and the revenue failed to prove otherwise, leading to the dismissal of this issue.

Issue 3 - Determination of charitable status of a hospital engaging in business activities:
The Assessing Officer alleged that the trust, operating a hospital, was primarily engaged in a business rather than charity due to high charges. However, the CIT(A) observed that a significant portion of the income was utilized for charitable purposes, allowing the trust's appeal. The Tribunal upheld this decision, emphasizing that the trust's core objective was to provide treatment to those unable to pay, justifying the income generated from paying patients. The Court found the revenue's arguments unsubstantiated, supporting the trust's charitable status.

Issue 4 - Application of the principle of double deduction:
The Court referenced a prior judgment to address the issue of double deduction concerning depreciation claims. It was noted that the issue had been settled in favor of the trust in a previous case, where it was established that double deduction was not applicable. Consequently, the Court deemed this issue as not giving rise to any substantial question of law, leading to its dismissal.

In conclusion, the Court admitted the appeal on the substantial question of law related to the eligibility of exemption under Section 10(23C), while dismissing the other issues for lack of merit or precedence. The Tribunal was directed to maintain the relevant records for future reference.

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