CIT(E) Cannot Judge Hospital Tariffs to Decide Charity: ITAT Restores Reliance Hospital Trust’s U/s 12AB Registration

Reliance Foundation Hospital Trust Vs CIT (Exemptions) (ITAT Mumbai)

CIT(E) Cannot Judge Hospital Tariffs to Decide Charity: ITAT Restores Reliance Hospital Trust’s U/s 12AB Registration

Premium Rooms Don’t Kill Charity: ITAT Restores Reliance Hospital Trust’s 12AB Registration

In a landmark ruling, the Mumbai ITAT set aside the order of the CIT(Exemptions) which had rejected renewal of registration under Section 12AB, denied approval under Section 80G and even cancelled the existing registration retrospectively in the case of Reliance Foundation Hospital Trust. The Tribunal held that while examining registration under Section 12AB, the CIT(E) cannot step into the shoes of a healthcare regulator and decide charitable status on the basis of hospital tariffs, premium rooms, treatment costs or perceived affordability of medical services.

The CIT(E) had concluded that the hospital was operating more like a premium healthcare enterprise than a charitable institution, relying upon factors such as high room tariffs, substantial treatment costs, premium suites, revenue per bed and the percentage of indigent patients treated. He also alleged non-compliance with the provisions of Section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme and, on that basis, cancelled the trust’s registration with retrospective effect.

The Tribunal, however, noted that there was no dispute regarding the charitable objects of the trust, the genuineness of its activities or the fact that it was actually running a large multi-speciality hospital providing medical relief. It emphasized that “medical relief” is an independent charitable purpose under Section 2(15) and that charging fees, maintaining advanced infrastructure or operating premium facilities does not by itself destroy the charitable character of a hospital. The ITAT further observed that compliance with the Maharashtra Public Trusts Act is primarily within the domain of the Charity Commissioner and that the CIT(E) cannot assume the role of a parallel regulator under another statute.

Holding that the CIT(E) had travelled far beyond the limited scope of enquiry permissible under Section 12AB and had adopted considerations alien to the statutory framework, the Tribunal quashed the denial of renewal as well as the retrospective cancellation of registration and restored the trust’s charitable status and consequential benefits.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The aforesaid appeals have been filed by the assessee against the order dated 29.03.2026 passed by the CIT (Exemption), Mumbai, whereby the application in Form 10AB filed under section 12AB(1)(ac)(ii) seeking renewal of registration under section 12AB and approval under section 80G of the Income-tax Act, 1961, was rejected. CIT (Exemption), Mumbai has also cancelled existing registration under section 12A with retrospective effect from 23.09.2021.

2. The present appeal, though arising from an order passed under section 12AB of the Income Tax Act, 1961, raises questions which travel much beyond the confines of a routine dispute concerning renewal of registration of a charitable institution. At its core lies an issue of considerable jurisprudential significance, namely, the scope and limits of the jurisdiction vested in the Commissioner of Income Tax (Exemptions) while examining an application for registration or renewal under section 12AB; the distinction between regulation of charitable institutions under the Income Tax Act and supervision of public trusts under the Maharashtra Public Trusts Act, 1950; the legal meaning and contours of the expression “medical relief” appearing in section 2(15); and the extent to which considerations such as affordability of healthcare, hospital tariffs, premium medical facilities, financial receipts and alleged non-compliance with regulatory obligations can influence the determination of charitable status under the Income Tax Act. The appeal assumes even greater significance because the impugned order does not merely reject the assessee‟s application for renewal of registration. The learned Commissioner of Income Tax (Exemptions), Mumbai [hereinafter referred to as “the learned CIT(E)”], after rejecting the application filed in Form No.10AB, has proceeded further to cancel the registration already granted to the assessee with retrospective effect from 23.09.2021 and has consequently denied continuation of approval under section 80G. Thus, the controversy before us is not merely whether the assessee is entitled to renewal of registration, but whether an institution admittedly engaged in running one of the largest tertiary care hospitals in the country can be divested of its charitable status on the grounds recorded in the impugned order.

3. In the grounds of appeal, assessee has raised following grounds:-

ITA No.3798/Mum/2026

Being aggrieved by the “order for registration or approval or rejection or cancellation” dated 29/03/2026 passed by the learned Commissioner of Income-tax (Exemption), Mumbai (hereinafter referred to as the ‘learned CIT (Exemption)’] rejecting renewal of existing registration and cancelling the existing registration u/s 12A of the Income-tax Act, 1961 (‘the Act’), the present appeal is being preferred on the following grounds which, it is prayed, may be considered without prejudice to one another.

On the facts and in the circumstances of the case and in law, the learned CIT(Exemption):

Rejection of renewal of existing registration u/s 12A of the Act

“1. Erred in rejecting the application for renewal of existing registration granted u/s 12A of the Act by alleging that (i) the activities carried on by the Appellant are not charitable activities as defined in Section 2(15) of the Act; and (ii) are not in compliance with the provisions of Maharashtra Public Trust Act, 1950 (“MPT Act”).

2. Erred in rejecting the application for renewal of existing registration granted u/s 12A of the Act without issuing any specific show-cause notice setting out the alleged defaults and without affording the appellant an effective opportunity of being heard and without granting personal hearing, in gross violation of section 12AB(1)(b)(ii)(B) of the Act and thus in violation of the principles of natural justice.

3. Erred in exceeding his jurisdiction and going beyond his authority in alleging contravention of MPT Act when no such allegations are made by the office of Charity Commissioner, Mumbai, who is a competent authority under MPT Act.

Cancellation of existing registration:

4. Erred in cancelling existing registration granted u/s 12A of the Act with retrospective effect from 23.09.2021, by alleging that (i) the activities carried on by the Appellant are not charitable activities as defined in Section 2(15) of the Act, and (ii) are not in compliance with the MPT Act.

5. Erred in cancelling the existing registration with retrospective effect from 23.09.2021, without following due process of law.

6. Erred in cancelling the existing registration with retrospective effect from 23.09.2021, in an order passed for disposing of application filed for renewal of registration, which is without jurisdiction.

7. Erred in cancelling the existing registration without issuing any specific show-cause notice setting out the alleged defaults and without affording the appellant an effective opportunity of being heard and without granting personal hearing, in gross violation of section 12AB(1)(b)(ii)(B) of the Act and thus in violation of the principles of natural justice.

8. Failed to appreciate that there is regular compliance with the office of the charity commissioner and there is no adverse order for non-compliance by any authority under any law as required u/s explanation (f) to Section 12AB(4) of the Act.”

ITA No.3799/Mum/2026

“Being aggrieved by the order dated 29/03/2026 passed by the learned Commissioner of Income-tax (Exemption), Mumbai (hereinafter referred to as the learned CIT (Exemption)’) under section 80G of the Income-tax Act, 1961 (‘the Act’) rejecting renewal of existing approval, the present appeal is being preferred on the following grounds which, it is prayed, may be considered without prejudice to one another.

On the facts and in the circumstances of the case and in law, the learned CIT(Exemption)

Rejection of renewal of appoval u/s 80G of the Act

1. Erred in rejecting the application for renewal of existing approval granted u/s 80G of the Act on the ground that the Appellant’s application for registration u/s 12A of the Act is rejected vide order dated 29.03.2026.

The Appellant craves leave to add, amend, delete, rectify, substitute, modify, or otherwise, all or any of the aforesaid grounds or add a new ground(s) at any time before or during the hearing of the above appeal and consider the grounds of appeal as without prejudice to each other.”

4. The assessee before us is Reliance Foundation Hospital Trust, a public charitable trust duly registered under the Maharashtra Public Trusts Act, 1950. The trust was constituted with the principal object of providing medical relief and allied charitable services. In furtherance of its stated objects, the trust runs and manages Sir H. N. Reliance Foundation Hospital and Research Centre, Mumbai, a multi-speciality and super-speciality hospital equipped with advanced diagnostic, therapeutic, surgical and research facilities. The hospital comprises specialised departments catering to a wide spectrum of healthcare needs including cardiology, oncology, neurosciences, transplant medicine, critical care, emergency medicine and various other branches of advanced medical treatment. It is not in dispute before us that the hospital is operational; that thousands of patients receive treatment therein every year; that substantial medical infrastructure has been established and maintained; that highly qualified doctors, surgeons, nurses, technicians and healthcare professionals are engaged by the institution; and that the assessee is in fact carrying on the activity of providing healthcare services. Equally, it is not the case of the Revenue that the trust deed contains non-charitable objects or that the hospital itself is a sham or fictitious institution. The controversy, therefore, does not concern the existence of medical activities, but rather the legal character and consequences of the manner in which such activities are carried on.

5. The record reveals that the assessee was originally granted registration under section 12A of the Act vide order dated 30.04.2014 and was also granted approval under section 80G by order dated 10.07.2014. Subsequently, upon the introduction of the new registration regime under section 12AB by the Finance Act, 2020, all existing charitable institutions were required to migrate to the newly introduced framework. In pursuance thereof, the assessee applied for registration under section 12AB and was granted registration on 28.05.2021. Approval under section 80G was also granted thereafter on 23.09.2021. Both registrations were valid up to 31.03.2026. Since the validity period was approaching expiry, the assessee filed applications in Form No.10AB on 30.09.2025 seeking renewal of registration under section 12AB and continuation of approval under section 80G. At that stage, the proceedings were purely in the nature of renewal proceedings and the assessee approached the learned CIT(E) on the premise that the registration already granted was due for renewal under the statutory scheme.

6. During the course of proceedings initiated on the aforesaid applications, the learned CIT(E) issued a series of notices seeking extensive information from the assessee. The nature and scope of enquiries undertaken by him were extraordinarily wide. Information was sought regarding hospital operations, patient statistics, category-wise bed strength, tariff structure, average treatment cost, annual receipts, application of income, donations received, utilisation of funds, employee strength, salary expenditure, compliance with the Maharashtra Public Trusts Act, implementation of the Indigent Patient Fund Scheme, details of treatment provided to indigent and economically weaker section patients, reports submitted to the Charity Commissioner and various other matters. In response thereto, the assessee furnished voluminous replies supported by documentary evidence running into several hundred pages. Detailed written submissions were filed explaining the legal framework governing charitable hospitals, the scheme of section 12AB, the provisions of section 41AA of the Maharashtra Public Trusts Act, the Bombay High Court approved Indigent Patient Fund Scheme, financial statements, annual reports, utilisation statements, patient data, regulatory filings and a large number of judicial precedents. The material placed before the learned CIT(E) was not confined merely to accounting figures but extended to virtually every aspect of the functioning of the institution.

7. Upon consideration of the aforesaid material, the learned CIT(E) proceeded to pass the impugned order dated 29.03.2026. A careful reading of the order reveals that the learned CIT(E) has not disputed the charitable objects of the trust. He has not held that the trust deed contains non-charitable objects. He has not recorded any finding that the hospital is not functioning or that medical treatment is not being provided. Nor has he held that the activities reflected in the books of account are fictitious or not genuine. Instead, the entire reasoning proceeds on the premise that although the trust is ostensibly engaged in medical relief, the manner in which the hospital is being run demonstrates that the institution is in substance operating as a commercial healthcare enterprise rather than as a genuinely charitable institution. The reasoning of the learned CIT(E) broadly rests on two pillars. The first pertains to what he perceives as the commercial nature of the hospital operations, evidenced by tariff structures, treatment costs, revenues and financial indicators. The second pertains to alleged non-compliance with section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme (IPF) framed pursuant to the directions of the Hon’ble Bombay High Court.

8. The first and most extensive part of the impugned order is devoted to an analysis of the hospital’s tariff structure. The learned CIT(E) noted that the hospital has 251 operational beds, including ICU beds, and categorised them into various classes ranging from economy beds to premium suites. According to him, while economy beds are available at comparatively lower charges, a significant number of beds are categorised as Deluxe Rooms, Premium Deluxe Rooms, Junior Suites, Grand Suites and Premium Suites, carrying charges ranging from several thousand rupees per day to as high as Rs.75,000 per day. The learned CIT(E) proceeded to compute what he described as the median bed tariff and thereafter compared the same with the median household income of an average Indian family. Drawing upon observations contained in the Economic Survey and other publicly available data, he concluded that the daily cost of occupying a bed in the hospital is, in many cases, equivalent to or exceeds the monthly income of an average Indian household. From this, he inferred that the hospital is financially inaccessible to a substantial section of the population and therefore does not satisfy what, according to him, ought to be the hallmark of a charitable healthcare institution.

9. Proceeding further, the learned CIT(E) analysed the average treatment cost incurred per patient. Referring to figures furnished by the assessee itself, he observed that the average treatment cost for general category patients ranged from approximately Rs.4.61 lakhs to Rs.6.20 lakhs per patient during the relevant years, whereas the average treatment cost for indigent and weaker section patients ranged from approximately Rs.1.67 lakhs to Rs.2.13 lakhs per patient. Once again comparing these figures with average household income statistics, he concluded that the treatment offered by the hospital caters primarily to affluent sections of society. According to the learned CIT(E), when the average treatment cost for a single patient exceeds by several multiples the annual income of a large section of the population, it becomes difficult to characterise such healthcare as charitable in the conventional sense. He thus formed the view that the hospital predominantly serves a segment capable of paying substantial amounts for advanced medical services and therefore departs from what he perceives to be the true ethos of charity.

10. The learned CIT(E) thereafter examined the financial and operational indicators of the hospital. He referred to the organisational structure of the institution, the substantial employee base comprising doctors, nurses, technicians and administrative staff, the magnitude of salary expenditure, the sophisticated infrastructure maintained by the hospital and the substantial receipts generated from healthcare services. He further computed what he described as the average revenue per bed per day and observed that the same ranged from approximately Rs.61,989 per day in one year to more than Rs.1,18,000 per day in another year. These figures were again juxtaposed against average income levels in the country. According to the learned CIT(E), such revenues, coupled with organised management systems and high-end healthcare facilities, indicate that the institution functions in a manner more akin to a premium healthcare enterprise than a charitable hospital. He therefore concluded that the activities are imbued with a commercial character notwithstanding the charitable form in which the institution is constituted.

11. The learned CIT(E) also analysed the financial statements of the trust and referred to the receipts generated from hospital operations, donations, fund balances and amounts reflected in the accounts. According to him, the scale of receipts, the financial resources available with the institution and the overall financial profile of the hospital indicate that the institution is operating on commercial principles. Though the assessee had furnished detailed explanations regarding utilisation of donations, transfers to designated funds and accounting treatment of various receipts, the learned CIT(E) was of the view that the financial position of the institution reflected substantial economic strength inconsistent with the concept of a charitable hospital meant primarily for the weaker sections of society. He therefore treated the magnitude of receipts and the financial profile of the institution as additional indicators supporting his conclusion regarding commerciality.

12. A significant portion of the impugned order is devoted not merely to analysis of financial figures but to the philosophy underlying charitable healthcare. The learned CIT(E) observed that institutions enjoying exemption under the Income Tax Act function as an extended arm of the welfare State and are granted extraordinary fiscal privileges because they undertake activities which the State itself would otherwise be required to perform. According to him, a charitable hospital is expected to direct its resources predominantly towards those who are unable to access healthcare at market rates. He observed that if an institution principally caters to patients capable of paying substantial amounts for premium healthcare services and reserves only a marginal component of its resources for weaker sections, the institution may continue to function as a healthcare provider but cannot legitimately claim the fiscal privileges associated with charitable status. This philosophical approach permeates the entire impugned order and forms the underlying basis for many of the conclusions ultimately reached by him.

13. Having analysed the tariff structure, treatment costs, revenue indicators and overall financial profile of the hospital, the learned CIT(E) ultimately formed the view that the assessee is essentially engaged in providing high-end healthcare services to a financially capable segment of society. According to him, the existence of premium rooms, specialised suites, high treatment costs and substantial revenues demonstrates that the institution functions more as a premium healthcare provider than as a charitable hospital. He repeatedly observed that charity cannot be judged merely by reference to the existence of a trust deed or isolated instances of concessional treatment, but must be evaluated in the light of the overall manner in which the institution conducts its affairs. On this reasoning, he concluded that the activities of the assessee do not exhibit the characteristics ordinarily associated with a genuinely charitable institution devoted to medical relief.

