Expenditure for construction of hospital building for general public is expenditure incurred for charitable purposes

RELEVANT PARAGRAPH

Having heard learned counsel for the parties, we have gone through the impugned orders and given our anxious consideration to the rival submissions.

Section 2 (15) of the Act defines charitable purpose and Section 11 (1)of the Act provides exemption to the income derived by the trust applied for the charitable purposes. Section 2 (15),Section 11 (1)and Section 12-A of the Act read as follows:

Section 2 (15)”charitable purpose includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife)and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess of fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Section 11 (1)Subject to the provisions of sections 60 to 63,the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a)income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen percent of the income from such property; (b)income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property; (c)income derived from property held under trust-

(i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii)for charitable or religious purposes, created before the 1st day of April, 1952 to the extent to which such income is applied to such purposes outside India:

Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;

(d)income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.

Section 12A.(1)The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:-

(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July,1973,or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under Section 12AA:

Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of Sections 11 and 12 shall apply in relation to the income of such trust or institution, –

(i) from the date of the creation of the trust or the establishment of the institution if the Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;

(ii) from the 1st day of the financial year in which the application is made, if the Commissioner is not so satisfied:

Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007; (aa)the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the Commissioner and such trust or institution is registered under Section 12AA;

(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2)of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

(c) [ *****]

(2) Where an application has been made on or after the 1st day of June, 2007 the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.”

According to Section 2 (15)of the Act “expression charitable purpose has been defined by way of inclusive definition so as to include relief to the poor, education, medical relief and advancement of any other object of general public utility. Under Section 11 of the Act, income derived from property held under trust only for religious purposes to the extent to which such income is applied to such purposes is exempt from tax. Section 12A of the Act contemplates the registration of the trust for the purposes of Section 11 of the Act.

Admittedly the assessee trust is registered under Section 12A of the Act. The genuineness of its existence is undisputed. The object of the assessee trust is primarily to run the hospital, nursing home etc. for medical aid to the general public. We are of the view that such object falls within the purview of charitable purposes defined under Section 2 (15)of the Act. Construction of building for running the hospital or dispensary is the basic necessity. Without the building hospital cannot run and the medical facility cannot be provided to the public at large. Therefore, any expenditure incurred for the construction of the building is the expenditure incurred for charitable purposes. For the construction of the building if the land is taken on lease from PMT Society on which hospital was constructed and is being run, it cannot be said that the amount incurred in the construction of the hospital building on the land taken on lease from PMT Society was not for charitable purposes. We are of the view that the object of the PMT Society is wholly irrelevant to judge the object of the present assessee.

However, the fact is that the object of PMT Society has also been treated as charitable object by the appellate authority which is valid till date. The Apex Court in the case of Commissioner of Income Tax v. Gujarat Maritime Board, reported in 295 ITR-561 has interpreted the words “any other object of generally public utility ” of Section 2 (15)of the Act. It has been held that the said expression is of the widest connotation. The word ‘general’ in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose.