An Institution ostensibly for philanthropic purpose and in reality for profit, would not qualify for Section 10(23C) deduction

A plain reading of Section 10(23C) makes it clear that the   legislature   has   categorised   for   deduction   income   of   those  institutions   which   ‘exist   solely’   for   philanthropic   purpose   with   a  further   stipulation   that   they   would   exist   ‘not   for   the   purpose   of  profit’.     In   other   words,   the   institution   should   not   exist   for   a commercial purpose.  The first proviso to this sub­section requires an   assessee   to   make   an   application   in   a   prescribed   form   to   the prescribed   authority   for   the   purpose   of   grant   of   exemption   or continuance thereof. The second proviso provides that the prescribed authority before granting an approval may call for such documents, including audited annual accounts or information and as it may think necessary in order to satisfy itself about the genuineness of activities  of such a trust or fund and may make such inquiries as may deem necessary   in   that   behalf.     It   is   the   further   requirement   of     the provision   that   an   assessee   should   apply   its   income   solely   and exclusively for the objects for which it is established.    Rule 2CA of the Income Tax Rules lay down the guidelines for grant of approval.

A   plain   reading   of   the   above   provision   shows   that   the legislative emphasis is on a twin requirement.  Firstly the purpose for which the trust is existing, which should be solely an existence for a philanthropic purpose and secondly it should not be for profit.   This interpretation   subserves   the   object   of   the   provision.   The   clear language of the provision show that the intention of the legislature is to   benefit   those   institutions   which   cater   to   variety   of   illness   and  suffering   as   a   service   to   the   society   and   solely   for   philanthropic purpose   and   not   for   the   purpose   of   profit.     An   existence   of   the institution ostensibly for a philanthropic purpose and in reality for profit, would not qualify an institution for a deduction under this provision.     This   would   not   mean   that   such   an   institution   cannot incidentally   have   a   reasonable   surplus   which   it   utilizes   for philanthropic purposes.

In the light of the above legal requirement, we now proceed to  examine   the   facts   of   the   present   case   so   as   to   determine   as   to  whether   respondent   no.1   was   right   in   rejecting   the   petitioner’s  application seeking an approval   under section 10 (23C) (via).   In  doing so, we examine whether the impugned decision suffers from any arbitrariness and/or an illegality.  From the material on record as placed before respondent no.1 it was reflected that the petitioner was earning surplus revenue from its activities and that the assets were increasing. The fact that surplus was generated is not disputed by the petitioner. This surplus revenue  was utilized for acquisition of  assets which in the opinion of respondent no.1 was capable of generating  more income.   In the Assessment years 2006­07, 2007­08, 2008­09 and   2009­10,   the   percentage   of   transfer   of   gross   surplus   to   the development fund was at 19.12 % 28.37 % 73.17 % and 12.12 % respectively.     Accompanied with this, there was a huge increase in fixed assets from Rs.63,75,577/­ in A.Y.2006­07 to Rs.8,02,75,706/­ in Assessment year 2009­10 which was approximately an increase of Rs.7.50 crores within four years. Petitioner’s cash and bank balances also   increased   from   Rs.1,42,420/­   to   Rs.1,74,15,757/­   during   the same   period   which   was   an   increase   of   about   Rs.1.30   crores.   The petitioner had purchased land admeasuring 8,350 sq.meters for an amount of Rs.363.63 lacs.   All these figures are borne out by the details as submitted by the petitioner before respondent no.1.   The reasoning as given by respondent no.1 that all these figures go to show   that   there   was   a   systematic   generation   of   profits   from   the activities of the petitioner coupled with the increase in assets which would generate more income / profits cannot be said to be without any basis, arbitrary or perverse. Hence, it was not improper for the respondent no.1 to draw a reasonable inference that the petitioner is not existing solely for philanthropic purpose and for profits, in ouropinion cannot be faulted.

We have also perused the statement of expenditure incurred by the petitioner showing the concessional treatment claimed to be offered by it.   The figures of concessional treatment clearly indicate that the petitioner has spent meagre amount on the weaker section of the society which negatives the contention of the petitioner that the petitioner   is   existing   solely   for   philanthropic   purpose   and   not   for profit.

A perusal of the statement of the hospital charges and fees furnished by the petitioner for Financial year 2006­-07, 2007­-08 and 2008­-09 shows the very negligible percentage of poor/needy patients receiving treatment in the hospital of the petitioner.    What is more glaring are the details in the two columns namely ‘Gross Concessional Amount Receivable’ and ‘The amount Received from Poor patients.’ These figures in no manner would inspire any confidence or make a prudent   person   believe   that   the   petitioner   is   in   fact   existing   for philanthropic   purposes.     We   say   so,   for   the   reason,   that   it   is Court inconceivable that poor patients would be in a position to pay large amounts   as   indicated   by   the   petitioner   in   details   given   in   these financial statements.

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