14. The second major limb of the impugned order concerns alleged non-compliance with section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme. The learned CIT(E) referred to the scheme approved by the Hon‟ble Bombay High Court, which requires charitable hospitals to reserve 10% of their operational beds for indigent patients and another 10% for economically weaker section patients, besides maintaining an Indigent Patient Fund funded by prescribed contributions. He analysed the data furnished by the assessee regarding the number of patients treated under these categories and concluded that the actual percentage of indigent and economically weaker section patients treated by the hospital was significantly lower than what, according to him, ought to have been achieved under the scheme.

15. According to the learned CIT(E), the data for Financial Years 2022-23, 2023-24 and 2024-25 revealed that the percentage of patients treated under the indigent and economically weaker section categories ranged approximately between 2.78% and 7.35%, which, according to him, was substantially below the benchmark of 20%. Proceeding on the basis that actual treatment of such patients constitutes the true measure of compliance, he concluded that the assessee had failed to fulfil the obligations imposed upon charitable hospitals under the regulatory framework governing them. He regarded this shortfall not merely as a regulatory lapse but as evidence that the institution was not genuinely pursuing the charitable purpose for which it was established.

16. The learned CIT(E) further examined the operation of the Indigent Patient Fund. By comparing the receipts of the institution with the expenditure allegedly incurred on treatment of indigent and weaker section patients, he concluded that there existed a substantial shortfall in utilisation of funds meant for such patients. Referring particularly to Financial Year 2024-25, he computed what he considered to be the required expenditure and compared it with the actual expenditure reflected in the records. According to him, this exercise disclosed a shortfall running into more than Rs.11 crores. This alleged shortfall was treated as a serious indicator of non-compliance with the scheme and as corroborative evidence that the institution was not devoting adequate resources towards the charitable obligations expected of it.

17. On the basis of the aforesaid analysis, the learned CIT(E) concluded that the assessee had failed to comply with the requirements of section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme. According to him, these requirements constituted laws materially connected with and necessary for achieving the charitable objects of the trust. He therefore held that the alleged non-compliance was not merely a technical or procedural lapse but amounted to failure to comply with another law which was material for the purpose of achieving the objects of the institution. This conclusion formed the second principal foundation of the impugned order.

18. The learned CIT(E) thereafter synthesised both lines of reasoning and concluded that the activities of the assessee, viewed as a whole, reveal a healthcare institution operating substantially on commercial principles while simultaneously failing to fulfil the obligations expected from a charitable hospital under the applicable regulatory framework. In his view, the pricing structure, patient profile, treatment costs, financial indicators and alleged non-compliance with the IPF Scheme collectively demonstrate that the institution has drifted away from its charitable mandate.

19. The impugned order contains several observations reflecting the broader philosophy adopted by the learned CIT(E). He observed that a charitable hospital ought to be accessible to ordinary citizens and not merely to those capable of paying premium charges. He further observed that maintaining a limited component of concessional treatment cannot compensate for a broader operational model which, according to him, is oriented towards affluent patients. He repeatedly emphasised that genuine charity must be reflected in the actual beneficiaries of the institution and not merely in its formal constitution.

20. The learned CIT(E) also expressed the view that substantial receipts, premium facilities and high-end healthcare services are indicators of a commercial orientation. According to him, where the predominant character of an institution resembles that of a luxury healthcare provider, the mere existence of charitable objects in the trust deed cannot justify continuation of tax exemption. He therefore viewed the overall operational profile of the assessee as being inconsistent with the privileges available to institutions genuinely engaged in charitable activities.

21. Ultimately, the learned CIT(E) recorded a categorical conclusion that the assessee functions more as a premium private healthcare institution than as a charitable hospital. According to him, the actual percentage of indigent patients treated, the alleged shortfall in utilisation of IPF funds, the tariff structure, the treatment costs and the overall financial profile of the institution collectively establish that the activities are not genuinely charitable and that there exists non-compliance with laws material for achieving the objects of the trust.

22. Based upon the aforesaid findings, the learned CIT(E) rejected the application filed by the assessee for renewal of registration under section 12AB. He further held that the circumstances of the case warranted cancellation of the registration already granted to the assessee. Proceeding on that basis, he cancelled the registration retrospectively from 23.09.2021. Consequentially, approval under section 80G was also denied.

23. The aforesaid findings and conclusions of the learned CIT(E), which form the very substratum of the impugned order, have been assailed before us on facts, in law and on jurisdictional grounds by the learned Senior Counsel appearing on behalf of the assessee. We shall presently advert to the rival submissions; however, before doing so, it would be apposite to note that the challenge mounted by the assessee is not confined to the correctness of the conclusions reached by the learned CIT(E), but extends to the very legal foundation upon which the impugned order has been constructed.

24. Assailing the impugned order, Shri J. D. Mistri, learned Senior Counsel appearing on behalf of the assessee, submitted that the entire approach adopted by the learned CIT(E) is fundamentally contrary to the statutory architecture governing charitable institutions under the Income Tax Act. At the very outset, he invited our attention to the scheme of sections 2(15), 11, 12A and 12AB and submitted that the enquiry contemplated under section 12AB is neither an assessment proceeding nor a roving investigation into the desirability of the manner in which a charitable institution chooses to carry on its activities. The jurisdiction of the Commissioner u/s 12AB is confined to examining whether the objects are charitable, whether the activities are genuine and whether any of the statutorily prescribed circumstances warrant denial or cancellation of registration. The learned CIT(E), however, according to the learned Senior Counsel, has travelled far beyond these statutory limits and has proceeded to examine affordability of healthcare, comparative income levels of Indian households, desirability of premium hospital facilities, economic accessibility of tertiary care treatment and other considerations which may have relevance in public policy discourse but have no place within the statutory framework of section 12AB. It was submitted that the impugned order effectively rewrites the conditions of registration by introducing tests which Parliament itself has never enacted.

25. The learned Senior Counsel thereafter drew our attention to section 2(15) and submitted that the learned CIT(E) has failed to appreciate the distinction consciously maintained by the legislature between institutions engaged in “medical relief” and institutions claiming charitable status under the residual limb of “advancement of any other object of general public utility”. Reliance was placed upon the judgments of the Hon’ble Supreme Court in CIT v. Surat Art Silk Cloth Manufacturers Association [(1980) 121 ITR 1 (SC)], Aditanar Educational Institution v. Addl. CIT [(1997) 224 ITR 310 (SC)], Queen’s Educational Society v. CIT [(2015) 372 ITR 699 (SC)] and the Constitution Bench decision in Ahmedabad Urban Development Authority v. ACIT [(2022) 449 ITR 1 (SC)] to contend that the legislative scheme itself recognises distinct categories of charitable purpose and that considerations applicable to one category cannot automatically be imported into another. It was submitted that medical relief constitutes an independent and self-contained charitable purpose and that the proviso dealing with trade, commerce and business activities was never intended to apply in the same manner to hospitals engaged in providing medical treatment. In this regard, the learned senior counsel relied upon the CBDT Circular no. 1/2009 dated 27.3.2009, the decision of the Supreme Court in case of Dharmadeepti v. CIT 114 ITR 454 and the coordinate bench of the Mumbai Tribunal in case of Vanita Samaj v. ITO (Exemption) (ITA No. 7794 & 7795 of 2025, dated 7/4/2026). Therefore, the repeated emphasis in the impugned order on commerciality, tariff structure and receipt generation proceeds upon an incorrect legal premise.

26. Elaborating further, the learned Senior Counsel submitted that nowhere in the impugned order has the learned CIT(E) disputed the fact that the assessee is engaged in medical relief. There is no allegation that the hospital is not functioning. There is no allegation that the treatment records are fabricated. There is no allegation that patients are not receiving medical services. There is no allegation that the trust has abandoned its charitable objects. The entire case of the learned CIT(E), according to the learned Senior Counsel, is founded on the proposition that because the hospital provides sophisticated healthcare facilities and charges substantial fees from paying patients, it ceases to be charitable. Such a proposition, it was submitted, finds no support either in the statutory provisions or in judicial precedent. Reliance was placed upon several decisions dealing with charitable hospitals, including judgments of the Hon‟ble Bombay High Court and other High Courts, to contend that charging fees from patients has never been regarded as destructive of charitable character so long as the institution continues to exist for medical relief and its income is applied towards charitable purposes.

27. The learned Senior Counsel then addressed the bed tariff analysis undertaken by the learned CIT(E) and submitted that the comparison of hospital charges with median household income represents perhaps the most striking example of the impugned order travelling beyond statutory boundaries. According to him, no provision of law mandates that the tariff structure of a hospital should be judged against average income statistics in order to determine charitable status. The Income Tax Act does not prescribe any affordability index. Neither the Maharashtra Public Trusts Act nor the IPF Scheme incorporates any such criterion. The learned CIT(E), according to the assessee, has therefore introduced a wholly new test of his own creation. It was argued that if such a standard were accepted, every tertiary care institution, every transplant centre, every advanced oncology facility and every super-speciality hospital would automatically lose charitable status merely because modern healthcare is inherently expensive. The law, however, does not require a charitable hospital to provide inexpensive treatment; it requires the institution to be engaged in medical relief and to apply its resources towards its charitable objects.

28. Continuing on the same theme, the learned Senior Counsel submitted that the observations made by the learned CIT(E) regarding Deluxe Rooms, Premium Suites, Grand Suites and other categories of accommodation completely overlook the realities of modern healthcare administration. It was submitted that different categories of accommodation exist in virtually every major charitable hospital in India and are intended to meet varying preferences of patients rather than to alter the nature of medical treatment. More importantly, premium accommodation serves an important economic function by enabling cross-subsidisation. Patients who opt for higher category facilities contribute to the financial sustainability of the institution and thereby indirectly support treatment provided at concessional rates or free of cost to economically weaker sections. Such a model has long been recognised in healthcare administration and cannot by itself be treated as evidence of commerciality. The learned CIT(E), according to the assessee, has conflated premium accommodation with profit motive without any legal or factual basis.

29. The learned Senior Counsel then invited our attention to the extensive financial analysis furnished before the learned CIT(E) and submitted that the conclusions regarding surplus generation are based upon a complete misreading of the accounts. Reliance was placed upon the judgments of the Hon’ble Supreme Court in Aditanar Educational Institution (supra), Queen’s Educational Society (supra) and several subsequent decisions to contend that the existence of surplus is not determinative of charitable character. What is relevant is the destination of the surplus and the manner in which it is applied. According to him, the figures referred to by the learned CIT(E) as surplus actually represents transfers to designated funds (IPF), transfers arising from donations and allocations made towards statutory obligations. Assessee furnished following table in support of these submissions.

F.Y.	Amount trf to Specific Funds out of donation	Transfer to Indigent / Weaker Patient Fund Account	Total Amount trf from I & E Account [Considered as surplus by CIT(E)]
2021-22	–	11,27,45,065	11,27,45,065
2022-23	1,74,00,00,000	14,21,56,485	1,88,21,56,485
2023-24	1,17,00,00,000	17,90,06,054	1,34,90,06,054
2024-25	1,50,00,000	21,66,05,717	23,16,05,717

Such amounts are not available for private gain and cannot be equated with commercial profits. The conclusions drawn by the learned CIT(E) are unsupported by the financial statements themselves.

30. The learned Senior Counsel further submitted that a proper examination of the financial records demonstrates that the hospital has incurred operational deficits in several years and has depended substantially upon philanthropic support. Detailed reference was made to the income and expenditure statements, annual reports and fund utilisation statements forming part of the paper book.

Summary of Operating Income, Operating Expenditure & Capital Expenditure
										(Rs. in Crores)
Sr. No.	Particulars	F.Y. 2024-25 (FPB – Pg No: 21-22)		F.Y. 2023-24 (FPB – Pg No: 30-31)		F.Y. 2022-23 (FPB – Pg No: 38-39)		F.Y. 2021-22 (FPB – Pg No: 46-47)		Cumulative Amount for 4 Years
		Amount	Amount	Amount	Amount	Amount	Amount	Amount	Amount	Amount	Amount
1	Income		1,098.96		906.54		720.61		570.84		3,296.96
	– Income from Medical Operation	1,083.63		893.22		715.37		567.91		3,260.14	–
	– Other Income	15.33		13.32		5.24		2.93		36.82	–
										–	–
	Expenses		1,235.53		1,150.08		982.64		1,037.70	–	4,405.95
2	– Medical Expenses	1,153.81		1,073.14		904.43		967.31		4,098.69	–
	– Other Expenses (Including Depreciation)	81.72		76.94		78.21		70.39		307.26	–
										–	–
3	Surplus/(Deficit) from Operations ( 1 – 2 )		-136.57		-243.54		-262.02		-466.86	–	-1,108.99
										–	–
4	Donation (including Specific Donations)		92.29		323.18		392.11		454.55	–	1,262.13
										–	–
5	Surplus/(Deficit) post considering donation ( 3+4 )		-44.28		79.64		130.09		-12.31	–	153.14
										–	–
6	Amount transferred to specific funds		23.16		17.90		14.22		11.27	–	66.55
	Transfer to Medical Support Fund Account	1.50		–		–		–		1.50	0
	Transfer to Indigent / Weaker Patient Fund Account	21.66		17.90		14.22		11.27		65.05	0
7	Surplus / (Deficit) post transfer to above funds (5-6 )		-67.44		61.74		115.87		-23.58	–	86.59
8	Capital Expenditure for the year		98.96		174.01		125.75		159.17	–	557.89
	FPB Pg ref		(Pg 25)		(Pg 32)		(Pg 40)		(Pg 49)
9	Surplus / (Deficit) post capital expenditure (7-8 )		-166.40		-112.27		-9.88		-182.75	–	-471.30

According to him, when operational receipts are compared with operational expenditure, the institution has not generated the kind of profits assumed in the impugned order. Donations received from philanthropic sources have been utilised for strengthening healthcare infrastructure, acquisition of medical equipment, development of research facilities and expansion of patient care services. Therefore, the inference that the hospital is generating surplus and being run with a dominant profit motive is, according to the assessee, factually incorrect and unsustainable.

31. The learned Senior Counsel also challenged the reliance placed by the learned CIT(E) on employee strength, salary expenditure and organisational structure. It was submitted that a multi-speciality tertiary care hospital cannot function without a large number of doctors, surgeons, nurses, technicians, researchers and support staff. Likewise, professional management systems are indispensable for maintaining standards of patient care and regulatory compliance. The existence of a structured administration, substantial salary expenditure and organised operational systems therefore demonstrates the scale and seriousness of the charitable activities rather than their commerciality. According to the learned Senior Counsel, if these factors are treated as evidence of business activity, then every major charitable hospital in the country would fail the test of registration under section 12AB.

32. Summarising this branch of his arguments, the learned Senior Counsel submitted that the entire commerciality analysis undertaken by the learned CIT(E) proceeds on a legally erroneous assumption that a charitable hospital must necessarily be inexpensive, modest in scale and devoid of sophisticated facilities. Such a premise, according to him, is contrary to the statutory framework, contrary to the realities of modern healthcare and contrary to the judicial principles laid down by the Hon‟ble Supreme Court and various High Courts. It was therefore submitted that the findings recorded by the learned CIT(E) regarding tariff structure, treatment costs, premium facilities, revenue indicators and financial profile of the institution cannot constitute valid grounds either for denial of renewal or for cancellation of registration.

33. The learned Senior Counsel thereafter turned to what he described as the central legal issue in the present appeal, namely the findings recorded by the learned CIT(E) with reference to section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme. According to him, the impugned order proceeds upon a complete misunderstanding of both the statutory provision and the scheme framed pursuant to the directions of the Hon‟ble Bombay High Court. He submitted that section 41AA and the IPF Scheme require charitable hospitals to reserve and earmark a prescribed percentage of operational beds for indigent and economically weaker section patients. The obligation is one of reservation and availability. It is not an obligation to ensure that a fixed percentage of all patients admitted during the year necessarily belong to those categories. The learned CIT(E), however, has equated actual utilisation with reservation and has thereby substituted the statutory requirement with a requirement that does not exist in law.

34. Elaborating upon this aspect, the learned Senior Counsel drew our attention to the relevant provisions of the IPF Scheme and submitted that the scheme contemplates reservation of 10% operational beds for indigent patients and another 10% for weaker section patients. The scheme nowhere mandates that these beds must remain occupied throughout the year or that exactly 20% of total admissions must invariably fall within these categories. The learned CIT(E), however, proceeded on the assumption that actual treatment of only 2.78% to 7.35% of patients under these categories necessarily indicates violation of the scheme. According to the assessee, this approach overlooks the distinction between availability of facilities and utilisation thereof. If eligible patients do not seek admission or if the reserved beds remain vacant, the hospital cannot be accused of non-compliance merely because actual occupancy falls below a mathematical benchmark.

