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TMI Blog1992 (12) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... anthropic purpose ; (2) further, nothing has been stated what source it will get money for philanthropic purpose ; (3) even it has got the source, there is no restriction in the Memorandum that the income from the source shall be utilised only for the philanthropic purpose as stated in the memorandum ; (4) there is no restriction on the point of the company to declare any dividend or to pay remuneration to their directors ; and (5) this is the 1st year of the company and hospital buildings are under construction and no philanthropic purpose is served by the company during the relevant year. 3. The assessee filed appeal to the CIT(Appeals) and the CIT(A) has confirmed the ITO's action after hearing the assessee. 4. The CIT(A) rejected the claim of the assessee on the ground that the assessee was originally incorporated as a Limited company and later on certificate of incorporation was obtained and the name was changed from Public Limited Company to Private Limited Company. According to authorities, this change was effected with the ulterior motive to have a tightening grip over the organisation. The CIT(A) has also observed that the assessee-company would have got all the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purposes of profit. It is submitted that the findings of the ITO that main clause of the Association does not authorise to raise any funds for any philanthropic purpose are not correct and wrong in view of the clause III(B) (xiv) of the Memorandum of Association which is clear, categorical one and empowers it to receive, accept, get, acquire and own any donation, gift, charity etc. from all sources in furtherance of its objects and interests. As regards ITO's observation regarding the source of the Society, it is submitted that clause III(B)(xi) and III(B)(xiv) are very specific. These two clauses as well as the share capital of the assessee provide for ample source of money to carry out its objects. As regard ITO's observation that there is no restrictions in the Memorandum for the Institution of the funds only for the philanthropic purposes, it is submitted that this observation of the ITO is wrong. In this regard it is submitted that the company was formed under the Companies Act, 1956, is a distinct legal entity and acts through its Board of Directors. Any company thus formed with all its activities are legally formulated and restricted by such company's Memorandum of Associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87, it had already spent Rs. 23.82 lakhs out of its income of Rs. 58.65 lakhs. In these facts, it is submitted that the authorities are not justified in not granting exemption under section 10(22A) of the IT Act as they are factually not correct and as such, legally cannot be upheld. 10. The A. R. of the assessee has also further submitted that the society should be registered under section 25 of the Company's Act is also not the requirement under the IT Act. The authorities have also failed to show that the company has violated the objects of the Association. All the objective clauses are for philanthropic purposes. The A. R. of the assessee relied on the following cases in support of its arguments :-- 1. Governing Body of Rangaraya Medical College v. ITO [1979] 117 ITR 284 (AP) 2. Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 at 11 to 13 (SC) 3. Birla Vidhya Vihar Trust v. CIT [1982] 136 ITR 445 at 453 and 461 (Cal.) 4. CIT v. Academy of General Education [1984] 150 ITR 135 (Kar.) 5. CIT v. Doon Foundation [1985] 154 ITR 208 at 216 (Cal.) 6. CIT v. Sangit Kala Mandir Trust [1987] 166 ITR 217 at 228 (Cal.). 7. Katra Education Society v. IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nisations (page 240) and also that the sole purpose for which the assessee has come into existence is education at the levels of college and school (page 241). Since the clauses of Memorandum of Association of the assessee-company clearly and categorically records that the objects for which it has been formed are establishment, set up, take over, conduct, run, aid, hold, maintain, or otherwise support schools, colleges, educational institutions etc., therefore, the institution is entitled for exemption under section 10(22) of the IT Act. The ratio of the above quoted decisions are applicable to the facts of the present case before us also as the main objects of the assessee before us are also identical which are as follows : " A. Main objects to be pursued on incorporation (i) To establish, set up, take over, conduct, run, aid, hold, maintain, or otherwise support medical units, hospitals, nursing homes, child care centres, dispensaries, clinics, biological investigation units. Family Planning Centres, clinics caring after human and animal ailments and any institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The heading is exemption from tax of the income of hospitals and other medical institutions-- " At present, Universities and other educational institutions existing solely for educational purposes and not for purposes of profit enjoy complete exemption from tax on their incomes. However, in the case of hospitals and similar other institutions for treatment of illness, there is no specific exemption from tax, unlike in 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 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 exemption from tax the income of hospitals and other medical institutions which exist solely for philanthropic purposes and not for purposes of profit. The provisions. as proposed, will cover also institutions for treatment of mental defectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g exemption under section 10(22) of the IT Act, is that the university or educational institution must exist solely for the educational purposes and not for purposes of profit (page 454) and that the expression existing in section 10(22) must not be judged with reference to the facts of the relevant year only. Though the facts of the relevant year would be very material whether an institution exists or is existing solely for any particular purpose or not cannot be judged only by the facts of one year. All the factors will have to be taken into consideration, namely, the clause or power enabling the institution to function, its activities in general etc. Neither the fortuitous factor having a large surplus in any particular year...would be decisive of the matter (page 463). In this connection the circular of the Central Board of Direct Taxes No. F.No. 194/16-17/IT(A I) is very relevant to decide the issue in Birla Vidya Vihar Trust's case. This circular is issued by the C. B. D.T. with reference to section 10(22A) of the IT Act. The para 3 of the said circular reads as follows : " The question for consideration is whether an educational institution existing solely for educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducational activities and this view is also equally applicable to the assessee's case. In this connection we may mention that the assessee spent nearly Rs. 27,54,000 for the establishment and running of the hospitals and philanthropic Institution at Longsoal. In these circumstances it cannot, therefore, be denied that the hospital and philanthropic institutions have not been established or set on foot. 23. Their Lordships of Karnataka High Court in the case of Mangilal Gotawat Charitable Trust v. CIT [1984] 150 ITR 682, have held that-- " In our opinion, an institution may not have any facility for treatment of in-patients and yet it could qualify for the benefit of section 10(22A) provided it exists for treatment of persons solely for philanthropic purposes. " 24. In this connection we may also mention that sub-clause (b) of Finance Act, 1970 introduced a new clause (22A) in section 10 of the IT Act. The effect of the proposed amendment will be that the income of the hospitals or other medical institutions will be completely exempt from tax, notwithstanding that such income is not fully spent during the year in which it is earned. 25. From the foregoing facts and discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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