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TMI Blog2016 (3) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... 985/- - 11,02,965/- = 42,85,020/- - 70,247/-). CIT(A), in the second reason assigned by him, though he held that “to qualify for the exemption what is needed is existence of a hospital or other institution solely for philanthropic purposes” but omitted to notice that there was in fact no hospital or other institution for philanthropic purposes. The hospital and health units were in the tea gardens of the three tea companies who had provided the welfare fund of ₹ 4 crores. The assessee had merely reimbursed a sum of ₹ 11,02,965/- to those companies incurred in providing medical facilities to their employees. The predominant objective of the activity undertaken in the relevant year was to earn profit and not to render any act of philanthropy. Therefore, the first reason, quoted above by us, assigned by the CIT(A) is also wrong. The third reason given by the CIT(A), quoted above, is equally unsound because during that period the learned Tribunal was under the impression, on the basis of evidence adduced, that the assessee had rendered benevolent medical services to the inhabitants of the area besides providing medical assistance to the employees of the tea gardens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGMENT Girish Chandra Gupta J. The revenue has come up in appeal against a judgement and order dated 18th August, 2000 passed by the learned Income Tax Appellate Tribunal, E Bench, Calcutta pertaining to the assessment year 1988-89 affirming an order of the CIT(A) allowing exemption under Section 10(22A) of the Income Tax Act (hereinafter referred to as the Act ). The following questions of law were formulated at the time of admission of the appeal:- i) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in granting exemption under Section 10(22A) of the Act ignoring the fact that the assessee had lent money on interest to different companies? ii) Whether on the facts and in the circumstances of the case the Tribunal was justified in law in holding that the assessee fulfilled the conditions stipulated in Section 10(22A) of the Income Tax Act, 1961 and directing to allow deduction under Section 10(22A) of the Act? The facts and circumstances of the case briefly stated are as follows:- The asessee is a company under the Apeejay Group, controlled by Mr. Jeet Pal and Surindra Pal, which was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were also initiated. The assessing officer refused to allow the exemption under Section 10(22A) of the act on the following grounds:- (a) The employees of the aforesaid three tea gardens at the aforesaid health units and or the hospital have mainly been getting their ailments treated as per prevailing State-laws. (b) During the assessment year 1986-87 a sum of ₹ 3,80,55,000/- out of the aforesaid corpus of ₹ 4 crores was lent on interest to different companies of the Apeejay Groups. During the assessment year 1987-88 a sum of ₹ 3,10,20,000/- was lent on interest to different tea companies of the Apeejay Groups and in the relevant assessment year 1988-89 a sum of ₹ 1,51,15,000/- was lent on interest to different companies of the Apeejay Groups. On the aforesaid basis he was of the opinion that the major portion of the corpus was utilized for the purpose of earning interest and not for any philantrophic purposes and medical welfare as claimed. The assessing officer went on to hold that the assessee was an investment company engaged in money lending business. The CIT(A) reversed the order of the assessing officer refusing exemption under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjects which governed the eligibility u/s.10(22A) of the Act. The funds were raised by the assessee company for philanthropic purposes. Considering the aforesaid circumstances, in our opinion, the issue is now covered by the aforesaid decisions of the Tribunal. Mr. Saraf, learned advocate appearing for the appellant submitted that the assessee is an investment company engaged in money lending business as rightly held by the assessing officer. The income earned by the assessee has nothing to do with any hospital. The memorandum of association of the company suggests that the assessee is a commercial house. The alleged philanthropic purposes adverted to in the memorandum of association is a cover to conceal the real object which would be apparent from the activity actually undertaken by the assessee. He submitted that the income of the assessee is not exempt under Section 10(22A) of the Income Tax Act. Mr. Kapoor, learned senior advocate, on the other hand contended that the assessee exists solely for the philanthropic purposes and not for any purpose of profit. The commercial activities envisaged in the memorandum of association are not the real objects of the company. