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TMI Blog1996 (11) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee-trust had been allowed exemption under sections 11 and 12 of the Act, which is factually incorrect and contrary to the material available on records. 3. The assessee is a charitable trust duly registered under the name and style as "Skin Institute Public Services Charitable Trust", under the Income-tax Act and the Trust Act. The claim of the assessee is that it is running a Skin Institute which is providing medical facility in the field of skin and also carried out research fully recognised by the Central Board of Examinations and offers courses of dermatology. The assessee-trust filed a return declaring Nil income claiming exemption under section 10(22A)/11 of the Income-tax Act. However, the Assistant Director of Income-tax (Exemption) refused the exemption claimed by the assessee and computed the taxable income at Rs. 17,76,169 vide order dated28-3-1995. The Assessing Officer observed that the assessee denied to have received any donation whereas in the Profit Loss Account it had claimed to have received donation amounting to Rs. 21,63,259. Similarly no details regarding treatment of patients free of charge. Though subsequently it was replied that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ategory consultancy fee for the first time is charged at Rs. 15 (general category subsidised) and thereafter Rs. 10 on subsequent visits. This meagre amount was only to recover the cost of stationery/administrative work and manpower including specialists involved in handling General Category patients. The Payees 'A' category of patients are treated on fully charged basis for which consultancy fee and Doctor's fee is Rs. 150 for first visit and Rs. 100 for subsequent visits. The number of patients examined and treated were given as under : ------------------------------------------------------------------------------------------------------------------------------------------------ Out patients Payees A Genl. AT Genl. AT E (Free) E(Free) Paid CAT SISD DSI SISD DASNA ------------------------------------------------------------------------------------------------------------------------------------------------ Subsidised New Cases 4049 21920 4668 1958 329 Old Cases 4282 20450 4972 2221 3885 ------------- ----------------- -------------- ---------------- -------------- Total 8331 42370 9640 4179 4214 ------------- ----------------- -------------- ---------------- -- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth are treated free for one hour from 9 A.M. to 10 A.M. which is normally the case in other nursing homes paying taxes like ADS Diagnostic centre, in Greater Kailash. I also find that members of the society are getting benefit from the Institute and from practice. It has been held by the Supreme Court in the case of Dharamaposhana Co. v. CIT [1978] 114 ITR 463 that the object of the society which was 'to do the needful for promotion of charity, education, medical relief and other matters of public good' were not for charitable purposes as defined in section 2(15) of the Income-tax Act as the Appellant could pursue a profit making activity in the course of carrying out the above purposes. The society has some objects which were charitable and others which were not charitable all enjoying equal status. It was open to the society in its discretion to apply its income to any of the objects and no definite part of its income was related to charitable purposes only. Hence the society was not entitled to exemption. Dr. Behl is the Managing Trustee of the society. Dr. Aggarwal is also a member of the Society. I find that Dr. Behl has been practising in the premises of the society. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that the appellant has been running a skin Institute purely as a business concern with motive of profit earning. I also find that it is not engaged only in treatment of patients it also runs a school of dermatology and some teaching is provided after realisation of fees. It has also published books which are priced publications and it is getting income from the same. It also runs workshops programme from which a fee of Rs. 64,690 has been realised. I also find that the society has paid a donation of Rs. 5,45,526 during the year which cannot be the case in case of a hospital. Like a business concern it has incurred expenditure under the head entertainment amounting to Rs. 8,207. It has also incurred an expenditure of Rs. 7,906 on advertisement. From the income and expenditure statement it is clear that the society has all the ingredients of a business concern. Hence it cannot be allowed the exemption under section 10(22A) on facts of the case. Hence the appellant's claim for exemption under section 10(22A) is rejected." 5. The learned assessee's counsel invited our attention to the Memorandum of Association of the assessee-trust given from pages 15 to 33 and it is pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain ingredients for skin treatment is the silver nitrate lotion. In other hospitals the charges of silver nitrate ranges between Rs. 60 to Rs. 80 and this, however, at the Skin Institute of assessee-trust, since it is its own preparation only Rs. 15 the cost of 100 gms. is being charged from the patients whereas the cost of 100 gms. silver nitrate is Rs. 1,200. It was also pointed out that bills from Escorts Heart Institute and National Heart Institute for the treatment of Dr. P.N. Behl's wife showed Rs. 45,265 for just 8 days hospitalisation, and then Dr. Behl himself had to pay Rs. 2,535 including Rs. 300 as consultation fee to Dr. Padmavati (a colleague of Dr. Behl) at the National Heart Institute. Whereas the rates of the assessee-trust are cheaper than the other hospitals. This is the only Institute in the country which imparts Dermatology Course to Doctors during Dermatological Workshops. Deserving poor and needy patients were/are given facility of free surgery/accommodation/food etc. by Dr. P.N. Behl. It was pointed out that payments to regular Doctors/visiting consultants and Stipend to Resident trainee doctors during 1991-92, in addition to salaries, free transport, free m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 but not under section 10(22A), the assessee filed the reasons against that order before the CIT Delhi-VI, New Delhi, who after considering the material on record and the objects of the assessee-trust observed as under :---- "There is no denying the fact