Institute of Franciscan Missionaries of Mary Vs Commissioner (Madras High Court)
Merely because the petitioner is having certain out reach programmes which may be charitable in nature or that a section of patients are given free treatment would not automatically render the petitioner a charitable hospital. It would not mean that an exemption from payment of property tax can allowed to the petitioner.
Further, under the Section 135 of the Companies Act, 2013 and the provisions of Companies Act, 1956, the companies enjoying the profits were/are required to contribute for public cause as Corporate Social Responsibility (CSR). The amount that has to be spent towards Corporate Social Responsibility is out of profits. However, that does not make such company as a “Charitable Institution”.
If the amount are collected for treating the patients and a portion of the amount is used for doing charity, it would not mean that the hospital becomes a charitable hospital. This may be explained with an example. An individual may do a charity out of his earning by contributing the amount for charitable cause, but, such an individual cannot be labelled as a “charitable person” even though he may be doing charity. It means such a person is doing charity.
At best of the act of the petitioner giving free treatment for few poor and needy patients while collecting fees for giving treatment to those patients who can afford is not sufficient to hold the petitioner Charitable Institution / Hospital. Few acts of benevolence and charity should not be construed in such a manner to laber such a person as a Charitable Institution.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The petitioner has challenged the impugned order dated 13.12.2019 passed by the first respondent/Commissioner of City Municipal Corporation, Coimbatore rejecting the request of the petitioner for granting of exemption from payment of property tax under Section 123(e) of the Coim-batore City Municipal Corporation Act, 1981.
2. Earlier, the petitioner had filed a Writ Petition before this court in W.P.No.14529 of 2009 for a Writ of Certiorarified Mandamus, to call for the records from the second respondent pertaining to his Notice under
Assessment No.240020 dated 08.07.2009, in respect of the Immaculate Conception Convent Hospital and to quash the same and to direct the respondents to pass an order by granting exemption from levy of property tax under Section 123(e) of the Tamil Nadu Act 25 of 1981.
3. The said Writ Petition was disposed by a learned Single Judge of this Court vide order dated 07.12.2017 after considering the order passed in the case of Sundaram Medical Foundation Vs. The Commissioner Corporation of Chennai, CDJ 2017 MHC 5265 and in the light of the decision of this Court in Masonic Charity Trust Vs. The Corporation of Coimbatore, (2010) 8 MLJ 643, with the following observations:-
11. Thus, for the above reasons, this writ petition is allowed, the impugned demand is quashed and the respondents are directed to consider the petitioner’s claim for exemption vide petition dated 08.05.1995, along with the annexures and the petitioner is at liberty to submit a fresh petition enclosing the copies of earlier petition on the claim for exemption within a period of thirty days from the date on which the petition submitted by the petitioner. It is needless to state that while quashing the impugned demand of property tax for the past period, there should be no coercive action against the peti-tioner till the matter is decided in terms of the above directions. No costs. Consequently, connected miscellaneous petition is closed.
4. Thereafter, a demand noticed dated 09.01.2019 was issued by the first respondent. The petitioner appears to have filed W.P.No.30904 of 2019 and obtained a stay vide order dated 01.11.2019. Pursuant to the order dated 14.07.2010 in W.P.No.14529 of 2009, the first respondent passed the impugned order dated 13.12.2019 with the following observa-tions:-
Your hospital premises were inspected by the corporation officials in this connection. It is well evidenced from the inspection that your hospital is not actually run in strict accordance with the principles of charity. On the contrary, your hospital is run purely on the basis of profit motive under the guise of charitable hospital.
It has also come to light during inspection that the hospital collects huge amount from the patients for treating them, it is not free of cost as contented by you and it is not charitable in nature.
The Hon’ble Division Bench of the Madras High Court in W.A.No.612 of 2003 has held that the benefit conferred under Section 80G of the Income Tax Act would not confer on the hospital to seek an exemption from payment of property un-der Section 123(e) of the Act and the benefit conferred under Section 123(e) is not automatic.
The Hon’ble Division Bench of the Madras High Court in L.P.A.No.210 of 1999 has held that the burden of proof that the profit was utilized for charitable purpose rest upon the individual who claims it and the provisions of Income Tax Act and Customs Act are not in paramateria with the provisions of Coimbatore City Municipal Corporation Act.