35. The learned Senior Counsel submitted that the assessee has consistently complied with all reporting obligations prescribed under the Maharashtra Public Trusts Act and the IPF Scheme. Details regarding reserved beds are uploaded on the designated portal on a daily basis. Monthly reports are furnished to the Charity Commissioner. Periodic inspections are conducted and information is supplied whenever called for. The institution has remained under continuous regulatory supervision. Yet, despite years of monitoring, no authority functioning under the Maharashtra Public Trusts Act has ever recorded a finding that the assessee has violated section 41AA or the IPF Scheme. This, according to him, is a circumstance of great significance because the entire conclusion of the learned CIT(E) rests upon a finding which the competent regulatory authority itself has never rendered.

36. The learned Senior Counsel then submitted that the learned CIT(E) has effectively assumed the role of the Charity Commissioner and undertaken an adjudication which the Income Tax Act does not authorise him to undertake. Reliance was placed upon the decisions in Sir Kikabhai Premchand Settlement Trust v. CIT(E) [ITA No. 2328 of 2018, dated November 25, 2025] [Bombay HC], Milestone Real Estate Fund v. ACIT 172 ITD 370 (Mumbai Tribunal), PCIT v. Milestone Real Estate Fund [ITA No. 3056 of 2019, dated January 19, 2026] [Bombay HC] and Gestetner Duplicators Pvt. Ltd. v. CIT [1979] 117 ITR 1 (SC) to contend that where a specialised statute creates a regulatory framework and vests supervisory powers in a designated authority, the Commissioner cannot independently determine alleged violations under that statute and substitute his own conclusions for those of the competent authority. The learned Senior Counsel submitted that the Maharashtra Public Trusts Act constitutes a complete code in relation to administration and supervision of public trusts and therefore any alleged breach of section 41AA must necessarily be determined by authorities functioning under that enactment.

37. According to the learned Senior Counsel, the legal position has now been further clarified by the present scheme of section 12AB itself. The concept of “specified violation” and the statutory safeguards incorporated by Parliament demonstrate that the Income Tax authorities are not intended to function as parallel regulators under every law applicable to a charitable institution. The impugned order, however, proceeds on precisely such an assumption. The learned CIT(E) has interpreted the Maharashtra Public Trusts Act, examined compliance with the IPF Scheme, computed alleged deficiencies, determined alleged violations and then imposed tax consequences flowing therefrom. Such an exercise, according to the assessee, amounts to assumption of a jurisdiction which properly belongs to another statutory authority.

38. The learned Senior Counsel thereafter dealt with the findings relating to the Indigent Patient Fund and submitted that the alleged shortfall of approximately Rs.11.29 crores has arisen solely because the learned CIT(E) examined isolated annual figures while completely ignoring the cumulative operation of the scheme. Detailed reference was made to the year-wise statements showing opening balances, contributions credited to the fund, utilisation thereof and closing balances as depicted below.

According to him, when these figures are viewed cumulatively, the assessee has in fact utilised amounts in excess of the balances available in the fund and the closing position itself demonstrates that there was no systematic under-utilisation of resources earmarked for indigent patients.

39. It was submitted that the scheme itself contemplates carry forward of balances and adjustment across periods. The learned CIT(E), however, treated each financial year as a self-contained unit and proceeded on the assumption that the precise amount credited in a particular year must necessarily be exhausted within that very year. Such an interpretation, according to the learned Senior Counsel, is contrary both to the language and the practical operation of the scheme. The resulting figure of alleged shortfall therefore does not reflect any real non-compliance but merely the consequences of an erroneous methodology adopted by the learned CIT(E).

40. Summarising this entire branch of submissions, the learned Senior Counsel submitted that every finding recorded by the learned CIT(E) in relation to section 41AA and the IPF Scheme is unsustainable. The statutory requirement of reservation has been confused with actual utilisation; the regulatory framework administered by the Charity Commissioner has been supplanted by an independent determination of the learned CIT(E); the financial analysis of the IPF Fund has been undertaken on an incorrect basis; and the alleged violations themselves have been recorded in the absence of any determination by the competent authority. Consequently, the entire foundation upon which the learned CIT(E) invoked alleged non-compliance with another law stands vitiated both on facts and in law.

41. The learned Senior Counsel thereafter invited our attention to what, according to him, constitutes the most decisive statutory provision governing the present controversy, namely Sec.12AB(1)(b)(i)(B), which provides for compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects. The Learned Senior Counsel submitted that this requirement is para materia with one of the Specified Violations prescribed in Explanation (f) to section 12AB(4) of the Act. He submitted that the significance of this provision has not been appreciated at all by the learned CIT(E). According to him, Parliament, while restructuring the registration regime through section 12AB, consciously introduced the concept of “specified violation” and simultaneously incorporated safeguards to ensure that registration already granted to a charitable institution is not disturbed lightly. One such category of specified violation relates to non-compliance with the requirements of any other law for the time being in force, provided such requirements are material for the purpose of achieving the objects of the trust or institution. However, Parliament did not stop there. The provision goes further and expressly contemplates the existence of an order, direction or decree, by whatever name called, holding that such non-compliance has occurred and that such order has either attained finality or has not been disputed. According to the learned Senior Counsel, this additional requirement is of immense significance because it demonstrates the legislative intent that the Commissioner is not expected to independently determine alleged violations under every other statute. Rather, the Income Tax authorities are expected to take cognisance of a violation already determined by the competent authority administering the concerned law. Therefore, Ld Senior Counsel submitted that the very architecture of Explanation (f) is equally applicable to sec.12AB(1)(b)(i)(B) of the Act also. According to Ld Senior counsel, the above legal position negatives the approach adopted by the learned CIT(E).

42. Developing this submission further, the learned Senior Counsel argued that the Maharashtra Public Trusts Act constitutes a specialised and self-contained code governing administration, supervision and regulation of public charitable trusts in the State of Maharashtra. Section 41AA and the IPF Scheme framed pursuant to the directions of the Hon‟ble Bombay High Court are administered through a dedicated regulatory framework under the supervision of the Charity Commissioner and other authorities functioning under the said enactment. Consequently, whether a charitable hospital has complied with its obligations under section 41AA, whether the reserved beds have been properly maintained, whether the Indigent Patient Fund has been correctly operated and whether any breach has occurred are all matters entrusted by law to the authorities administering that enactment. In the present case, however, no order of the Charity Commissioner, no direction of any authority under the Maharashtra Public Trusts Act and no decree of any competent forum has been brought on record holding that the assessee has violated section 41AA or the IPF Scheme. In the absence of such a determination, it was submitted, the jurisdictional foundation contemplated by Section 12AB(1) read with Explanation (f) to Section 12AB(4) is completely absent.

43. The learned Senior Counsel submitted that the learned CIT(E) has effectively treated himself as the primary adjudicator under the Maharashtra Public Trusts Act and has undertaken an exercise which the statute never intended him to undertake. He has interpreted the IPF Scheme, analysed patient data, computed alleged deficiencies, concluded that there exists a shortfall, held that there is a breach of section 41AA and thereafter proceeded to impose the drastic consequence of cancellation of registration. Such an approach, according to the assessee, directly defeats the legislative scheme because it renders redundant the requirement incorporated in Explanation (f). If the Commissioner himself can determine whether another law has been violated and can simultaneously impose tax consequences on that basis, then the requirement of an order, direction or decree by the competent authority becomes meaningless. The learned Senior Counsel submitted that a statutory provision must be interpreted in a manner which gives effect to every part thereof and not in a manner which renders an important safeguard otiose.

44. Reliance in this regard was placed upon the decision of the co-ordinate bench in Sir Kikabhai Premchand Settlement Trust v. CIT(E), wherein, according to the learned Senior Counsel, the Tribunal recognised that while examining registration under section 12AB, the Commissioner cannot assume unto himself the powers vested in specialised authorities functioning under other enactments. Detailed reliance was also placed upon Milestone Real Estate Fund v. ACIT and the judgment of the Hon’ble Bombay High Court affirming the principles emerging therefrom. It was submitted that these authorities recognise a fundamental distinction between a violation determined by the competent authority and a violation merely perceived by the Income Tax Department. According to the assessee, the present case falls squarely within the latter category because no competent authority administering the Maharashtra Public Trusts Act has held that the assessee is in breach of section 41AA or the IPF Scheme.

45. The learned Senior Counsel also placed reliance upon the judgment of the Hon’ble Supreme Court in Gestetner Duplicators Pvt. Ltd. v. CIT and other authorities dealing with the interaction between different statutory regimes. The proposition canvassed was that where a statute entrusts a particular determination to a designated authority, another authority exercising jurisdiction under a different enactment cannot arrogate unto itself that determination unless the statute expressly authorises such exercise. According to him, the learned CIT(E) has not merely relied upon a finding recorded elsewhere; he has himself become the finder of fact, interpreter of the Maharashtra Public Trusts Act, adjudicator of alleged violations and imposer of consequences. Such a composite exercise, according to the assessee, is wholly beyond the jurisdiction contemplated by section 12AB.

46. The learned Senior Counsel thereafter invited our attention to the speech of Finance Minister dated 05.07.2019 while introducing the Finance Bill, 2019 in order to understand the legislative intent underlying the introduction of the present framework. It was submitted that Parliament introduced the concept of specified violation not to enlarge the powers of the Commissioner but to create a structured and objective framework governing cancellation of registration. The purpose was to avoid arbitrary action and ensure that registration once granted is not disturbed except in clearly identifiable circumstances supported by objective material. The impugned order, according to the assessee, travels in the opposite direction because it substitutes objective statutory criteria with subjective assessments regarding affordability, accessibility and perceived compliance under another law.

47. Proceeding further, the learned Senior Counsel submitted that even assuming that the requirements of section 41AA are material for achieving the objects of the trust, the learned CIT(E) was still required to satisfy the additional conditions embedded in the statutory framework before invoking such alleged non-compliance. The provision contemplates not merely existence of another law but also a legally sustainable finding of violation under that law. The assessee emphasised that no show-cause notice, no prosecution, no adjudication and no adverse determination by the Charity Commissioner has ever been brought on record. Therefore, even if every factual assumption made by the learned CIT(E) is accepted for the sake of argument, the statutory conditions necessary for invoking Explanation (f) still remain unfulfilled.

48. The learned Senior Counsel then submitted that the impugned order reveals a deeper conceptual error inasmuch as it conflates regulatory compliance with charitable character. According to him, a charitable institution may, in a given case, commit a procedural or regulatory lapse under another enactment. Such a lapse may expose the institution to consequences under that enactment. However, every perceived irregularity under another statute does not automatically extinguish charitable status under the Income Tax Act. Parliament itself recognised this distinction and therefore introduced carefully calibrated conditions before registration can be denied or cancelled on account of non-compliance with another law. The learned CIT(E), however, has proceeded as though any perceived deficiency under the IPF Scheme automatically results in loss of charitable character. Such an approach, according to the assessee, is contrary to both the language and purpose of section 12AB.

49. The learned Senior Counsel further submitted that the approach adopted by the learned CIT(E) would lead to serious practical and legal anomalies. Every charitable institution is subject to numerous statutes, including labour laws, municipal regulations, environmental laws, healthcare regulations, building regulations and various sector-specific enactments. If the Commissioner were permitted to independently adjudicate alleged violations under all such statutes and thereafter cancel registration on that basis, the Income Tax Department would effectively become a super-regulator exercising jurisdiction across multiple legislative domains. Such a consequence could never have been intended by Parliament. The statutory safeguards incorporated in Explanation (f) are specifically designed to prevent such an outcome.

50. It was therefore submitted that the findings recorded by the learned CIT(E) regarding section 41AA suffer from a foundational jurisdictional defect. The question is not merely whether his conclusions are factually correct or incorrect. According to the assessee, the more fundamental question is whether he possessed the authority to reach such conclusions in the first place. Once it is accepted that no competent authority under the Maharashtra Public Trusts Act has recorded any finding of violation and that the Commissioner has independently undertaken the adjudicatory exercise, the entire foundation of the impugned order becomes unsustainable.

51. The learned Senior Counsel accordingly submitted that the issue relating to Explanation (f) is not a peripheral or subsidiary argument but goes to the very root of jurisdiction. If the assessee‟s interpretation is accepted, the findings relating to violation of section 41AA collapse irrespective of the factual debate concerning patient ratios, reserved beds or utilisation of funds. In that event, one of the two principal pillars upon which the impugned order rests would stand completely demolished. In any case, the provisions of sec.41AA and IPF scheme are not “Material” provisions for the purpose of achieving the objects of the trust of providing medical relief. The Ld Senior Counsel invited our attention to the provisions relating to the above condition given in sec. 12AB(1)(b)((i)(B) of the Act and it reads as under:-

“the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects.”

51.1. The Ld Senior Counsel submitted that, a careful perusal of the above clause would reveal that the CIT(E) is not required to examine about non-compliance of each and every requirements of any other law, but only look into ^„compliance‟ of any other law for the time being in force AS ARE MATERIAL FOR THE PURPOSES OF ACHIEVING ITS OBJECTS. The object of the assessee is providing medical relief and for achieving the same, it is running a hospital. It has complied with all material requirements stipulated under MPT Act to run the hospital. Hence, the section only mandates the CIT(E) to see as to whether the assessee has complied with all the requirements for it to lawfully run the hospital. For eg. if the assessee requires a compliance certificate (no objection certificate “NOC”) from the fire department for running a hospital, then Ld. CIT(E) may examine whether the assessee has obtained such a certificate or not, since without such a NOC the assessee cannot run the hospital, in which case, the assessee will not be able to achieve the object of providing medical relief. There is no allegation from the Ld. CIT(E) that the assessee has not complied with any such requirement which are necessary to run the hospital which will enable the assessee to achieve its objects. If the argument of the revenue is to be accepted that the Ld. CIT(E) is entitled to look into compliance of all laws for all purposes, then the phrase “as are material for the purpose of achieving its objects” would become redundant and otiose. Ld Senior Counsel submitted that it is a trite law that the statute has to be interpreted in such a way so as to give meaning to all the words used in the statute and not in such a way as to render the words or phrases used in the status would become otiose.

51.2. He further submitted that the compliance to provisions of section 41AA of the MPT Act and the IPF scheme is not material “for the purpose of achieving its object of running the hospital/providing medical relief”. Paragraph 18 of IPF Scheme provides penalty for non-compliance of the scheme and the same reads as under:-

“18. In case of breach of the Scheme and/or the terms and conditions of section 41AA by any Charitable Hospitals, besides the penal action as is provided under section 66 of the BPT Act, the Charity Commissioner shall make report to the State Government recommending withdrawal of the exemption granted to the concerned hospitals during the next preceding year in payment of contribution towards P.T.A Fund and the amount of contribution towards P.T.A Fund be recovered from the said hospital. The Charity Commissioner may also request the Government to withdraw any other concessions/benefits given to the said hospital.”

51.3. For non-compliance of the provisions of IPF Scheme, a charitable hospital is punished with withdrawal of certain concessions given to it. It does not prohibit carrying the activity of providing medical relief by running the hospital. Hence, the compliance of IPF Scheme cannot be considered as “material one” within the meaning of sec. 12AB(1)(b)(i)(B) for achieving the objects of the assessee trust. Similarly, the provisions of sec.66 provide for “Penalties and Prosecution” for non- compliance of various provisions of MPT Act. Out of which, sec.66B deals with the consequences of non-compliance of provisions of sec.41AA of the Act and it reads as under:-

^„66B. Whoever fails without reasonable cause to comply with any directions issued under section 41AA shall, on conviction, be punished with simple imprisonment, which may extend to three months or with fine which may extend to rupees twenty thousand, or with both.’

51.4. This section also provides for punishment for non-compliance of provisions of sec.41AA and it does not prohibit carrying the activity of providing medical relief by running the hospital. Hence, non- compliance of sec. 41AA and IPF Scheme cannot be considered as “material one” within the meaning of sec. 12AB(1)(b)(i)(B) for achieving the objects of the assessee trust.