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore appears to mean human beings in general. A hospital or an institution falling in any one of the five categories mentioned above can come within the cover of Section 10(22A) of the Act provided: The beneficiaries are human beings in general . In the case of CIT Vs- Pulikkal Medical Foundation Pvt. Ltd. reported in (2010) ITR 299, cited by Mr. kapoor in a compilation, in ascertaining the purport of the expression philantrophic purposes, the Division Bench took assistance of Law Lexicons and Dictionaries which provide the meaning of the word philantrophic purposes as follows:- Now, we may advert to the meaning of the words philanthropic purposes . Black s Law Dictionary, sixth edition charitable : The word charitable , in a legal sense includes every gift for a general public use, to be applied consistent with existing laws, for benefit of an indefinite number of persons, and designed to benefit them from an educational, religious, moral, physical or social standpoint. This term is synonymous with beneficent , benevolent . And eleemosynary . Ramanatha Aiyar s Law Lexicon, 1987 edition, explains the meaning of the word philanthropic as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg, J., when he said in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] that: if the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity . The learned Judge also added that the restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object (emphasis supplied). We wholly endorse these observations. The application of this test may be illustrated by taking a simple example. Suppose the Gandhi Peace Foundation which has been es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in practice which may be on the borderline and in such cases the solution of the problem whether the purpose is charitable or not may involve much refinement and present real difficulty. There is, however, one comment which is necessary to be made whilst we are on this point and that arises out of certain observations made by this Court in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] as well as Indian Chamber of Commerce case [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] . It was said by Khanna, J. in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] : [I]f the activity of a trust consists of carrying on a business and there are no restrictions on its making profit, the court would be well justified in assuming in the absence of some indication to the contrary that the object of the trust involves the carrying on of an activity for profit. And to the same effect, observed Krishna Iyer, J. in the Indian Chamber of Commerce case [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] when he said: An undertaking by a business organisat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igion, race, social or economic unity, purely as a matter of charity or goodwill or benevolence and not for profit is entitled to exemption. There is one more condition that such a hospital or institution should exist solely for the aforesaid purposes which can only be achieved if the hospital or institution is actually engaged in any one or more of the aforesaid five activities. The assessee has not undertaken any of the aforesaid five activities. The claim for exemption is based on (a) the objects contained in the memorandum of association and (b) the reimbursement of medical expenses to the aforesaid three companies incurred by them in advancing medical facilities to their employees. The income did not arise from any of the aforesaid five activities. The income is an income arising out of interest which, Mr. Kapoor submitted, is to be applied in future to the objects to be found in the memorandum of association. Activity of the assessee during the relevant year is an important factor to be taken into account according to the judgement in the case of Surat Art Silk Cloth Manufacturers Association (supra). The predominant object of the activity in the relevant year was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of universities. Medical institutions come under the category of charitable institutions and have to satisfy the conditions relating to application of not less than 75 per cent. of their current incomes to their objects in the same year in order to, qualify for exemption from tax on the remainder which is accumulated. In the context of the modifications proposed in the provisions relating to the exemption from tax of the income of charitable and religious trusts and institutions (vide paragraphs 18.1 to 18.5 of this Memorandum), it is proposed to make a specific provision for exempting from tax the income of hospitals and other medical institutions which exist solely for philanthropic purposes and not for purposes of profit. The provision, as proposed, will cover also institutions for treatment of mental defectiveness as also those for treatment of persons during convalescence or of persons requiring medical attention or rehabilitation. The income of all these categories of institutions will be exempt from tax altogether, as in the case of universities and other educational institutions at present. We may also refer to the Circular of the Central Board of Direct Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running a health centre. The surplus of the health certre had been utilized for purchasing a piece of land and medical equipment and the land was intended to be used for setting up another health centre. The question arose whether exemption under Section 10(22A) of the Act was permissible. The Division Bench of this Court held as follows:- The contention urged by the Revenue is that the assessee was doing business in contract work and the income from the health centre was mixed up with the income of contract business and a common income and expenditure account had been drawn