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TMI Blog2022 (8) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... Coimbatore on 17.07.1986. It appears that it was in pursuance to an application filed by the petitioner on 23.06.1986. Copies of these applications are not available for perusal - these Certificates were certainly issued to the petitioner after Coimbatore City Municipal Corporation Act, 1981 came into force and after the first respondent Commissioner of Municipal Corporation has issued a communication/ letter to the petitioner stating that the petitioner was not entitled to exemption from payment of property tax under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. It was perhaps obtained for securing the exemption under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. The records filed before the Court also do not indicate that the petitioner has obtained Section 12A Certificate from the Commissioner of Income Tax, under the provisions of the Income Tax Act, 1961. The petitioner has merely filed a copy of letter of the Income Tax Officer certifying that an application in the Form-10A was made by the petitioner before the Commissioner of Income Tax, Madras-1 on 17.04.1973. It was filed just at about the time when the petitioner wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner : Fr.Xavier Arul Raj, Senior Counsel for Fr. Xavier Associates For the Respondents : Mr.S.Saravanan ORDER The petitioner has challenged the impugned order dated 13.12.2019 passed by the first respondent/Commissioner of City Municipal Corporation, Coimbatore rejecting the request of the petitioner for granting of exemption from payment of property tax under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. 2. Earlier, the petitioner had filed a Writ Petition before this court in W.P.No.14529 of 2009 for a Writ of Certiorarified Mandamus, to call for the records from the second respondent pertaining to his Notice under Assessment No.240020 dated 08.07.2009, in respect of the Immaculate Conception Convent Hospital and to quash the same and to direct the respondents to pass an order by granting exemption from levy of property tax under Section 123(e) of the Tamil Nadu Act 25 of 1981. 3. The said Writ Petition was disposed by a learned Single Judge of this Court vide order dated 07.12.2017 after considering the order passed in the case of Sundaram Medical Foundation Vs. The Commissioner Corporation of Chennai, CDJ 2017 MHC 5265 and in the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paramateria with the provisions of Coimbatore City Municipal Corporation Act. You also failed to produce any documents to show that the treatment is rendered free of cost, that the service provided is charitable in nature or profit earned was utilized for charitable purpose, as held by the Hon'ble Division Benh of Madras High Court in L.P.A.No.210 of 1999 in the case of K.G.Hospital. Moreover, in the case of K.G.Hospital, though an exemption was granted in the year with effect from 01.04.1980 which was withdrawn later on, the Hon'ble Division Bench held that when the hospital has not proved that the profit earned by it are spent for charitable purpose, it is not entitled for exemption. In the present case too, you have not produced any proof to show that you are rendering free treatment or the profits earned by you is spent for charitable purpose. Therefore, you are not entitled to claim exemption from payment of property tax to your hospital premises under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. 5. The learned Senior Counsel for the petitioner submitted thatsince the petitioner is running a Charitable Hospital as its object is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the provisions of the Delhi Municipal Corporation Act, 1957 and Coimbatore City Municipal Corporation Act, 1981. A reference was made to paragraph 34 of the decision which reads as follows: 34.Though profit earning should not be the dominant object of the institution, there is no bar to it being a mere incident of its operations. To hold that there should be a bar on the earning of profits would only serve to make the institution unviable. The provision for exemption in the Delhi Act specifically provides for this situation in the imposition of the condition that 'such society is supported wholly or in part by voluntary contributions, (and) applies its profits, if any, or other income in promoting its objectives and does not pay any dividend or bonus to its members'. The Madras enactment does not employ the same phrase and extends the exemption to all 'charitable hospitals and dispensaries but not including residential quarters attached thereto'. However, the use of the word 'charitable' would necessitate an examination of established parametres such as the following, among other tests: (i) the activity engaged in by the entity in question (ii) whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nazareth Convent, St.Mary's Convent, Convent of our lady of Velanganni and St.John de Britto Convent. 13. The learned Senior Counsel for the petitioner further submitsthat the surplus income which is generated by the petitioner is ploughed back for the services rendered by the petitioner and therefore, the petitioner cannot be made liable to tax. 14. The learned counsel for the petitioner has drawn attention to the Certificate issued to the petitioner under Income Tax Act which according to him confirms that the petitioner is a charitable hospital and since the said expression is not defined under the Coimbatore City Municipal Corporation Act, the certificate of registration granted under Section 12A of the Income Tax Act has to be recognised for the purpose of grant of exemption. It is further submitted that the hospital is 174 years old hospital and is engaged only in providing charitable premises. 