52. Summarising this branch of his submissions, the learned Senior Counsel submitted that as per sec. 12AB(1)(b)(i)(B) read with Explanation (f) to section 12AB(4), in the absence of any adverse determination by the Charity Commissioner, the decisions in Sir Kikabhai Premchand Settlement Trust, Milestone Real Estate Fund, Gestetner Duplicators and the overall legislative scheme governing specified violations collectively establish that the learned CIT(E) lacked the jurisdiction to independently adjudicate alleged violations of section 41AA and the IPF Scheme. Even otherwise, it can be seen that non-compliance of provisions of sec.41AA and IPF scheme are not “material one” in terms of sec.12AB(1)(b)(i)(B) of the Act. In any case, the assessee has complied with the relevant provisions of Section 41AA and IPF scheme. Consequently, the findings recorded by him on this aspect, and all consequences flowing therefrom, deserve to be set aside in their entirety.

53. Without prejudice to his submissions on the merits of the findings recorded by the learned CIT(E), the learned Senior Counsel then assailed the impugned order on an altogether independent and fundamental ground, namely that the entire exercise culminating in retrospective cancellation of registration suffers from a serious violation of statutory procedure and principles of natural justice. He submitted that the proceedings before the learned CIT(E) originated from applications filed by the assessee in Form No.10AB seeking renewal of registration under section 12AB and continuation of approval under section 80G. The assessee approached the authority on the premise that the registration already granted was valid up to 31.03.2026 and that, in accordance with the statutory scheme, the same required renewal. The proceedings, therefore, commenced as renewal proceedings and not as proceedings for cancellation of an existing registration. According to the learned Senior Counsel, this distinction is of fundamental significance because the statutory consequences flowing from rejection of renewal and cancellation of an existing registration retrospectively are entirely different, both in their nature and in their legal impact.

54. The learned Senior Counsel submitted that throughout the course of proceedings, the assessee furnished voluminous replies, explanations and supporting documents addressing the queries raised by the learned CIT(E). However, at no stage was the assessee put to a specific and unequivocal notice that the learned CIT(E) proposed not merely to reject renewal but to cancel the registration already granted with retrospective effect from 23.09.2021. According to him, there is a vast difference between defending an application for renewal and defending an action seeking cancellation of an existing statutory benefit. The latter carries far more serious consequences and therefore requires strict adherence to the principles of natural justice. The assessee must know not only the allegations against it but also the precise statutory action proposed to be taken. In the absence of such notice, the assessee is deprived of a meaningful opportunity to address the jurisdictional and legal aspects relating specifically to cancellation.

54.1. Elaborating further, the learned Senior Counsel submitted that non-renewal and cancellation of registration under section 12AB is not an ordinary administrative action. It visits the assessee with grave civil consequences affecting not merely future years but potentially several past years as well. Such an action can have cascading consequences in relation to exemption under sections 11 and 12, approval under section 80G, assessments already completed and proceedings pending under the Act. It was therefore submitted that before resorting to such a drastic measure, the authority is under a heightened obligation to comply with procedural fairness. Reliance was placed upon the well-established principles laid down by the Hon‟ble Supreme Court in a long line of decisions that where an administrative or quasi-judicial action entails serious civil consequences, observance of natural justice is not a mere technical formality but a substantive requirement. According to the learned Senior Counsel, the impugned order does not satisfy this standard.

55. The learned Senior Counsel further submitted that the statutory framework itself contemplates distinct situations for grant of registration, renewal of registration and cancellation of registration. Parliament has consciously treated these as separate stages requiring separate satisfaction of conditions. The learned CIT(E), however, according to the assessee, has effectively merged all these stages into one composite exercise. What commenced as a proceeding for renewal has culminated in retrospective cancellation without any independent examination of whether the statutory requirements governing cancellation stood satisfied. Such an approach, it was submitted, runs contrary to the legislative scheme and deprives the assessee of procedural safeguards specifically intended by Parliament.

56. The learned Senior Counsel then invited our attention to the reasoning adopted by the learned CIT(E) while cancelling the registration retrospectively from 23.09.2021. According to him, a careful reading of the impugned order demonstrates that the discussion therein primarily relates to patient data, financial information and alleged deficiencies pertaining to subsequent years. Yet, despite examining events occurring years after the grant of registration, the learned CIT(E) has proceeded to cancel the registration from the very date on which it was originally granted. It was submitted that such retrospective cancellation necessarily presupposes that the registration was liable to be denied at its inception or that the very foundation upon which it was granted stood vitiated from the beginning. However, the impugned order contains no such finding. There is no allegation that the assessee obtained registration by fraud, misrepresentation, suppression of material facts or furnishing of false particulars. There is equally no allegation that the objects of the trust were different on the date registration was granted. In the absence of such findings, retrospective cancellation from the date of grant is, according to the learned Senior Counsel, wholly arbitrary and legally unsustainable.

57. The learned Senior Counsel emphasised that the power to cancel registration cannot be exercised in a manner which retrospectively rewrites legal history. A registration validly granted by a competent authority carries with it a presumption of legality unless the circumstances justifying its withdrawal are clearly established in accordance with law. Even where subsequent events may justify reconsideration of the continued availability of registration, such events do not automatically render the original grant invalid ab initio. According to him, the learned CIT(E) has failed to distinguish between these two concepts. The impugned order proceeds as though every perceived deficiency noticed during renewal proceedings necessarily invalidates the registration from the very date of its grant. Such an approach, it was submitted, is unsupported either by the statutory language or by established principles governing exercise of quasi-judicial powers.

58. The learned Senior Counsel also submitted that one of the most telling features of the impugned order is the complete absence of any finding that the assessee‟s activities were not genuine at the time when the registration was granted in September 2021. On the contrary, the hospital was then functioning in the same field of medical relief, carrying on the same charitable objects and operating under the same regulatory framework which continues even today. Therefore, if the institution was considered eligible for registration at that point of time, the burden lay heavily upon the learned CIT(E) to demonstrate the existence of legally sustainable grounds warranting retrospective nullification of that registration. According to the assessee, no such exercise has been undertaken.

59. The learned Senior Counsel thereafter submitted that the observations made by the learned CIT(E) suggesting that the assessee ought to function as a business entity rather than as a charitable institution further reinforce the assessee’s grievance regarding procedural unfairness. Such observations indicate that the learned CIT(E) approached the matter not merely from the standpoint of statutory compliance but from his own broader perception as to how a charitable hospital should ideally function. While such perceptions may legitimately inform policy debates, they cannot substitute the statutory criteria governing cancellation of registration. The issue before the learned CIT(E) was not whether the assessee’s model of healthcare delivery was ideal or desirable but whether the statutory conditions for renewal or cancellation stood satisfied.

60. The learned Senior Counsel submitted that the principles of natural justice acquire even greater importance in the context of charitable institutions because registration under section 12AB forms the foundation of their entire fiscal structure. A decision affecting such registration has far-reaching consequences not only for the institution but also for donors, beneficiaries, patients and ongoing charitable activities. Therefore, before taking an action of such magnitude, the authority must scrupulously adhere to procedural safeguards and must clearly establish the jurisdictional basis for the proposed action. According to the assessee, the impugned order falls short on both counts. Neither the procedural safeguards nor the jurisdictional prerequisites necessary for retrospective cancellation have been satisfied.

61. Summarising this branch of his submissions, the learned Senior Counsel submitted that the retrospective cancellation of registration suffers from multiple and independent infirmities. The proceedings commenced as renewal proceedings and not cancellation proceedings; no specific and unambiguous notice proposing retrospective cancellation was issued; no finding of fraud, misrepresentation or suppression of material facts has been recorded; no legally sustainable basis exists for extinguishing the registration from the date of its grant; and the principles of natural justice have not been complied with in their true spirit. Consequently, even assuming, without admitting, that some part of the reasoning of the learned CIT(E) were to be upheld, the retrospective cancellation of registration from 23.09.2021 would still be liable to be quashed as being contrary to law and beyond the permissible scope of the jurisdiction exercised by the learned CIT(E).

62. The learned Senior Counsel thereafter addressed in considerable detail the financial analysis undertaken by the learned CIT(E) and submitted that a substantial part of the impugned order proceeds upon a fundamentally erroneous appreciation of the financial statements of the assessee. According to him, the learned CIT(E) has repeatedly used expressions such as “surplus”, “substantial receipts”, “high revenues” and “profit-oriented operations” without undertaking a proper examination of the accounting structure of the trust and the manner in which various receipts have been reflected in the books of account. Inviting our attention to the audited financial statements, annual reports, fund schedules and explanatory notes forming part of the paper book, the learned Senior Counsel submitted that the figures relied upon by the learned CIT(E) do not represent commercial profits available for private appropriation. The amounts treated by him as surplus consists of donations received for specific purposes and transfers to earmarked funds (IPF).These amounts are not free reserves available to the trust but are held and utilised subject to specific charitable obligations. According to the assessee, the learned CIT(E) has treated every positive balance appearing in the accounts as evidence of profit motive without examining either the source of such receipts or the purpose for which they were received and utilised.

63. The learned Senior Counsel submitted that when the financial performance of the hospital is examined in the manner in which a healthcare institution is ordinarily evaluated, namely by comparing operational income with operational expenditure, an altogether different picture emerges. Detailed reference was made to the hospital‟s income and expenditure statements for the relevant years and it was pointed out that the healthcare operations themselves have not generated the kind of commercial profits assumed in the impugned order. On the contrary, the hospital has incurred operational deficits in last four years and has depended substantially upon philanthropic support received through donations and contributions. According to the assessee, the learned CIT(E) has ignored this distinction and has combined operational receipts, donations and other non-operational items into a single pool before characterising the resultant figure as evidence of commercial surplus. Such an approach, it was submitted, distorts the true financial position of the institution and creates a misleading impression regarding the nature of its activities.

64. The learned Senior Counsel further submitted that the learned CIT(E) has overlooked a basic principle consistently recognised in the jurisprudence governing charitable institutions, namely that the existence of a surplus is not synonymous with profit motive. Reliance was again placed upon the judgments of the Hon’ble Supreme Court in Surat Art Silk Cloth Manufacturers Association (supra), Aditanar Educational Institution (supra), Queen’s Educational Society (supra) and other authorities to contend that the decisive test is not whether a surplus arises but whether such surplus is applied towards the charitable objects of the institution. It was submitted that in the present case every rupee generated by the institution continues to remain dedicated to hospital activities, acquisition of medical equipment, expansion of healthcare infrastructure, patient care services, medical research and other charitable purposes. There is no allegation anywhere in the impugned order that any part of the income has been diverted for the personal benefit of trustees, settlors, related parties or private individuals. There is equally no allegation that any distribution of profits has taken place. Therefore, the entire discussion on surplus, even if factually accepted, does not establish the existence of a commercial motive.

65. The learned Senior Counsel then invited our attention to the specific figures and schedules relied upon by the assessee in its written submissions to demonstrate that the learned CIT(E) has incorrectly characterised certain accounting entries. According to him, transfers made to the Indigent Patient Fund and transfers arising from donations received for specific purposes have been treated as indicators of financial strength and profit generation when in reality they represent application of funds for charitable purposes. Similarly, certain balances reflected in the accounts are not free reserves but designated funds earmarked for specific activities and projects of the hospital. It was submitted that the impugned order proceeds on the assumption that every balance standing to the credit of the institution enhances its commercial character, whereas the accounting records themselves demonstrate that such balances remain tied to the charitable obligations and activities of the trust.

66. The learned Senior Counsel also challenged the inference drawn by the learned CIT(E) from the magnitude of receipts generated by the hospital. According to him, there exists a fundamental difference between receipt generation and profit generation. A tertiary care hospital equipped with advanced infrastructure, transplant facilities, intensive care units, diagnostic laboratories, emergency services and specialised departments necessarily handles large volumes of transactions. Consequently, gross receipts may be substantial. However, such receipts must be viewed in conjunction with the enormous expenditure incurred on infrastructure, technology, manpower, consumables, patient care services and regulatory compliance. The learned CIT(E), according to the assessee, has focused almost exclusively on the receipt side of the Income and Expenditure account while altogether ignoring the corresponding expenditure required to sustain a modern healthcare institution.

67. Proceeding further, the learned Senior Counsel submitted that one of the most significant errors in the impugned order relates to the treatment of philanthropic donations. He pointed out that the hospital receives substantial support from charitable contributions and donations made with the intention of enabling the institution to continue and expand its medical activities. Such donations are manifestations of charity and not indicators of commercial success. However, the learned CIT(E) has treated the existence of such resources as evidence that the institution enjoys substantial financial strength akin to a commercial enterprise. According to the assessee, this reasoning inverts the very logic of charitable activity because donations received for furtherance of charitable objects cannot simultaneously be relied upon as evidence that the institution is functioning as a business concern.

68. The learned Senior Counsel thereafter returned to the issue of the Indigent Patient Fund and submitted that the financial analysis undertaken by the learned CIT(E) suffers from another fundamental infirmity, namely his failure to examine the cumulative operation of the scheme. Detailed reference was made to the year-wise statements placed before the authorities showing opening balances, contributions credited to the fund, utilisation of such contributions and closing balances. According to the assessee, these statements clearly demonstrate that the fund has to be viewed as a continuing account rather than as a series of isolated annual compartments. When the position is examined cumulatively, the institution has utilised amounts exceeding the balances available in the fund and the closing figures themselves demonstrate that there has been no systematic accumulation or under-utilisation. The learned CIT(E), however, selected one financial year in isolation and proceeded to infer a shortfall without examining the broader accounting context.

69. The learned Senior Counsel emphasised that the methodology adopted by the learned CIT(E) effectively assumes that the precise amount credited to the Indigent Patient Fund during a particular financial year must necessarily be exhausted within that very year. Neither the Maharashtra Public Trusts Act nor the IPF Scheme imposes any such requirement. The scheme contemplates continuity of operations and permits adjustment of balances over time. Consequently, the alleged shortfall of approximately Rs.11.29 crores in FY 2024-25 is a case of cherry picking ignoring overall amount spent out of IPF. The closing negative balance of Rs. 2.41 crores would show that the assessee has spent more than the funds transferred to IPF account. Once the cumulative position is examined, the very foundation of the finding disappears.

70. The learned Senior Counsel also submitted that the assessee has consistently complied with the requirements relating to application of income under sections 11 and 12 of the Act. Detailed reference was made to the returns of income, audit reports, assessments completed in earlier years and the financial statements demonstrating utilisation of funds for charitable purposes. It was pointed out that the Revenue has never alleged diversion of funds, private enrichment or application of income for non-charitable purposes. The institution has continued to deploy its resources towards healthcare infrastructure, patient services, medical research, community outreach programmes and other charitable activities. Therefore, even on the touchstone of application of income, the assessee continues to satisfy the essential requirements of a charitable institution. Same can be seen from the below table submitted by the assessee.

Summary of Computation / Return of Income
Particulars	Mar-25 (FPB – Pg No : 1-2)		Mar-24 (FPB – Pg No : 3-4)		Mar-23 (FPB – Pg No : 5)		Mar-22 (FPB – Pg No : 6)
Gross Income		1,192.72		1,229.72		1112.72		1027.82
– Income from medical operation	1,083.63		893.22		715.37		567.91
– Donation	92.29		323.18		392.11		454.55
– Other income	15.33		13.32		5.24		5.36
– Sale of fixed assets	1.47		–		0		0
Less: Amount spent on object of the trust
a. Medical Relief	1088.63		1064.36		894.89		881.26
b. Medical Relief to Indigent / Weaker Patient Fund	10.37		17.41		19.14		18.24
c. Other Admin Expenses (including depreciation)	28.83	1127.83	33.51	1115.28	76.5	990.53	65.06	964.56
Balance		64.89		114.44		122.19		63.26
Less: Capital Expenditure		93.61		173.75		0		0
Surplus / (Deficit)		-28.72		-59.31		122.19		63.26
Accumulation u/s 11(1)(a)		–		–		122.19		63.26
Accumulation u/s 11(1)(a) (% of Gross Income)		–		–		10.98%		6.15%

71. Summarising this branch of submissions, the learned Senior Counsel submitted that the entire financial analysis contained in the impugned order is vitiated by a series of conceptual and factual errors. Operational deficits have been ignored; earmarked donations have been treated as commercial receipts; designated funds have been characterised as surplus; the cumulative operation of the Indigent Patient Fund has been overlooked; gross receipts have been mistaken for profits; and the settled distinction between financial sustainability and profit motive has been lost sight of. Consequently, the conclusions drawn by the learned CIT(E) regarding commerciality, surplus generation and financial conduct of the institution are, according to the assessee, unsupported by the accounts themselves and incapable of sustaining either denial of renewal or cancellation of registration.