You also failed to produce any documents to show that the treatment is rendered free of cost, that the service provided is charitable in nature or profit earned was utilized for charitable purpose, as held by the Hon’ble Division Benh of Madras High Court in L.P.A.No.210 of 1999 in the case of K.G. Hospital.
Moreover, in the case of K.G. Hospital, though an exemption was granted in the year with effect from 01.04.1980 which was withdrawn later on, the Hon’ble Division Bench held that when the hospital has not proved that the profit earned by it are spent for charitable purpose, it is not entitled for exemption.
In the present case too, you have not produced any proof to show that you are rendering free treatment or the profits earned by you is spent for charitable purpose. Therefore, you are not entitled to claim exemption from payment of property tax to your hospital premises under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981.
5. The learned Senior Counsel for the petitioner submitted that since the petitioner is running a Charitable Hospital as its object is only to do charity, the petitioner is entitled for exemption from payment of property tax under Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981 which has been wrongly denied to the petitioner vide impugned order.
6. The learned Senior Counsel for the petitioner has also drawn attention to the following cases:
i. PSG & Sons Charities Vs. City Municipal (1997) 1 CTC 331,
ii. Queen’s Educational Society Vs. Commissioner of Income Tax (2015) 8 SCC 47.
iii. Chief Commissioner of Income Tax Vs. St.Pe-ter’s Educational Society, (2016) 14 SCC 306.
iv. Govel Trust Running Aravind Eye Hospital, Madurai Vs. The Commissioner Coimbatore City Municipal Corporation, Coimbatore and Other’s LNINLORD 2019 MAD 15745.
v. Sundaram Medical Foundation, Rep by its Trustee and Director-Administration, T.N.P.-Durai Vs. Commissioner, Corporation of Chennai and Others, (2017) 7 MLJ 802.
vi. Velammal Educational Trust Vs. State of Tamil Nadu and Others, 2017 SCC OnLine Mad 37345.
vii. Sundaram Medical Foundation Vs. Chennai Metro Water Supply and Sewerage Board and others, W.A.No.1426 & 1427 of 2021, dated 19.05.2021.
viii. M/s. The New Delhi Holy Family Hospital Society Vs. Municipal Corporation of Delhi, 1983 SCC OnLine Del 151.
ix. S.N.R. Sons Charitable Trust, Coimbatore Vs. The Commissioner, Coimbatore City Municipal Corporation, Coimbatore, 1992 SCC OnLine Mad 247.
x. Society of Jesus and Another Vs. Bangalore Mahanagar Palike and Others, ILR 2002 KAR 94.
xi. Christian Medical College, Vellore Association Vs. The Government of Tamil Nadu and others, Manu/TN/7884/2021
7. The learned Senior Counsel for the petitioner has drawn the attention to the recent decision of the learned Single Judge of this Court in the case of Parivar Seva Sanstha v. The Commissioner, The Corporation of Chennai in W.P.No.32041 of 2019, dated 29.10.2020.
8. The learned Senior Counsel also drew attention to several paragraphs from the said decision and submitted that the learned Single Judge of this Court has concluded that though profit earning should not be the dominant object of the institution, there is no bar to it being a mere incident for its operations. To hold that there should be a bar on the earning of profits would only serve to make the institution unviable.
9. The learned Senior Counsel also brought out the distinction between the provisions of the Delhi Municipal Corporation Act, 1957 and Coimbatore City Municipal Corporation Act, 1981. A reference was made to paragraph 34 of the decision which reads as follows:
“34.Though profit earning should not be the dominant object of the institution, there is no bar to it being a mere incident of its operations. To hold that there should be a bar on the earning of profits would only serve to make the institution unviable. The provision for exemption in the Delhi Act specifically provides for this situation in the imposition of the condition that ‘such society is supported wholly or in part by voluntary contributions, (and) applies its profits, if any, or other income in promoting its objectives and does not pay any dividend or bonus to its members’. The Madras enactment does not employ the same phrase and extends the exemption to all ‘charitable hospitals and dispensaries but not including residential quarters attached thereto’. However, the use of the word ‘charitable’ would necessitate an examination of established parametres such as the following, among other tests: (i) the activity engaged in by the entity in question (ii) whether such activity is generally understood to fall within the ambit of public service and social good (iii) whether other statutory authorities, including income-tax have recognised the petitioner as being engaged in, and rendering charitable activities (iv) whether the dominant object of the institution is to render service or to earn profit (v) if the activity does generate profit or the institution earns income from other sources, is such profit/net income ploughed back into the institution or diverted to other avenues/individuals.”