15. Opposing the prayer, the learned counsel for the respondents submits that the hospital premises of the petitioner was inspected and it was found that the petitioner was collecting fees for treating patients as inpatient and outpatient and therefore, it cannot be stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the petitioner / Medical Foundation is providing free medical services to the poor, needy and deserving people restrictedly and to the limited extent for the purpose of retaining the free land allotted by the Government in G.O.M-s.No.460, Revenue dated 10.04.1992. The value of the land in Anna Nagar Location is running in several crores. Such a valuable land is allotted at free of cost in favour of the petitioner to run the medical institution and under the guise of maintenance of building and other infrastructures, the petitioners are collecting huge charges from the patients and providing least services to the poor and needy. Thus, such factors are to be inspected by the Government for the purpose of ascertaining, whether the Charitable institutions are functioning for the welfare of the poor, needy and deserving people and in the event of any contra facts, all suitable actions are to be initiated. 45.As far as the provisions of the Chennai City Municipal Corporation Act is concerned, it is unambiguous that Charitable Hospitals are eligible for exemption. However, the character of the Charitable Hospitals are to be scrutinized as the loss of Revenue is detrimental to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The first respondent thus sought to impose property tax under the provisions of the Coimbatore City Municipal Corporation Act, 1981, by fixing the annual value of the land in year 1981. The petitioner challenged the same before the Taxation Appellate Tribunal (T.A.T.) in T.A.No.431 of 1993. 25. By an order dated 25.04.1995, the Taxation Appellate Tribunal had partially granted relief to the petitioner by stating that the petitioner will have to file appropriate application before the first respondent to justify its claims for exemption under the provisions of the Coimbatore City Municipal Corporation Act, 1981. 26. The petitioner appears to have filed an application pursuant to the aforesaid order dated 25.04.1995 of the T.A.T. According to the petitioner, the said application is still pending before the first respondent. On the other hand, the first respondent in the counter has stated that the said application was rejected. However, details of orders have not been furnished before this Court. 27. The petitioner later received a demand notice dated 08.07.2009 from the second respondent. The petitioner was called upon to pay a sum of Rs.6,59,876/- as property tax for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he word Charity is generosity and helpfulness, especially towards the need or suffering. An institution engaged in relief of the poor, charitable organization and dedicated to the General Public purpose, more specifically, for the benefit of needy people, who cannot pay for services can be said to be charitable institutions. 31. The first attempt to define the Charity under English law for legal purpose was contained in the Statute (43 Eliz., c.4) of 1601. [see Tax Laws Charity authored by Dr.R.Gupta Anita Goel, Jain Brothers, 873, East Park Road, New Delhi 5 in 1973 ]. 32. Section 2 of the Charitable Endowments Act, 1890 defines the expression Charitable Purpose as follows:- Charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or worship. 33. The expression Charitable Purpose has also been defined in Section 2(15) of the Income Tax Act, 1961. Section 2(15) of the Income Tax Act, 1961 reads as under:- 2(15) Charitable purpose includes relief of the poor, education, yoga, medical relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortion thereof to be applied cy pres in one or more of the following circumstances, namely :- (a) where the original purposes of the trust, in whole or in part,- i. have been, as far as may be, fulfilled; or ii. cannot be carried out at all, or cannot be carried out according to the directions given in the instrument creating the trust or, where there is no such instrument, according to the spirit of the trust; or (b) where the original purposes of the trust provide a use for a part only of the property available by virtue of the trust; or (c) where the property available by virtue of the trust and other property applicable for similar purposes can be more effectively used in conjunction with, and to that end can suitably be made applicable to any other purpose, regard being had to the spirit of the trust and its applicability to common purposes; or (d) where the original purposes, in whole or in part, were laid down by reference to an area which then was, but has since ceased to be, a unit for such purposes; or (e) where the original purposes, in whole or in part, have, since they were laid down, - i. been adequately provided for by other means, or ii. c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, and which is wholly or substantially financed by the Government. 38. Thus, the exemption under the Income Tax Act, 1961 is confined to hospitals existing solely for philanthropic purposes and not for the purpose of profit and which is wholly or substantially financed by the Government. 39. Rule 2BBB of the Income Tax Rules, 1962 prescribes the percentage of Government grant for considering a University or a Hospital etc. as substantially financed by the Government for the purposes of Clause (23C) to Section 10 of the Income Tax Act, 1961. 40. Till about 1998, a hospital satisfying the above requirement would have been exempted from income tax under Section 10(22A) and later under Section 10(23C)(iiiac) of the Income Tax Act, 1961. There would have no necessity for claiming exemption from payment of income tax as a Charitable Institution if the petitioner satisfied the above requirements of these provisions. 41. A parallel exemption from the payment of Income Tax is available under Section 11 and 12, and 12A of the Income Tax Act, 1961 to such Charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct to say that where the surplus of fees received from the patients are utilised for the purpose of extension and improvement of a hospital, it would not be for charitable purposes. 47. In Needham Vs. Bowers, (1888) 2 T.C. 360, it was held that where an institution for the insane in which some patients paid sufficiently well for all the inmates to be supported without payment and which was, therefore, self-supporting is not charitable although it was founded by charitable donations and made no profit. 