72. Per contra, Shri Umashankar Prasad, learned Commissioner of Income Tax-Departmental Representative, strongly relied upon the impugned order passed by the learned CIT(E) and submitted that the order is not only legally sustainable but represents a careful and detailed examination of the actual manner in which the assessee has conducted its affairs. According to the learned CIT-DR, the controversy before the Tribunal should not be viewed through the narrow prism of whether the assessee is running a hospital, because that fact is undisputed. The real question, according to him, is whether the activities carried on by the assessee satisfy the legal requirements necessary for continued recognition as a charitable institution entitled to enjoy the extraordinary fiscal privileges granted under sections 11, 12 and 80G of the Act. It was submitted that exemption under the Income Tax Act is not an unconditional entitlement but a statutory benefit extended to institutions which genuinely function for charitable purposes.

Therefore, while the assessee has repeatedly emphasised the existence of a hospital and the provision of medical services, the learned CIT(E) was fully justified in examining the actual character, scale, beneficiaries and economic structure of those activities. According to the learned CIT-DR, the Income Tax authorities are not required to mechanically continue registration merely because a hospital exists. They are duty-bound to examine whether the institution continues to operate in accordance with the charitable purpose for which the benefit was originally granted.

73. The learned CIT-DR submitted that the impugned order correctly identifies the fundamental distinction between an institution engaged in charitable medical relief and an institution engaged in commercial healthcare under the garb of charity. According to him, the material collected by the learned CIT(E) unmistakably demonstrates that the assessee is operating one of the most expensive tertiary healthcare institutions in the country. Detailed reference was made to the tariff structure extracted in the impugned order, including the charges for Deluxe Rooms, Premium Deluxe Rooms, Grand Suites and Premium Suites. It was submitted that the learned CIT(E) was fully justified in examining these figures because they reveal the category of patients to whom the institution predominantly caters. According to the learned CIT-DR, the existence of a few economy beds cannot obscure the broader reality that a substantial segment of the hospital infrastructure is designed for patients capable of paying exceptionally high charges. The Revenue‟s case, therefore, is not founded merely upon the existence of premium rooms but upon the overall operational profile of the institution which, according to the learned CIT-DR, demonstrates that the hospital functions substantially as a premium healthcare provider rather than as a charitable medical institution. This view is further reinforced by the fact that the trust is functioning under the absolute and pervasive control of its settlor and not as an independent charitable institution.

74. The learned CIT-DR further submitted that the learned CIT(E) was justified in comparing hospital tariffs and treatment costs with broader economic indicators because such analysis helps identify the actual class of beneficiaries. According to him, charity cannot be examined in abstraction from the beneficiaries for whom the institution exists. If the overwhelming majority of services are financially inaccessible to ordinary citizens and are utilised primarily by affluent sections capable of paying substantial amounts, the authority is entitled to examine whether the institution continues to do charity for which exemption has been granted. It was submitted that the learned CIT(E) has not evolved a new statutory test but has merely used economic indicators as an evidentiary tool to evaluate the practical accessibility of the services being rendered. According to the Revenue, the data regarding treatment costs, room tariffs and average revenue per patient were relevant considerations because they revealed the true character of the institution‟s operations and demonstrated that the principal beneficiaries of the hospital were not the indigent or economically weaker sections of society.

75. The learned CIT-DR then addressed the repeated contention of the assessee that charging fees does not destroy charitable character. According to him, the Revenue does not dispute this proposition in the abstract. However, the present case, according to the Revenue, goes far beyond mere charging of fees. The learned CIT(E) has not denied registration because fees were charged. Rather, he has analysed the scale of receipts, the pricing structure, the category of facilities offered, the treatment costs incurred and the actual profile of patients availing such services. These factors, according to the learned CIT-DR, collectively demonstrate that the institution has crossed the line between charitable healthcare and premium commercial healthcare. It was submitted that while a charitable hospital may legitimately charge fees, there comes a point at which the scale and nature of operations become relevant indicators of the true character of the institution. In support of the above proposition, the learned CIT-DR relied on Section 9(2) of MPT Act and the following decisions –

– Fernandez Foundation v CIT 145 Taxmann.com 442 (Hyd ITAT)

– Institute of Franciscan Missionaries of Mary v CIT 445 ITR 152 (Mad)

– Gurukul Shikshan Sansthan v. Commissioner of Income-tax (Exemption) 165 Taxmann.com 369 (Jp ITAT)

– New Noble Educational Society v. Chief Commissioner of Income-tax 143 Taxmann.com 276 (SC)

According to the Revenue, the learned CIT(E) was therefore justified in examining these factors as part of the broader enquiry into the genuineness of charitable activities.

76. The learned CIT-DR further submitted that the financial analysis undertaken by the learned CIT(E) has been selectively criticised by the assessee without addressing the broader conclusions emerging from the accounts. According to him, the financial statements reveal an institution with substantial resources, significant receipts and the ability to generate and maintain large funds. While the assessee has attempted to explain individual accounting entries, transfers to designated funds and utilisation of donations, such explanations do not detract from the larger picture emerging from the accounts. The learned CIT-DR submitted that the learned CIT(E) was entitled to examine the cumulative financial profile of the institution rather than isolated accounting classifications. According to him, the magnitude of receipts, resources and financial capacity available with the assessee demonstrates that the institution functions at a scale and in a manner materially different from what one would ordinarily associate with a charitable hospital primarily devoted to the needs of indigent and weaker sections. The learned DR also contended that the assessee would not be protected by section 11(4A) since section 11(4A) only protects incidental business undertaken in the aid of charity and it does not protect a dominant business activity by a token benevolence.

77. Turning to the issue of section 41AA and the IPF Scheme, the learned CIT-DR submitted that the findings recorded by the learned CIT(E) are based upon data supplied by the assessee itself and not upon any conjecture or assumption. According to him, the figures relating to the number of indigent and weaker section patients treated during the relevant years were furnished by the assessee. These figures, when analysed, revealed that the actual percentage of such patients ranged approximately between 2.78% and 7.35%, which is substantially below the benchmark contemplated under the scheme. The learned CIT-DR submitted that the assessee‟s argument regarding reservation of beds seeks to elevate form over substance. According to him, the purpose of reserving beds is to ensure treatment of indigent and weaker section patients. If the actual utilisation figures remain consistently and substantially below the prescribed level, the authority is entitled to examine whether the institution is genuinely fulfilling the obligations expected of a charitable hospital. The learned CIT(E), therefore, according to the Revenue, was justified in looking beyond mere reservation on paper and examining the actual implementation of the scheme.

78. The learned CIT-DR also defended the findings relating to the Indigent Patient Fund. According to him, the learned CIT(E) undertook a detailed examination of the receipts of the institution and the expenditure incurred towards treatment of indigent and weaker section patients. This exercise disclosed a substantial shortfall, particularly in Financial Year 2024-25. The Revenue‟s contention is that the IPF Scheme is intended to ensure meaningful allocation of resources towards economically weaker sections and cannot be reduced to a mere accounting mechanism. According to the learned CIT-DR, the cumulative figures relied upon by the assessee do not answer the central issue identified by the learned CIT(E), namely whether the institution has, in practical terms, devoted a sufficient portion of its resources towards the beneficiaries for whom the scheme was intended. The Revenue therefore supported the conclusion that the implementation of the IPF Scheme by the assessee fell materially short of the obligations expected from a charitable hospital.

79. The learned CIT-DR submitted that the learned CIT(E) has not invoked Section 12AB(4) for canceling the registration but he has cancelled the registration under section 12AB(1)(b)(i)(B) of the Act. According to him, the interpretation canvassed by the assessee unduly restricts the jurisdiction of the Commissioner and defeats the purpose underlying the provision. It was submitted that the Commissioner is not expected to remain a passive observer until another authority records a final finding. The power conferred under section 12AB necessarily carries with it the authority to examine whether the institution continues to satisfy the conditions required for registration. According to the Revenue, where material placed before the Commissioner itself demonstrates non-compliance with another law which is material for achieving the objects of the institution, the Commissioner is not precluded from taking cognisance of such material merely because a separate order of the regulatory authority has not yet been passed. The learned CIT-DR therefore submitted that the learned CIT(E) was fully justified in examining the data available before him and arriving at his own satisfaction regarding compliance with section 41AA and the IPF Scheme.

80. On the issue of retrospective cancellation, the learned CIT-DR submitted that the assessee‟s challenge is largely technical in nature and ignores the substance of the proceedings. According to him, extensive notices were issued, detailed explanations were sought and the assessee was afforded ample opportunity to present its case. The assessee filed voluminous written submissions running into several hundred pages and addressed every aspect of the enquiry undertaken by the learned CIT(E). Therefore, no prejudice can legitimately be claimed. It was submitted that the principles of natural justice are intended to ensure fairness and not to create procedural obstacles where effective opportunity has in fact been granted. The learned CIT-DR further contended that where the authority, upon examination of the material on record, arrives at a conclusion that the institution no longer satisfies the conditions governing registration, the consequential power to cancel registration cannot be defeated merely by characterising the proceedings as renewal proceedings. According to him, the substance of the matter rather than its nomenclature should govern the outcome.

81. Summarising the Revenue‟s case, the learned CIT-DR submitted that the impugned order represents a comprehensive examination of the actual functioning of the assessee and is founded upon objective material relating to patient demographics, tariff structures, treatment costs, financial resources, implementation of the IPF Scheme and compliance with obligations under the Maharashtra Public Trusts Act. According to the Revenue, the learned CIT(E) correctly concluded that the institution, though operating in the field of healthcare, functions substantially as a premium healthcare provider serving a limited segment capable of paying substantial charges; that the actual treatment extended to indigent and weaker section patients falls significantly below what is expected from a charitable hospital; that the implementation of the IPF Scheme reveals material deficiencies; and that the cumulative effect of these factors justifies rejection of renewal and cancellation of registration. It was therefore urged that the impugned order be upheld i its entirety and the appeal of the assessee be dismissed.

82. In rejoinder, the learned Senior Counsel appearing on behalf of the assessee submitted that the arguments advanced by the Revenue, though elaborate, do not answer the fundamental jurisdictional and statutory objections raised by the assessee. At the outset, he reiterated that the entire case of the Revenue proceeds upon a misconception that the issue before the Tribunal is whether the assessee is sufficiently charitable according to a subjective standard evolved by the learned CIT(E). The real issue, according to him, is whether the statutory conditions prescribed under section 12AB for denial or cancellation of registration stand satisfied. The learned Senior Counsel submitted that despite extensive arguments on affordability, premium healthcare and patient demographics, the Revenue has not been able to point out any provision in the Income Tax Act which prescribes that a charitable hospital must maintain treatment costs within any specified economic benchmark or that its charges must correspond with median household income levels. The entire reasoning of the learned CIT(E), according to the assessee, remains founded upon his own policy considerations rather than statutory criteria. It was submitted that no amount of factual discussion regarding room tariffs, treatment costs or premium facilities can substitute the legal requirements expressly enacted by Parliament. The learned Senior counsel referred to Sec. 2(15) of the Act which defines the expression “Charitable purpose” as an ^„inclusive definition‟, i.e., it starts with expression “Charitable Purpose includes relief of poor, education, yoga, medical relief ” He submitted that when the expression “includes” is used in the statute, it enlarges the meaning of words or phrases, i.e., more than the general or popular meaning given to the said expression. In this context, he relied on various case laws of the Courts. He submitted further that Section 2 of the Act starts with the expression “In this Act, unless the context otherwise requires”. Relying on the decision of the SC in case of ACIT vs. Ahmedabad Urban Development Authority (supra), he submitted that the effect of usage of expression “unless the context otherwise requires” would mean that the definition expressly provided in the Act shall prevail over general/popular meaning of the term.

83. The learned Senior Counsel further submitted that the Revenue‟s attempt to characterise the hospital as a premium healthcare institution does not in any manner answer the statutory position that medical relief remains an independent and specifically recognised charitable purpose under section 2(15). He reiterated that neither the learned CIT(E) nor the learned CIT-DR has disputed the genuineness of the hospital, the authenticity of the medical services rendered, the charitable objects of the trust or the application of funds towards healthcare activities. The entire case of the Revenue is thus founded not upon absence of medical relief but upon the perceived cost and sophistication of that medical relief. Such an approach, according to the assessee, directly conflicts with the settled judicial principles laid down in Surat Art Silk Cloth Manufacturers Association, Aditanar Educational Institution, Queen’s Educational Society and other authorities cited during the course of hearing, more particularly on the decision rendered by the coordinate bench of Pune ITAT in the case of ITO vs. Lata Mageshkar Foundation (2017) (83 taxmann.com 69), where in it has been specifically held that Section 2(15) relating to medical relief need not confine itself in providing medical services only to the poor people. It was further held that so long as the trust is engaged in medical activities, it will fall within the definition of ^„charitable purpose’ and said trust can enjoy the benefit of exemption u/s 11. The above decision has since been upheld by the Hon’ble Bombay high Court in Lata Mangeshkar Medical Foundation (ITA No.671 & 1144 of 2018 dated August 30, 2023). The SLP filed by Revenue against the above-said decision of the Bombay High Court has been dismissed by the Hon’ble Supreme Court in SLP No. 14326 of 2024, dated April 29, 2024. Similar view has been expressed by the co-ordinate bench of Mumbai ITAT in the case of ITO vs. Kaushalya Medical Foundation (2009)(31 SOT 119). It was submitted that the Revenue’s arguments do not demonstrate how the hospital has ceased to be engaged in medical relief; they merely suggest that the hospital provides advanced medical relief. The statute, however, draws no distinction between basic and advanced healthcare while defining charitable purpose. The learned senior counsel also submitted that the decisions relied upon by the learned DR are not applicable to the facts of the present case. The decision in case of Institute of Franciscan Missionaries of Mary v. Commissioner, Coimbatore City Municipal Corporation (supra) was related to property tax matter under Coimbatore city municipal corporation Act, 1981 and hence the said decision cannot be taken support in Income Tax proceedings. The decision in the case of Ferandez Foundation (supra) was rendered under peculiar facts/lapses prevailing in that case viz non reduction of fees after conversion of private hospital into a charitable hospital, diversion of funds to promoters in the shape of remuneration, power of learned CIT(E) to examine financial statement and documents etc. In the case of Gurukul Shikshan Sansthan (supra), the learned CIT(E) had rejected the registration u/s 12AB since said trust was not registered under Rajasthan Public Trust Act, which is a material condition for carrying out charitable objects. The learned senior counsel further submitted that the learned DR was not right in contending that the provisions of Section 11(4A) will apply to the charitable hospital run by the assessee. Providing medical relief by running a hospital was never considered to be a business activity. In any case, the learned CIT(E) has not invoked provisions of section 11(4A).

84. Responding specifically to the submissions relating to section 41AA and the IPF Scheme, the learned Senior Counsel submitted that the Revenue has once again failed to address the central jurisdictional issue arising from Explanation (f) to section 12AB(4). According to him, the Revenue‟s arguments proceed on the assumption that the learned CIT(E) was entitled to independently determine violations of the Maharashtra Public Trusts Act. However, despite repeated opportunity, neither the learned CIT(E) nor the learned DR has produced any order, direction, decree or adjudication by the Charity Commissioner or any competent authority holding that the assessee has violated section 41AA or the IPF Scheme. The learned Senior Counsel submitted that the Revenue’s entire case effectively invites the Tribunal to ignore the statutory safeguard consciously incorporated by Parliament. It was reiterated that the issue is not whether the learned CIT(E) formed a bona fide opinion but whether he possessed the jurisdiction to substitute himself for the statutory authority administering the Maharashtra Public Trusts Act. According to the assessee, unless this foundational issue is answered in favour of the Revenue, the entire edifice of the impugned order collapses irrespective of the factual debate regarding patient percentages or utilisation figures.