that the appellant Trust is running a hospital rendering medical aid for the reception and treatment of the persons suffering from illness and specially in skin diseases requiring medical attention or rehabilitation and crisis solely for philanthropic purposes and not for purposes of profits. All other activities are a part and parcel of and ancillary to its main object i.e., running of a hospital. The appellant is accordingly held entitled to the benefit of exemption under section 10(22A)." It is also pointed out that section 10(22A) is pari materia to section 10(22). Therefore, the reasons tendered in connection with that section are equally application in respect of section 10(22A). In this connection, reliance was placed on the decisions in :---- (1) CIT v. Pulikkal Medical Foundation (P.) Ltd. [1994] 210 ITR 299/73 Taxman 402 (Ker.). (2) Addl. CIT v. Aditanar Educational Institution [1979] 118 ITR 235 (Mad.). (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be charitable only because it is also giving free medical aid to poor patients. It is pointed out that Dr. P.N. Behl has participated in the profits of the Trust which has gone to him. Therefore, exemption under section 10(22A) cannot be granted because the sole purpose of the Trust cannot be said to be philanthropic. In this connection, the learned Departmental Representative pointed out that the ratio laid down in the decision of Pulikkal Medical Foundation (P.) Ltd. is not applicable to the facts of the instant case. It is pointed out that the revenue authorities in the past has not noticed that the activities carried on by the assessee were such on which the exemption could not be granted. It is admitted that if benefit of section 10(22A)/11 of the Income-tax Act is denied to the assessee, depreciation has to be allowed. In reply, the learned assessee's Counsel has submitted that one has to see whether the facts in this year are different from the earlier years. It is pointed out that in the earlier year also the assessee has been selling medicines in the same way, because the main constituent of the medicine is the silver nitrate, which is very costly item, as pointed out a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e maintained by such trust or institution in respect of such business. 13(1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof---- (a) any part of the income from the property held under a trust for private religious purposes which does not ensure for the benefit of the public. (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof--- (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied directly or indirectly for the benefit of any person referred to in sub-section (3) : Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee trust as a public charitable trust and granting exemption to it either under section 11(1) or under section 10(22A) of the Income-tax Act, 1961. The question was whether when the trust was recognised as a public religious and charitable trust in all the earlier years before assessment year 1991-92, whether-there is material evidence and circumstances on record under which a different treatment of the status of the Trust is warranted. The Assessing Officer would be within his rights to refuse exemption if tangible evidence is found on record showing that the Directors or members of the Trust had utilised the profits for their personal purposes. The CIT(Appeals) has basically pointed out that Dr. P.N. Behl, who is Managing Trustee of the society and founder member is getting 50% of the receipts from treatment of skin patients treated by the Institute. Thereby the society has been utilising and applying directly the income from the Trust for the benefit of persons excluded under section 13(1)(c)(ii) of the Income-tax Act. Sub-section (3) of section 13 prohibits such use of property and funds of the society. Though he has also mentioned that the society is not maintaining any sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(22A)was added to section 10 with almost similar wording as clause (22), it will only be proper to infer that the Legislature used those words in clause (22A) taking note of the interpretation given to those words occurring in clause (22). In this connection, reference may be made to Circular No.45, dated September 2, 1970, which contains the explanatory notes on the provisions of the Taxation Laws (Amendment) Act, 1970, which clarifies the position that hospitals and other institutions which exist solely for philanthropic purposes and not for purposes of profit will be totally exempt from tax, as in the case of universities and other educational institutions. 9. In the case of Pulikkal Medical Foundation P. Ltd., the assessee hospital claimed exemption under section 10(22A). The question arose whether the hospital is existing solely for philanthropic purposes or for purposes of profit; where theMedicalTrustHospitalwas originally run by a firm of partners. That firm was dissolved and business was taken over by the assessee-company giving the partners of the firm due credit. The assessee had a net profit after making adjustment for income-tax purposes. When the assessee earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is year, whereas the other Doctors who attended the job were paid salary of Rs. 7,140 per month. It is also found that the assessee-trust had sold medicines to the several patients. Such receipts in this year comes to Rs. 21,63,259. The case of the assessee is that the medicine is supplied on subsidized charges. Therefore, it is donation. However, keeping in view the volume of the amount of Rs. 21,63,259, it cannot be treated as donation but sale of medicines. As per the decision of the Hon'ble Kerala High Court, the purpose of hospital solely existing for philanthropic purpose will not frustrate if incidentally profit is earned by the hospital but it was opined that the benefit should not be appropriated or utilised for personal purposes of the Director or the office-bearers of the Trust but it should be appropriated towards the expansion and development of hospital. In the present case we find that the Managing Trustee, Dr. P.N. Behl has utilised the profit for personal purposes. Therefore, it is clear that the Managing Trustee had participated in the profit of the Trust and had utilised the profits for his personal purposes. The Hon'ble Kerala High Court in the case of Pulikkal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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