48. In Le Cras Vs. Perpetual Trustee Co. Ltd., (1967) 3 All. E.R. 915 (P.C.), a testator bequeathed by his will two-thirds of the income of his residuary estate to the Sisters of Charity for the general purposes of St.Vincent's Private Hospital for a period of two hundred years or for so long as they should conduct the Hospital. The private hospital was having 82 beds and close to a public hospital which had 500 beds. This was also conducted by the Sisters of Charity who were a voluntary association of women devoting themselves without reward. The reason for establishing the private hospital was to relieve the pressing demand of the public for admission to the general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Trust Deed provided that the objects shall be independent of each other and that the trustees shall have discretion to apply the property of the trust in carrying out all or any of such objects of the trust as the trustees may deem fit. Clause 5(i) provided that the trustees shall have power to apply the whole or any part of the trust property or fund whether capital or income towards all or any of the purposes of the trust provided any property or money held in special trust shall be applied only for that purpose and not otherwise. 54. On the construction of the trust deed, the Supreme Court held that the deed gave absolute power of selection to the trustees to choose between charitable and non-charitable objects of the trust for spending the entire income of the trust properties. The property of the trust was not held wholly for charitable and religious purposes. Hence, the donation did not qualify for exemption. 55. In East India Industries (Madras) Private Ltd. Vs. C.I.T., (1967) 65 I.T.R. 611 (S.C.) : A.I.R. 1967 S.C. 1554, the Hon ble Supreme Court followed the Privy Council judgment in the Maulana Mohammad Ibrahim Riza Malak case referred to supra and the observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on of any activity for profit. The word involve according to the Shorter Oxford Dictionary means to enwrap in anything, to enfold or envelop; to contain or imply . The activity for profit must, therefore, be intertwined or wrapped up with or implied in the purpose of the trust or institution or in other words it must be an integral part of such purpose. But the question again is what do we understand by these verbal labels or formulae; what is it precisely that they mean? Now there are two possible ways of looking at this problem of construction. One interpretation is that according to the definition what is necessary is that the purpose must be of such a nature that it involves the carrying on of any activity for profit in the sense that it cannot be achieved without carrying on an activity for profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit. Take for example a case where a trust or institution is established for promotion of sports without setting out any specific mode by which this purpose is intended to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the purpose is specifically stated to be promotion of sports by holding cricket matches on commercial lines with a view to making profit, there would be no scope for controversy, because the purpose would, on the face of it, involve carrying on of an activity for profit and it would be non-charitable even though no activity for profit is actually carried on or, in the example given, no cricket matches are in fact organised. 59. The Hon'ble Supreme Court in Municipal Corporation of Delhi Vs. Children Book Trust, (1992) 3 SCC 390 considered the grant of exemption to lands and buildings occupied and used by a society for charitable purposes under Section 115(4)(a) of the Delhi Municipal Corporation Act, 1957. The said decision was rendered in the context of Section 115(4) of the Delhi Municipal Corporation Act, 1957 which reads as under:- 115 - Premises in which property taxes are to be levied. (1) ........... ................. (4) Save and otherwise provide in this Act, the General Tax shall be levied in respect of all lands and buildings in Delhi except (a) lands and buildings or portions of lands and buildings exclusively occupied and used for public w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e understood as donations. If that be so, a voluntary contribution cannot amount to a compulsive donation. If the donor, in order to gain an advantage or benefit, if he apprehends that but for the contribution some adverse consequence would follow, makes a donation certainly it ceases to be voluntary. 84. Therefore, we conclude that the test to be applied is not merely qualitative but quantitative as well. 85. The last aspects of the matter is utilisation of the income in promoting its objects and not paying any dividend or bonus to its members. The learned counsel for the appellant and the intervener would urge that on the basis of Cane (Valuation Officer) and Another (supra) (1961 (2) Queen's Bench Division 89) the position in the instant case is the same. At Page 121 the following observation is found: One, I think, that enriches the corporation itself or relieves it of a burden or furthers its objects or powers. 61. Thus, the following criteria has to be kept in mind:- i. The dominant objectives of the society should be charitable and not to earn profit. ii. The institution should be engaged in the dissemination of education and such activity m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if they are charged for the services rendered with a view to organise funds required to such a hospital, such a hospital will not lose the characteristic of a Charitable Hospital/dispensary. ............... Therefore, if the object of establishing and running a hospital and its continued existence, is to give medical aid to the poor and the deserving either totally free or to a large extent subsidised, if such a hospital collects substantial charges from the affluent and rich patients out of some portion of the facilities available in the hospital extended to them, in my view, as observed earlier, such hospitals and dispensaries cannot be considered as not charitable hospitals and dispensaries. 