85. The learned Senior Counsel also disputed the Revenue’s contention that no prejudice has been caused to the assessee in relation to retrospective cancellation. He submitted that the question is not merely whether the assessee filed extensive submissions, but whether it was specifically put on notice regarding the precise action proposed to be taken. According to him, a proceeding initiated for renewal of registration cannot automatically be converted into a proceeding for retrospective cancellation unless the assessee is clearly informed of the proposed action and afforded an opportunity to address the distinct legal and jurisdictional consequences flowing therefrom. The learned Senior Counsel reiterated that retrospective cancellation from 23.09.2021 carries consequences of a wholly different magnitude than rejection of renewal from a future date. Yet the impugned order contains no finding of fraud, misrepresentation, suppression of material facts or any circumstance ordinarily associated with retrospective withdrawal of a statutory benefit. It was therefore submitted that the Revenue’s reliance upon the doctrine of substantial compliance cannot cure a jurisdictional defect or a failure to comply with the requirements of natural justice.

86. In conclusion, the learned Senior Counsel submitted that the Revenue’s defense of the impugned order ultimately rests upon the same assumptions which permeate the order itself, namely that a charitable hospital must conform to a particular model of healthcare delivery conceived by the learned CIT(E), that actual utilisation of reserved beds constitutes the sole measure of compliance with the IPF Scheme, and that the Commissioner may independently adjudicate alleged violations under another statute notwithstanding the safeguards contained in section 12AB. According to the assessee, each of these assumptions is contrary to the statutory framework, contrary to the judicial precedents cited before the Tribunal and contrary to the material placed on record. It was therefore reiterated that the impugned order deserves to be quashed in its entirety and that the registration granted under section 12AB and approval granted under section 80G deserve to be restored. The learned Senior Counsel accordingly prayed that the appeal of the assessee be allowed.

87. We have carefully considered the rival submissions, perused the impugned order, examined the voluminous documentary material placed before us, including the written submissions running into several hundred pages, the financial statements, annual reports, statutory records, reports furnished under the Maharashtra Public Trusts Act, the provisions governing the Indigent Patient Fund Scheme and the judicial authorities cited by both sides. Before embarking upon an examination of the specific findings recorded by the learned CIT(E), it would be apposite to identify the precise controversy which arises for our adjudication. The issue before us, prima facie, is not whether healthcare should be affordable; nor is it whether charitable institutions ought to strive for greater outreach amongst economically weaker sections; nor even whether the assessee could have structured its affairs differently. Those are matters of policy, philosophy and administration. The issue before us is a legal one. It concerns the limits of statutory jurisdiction under section 12AB and the legal tests which Parliament has prescribed for grant, renewal and cancellation of registration. The controversy therefore requires us to examine, firstly, the true scope of enquiry permissible under section 12AB; secondly, whether the existence of premium healthcare facilities, substantial receipts and advanced medical infrastructure can by themselves lead to a conclusion that an institution engaged in medical relief has ceased to be charitable; thirdly, whether the learned CIT(E) could independently adjudicate alleged violations of section 41AA of the Maharashtra Public Trusts Act and the IPF Scheme in the absence of any determination by the competent authority under that enactment; and lastly, whether retrospective cancellation of registration from 23.09.2021 could legally be sustained on the facts of the present case. In our considered opinion, the answer to each of these questions must be sought not in subjective notions of charity but in the statutory architecture enacted by Parliament. In this context, we may refer to Sec.2 of the Act, which defines various terms used in the Act. This section starts with the expression “Unless the context otherwise requires”. The effect of usage of expression “unless the context otherwise requires” would mean that the definition expressly provided in the Act shall prevail over general/popular meaning of the term as held by Hon‟ble Supreme Court in the case of ACIT vs. Ahmedabad Urban Development Authority (supra). We may also refer to the definition of the term “Charitable Purpose” given in sec.2(15) of the Act. This definition is an inclusive definition. When the expression “includes” is used in the statute, it enlarges the meaning of words or phrases, i.e., more than the general or popular meaning given to the said expression, as held in the case of Commissioner of Income Tax v. Taj Mahal Hotel [1971] 82 ITR 44 (SC).

88. At the threshold, it is necessary to remind ourselves of a fundamental feature of the law relating to charitable trusts which appears to have been overlooked in the impugned order. Section 11 does not proceed on the assumption that a charitable institution should not earn income. In fact, the provision proceeds on the exact opposite assumption. The very opening words of section 11 contemplate income derived from property held under trust wholly or partly for charitable or religious purposes. Thus, the legislative premise is that there exists a property; that such property is held under trust; that income is derived from such property; and that such income is thereafter applied towards charitable purposes. The statute therefore does not treat generation of income as antithetical to charity. Rather, it recognises income generation as a natural and legitimate incident of property held under trust. What the law regulates is not the earning of income but its destination and application. This distinction is foundational to the entire scheme of exemption under sections 11 and 12. Once this basic premise is appreciated, it becomes evident that the Act nowhere postulates that a charitable institution must remain financially insignificant, operationally modest or economically fragile. There is no statutory command that a trust must earn only a limited amount of income. There is no ceiling on receipts. There is no prohibition against creating substantial infrastructure. There is no legislative preference for small institutions over large institutions. The inquiry mandated by the Act is whether the income derived from the property held under trust remains dedicated to charitable purposes and whether the institution continues to function within the discipline of sections 11 to 13.

89. Equally significant is the legislative design embodied in section 2(15). Parliament has consciously treated medical relief as a distinct and independent charitable purpose. This is not a case falling under the residuary limb of “advancement of any other object of general public utility”. Medical relief occupies a separate statutory position. The distinction is not accidental. It reflects legislative recognition that healthcare, by its very nature, serves a public purpose of the highest order. Therefore, while Parliament has introduced specific restrictions in relation to institutions claiming charitable status under the residuary category, it has not imposed any corresponding requirement that a hospital engaged in medical relief must satisfy a particular affordability index, maintain a prescribed tariff structure or restrict the scale of its operations. This view is supported by the CBDT Circular no. 1/2009 dated 27.3.2009, the decisions of the Supreme Court in case of ACIT v. Ahmedabad Urban Development Authority (supra), Dharmadeepti v. CIT 114 ITR 454 and the coordinate bench of the Mumbai Tribunal in case of Vanita Samaj v. ITO (Exemption). The learned CIT(E), however, appears to have approached the issue from a perspective which effectively imports into the field of medical relief considerations that belong elsewhere. The enquiry has shifted from whether the assessee is engaged in medical relief to whether the assessee’s model of medical relief satisfies the learned CIT(E)’s perception of how charity ought ideally to be delivered. That, in our view, is not the enquiry sanctioned by the statute.

90. The jurisprudence developed by the Hon’ble Supreme Court over the last several decades consistently reinforces this statutory understanding. The decisions in Surat Art Silk Cloth Manufacturers Association, Aditanar Educational Institution, Queen’s Educational Society and, more recently, Ahmedabad Urban Development Authority, though arising in differing factual settings, proceed upon a common jurisprudential foundation. The law does not condemn efficiency. It does not condemn scale. It does not condemn surplus. Nor does it insist that charitable activity must be carried on in a manner divorced from economic realities. The decisive enquiry is whether the dominant object remains charitable and whether the income generated in the course of carrying out those activities remains dedicated to that charitable purpose. The learned CIT(E), however, appears to have treated the existence of substantial receipts, advanced infrastructure and premium facilities as indicators of commerciality in themselves. Such an approach risks converting what has consistently been treated by the courts as neutral facts into presumptive evidence against charity.

91. It is in this backdrop that the findings relating to bed tariffs, treatment costs, average revenue per bed and comparison with household income require examination. We are unable to persuade ourselves that such factors can constitute determinative tests under section 12AB. The Income Tax Act nowhere authorises the Commissioner to assess charitable status by benchmarking healthcare charges against the median income of Indian households. Such an exercise may have relevance in public policy debates concerning healthcare accessibility. However, the role of the Commissioner under section 12AB is not to formulate healthcare policy. His duty is to apply the statute as enacted. Once statutory criteria are replaced by subjective standards of affordability, the enquiry inevitably becomes subjective and uncertain, because there exists no objective benchmark under the Act for determining what level of cost is compatible with charity. The consequence would be that charitable status would vary not according to statutory norms but according to the personal economic perceptions of individual authorities. Such an outcome would be wholly inconsistent with the rule of law which demands that fiscal consequences flow from legislatively prescribed standards rather than subjective assessments.

92. There is another aspect of the matter which deserves emphasis. The reasoning adopted in the impugned order appears to proceed on an implicit assumption that advanced healthcare and charity occupy opposite ends of the spectrum.

We find no warrant for such an assumption either in law or in reality. Medical relief in the twenty-first century is no longer confined to basic treatment or elementary healthcare. Modern medicine involves organ transplantation, robotic surgery, oncology, advanced cardiac interventions, neonatal intensive care, critical care medicine and highly specialised diagnostics. These services require enormous investment in infrastructure, technology and professional expertise. To suggest that the charitable character of a hospital diminishes as the quality and sophistication of medical care improves would be contrary to both logic and public interest. A charitable institution does not cease to be charitable because it provides the best possible treatment. Indeed, one of the noblest forms of medical charity may well be the creation of institutions capable of delivering world-class healthcare while remaining dedicated to charitable purposes.

93. The same reasoning applies to the observations made regarding organisational structure, employee strength and salary expenditure. A modern tertiary care hospital cannot function without an extensive workforce comprising specialists, surgeons, nurses, technicians, administrators and support personnel. Nor can it function without robust systems of governance, compliance and patient management. Organisational structure is not synonymous with commerciality. Professional administration is not evidence of profit motive. To hold otherwise would mean that the more efficiently a charitable institution functions, the greater the risk of losing its charitable status. Such a proposition is antithetical to sound public administration and finds no support in the statutory scheme. Similarly the contention of learned DR, that the power to appoint trustees of the trust are with settlor has no relevance for section 12AB of the Income Tax Act.

94. The learned CIT(E) has also attached considerable significance to the existence of premium rooms and higher-category accommodation. In our considered opinion, this factor by itself is legally neutral. The Act does not prohibit a charitable hospital from offering different categories of accommodation. Nor does it mandate a uniform tariff structure. What is material is whether the institution exists for private profit or whether its resources continue to remain dedicated to charitable purposes. The impugned order does not record any finding that income has been distributed to trustees, diverted for private benefit or applied for non-charitable purposes. In the absence of such findings, premium facilities cannot be elevated into a decisive indicator of commercial intent. On the contrary, the assessee‟s contention that differential accommodation may operate as a mechanism of cross-subsidisation is not without substance and deserves examination in the broader factual context. WE may make gainful reference to the decision rendered by the Pune ITAT in the case of ITO vs. Lata Mageshkar Foundation (supra), where in it has been specifically held that Section 2(15) relating to medical relief need not confine itself in providing medical services only to the poor people. It was further held that so long as the trust is engaged in medical activities, it will fall within the definition of ^„charitable purpose‟ and said trust can enjoy the benefit of exemption u/s 11. Similar view has been expressed by the co-ordinate bench of Mumbai ITAT in the case of ITO vs. Kaushalya Medical Foundation (supra).

95. Viewed holistically, we find that a significant portion of the reasoning adopted by the learned CIT(E) proceeds from a concern that the hospital should be doing more for economically weaker sections. That concern, as a matter of social policy, may be entirely understandable. However, the jurisdiction under section 12AB does not authorise the Commissioner to withdraw registration because an institution falls short of an ideal model of charity conceived by the authority. The law requires compliance with statutory standards, not perfection in charitable endeavour. The distinction between a legal test and a moral expectation must always be maintained. Once that distinction is blurred, statutory adjudication gives way to subjective evaluation.

96. We are therefore of the considered view that before examining the allegations relating to section 41AA, the IPF Scheme and the specific findings recorded in the impugned order, it is necessary to firmly reiterate the governing legal principle: under the scheme of section 12AB, the central enquiry is on objects of the trust, whether the activities carried on are genuine and in furtherance of those objects and compliance with the other laws which are material for the purpose of achieving its objects. The statute does not prescribe a cap on income, a ceiling on receipts, a limit on infrastructure, a restriction on organisational scale or an affordability benchmark for healthcare services. Any analysis which proceeds substantially on those considerations, without first demonstrating diversion from charitable objects or failure of statutory conditions, risks travelling beyond the boundaries of the jurisdiction conferred by Parliament. It is in the light of these principles that we shall now examine the findings of the learned CIT(E) concerning section 41AA, the IPF Scheme and the alleged violation of other laws.

97. Having delineated the statutory contours of sections 11, 2(15) and 12AB, we now turn to what, in our considered opinion, constitutes the central pillar of the impugned order, namely the alleged violation of section 41AA of the Maharashtra Public Trusts Act and the Indigent Patient Fund Scheme, which has ultimately been treated by the learned CIT(E) as constituting non-compliance with another law material for achieving the objects of the trust. At the outset, it is important to appreciate that the learned CIT(E) has not merely referred to section 41AA as a surrounding circumstance. Rather, the alleged breach thereof forms one of the two principal foundations upon which the entire impugned order rests. Therefore, unless this foundational premise withstands judicial scrutiny, a substantial part of the reasoning adopted in the impugned order necessarily falls. The issue before us, however, is not whether the objectives underlying section 41AA are laudable. There can be no two opinions that ensuring availability of healthcare to indigent and economically weaker sections is a matter of profound public importance. The issue before us is whether the learned CIT(E), while exercising jurisdiction under section 12AB, could himself undertake an adjudication of alleged violations under the Maharashtra Public Trusts Act and thereafter employ such conclusions as a basis for cancelling registration. In our opinion, this issue goes to the very root of jurisdiction.

98. Before examining the factual findings recorded by the learned CIT(E), it would be apposite to notice the legislative scheme embodied in section 12AB itself. The Learned CIT(E) has rejected application for renewal of the registration u/s 12AB and also cancelled the existing registration u/s 12AB(1)(b)(i)(B) of the Act. In our view, above section has to be read with clause (f) of Explanation to sec.12AB(4), which lists out “specified violations”, since the purpose of both sections are same. Parliament, while introducing the present registration regime, consciously incorporated the concept of “specified violation”. This was not done casually. Registration once granted carries significant legal consequences and affects the functioning of charitable institutions across multiple years. Parliament was therefore conscious that cancellation of registration should not be left to unfettered discretion tax authorities. It accordingly identified specific circumstances in which such action may be warranted and simultaneously built in statutory safeguards. One such circumstance relates to non-compliance with the requirements of any other law which are material for the purpose of achieving the objects of the trust. However, the provision does not stop at that point. It further contemplates the existence of an order, direction or decree, by whatever name called, holding that such non-compliance has occurred. This legislative formulation is of considerable significance because it reveals that Parliament did not envisage the Commissioner becoming the primary adjudicator under every law applicable to a charitable institution. Rather, the scheme contemplates recognition of a violation determined by the authority competent to administer that law.

99. In the present case, despite extensive arguments advanced by the Revenue, we have not been shown any order of the Charity Commissioner, any determination by an authority functioning under the Maharashtra Public Trusts Act, any decree of a competent forum, or any final adjudication holding that the assessee has violated section 41AA or the IPF Scheme. This fact assumes immense significance because section 41AA is not a provision under the Income Tax Act. It forms part of a specialised regulatory framework governing charitable hospitals in the State of Maharashtra. The legislature has entrusted administration of that framework to specific authorities possessing expertise, statutory powers and institutional responsibility under that enactment. The learned CIT(E), however, has independently interpreted the scheme, analysed patient ratios, computed alleged deficiencies, concluded that there exists a shortfall and thereafter held that the assessee has violated the law. In effect, he has assumed unto himself the role of the primary adjudicatory authority under another enactment. Such an approach, in our considered opinion, travels beyond the scheme contemplated by section 12AB.

100. The argument of the Revenue that the Commissioner is entitled to independently satisfy himself regarding compliance with another law cannot be accepted in the broad manner canvassed before us. If such an interpretation were accepted, the Commissioner would effectively become a parallel regulator under every enactment applicable to a charitable institution. A trust may be subject to municipal laws, environmental laws, labour laws, medical regulations, educational regulations, building regulations and a host of other statutory frameworks. To hold that the Commissioner may independently adjudicate alleged violations under each of these enactments and then proceed to cancel registration on that basis would not only render the safeguards incorporated by Parliament redundant but would also create an unworkable and potentially arbitrary regime. The law does not contemplate the Commissioner functioning as a super-regulator exercising appellate or original jurisdiction over specialised statutory authorities. Such a consequence would be contrary to both legislative intent and principles of institutional competence.

