Case Law Details
S.H. Medical Centre Hospital vs State of Kerala & ors (2014) 11 SCC 381
The Supreme Court was considering an issue as to whether income derived from a building can be said to be used for charitable purpose by running of a free medical aid to the needy and poor in the context of tax exemption under Municipal laws. It was held that income derived from the building was being applied for charitable purpose was to be clearly proved and that the fact that the institution is set up for charitable purpose as stated in the Memorandum of Association cannot be enough to hold that income is necessarily applied for charitable purposes. In this context, the Supreme Court in paragraph 16,17 and 19 observed thus:
16. “In our considered view, the High court was correct in holding that the application of income derived from a building for charitable purposes does not amount to the building being “principally used” for charitable purpose. In the present case, if we have to rule against the High Court’s judgment, it will be necessary to have more evidence with respect to details such as what the nominal charges are for patients who can afford it and the number of patients offered free medical care vis-a-vis the number of patients who pay for the services. The argument that the income is applied for charitable purposes can be accepted only if it is known what portion of the income goes into charity i.e. Free medical services. Does the percentage of patients receiving free medical services increase every year. If we hold that the income derived from a building is applied for charitable purposes then that has to be clearly proved and the fact that the institution is set up for charitable purposes as stated in its memorandum of association cannot be enough to hold that income is necessarily applied for charitable purposes especially in the light of the fact that the patients who can afford to pay for it are being charged for medical services.
17. Now, we will examine the question of what “charitable purpose” means. The Oxford English Dictionary defines “charitable “as of or relating to the assistance of those in need”. In the present case, it can be argued that all medical services relate to the assistance of those in need. This is a valid interpretation but cannot be accepted for the purposes of tax. If these medical services in the present case were being offered free to a majority of the patients rather than a minority of patients, then the conclusion could have been reached that the buildings are principally used for charitable purposes. Further, an amount of approximately Rs.26,00,000 of the expenses are towards “social work and charities” as per the income and expenditure accounts provided, whereas “free medical aid” is around Rs.60,00,000 for the year 2004-2005. It is not clearly mentioned that “social work and charities” is. Furthermore, an exemption is provided for that area in which free medical aid is provided by the appellant Hospital. The appellant has not produced cogent material evidence before the competent authority or the State Government or before the High Court to show that the entire building has been used for charitable purpose by rendering free medical aid to the needy poor people of society. The fact is that the details furnished in the documents produced would go to show that the appellant Hospital is earning money by charging from patients and therefore the claim of the appellant that the entire area taxed is used for charitable purpose is not reflected in the documents produced. Hence, we are not inclined to interfere with the impugned orders. The High Court has correctly interpreted the “Explanation” clause to section 3 (1) of the Act to hold that “charitable purpose” means “relief of the poor and free medical relief”.
19. The society already has income tax exemption and the question here is whether the building is used principally for ‘charitable purpose’. Only the building utilized for providing free medical aid can be said to be used principally for charitable purpose and it will go against the letter of the law to grant building tax exemption for all the buildings of the hospital irrespective of what it is used for simply on the ground that the overall object of the hospital is charity although it is being predominantly run on a chargeable basis. In this case, the building used for providing free medical aid must be exempted from paying building tax.
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Speaking Order. We have to solute the Judiciary for the dispassionate assessment of the facts and figures and clarity in the final Order.