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2022 (12) TMI 635 - AT - Income TaxExemption u/s 11 - grant of registration u/s 12AA rejected - charitable activity or not - medical aid / facilities to the poor / needy persons - running the activities on commercial basis - assessee is charging on the basis of commercial rates from the patients, either outdoor/indoor and the assessee has failed to demonstrate that the charges / fee charged by it were on a reasonable markup on the cost - DR submitted that the name of the assessee is different from ROC record and PAN to Form 10A/10G and that there was an ambiguity with regard to the name of assessee and its directors and it is evident from the declarations filed by the assessee in Form 11(5) and 13(1) DR of the Income Tax Act - HELD THAT - We find that the CIT(E) in the present case, after analyzing the said documents had recorded the finding mentioned in the impugned order whereby he held that the assessee was running the activities on commercial basis and that the activities of assessee are not of charitable nature. Approach of the CIT(E) cannot be faulted merely because he had examined the data supplied by the assessee at the time of making the application. Assessee had failed to bring on record any comparative chart of diagnostic charges / procedure charges / test charges prior to the conversion of the assessee into section 8 company and thereafter to show that there was a major reduction in fee / charges charged by the assessee for the above said purposes. As nothing contrary had been brought to the notice of CIT(E), hence in our view, assessee is not entitled for registration or approval under section 10(23C) / 12A. The present case is a case of conversion of a profit making company into a section 8 Company. In fact, the assessee was earning huge profit as a private company, which was later on converted into section 8 company w.e.f. 03.08.2018. As mentioned assessee was having surplus of Rs.15,96,02,014/- in the financial year 2018-19 and Rs.34,82,52,005/- for financial year 2019-20, which only shows that the assessee has been charging cost plus unreasonable mark up on its services. If we accept the argument of the learned counsel for the assessee that only the subsequent document should be taken into consideration, despite the fact that the assessee, being a profit earning private company prior thereto, then it will be a handy tool for an otherwise profit-making company to conveniently convert into a so-called charitable company and avoid payment of due taxes to a welfare state. In the present case, neither the activities nor the management nor the place of services nor the charges for treatment had changed in any manner by conversion and only the name of the assessee had changed albeit the assessee is claiming registration / approval under the Act. Earlier the assessee was known as Fernandez Hospital Private Limited and presently, it is known as Fernandez Foundation . Further, we are in agreement with the argument of ld.DR that the assessee can do charity by either bringing down its profit by providing services at reasonable rate or by utilizing the surplus for helping medical aid / facilities to the poor / needy persons at free of cost. Nothing of this nature, if at all done by the assessee, has been brought to our notice. The assessee had only provided the treatment to 65 indoor patients for an amount of Rs.84,48,709/- and 5,569 outdoor patients for Rs.39,65,102/- on concessional rates and the said amount is a meagre amount when compared to its total revenue collection of the assessee i.e., Rs.141.90 crore for the period under consideration. By that standard alone the activities of the assessee cannot be said to be charitable activities. Hon'ble Supreme Court Ahmedabad Urban Development Authorit 2022 (10) TMI 948 - SUPREME COURT mandates that all private hospitals that had acquired land at cheaper rates must reserve 10% of their in-patient department capacity and 25% OPD for free treatment of poor patients. Though the said decision was rendered in the context of cheap allotment of land but nonetheless, we are of the view that some percentage of free treatment or treatment at concessional rate should be provided by the assessee. However, in the instant case, the free treatment / concessional rate was less than 1% of the revenue of the assessee. In our view, ld.CIT(E) was correct in holding that the assessee is charging on the basis of commercial rates from the patients, either outdoor/indoor and the assessee has failed to demonstrate that the charges / fee charged by it were on a reasonable markup on the cost. We do not find any error in the decision of ld.CIT(E). Accordingly, the order of ld.CIT(E) is upheld and the appeal of the assessee is dismissed.
Issues Involved:
1. Legality of the Commissioner of Income Tax (Exemptions) order. 2. Charitable nature of the assessee's activities. 3. Validity of rejection of registration under sections 12AA, 80G(5)(vi), and 10(23C)(vi) of the Income Tax Act, 1961. 4. Alleged profit-making activities and compliance with section 13 of the Income Tax Act. 5. Timeliness and procedural correctness of the Commissioner's order. Detailed Analysis: 1. Legality of the Commissioner of Income Tax (Exemptions) Order: The assessee challenged the Commissioner of Income Tax (Exemptions) [CIT(E)]'s order as being contrary to the provisions of law. The CIT(E) rejected the assessee's application for registration under sections 12AA, 80G, and 10(23C) of the Income Tax Act, 1961. The CIT(E) based the rejection on the grounds that the assessee was involved in profit-making activities and had paid substantial amounts to its directors, which violated the provisions of section 13 of the Act. The Tribunal upheld the CIT(E)'s order, noting that the CIT(E) had correctly relied on financial records from the preceding three years to assess the nature of the assessee's activities. 2. Charitable Nature of the Assessee's Activities: The assessee argued that its activities were charitable in nature, especially after its conversion to a Section 8 Company. However, the CIT(E) found that the assessee charged market rates for its services and did not demonstrate any significant reduction in fees post-conversion. The Tribunal noted that the assessee's charges for medical services were higher than market rates, and the provision of concessional treatment was minimal compared to its total revenue. Thus, the activities were deemed commercial rather than charitable. 3. Validity of Rejection of Registration Under Sections 12AA, 80G(5)(vi), and 10(23C)(vi): The CIT(E) rejected the assessee's applications for registration under sections 12AA, 80G(5)(vi), and 10(23C)(vi) on the grounds of profit-making activities and non-charitable objectives. The Tribunal upheld this decision, emphasizing that the assessee did not provide sufficient evidence to show that its activities were solely charitable. The Tribunal also noted that the CIT(E) was justified in examining the financial records of the assessee for the last three years, as required by the relevant forms for registration. 4. Alleged Profit-Making Activities and Compliance with Section 13: The CIT(E) observed that the assessee had earned substantial profits and paid significant amounts to its directors, indicating profit-making activities. The Tribunal agreed with this assessment, noting that the assessee's charges for medical services were higher than market rates and that the provision of concessional treatment was minimal. The Tribunal also noted that the assessee had not demonstrated any significant change in its activities or charges post-conversion to a Section 8 Company. Thus, the assessee's activities were not considered charitable, and the rejection of registration was upheld. 5. Timeliness and Procedural Correctness of the Commissioner's Order: The assessee argued that the CIT(E)'s order was invalid as it was passed and sent after the time permitted under section 12AA(1)(b) of the Income Tax Act. However, the Tribunal found that the orders were passed within the stipulated time and were uploaded on the system on the same date. The Tribunal also noted that the CIT(E) had provided sufficient evidence to show that the orders were passed and dispatched in a timely manner. Thus, the procedural correctness of the CIT(E)'s order was upheld. Conclusion: The Tribunal dismissed the appeals of the assessee, upholding the CIT(E)'s orders rejecting the applications for registration under sections 12AA, 80G(5)(vi), and 10(23C)(vi) of the Income Tax Act, 1961. The Tribunal found that the assessee's activities were commercial rather than charitable and that the CIT(E) had followed the correct procedures in rejecting the applications. The Tribunal also noted that the assessee had not provided sufficient evidence to show that its activities were solely charitable or that it had significantly reduced its charges post-conversion to a Section 8 Company.
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