101. There is another equally important aspect of the matter. Even assuming for a moment that the learned CIT(E) was entitled to examine whether the requirements of section 41AA were being broadly observed, the conclusions ultimately reached by him proceed upon a particular interpretation of the IPF Scheme, namely that actual utilisation of beds by indigent and economically weaker section patients constitutes the sole measure of compliance. The assessee, on the other hand, has consistently contended that the scheme mandates reservation and earmarking of beds and not guaranteed occupancy. Upon a careful examination of the material placed before us, we find substantial force in the assessee‟s submission that the learned CIT(E) has conflated the concept of reservation with that of utilisation. The distinction is not merely semantic. A hospital may reserve and keep available the prescribed number of beds and yet the actual occupancy may vary depending upon factors beyond its control. To automatically equate lower occupancy with statutory violation would require a clear mandate in the scheme itself. We do not find such a mandate reflected in the material brought before us.

102. We also find that the learned CIT(E) has largely approached the issue from the standpoint of actual percentages of patients treated, whereas the statutory framework appears to focus upon availability of facilities and maintenance of the prescribed infrastructure for indigent and weaker section patients. The object of the scheme is undoubtedly to ensure meaningful access to healthcare. However, while interpreting a regulatory framework, one must be careful not to replace the language of the scheme with an ideal outcome which, though desirable, may not be expressly mandated by the provision. The distinction assumes particular importance in the present case because the entire conclusion regarding non-compliance is substantially founded upon the alleged gap between actual patient percentages and what the learned CIT(E) considered to be the intended benchmark. In our view, before such a serious conclusion can be reached, there must exist either a clear statutory prescription or a determination by the authority entrusted with administration of the scheme. Neither circumstance exists before us.

103. We also find merit in the assessee‟s contention that the learned CIT(E) has examined the operation of the Indigent Patient Fund in a manner divorced from its cumulative functioning. The material placed before us indicates that the assessee had furnished detailed statements showing opening balances, contributions credited to the fund, utilisation thereof and closing balances over multiple years. The impugned order, however, focuses primarily on isolated annual computations and derives therefrom an alleged shortfall of approximately Rs.11.29 crores for FY 2024-25. In matters involving dedicated funds operating across several years, isolated annual snapshots may not necessarily reveal the true financial position. What is required is an examination of the cumulative operation of the fund within the framework contemplated by the scheme. We find that this aspect has not received adequate consideration in the impugned order. The learned CIT (Exemption) has ignored the fact that para 11 of IPF scheme specifically mentions that ^„In case of surplus or shortfall in the IPF Account of the month, the same shall get adjusted in the subsequent months.‟ The statement of account of IPF shows that the assessee has spent more than the amount transferred to the account over the years.

104. More importantly, even if one were to assume the existence of certain deficiencies in implementation of the IPF Scheme, the further leap made by the learned CIT(E) from regulatory deficiency to loss of charitable character is, in our opinion, legally unsustainable. There is a fundamental distinction between compliance with a regulatory obligation and the existence of a charitable purpose. A charitable institution may, in a given case, commit procedural lapses, accounting lapses or regulatory lapses. Such lapses may expose it to consequences under the relevant enactment. However, every such lapse does not automatically erase the charitable character of the institution itself. A careful perusal of provisions of section 12AB(1)(b(i)(B) read with clause (f) of Explanation to section 12AB(4) provides that the CIT(E) is not required to examine about non-compliance of each and every requirements of any other law, but only look into ^„compliance‟ of any other law for the time being in force AS ARE MATERIAL FOR THE PURPOSES OF ACHIEVING ITS OBJECTS. The object of the assessee, herein, is providing medical relief and for achieving the same, it is running a hospital. It has complied with all material requirements stipulated under MPT Act to run the hospital. We noticed that the section only mandates the CIT(E) to see as to whether the assessee has complied with all the requirements for it to lawfully run the hospital. The learned CIT(E) appears to have proceeded on the assumption that once a perceived shortfall under the IPF Scheme is identified, the conclusion that the institution is no longer charitable follows almost automatically. We are unable to subscribe to such a proposition. Further, it was brought to our notice that non-compliance of provisions of sec.41AA of MPT Act and IPF Scheme will not incapacitate the assessee in achieving its objects. In that case, it cannot be said that the provisions of sec.41AA and IPF Scheme are material ones referred to in Section 12AB(1)(b)(i)(B) of the Act.

105. We must also bear in mind that throughout the impugned order there is no finding that the assessee has ceased to run a hospital, ceased to provide medical treatment, diverted its income for private benefit, abandoned its objects, or engaged in activities alien to medical relief. The entire case rests upon the proposition that the hospital should have provided greater benefit to indigent and weaker section patients than what, according to the learned CIT(E), it actually did. Even if one assumes that such criticism is factually justified, the same would still not answer the statutory question whether the institution continues to exist for medical relief. The distinction is subtle but crucial. The adequacy of charity and the existence of charity are not synonymous concepts. Section 12AB empowers the Commissioner to examine the latter; it does not confer upon him an open-ended jurisdiction to cancel registration merely because he believes that more charity ought to have been undertaken.

106. Accordingly, upon a cumulative consideration of the statutory framework, the scheme of section 12AB, the absence of any determination by the competent authority under the Maharashtra Public Trusts Act, the nature of the obligations contained in section 41AA and the material placed before us, we are unable to sustain the approach adopted by the learned CIT(E) in treating the alleged violation of the IPF Scheme as a jurisdictionally established fact warranting cancellation of registration and also non granting of renewal of registration. In our considered opinion, the very foundation upon which the learned CIT(E) invoked alleged non-compliance with another law stands seriously undermined both on facts and in law. Having reached this conclusion, we shall now proceed to examine the second principal limb of the impugned order, namely whether the financial profile of the institution, its tariff structure, treatment costs and operational scale can legitimately lead to the conclusion that the assessee has ceased to be a charitable institution engaged in medical relief.

107. We shall now examine the second and equally important limb of the reasoning adopted by the learned CIT(E), namely that the assessee, by reason of its tariff structure, treatment costs, premium facilities, financial profile and operational scale, has allegedly crossed the boundary between charitable healthcare and commercial healthcare and therefore ceased to be a charitable institution. In our considered opinion, this conclusion suffers from a fundamental conceptual infirmity because it proceeds upon an assumption that the scale and sophistication of an institution are indicative of its legal character. The Income Tax Act, however, does not recognise such a test. The character of a charitable institution is determined by its objects, the genuineness of its activities, the destination of its income and the manner in which its resources are applied. It is not determined by the architectural grandeur of its buildings, the sophistication of its equipment, the qualifications of its doctors or the magnitude of its receipts. If Parliament had intended that charitable status should diminish as an institution becomes larger, more efficient or more technologically advanced, it would have expressly said so. No such limitation exists either in section 2(15), section 11 or section 12AB.

108. We find that a substantial portion of the impugned order proceeds upon detailed analysis of room tariffs, average treatment costs and revenue indicators. While these facts may undoubtedly form part of the overall factual matrix, we are unable to hold that they constitute determinative criteria for deciding whether an institution engaged in medical relief remains charitable. The learned CIT(E) appears to have proceeded on the premise that because certain categories of accommodation carry substantial charges and because advanced medical procedures involve significant expenditure, the institution necessarily caters to affluent sections and therefore cannot legitimately claim charitable status. Such reasoning, in our opinion, overlooks the nature of modern healthcare itself. A hospital engaged in organ transplantation, advanced oncology, neurosurgery, critical care medicine or specialised cardiac treatment necessarily incurs expenditure of a magnitude far greater than that incurred in basic healthcare facilities. The cost of treatment is often a reflection of the complexity of the medical intervention and the infrastructure required to support it. To infer commerciality merely from the cost of treatment is therefore to confuse economic consequence with legal character.

109. The learned CIT(E) has repeatedly referred to the fact that the hospital provides premium accommodation and higher category facilities. In our view, this fact, by itself, is entirely neutral. The law does not prohibit a charitable hospital from maintaining different categories of accommodation. Nor does it mandate that every patient must receive identical accommodation irrespective of personal preference or ability to pay. What is material is whether the institution exists for private gain or whether the income generated remains impressed with charitable obligations. The record before us does not reveal any allegation that the trustees have appropriated profits, that income has been siphoned away for personal benefit, or that the assets of the trust have been deployed for non-charitable purposes. In the absence of such findings, the existence of premium rooms cannot be elevated into evidence of commercial intent. On the contrary, the explanation offered by the assessee that higher category facilities facilitate cross-subsidisation of healthcare services appears both plausible and commercially rational.

110. There is another aspect which merits consideration. The approach adopted by the learned CIT(E), if accepted as a principle of law, would lead to consequences which are neither contemplated by the statute nor consistent with public policy. Many of the leading charitable hospitals in India operate advanced medical facilities, charge market-linked rates from paying patients, maintain sophisticated infrastructure and employ highly specialised professionals. Such institutions often depend upon a combination of patient receipts, philanthropic support and cross-subsidisation models to sustain their operations. If the mere existence of substantial receipts or premium facilities were to become a disqualifying factor, a large number of institutions historically recognised as charitable would be rendered vulnerable to cancellation of registration. We find no indication that Parliament intended such a result. On the contrary, the legislative scheme appears to encourage the creation and maintenance of institutions capable of delivering high-quality charitable services rather than penalising them for achieving operational excellence.

111. We also find that the learned CIT(E) has attached considerable significance to the magnitude of receipts and financial resources available with the institution. Here again, the reasoning appears to overlook the structure of section 11 itself. As already discussed, section 11 does not prohibit earning of income. It postulates income. The statute is concerned not with the quantum of income but with its application. A trust holding substantial property may derive substantial income. A large hospital may generate substantial receipts. A university may possess extensive assets and receive considerable contributions. None of these circumstances, by themselves, destroy the charitable character of the institution. What the law examines is whether such income remains dedicated to the charitable purposes for which the institution exists. In the present case, we find no finding by the learned CIT(E) that the income of the trust has ceased to be applied towards healthcare activities or that it has been diverted for private enrichment. The absence of such a finding is of considerable significance.

112. The financial analysis undertaken by the learned CIT(E) also appears to proceed on the assumption that surplus and profit motive are synonymous. This proposition stands directly contradicted by the consistent line of authorities rendered by the Hon’ble Supreme Court. In Surat Art Silk Cloth Manufacturers Association, the Court recognised that surplus arising incidentally from carrying out charitable activities does not alter the charitable character of the institution. Similar principles were reiterated in Aditanar Educational Institution and Queen’s Educational Society, where the Court emphasised that the decisive test lies not in the existence of surplus but in its destination. If the surplus is ploughed back into the institution and utilised for advancement of its charitable objects, it does not become profit in the commercial sense. The impugned order, however, frequently uses expressions such as “surplus”, “large receipts” and “financial strength” as though these facts are self-evident indicators of commerciality. Such an approach is inconsistent with the settled jurisprudence governing charitable institutions.

113. We also find considerable merit in the assessee’s contention that the learned CIT(E) has not adequately distinguished between operational receipts and philanthropic support. The material placed before us indicates that the institution has received donations, contributions and earmarked funds intended for charitable purposes and development of healthcare infrastructure. Such receipts cannot be equated with commercial profits. A charitable institution which receives substantial donations does not become less charitable because it possesses financial resources. Indeed, philanthropic support is often a hallmark of public confidence in the institution‟s charitable mission. The treatment of such receipts as indicators of commerciality therefore appears conceptually unsound. Equally, designated funds, earmarked contributions and statutory allocations cannot automatically be treated as unrestricted surplus available for private gain. The assessee has demonstrated that it has suffered deficit from its medical operation from FY 2021-22 to FY 2024-25 and is funded by philanthropic support. Hence the observation of learned CIT(E) that the assessee has earned huge surplus is factually incorrect.

114. The learned CIT(E) has also relied upon the size of the organisation, the number of employees and the structured nature of hospital administration. We are unable to subscribe to the proposition that professional management and organisational sophistication are indicative of commercial character. A tertiary care hospital handling thousands of patients annually cannot function without a large workforce, detailed protocols, administrative systems, compliance mechanisms and specialised departments. The existence of such systems demonstrates operational necessity rather than profit motive. If efficiency and organisation are treated as evidence against charity, then the law would paradoxically reward inefficiency and penalise excellence. Such a conclusion would be wholly inconsistent with both logic and legislative intent.

115. In our considered opinion, the entire discussion in the impugned order concerning tariffs, treatment costs, premium facilities, organisational structure and financial profile suffers from a common infirmity. These factors have been treated as though they constitute independent tests of charitable status. The statute, however, prescribes no such tests. At best, they are surrounding circumstances which may assist in understanding the functioning of an institution. They cannot replace the statutory inquiry into charitable purpose, genuineness of activities and application of income. Once the enquiry is brought back within the boundaries prescribed by Parliament, much of the reasoning adopted by the learned CIT(E) loses its determinative force. It is a settled position that the proviso to section 2(15) which brings the activities of a charitable trust outside the purview of the definition of ^„charitable purpose‟ upon satisfying the conditions mentioned in the proviso, will not apply to the assessee which is providing ^„medical relief‟. We also agree with the contention of the assessee that the decision relied upon by the learned DR are not applicable to the facts of the case of the assessee. Though the learned DR contended that there is violation of provisions of Section 11(4A) of the Act, we notice that the same is not the case of learned CIT(E) and further that the activity of providing medical relief by running a hospital, in our view, cannot be considered to be a business activity.

116. We therefore hold that the conclusions drawn by the learned CIT(E) from the tariff structure, treatment costs, premium facilities, revenue indicators, financial resources and organisational scale of the hospital do not constitute legally sustainable grounds for holding that the assessee has ceased to be a charitable institution engaged in medical relief. The record before us demonstrates that the assessee continues to run a hospital, continues to provide healthcare services, continues to apply its resources towards medical relief and continues to operate within the framework of its charitable objects. The factors relied upon in the impugned order may describe the scale and sophistication of the institution, but they do not alter its essential legal character. Hence, we hold that the learned CIT(E) ought to have granted renewal of registration. Having thus examined the two principal pillars upon which the impugned order rests, we shall now address the question of retrospective cancellation, the scope of the power exercised by the learned CIT(E) and the legality of the consequential directions contained in the impugned order.

117. Having dealt with the two substantive pillars upon which the impugned order rests, namely the alleged violation of section 41AA and the conclusion that the assessee has ceased to be charitable because of its operational and financial profile, we now turn to the consequential action taken by the learned CIT(E), namely cancellation of the registration already granted under section 12AB with retrospective effect from 23.09.2021. The learned CIT(E) has cancelled the registration u/s 12AB(1)(b)(i)(B) while processing the application of the assessee seeking renewal of the registration. In the preceding paragraphs, we have come to the conclusion that all reasonings given by the learned CIT(E) for rejecting the application are legally and factually incorrect. Since we have held that the assessee should have been granted renewal of registration, the question of cancellation of registration effective from 23.09.2021 u/s 12AB(1)(b)(i)(B) will not arise. In any case, we shall also examine whether the learned CIT(E) could have cancelled the registration retrospectively. In our considered opinion, cancellation of registration with retrospective effect requires an independent examination because even assuming for the sake of argument that some concerns existed regarding the functioning of the institution, it does not automatically follow that registration validly granted several years earlier could be obliterated from its inception. The distinction between refusal of renewal and retrospective cancellation is not merely procedural; it goes to the very nature and consequences of the power exercised. A renewal proceeding proceeds on the footing that registration exists and the authority is required to examine whether it should continue. Retrospective cancellation, on the other hand, proceeds on a far more serious premise, namely that the registration already granted deserves to be nullified from the very date of its grant.

Such a consequence necessarily requires a far stronger legal and factual foundation than what would ordinarily be required in a simple renewal proceeding.

118. A careful reading of the impugned order shows that the entire exercise undertaken by the learned CIT(E) arose from the assessee‟s application seeking renewal of registration and continuation of approval under section 80G. The enquiry conducted by him was largely directed towards examining the manner in which the hospital was functioning during the subsequent years, particularly with reference to patient ratios, tariff structures, implementation of the IPF Scheme, financial statements and operational data pertaining to recent periods. The findings recorded in the impugned order are themselves founded on data relating to Financial Years 2022-23, 2023-24 and 2024-25. However, despite the fact that the entire factual examination concerns subsequent years, the ultimate consequence imposed is cancellation of registration from 23.09.2021. This, in our opinion, creates a serious disconnect between the material relied upon and the consequence ultimately imposed.