64. A Division Bench of this Court in Municipal Corporation of Coimbatore Vs Govindasamy Naidu Hospital, 2004 SCC OnLine Mad 220: (2004) 2 CTC 155, dealt with the very same exemption from the payment of property tax under consideration of the present lis within the meaning of Section 83(e) of the Tamil Nadu District Municipalities Act, 1920 and Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. 65. The Division Bench referred to decision of the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f is accepted, it should have produced documents in support of the same before the trial Court. Inasmuch as it is specifically mentioned that, on several occasions, the donation amount was higher than the fees, the plaintiff would have maintained registers indicating what is the amount earmarked for donation and what is the amount earmarked for fees. In the absence of production of any convincing documentary evidence, we do not agree that what ever amount paid by the patients are received as donations by the trust. 66. The Division Bench in the above case concluded as follows:- 26.For the foregoing reasons, we are of the opinion that the plaintiff/respondent cannot be construed as a charitable hospital within the meaning of Section 86(e) of the District Municipalities Act, 1920 and Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. Therefore, the Judgment and the decree of the appellate Court confirming the Judgment and decree of the trial Court is set aside and the suit is dismissed. 67. Normally, charitable institutions are dependent on the charity / bounty of philanthropist and donations from public to achieve the purpose for which they have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fill this space as the State is unable to meet the demand for such services. Few institutions have also sprouted purely out of philanthropic and charitable objectives where the donations are received. 73. The facts on record also indicate that the building of the petitioner is of the year 1879 and that the petitioner itself was registered as Society in the year 1973. The objects in the Memorandum of Association of the petitioner's society dated 24.01.1973 indicates that the Society was established to take over the various hospitals including the petitioner hospital, namely Immaculate Conception Convent Hospital and to manage, administer, carry on, conduct hospitals and etc. for the benefit of Catholics and all other persons irrespective of the race, case, community or religion or social status. 74. Among the other objects, Sub Clause (xiii) to Clause 2 indicates that society has been registered to levy and charge and to receive from the persons attending the hospital, nursing school, hostels and work rooms such fees and charges as prescribed, and to receive and accept, hold, expend, administer and use any gift, bequest, grant, donation or foundations, in kind or in mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or refresher courses in India and abroad. (xviii) ............... (xix) ................. (xx) To start, establish and maintain separate funds: For the capital funds consisting of the liquid capital of the society. For the new programmes, activities and projects of the society. 1. For the repair, maintenance, renovation, alteration or extension of existing buildings and structures, and for the repair and maintenance of machinery, apparatus instruments and tools, medical or otherwise and all other equipment including laboratories and libraries and all other paraphernalia belonging to the institutions of the society and for the replenishment of the old equipment and for the purchase of new ones needed to up date the equipment and requirements o the institutions of the society. 2. A reserve fund for the promotion of the activities of the society including the maintenance and the support of the members of the society, the education and training of personal needed for the purposes of the society. And to pay into such funds periodically or annually such sums as are possible and to invest the same in approved banks or securities or in any manner au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution making large profits and ploughs such profits back for purchasing assets for additional institutions was entitled for exemption under Section 10(23-C)(iii-ad) (vi) of the Income Tax Act, 1961. It was held that such an institution cannot be said to be existing solely for educational purposes. The law was summarized as follows:- 11. Thus, the law common to Sections 10(23-C)(iiiad) and (vi) may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied-the purpose of education should not be submerged by a profit-making motive. 3. A distinction must be drawn between the making of a surplus and an institution being carried on for profit . No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4)If after meeting expenditure, a surplus arises incidentally from the activity carried on by the education ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion/ letter dated 12.11.1981 to the petitioner stating that the petitioner was not entitled to exemption from payment of property tax under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. It was perhaps obtained for securing the exemption under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981. 90. The records filed before the Court also do not indicate that the petitioner has obtained Section 12A Certificate from the Commissioner of Income Tax, under the provisions of the Income Tax Act, 1961. The petitioner has merely filed a copy of letter dated 14.05.1974 of the Income Tax Officer certifying that an application in the Form-10A was made by the petitioner before the Commissioner of Income Tax, Madras-1 on 17.04.1973. It was filed just at about the time when the petitioner was registered as a society under the Societies Registration Act, 1860, on 24.01.1973. There are no records to show that even the income tax department has allowed exemption under Section 11 of the Income Tax Act, 1961 to the petitioner. 91. Merely because the petitioner is having certain out reach programmes which may be charitable in nature or that a section of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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