Brief about the case
The Assessee was registered under the Societies’ Registration Act, 1860 with its main objects to relieve persons suffering from disease or illhealth or requiring medical aid by establishing, constructing and maintaining or assisting Charitable Dispensaries, Hospitals, Convalescent Homes, Sanitoria and Maternity Homes etc. The provisions of section 10 (23C) (via) of the Act became applicable to the petitioner with effect from A.Y.2009-10 as its annual receipts exceeded rupees one crore. The assessee, therefore, made an application in accordance with the Income Tax Rules seeking approval under the said provisions for the said exception. However, the respondent rejected the application on the basis of drastic increase observed in the development fund, cash & bank balances and fixed assets which in the opinion of the respondent indicates that the assessee’s hospital earns substantial profits from its basic operations and utilized only a meager amount on the weaker sections of society, thereby not fulfilling the primary requirement for seeking exemption.
Facts of the case:
- The assessee trust, had applied for grant of approval u/s 10(23C) as it was running a hospital with its main objects being the provision of healthcare facilities and establishing, constructing and maintaining charitable hospitals, dispensaries, convalescent homes, sanitoria and maternity homes, etc
- The Chief Commissioner noticed that the existence of the trust was ostensibly for philanthropic purpose and in reality for profit as it reflected from the extravagant balances of the development fund, cash & bank balances and fixed assets.
- There was a huge increase in fixed assets from Rs.63.75 lacs in A.Y. 2006-07 to Rs.8.02 crores in A.Y. 2009-10 which was an increase of approximately Rupees 7.5 crores within four years;
- Cash and bank balances had also increased from Rs.1.42 lacs to Rs.1.74 crores during the same period which was an increase of about Rs.1.30 crores;
- Generation of surplus along with transfer of the amount to the development fund clearly indicated a systematic method of earning profit which are put to use for increasing its capacity to generate more income;
- The primary condition for availing exemption u/s 10(23C) (via) requires the hospital to exist solely for philanthropic purposes and not for profit motive. This primary condition not being fulfilled by the assessee trust, the application was thereby rejected and on writ the plea was dismissed.
Contention of the Revenue