119. It is important to note that nowhere in the impugned order has the learned CIT(E) recorded a finding that the registration granted on 23.09.2021 was obtained by fraud, suppression of material facts, misrepresentation or concealment of relevant information. There is no finding that the assessee had misled the Department while obtaining registration. There is no finding that the objects of the trust as disclosed at the time of grant were false or fictitious. There is no finding that the hospital was not carrying on medical relief activities at the time registration was granted. There is equally no finding that the registration itself was void ab initio. In the absence of such findings, it becomes difficult to appreciate how the registration could be retrospectively extinguished from the date of its inception. The logic underlying retrospective cancellation necessarily presupposes that something was fundamentally wrong with the grant itself or that the foundation on which it rested stood vitiated from the beginning. The impugned order, however, does not identify any such foundational defect.

120. We find considerable force in the assessee‟s contention that the facts relied upon by the learned CIT(E) are not facts existing only after grant of registration but are largely characteristics inherent in the institution itself. The hospital was a tertiary care institution even before 23.09.2021. It had specialised departments even before 23.09.2021. It had advanced infrastructure, premium rooms, sophisticated equipment and a structured healthcare model even before 23.09.2021. If these very features are now treated as indicators of commerciality, then it is difficult to comprehend how the registration could have been validly granted in the first place. Conversely, if the registration was validly granted despite these characteristics being known and existing, then those very characteristics cannot subsequently be relied upon to retrospectively invalidate the registration from its inception. This internal inconsistency, in our opinion, goes to the root of the impugned action.

121. We also find that the learned CIT(E) has not identified any specific event occurring after grant of registration which fundamentally altered the character of the institution. The hospital continues to be engaged in the same field of medical relief. The trust continues to be governed by the same objects. The institution continues to operate under the same statutory framework. The activities continue to be healthcare activities. There is no allegation that the trust has diverted into unrelated commercial ventures. There is no allegation that the objects have been amended in a manner inconsistent with charitable purposes. There is no allegation that the assets of the trust have ceased to be held for charitable purposes. In such circumstances, the cancellation of registration from the very date of grant appears wholly disproportionate to the findings actually recorded in the impugned order.

122. Another aspect which deserves emphasis is that the learned CIT(E) appears to have conflated concerns regarding continuance of registration with the much more serious consequence of retrospective cancellation. Even if one were to assume that the authority entertained genuine concerns regarding implementation of the IPF Scheme or the level of outreach to indigent patients, such concerns would still require examination within the framework prescribed by law. They do not automatically justify the conclusion that the registration ought never to have existed. The statutory framework contemplates measured and proportionate exercise of power. Cancellation from inception is the most extreme consequence possible. Such a consequence cannot be founded merely on a difference of opinion regarding the adequacy of charitable outreach or the interpretation of a regulatory scheme.

123. We also find that the factual analysis undertaken by the learned CIT(E) itself demonstrates that the institution has continued to undertake substantial charitable and medical activities throughout the relevant period. The impugned order contains detailed discussions regarding patient treatment, infrastructure, medical facilities, number of beds, specialised departments, financial resources, indigent patient treatment and operation of the IPF Scheme. These discussions, while relied upon by the learned CIT(E) for drawing adverse conclusions, simultaneously demonstrate that the institution has remained actively engaged in the field of medical relief. The controversy, therefore, is not about absence of activity but about the manner and extent of such activity. Once that position is appreciated, the rationale for retrospective cancellation becomes even more difficult to sustain.

124. We further find that the denial of renewal and cancellation of registration have been treated almost interchangeably in the impugned order. In our view, the two concepts are distinct and operate in different spheres. Renewal requires examination of whether the institution continues to satisfy the statutory requirements. Cancellation from inception, however, carries with it an implicit declaration that the registration itself deserves to be treated as non est from the beginning. The latter consequence cannot be justified merely because the authority forms an adverse opinion while considering renewal. There must exist independent reasons demonstrating why the registration granted earlier deserves to be retrospectively erased. Such reasons are conspicuously absent in the impugned order.

125. The same reasoning applies to the consequential withdrawal of approval under section 80G. The denial of 80G approval in the present case is not based upon any independent factual examination but is entirely consequential to the cancellation of registration under section 12AB. Once the foundation itself is found to be legally unsustainable, the superstructure erected thereon cannot survive. Therefore, the fate of the 80G approval necessarily follows the fate of the registration under section 12AB.

126. Accordingly, upon a cumulative consideration of the factual matrix, the statutory framework and the reasoning adopted in the impugned order, we are unable to sustain the retrospective cancellation of registration from 23.09.2021. The material relied upon by the learned CIT(E) pertains to subsequent periods; no foundational defect in the original grant of registration has been demonstrated; no finding of fraud, misrepresentation or suppression of material facts has been recorded; the essential charitable character of the institution has not been shown to have undergone any fundamental transformation; and the factors relied upon by the learned CIT(E) are, in any event, insufficient to justify obliteration of the registration from its inception. We therefore hold that the action of the learned CIT(E) in cancelling the registration granted under section 12AB with retrospective effect from 23.09.2021 is unsustainable in law and on facts.

127. Before we record our final conclusion, we consider it necessary to once again place the controversy within the correct statutory framework, for it is here that the learned CIT(E) has, in our considered view, fallen into a fundamental error. Section 12AB is not a provision for assessing the adequacy, desirability or economic purity of a charitable activity. It is a registration provision. At the stage of registration or renewal, the authority is required to see whether the objects of the trust are charitable, whether the activities are genuine and whether the trust has complied with requirement of other laws which are material for achieving its objects. are compliant with and whether the statutory conditions for registration continue to be satisfied. The Commissioner cannot convert this enquiry into a full-scale assessment of how much charity, according to him, ought to have been done, how the tariff structure should have been designed, how affordable the institution should have been to every economic class, or whether the hospital should have adopted a different model of healthcare delivery. These considerations may be of social relevance, but they do not constitute statutory tests under section 12AB. The learned CIT(E), instead of first identifying the statutory conditions and then testing the assessee against them, appears to have first conceived an ideal model of a charitable hospital and thereafter judged the assessee by reference to that model. That, with respect, is where the impugned order has fundamentally gone wrong.

128. The concept of charity under the Income Tax Act, particularly in the specific limbs of section 2(15), has to be understood in the light of the statutory scheme of sections 11 and 12. The Act recognises that a trust may hold property, that income may be derived from such property and that such income may be exempt if it is applied for charitable or religious purposes in accordance with law. The entire architecture of section 11 is therefore premised upon income being earned. It is not a provision which says that charitable institutions must not have receipts, must not own property, must not operate organised institutions or must not generate surplus. On the contrary, it contemplates that income will arise and then insists upon its application for the stated charitable purposes. Thus, in the case of a hospital trust, the central question is not whether the hospital earns substantial receipts, but whether the income derived from the property and activities of the trust is applied towards medical relief and whether the institution remains devoted to that purpose. The impugned order repeatedly treats the quantum of receipts, existence of premium facilities and financial scale of operations as though they are themselves inconsistent with charity. That approach is contrary to the very design of section 11.

129. It is also important to bear in mind that section 2(15) places “medical relief” in the main body of the definition of charitable purpose. Like education, relief of the poor and preservation of environment, medical relief is not dependent upon the residual limb of “advancement of any other object of general public utility”. The commerciality proviso has its principal operation in the residuary category and cannot be mechanically imported into the specific charitable limbs such as education and medical relief. The consistent judicial understanding, emanating from the decisions of the Hon’ble Supreme Court in Surat Art Silk Cloth Manufacturers Association, Aditanar Educational Institution, Queen’s Educational Society and other authorities, is that where the dominant object is charitable, the mere fact that income or surplus arises in the course of carrying out that object does not convert the institution into a commercial concern. What is relevant is whether the activity is carried out for private profit or whether the receipts remain dedicated to the charitable purpose. In the present case, there is no finding that the assessee has distributed profits, diverted income for private benefit, applied funds outside its objects or abandoned medical relief. Once these essential facts are absent, the conclusion that the assessee is not charitable merely because its hospital is large, sophisticated and financially substantial cannot be sustained.

130. Even where the activity of a charitable institution is carried on in an organised manner resembling business operations, the Act itself provides an answer in section 11(4A). The statute recognises that a charitable trust may carry on an undertaking or activity which may have the attributes of business, provided the business is incidental to the attainment of the objects of the trust and separate books of account are maintained. This provision is important because it demolishes the simplistic proposition that organised, systematic or revenue-generating activity is per se inconsistent with charity. In the case of a hospital, the carrying on of medical operations, charging of fees from patients, maintenance of accounts, employment of professional staff and acquisition of modern equipment are all integrally connected with the object of medical relief. They are not extraneous commercial adventures covered by section 11(4A). If the hospital activity itself is the mode through which the charitable object is achieved, then its organised or economically substantial character cannot by itself take it outside the charitable fold. The learned CIT(E) has not demonstrated that any activity of the assessee is independent of, or unrelated to, the object of medical relief.

131. The learned CIT(E) has also erred in treating affordability as a statutory precondition. No doubt, medical charity has a deep social content and access to healthcare for weaker sections is an important public value. However, the Income Tax Act does not prescribe that medical relief will qualify as charity only if it is provided at a particular price, or only if every service is affordable to the average household, or only if premium facilities are absent. A cancer hospital, a cardiac hospital, a transplant centre or a multi-speciality tertiary care institution may necessarily involve expensive treatment. That does not mean that the institution is not rendering medical relief. The law does not recognise a distinction between basic medical relief and advanced medical relief for the purpose of section 2(15). The moment the enquiry is shifted from “whether medical relief is being provided” to “whether the medical relief is sufficiently inexpensive”, the authority travels beyond the statutory text. The learned CIT(E) has precisely committed this error.

132. The assessee‟s case also cannot be tested by isolating premium rooms or high-paying patients from the broader institutional framework. A charitable hospital may have paying patients, subsidised patients and free patients. It may use receipts from one segment to sustain services for another. It may receive donations and deploy them for infrastructure. It may charge full cost from those who can afford and provide relief to those who cannot. These are matters of institutional design and financial sustainability. The Income Tax Act does not prohibit such a model. What it prohibits is diversion of income, private enrichment, application of funds outside charitable purposes and violation of the discipline of sections 11 to 13. No such finding has been recorded in the impugned order. Therefore, the learned CIT(E)’s emphasis on the existence of premium-paying patients is not sufficient to dislodge the assessee’s charitable status.

133. Equally, the findings regarding section 41AA and the IPF Scheme cannot be used to rewrite section 12AB. If there is any violation of the Maharashtra Public Trusts Act or the scheme framed thereunder, the competent authority under that Act is empowered to examine and deal with the same. In the present case, no adverse order of the Charity Commissioner or any competent authority has been brought on record. The learned CIT(E) has himself interpreted the scheme, examined the data, computed alleged shortfalls and concluded that there is violation. Such an approach is inconsistent with the statutory safeguard reflected in Explanation (f) to section 12AB(4), which contemplates an order, direction or decree holding that non-compliance has occurred. The Income Tax authority cannot, in the guise of section 12AB, assume the mantle of every regulatory authority under every other enactment. At best, the learned CIT(E) could have taken note of a violation established by the competent authority. He could not have created the violation himself and then used it as a ground for cancellation.

134. The learned CIT(E)’s approach also overlooks that the controversy relating to the IPF Scheme is, even on facts, not free from debate. The assessee’s case is that the scheme requires reservation and earmarking of beds, not compulsory occupancy of such beds at a fixed percentage throughout the year. The assessee has also pointed out that details are uploaded and furnished to the Charity Commissioner and that the fund has to be viewed cumulatively rather than by isolating one financial year. These are not frivolous explanations. They raise issues of interpretation and implementation of the regulatory scheme. In the absence of any adverse finding by the authority administering that scheme, it was not open to the learned CIT(E) to treat his own interpretation as conclusive and then cancel registration on that foundation.

135. The present case also illustrates the importance of maintaining the distinction between the existence of charity and the adequacy of charity. Every charitable institution can perhaps do more. Every hospital can aspire to treat a larger number of indigent patients. Every educational institution can aspire to grant more scholarships. Every trust can seek to expand the reach of its benevolent activities. However, section 12AB does not authorise the Commissioner to cancel registration because an institution falls short of an ideal standard conceived by the authority. The enquiry is whether the institution continues to pursue a recognised charitable purpose and whether its activities are genuine. Once those conditions are satisfied, the statute does not permit registration to be withdrawn merely because the authority would have preferred a different model of operation.

136. Before we part with the legal discussion, we deem it appropriate to observe that charity in law is not measured by architectural modesty, nor by the absence of financial strength. A charitable institution does not cease to be charitable merely because it has succeeded in creating excellence. The Income Tax Act does not create a hierarchy where a small institution is presumed charitable and a large institution presumed commercial. Nor does it proceed on the assumption that sophisticated infrastructure, advanced technology, professional management, substantial receipts or world-class facilities are inherently inconsistent with charity. The true touchstone remains what it has always been under the scheme of sections 11 and 12, namely the purpose for which the institution exists and the destination of the income it earns. So long as the property remains held under trust, the income derived therefrom continues to be applied towards the charitable objects and the activities remain genuine, the institution does not lose its charitable character merely because it has acquired scale, efficiency, reputation or financial sustainability. To hold otherwise would be to penalise success in the pursuit of charity and to introduce into the statute limitations which Parliament itself has never chosen to enact. The law encourages charity; it does not punish it for becoming effective.

137. We are, therefore, of the considered opinion that the learned CIT(E) has conflated three distinct concepts: first, the statutory character of the assessee as an institution engaged in medical relief; secondly, the regulatory obligations cast upon charitable hospitals under the Maharashtra Public Trusts Act; and thirdly, his own assessment of whether the assessee‟s healthcare model is sufficiently affordable or philanthropic. These three may overlap factually, but they are not identical in law. Section 12AB required the learned CIT(E) to examine the first within the statutory framework. If the second had resulted in an adverse finding by the competent authority, it could have been considered in accordance with the conditions prescribed by the Act. The third, however, cannot be a substitute for law. By allowing the third to dominate the first two, the impugned order has travelled beyond the boundaries of the jurisdiction conferred upon the learned CIT(E).

138. In view of the foregoing discussion, we hold that the assessee continues to be an institution existing for the charitable purpose of medical relief; that its activities are genuine and are in furtherance of its stated objects; that the financial scale, tariff structure, premium facilities or generation of receipts do not, by themselves, establish commerciality or profit motive; that no finding has been recorded of diversion of income, private enrichment or application of funds for non-charitable purposes; that alleged non-compliance with section 41AA or the IPF Scheme could not have been independently adjudicated by the learned CIT(E) in the absence of any determination by the competent authority under the Maharashtra Public Trusts Act; in any case, the assessee has complied with provisions of section 41AA and IPF scheme and further both these provisions are not material for achieving the objects of the trust in terms of Section 12AB; and that the retrospective cancellation of registration from 23.09.2021 is unsustainable. Consequently, the impugned order rejecting renewal and cancelling registration under section 12AB is set aside. The registration earlier granted to the assessee under section 12AB shall stand restored and the application for renewal stands allowed. Since the rejection of approval under section 80G is only consequential to the order passed under section 12AB, the said consequential rejection also cannot survive and is accordingly set aside.

139. Consequently, the impugned order passed by the learned CIT(E) cancelling the registration granted under section 12AB with retrospective effect from 23.09.2021 is hereby quashed and set aside. The registration granted to the assessee under section 12AB shall stand restored. The application seeking renewal/continuation of registration is allowed. Since the rejection of approval under section 80G is purely consequential and rests entirely upon the cancellation of registration under section 12AB, the same also cannot survive. The consequential rejection of approval under section 80G is therefore set aside. Accordingly, the application seeking renewal of approval u/s 80G shall stand allowed.

140. In the result, the appeals filed by the assessee are allowed. Consequently,

(a) The registration under section 12AB stands granted for further period of five years with effect from 01-04-2026.,

(b) the retrospective cancellation of registration u/s 12AB is quashed, and

(c) the consequential denial of approval under section 80G is also set aside and approval under section 80G is granted for further period five years with effect from 01-04-2026.

Ordered accordingly.

Order pronounced on ^9th June, 2026.