up. There was no separate balance-sheet for the health centre even though a separate income and expenditure account had been drawn up for the health centre showing a surplus of ₹ 3,70,279. As a matter of fact, the assessee spent a sum of ₹ 12 lakhs for purchasing land and another sum of ₹ 59,646 had been spent for purchasing medical equipment. These expenses were incurred exclusively for the health centre and they completely offset the overall surplus of ₹ 3,70,279 for the year under consideration. It is not disputed that the health centre run by the assessee is an institution f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the primary purpose is philanthropic, the inclusion of some objects for earning profits for the implementation of the primary object would not alter the character of that primary object. In other words, this will not be a ground for holding that the hospital is not existing solely for philanthropic purposes. All cumulative factors will have to be taken into consideration in order to decide whether the institution exists for philanthropic purposes and not for purposes of profit. Neither the fortuitous factor of having a large surplus in any particular year, nor the fact of diverting some income to objects which are not philanthropic in itself would be decisive of the matter. (Emphasis supplied by us.) Our attention has also been drawn by Mr. Kapoor to a judgement in the case of CIT Vs- Sri Narayanan Chandra Trust reported in (1995) 212 ITR 456 wherein the following views were expressed:- We now pass on to the next question as to whether the income derived by the trust as a partner of the firms in which it had made some investments for the purpose of augmenting the resources available for the hospital is exempt under section 10(22A). In this connection, it must be men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred in reimbursing the medical costs to the three group of companies was not shown. By a revised return it was clarified that total income arising out of interest was ₹ 53,87,985/- out of which ₹ 11,02,965/- was spent in reimbursing the medical cost of the three companies and a sum of ₹ 70,247/- was incurred by way of expenditure. Thus the surplus was ₹ 42,14,772/- (53,87,985/- - 11,02,965/- = 42,85,020/- - 70,247/-). The judgement in the case of Narayan Chandra Trust (supra) has no manner of application because the assessee does not run any hospital nor is the assessee engaged in any one of five activities outlined above for philanthropic or any other purpose. Reimbursement of the medical expenses incurred by the donors of the welfare fund, in advancing medical facility to their employees is neither an act beneficial to the humanity at large nor is the same beneficial to a well defined class or community, who are joined together by common bonds of religion, race, social or economic unity. This at best is for the benefit of a group persons employed by the donors of the welfare fund. In the light of the aforesaid discussion we find that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lantation, Tinsukia, which is in page-30 of the Paper Book also clearly states that the assessee is maintaining and conducting free medical and hospital facilities for both the tea garden labourers and their families as well as for the inhabitants of surrounding areas since 1985. Therefore, considering the totality of facts and circumstances, we hold that authorities were not justified in denying exemption to the assessee u/s.10(22A) of the I.T. Act for both the years, and accordingly we would direct them to grant exemption. The learned Tribunal in deciding the matter for the relevant year altogether ignored the evidence discussed by the assessing officer. Going by the test laid down by a Division Bench of this Court in the case of Economic Enterpreneurship Development Foundation (supra) it cannot in any event be said that the assessee existed in the relevant year for philanthropic purposes because the assessee admittedly accumulated its income. It is true that the expression used in the section is any income of a hospital or institution . But there has to be a nexus between the income and the hospital before any claim for exemption can be made. The nexus is altogether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non payment. And rent is not land within the meaning of the definition. There is no commercial connection between the interest and the rented land and an effective source not land-has become apparent. These considerations supply a negative answer to the question posed, subject to an entirely different point taken by the respondents. It is true that the statute does not provide that the income should have been derived from hospital or any of aforesaid five activities outlined above in order to qualify for exemption. But the statute does not provide that the income should have accrued to a hospital or an institution engaged in any one of the five activities. Therefore existence of a nexus between the hospital or an institution engaged in any one of the five activities, and the income is essential. This nexus is missing in this case. This is in addition to the other reasons discussed above why is the assessee not entitled to exemption. For the aforesaid reasons both the questions are a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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