10. The learned Senior Counsel for the petitioner further submits that the petitioner Hospital was exempted from payment of property tax till 1980 under Section 83(1)(e) of the Tamil Nadu District Municipalities Act, 1920. However, in the year 1981, after the Coimbatore was re-organised as a Corporation, under the Coimbatore City Municipal Corporation Act, 1981, the exemption was sought to be denied. It is submitted that the petitioner was made to pay property tax at the rate of Rs.8924/-per half year and the petitioner expressed its inability to pay such tax and gave its representation before the respondents stating that they were entitled for the benefit of tax exemption under the new dispensation of the Corporation or under the new act as given in the previous years under Section 83(1)(e) of the Tamil Nadu District Municipalities Act, 1920. The first respondent had raised the tax rate from Rs.8924/- to Rs.22460/- per half year.
11. Aggrieved by the said order, the petitioner filed an appeal in T.A.No.431 of 1993 before the Taxation Appellate Tribunal. The Taxation Appellate Tribunal passed an order dated 25.04.1995 and gave liberty to the petitioner to file appropriate application by filing relevant documents and statements. The Taxation Appellate Tribunal has also given a direction to the respondent to examine as to whether the petitioner is entitled for exemption from payment of property tax and pass appropriate orders.
12. The learned Senior Counsel further submitted that the activity undertaken by the petitioner cannot be compared with the activity undertaken by the Corporate hospitals. It is submitted that the petitioner collects contributions from the in-patients who can afford to pay for the treatment. It is submitted that the petitioner also receives contributions made by the Missionaries of Charities viz., Nazareth Convent, St.Mary’s Convent, Convent of our lady of Velanganni and St.John de Britto Convent.
13. The learned Senior Counsel for the petitioner further submits that the surplus income which is generated by the petitioner is ploughed back for the services rendered by the petitioner and therefore, the petitioner cannot be made liable to tax.
14. The learned counsel for the petitioner has drawn attention to the Certificate issued to the petitioner under Income Tax Act which according to him confirms that the petitioner is a charitable hospital and since the said expression is not defined under the Coimbatore City Municipal Corporation Act, the certificate of registration granted under Section 12A of the Income Tax Act has to be recognised for the purpose of grant of exemption. It is further submitted that the hospital is 174 years old hospital and is engaged only in providing charitable premises.
15. Opposing the prayer, the learned counsel for the respondents submits that the hospital premises of the petitioner was inspected and it was found that the petitioner was collecting fees for treating patients as inpatient and outpatient and therefore, it cannot be stated that the petitioner was a charitable hospital for the purpose of Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981.
16. The learned counsel for the respondent has drawn the attention to a recent decision of a learned Single Judge of this Court rendered in the case of Sundaram Medical Foundation vs. Chennai Metro Water Supply & Sewerage Board, in W.P.Nos.20992 & 20993 of 2018, vide dated 26.04.2021, wherein, it was held as follows:-
“40.The above facts are not controverted and this Court has considered the online web portal of the writ petitioner / Sundaram Medical Foundation and the facts were extracted in aforementioned paragraphs. Perusal of the above details regarding the charges collected from the patients, any prudent man will form an opinion that there is no reason to believe that the petitioner is running a Charitable Medical Institution by dominantly providing free medical services to the poor, needy and deserving citizen of this great Nation. It is to be remembered that any institution predominantly providing medical services at free of cost to the poor, needy and deserving people, alone, may be granted with the benefit of exemption. The character of predominant services to be interpreted as if the services provided to poor, needy and deserving are not only provided to such poor, needy and deserving people, and they must have free access to such charitable medical institutions for the purpose of taking treatment. Thus, it is to be construed as poor, needy and deserving patients / citizen of this great Nation, must have free access to such Charitable institution and such institution should not refuse admission in the hospital at any circumstances to the poor.
41.In the absence of any such free access to poor, needy and deserving patients in charitable medical institution, one cannot come to the conclusion that such institutions are doing charity to poor, needy and deserving for the purpose of seeking exemption of property tax under the Statute.Tax being Revenue of the State, strict interpretation of law is not only imminent, but a constitutional mandate. Therefore, the benefit of doubt must always be extended to the Revenue and not to the individual as claimed by the petitioner.
44.In fact, petitioners are predominantly providing services to rich and affluent. Thus, this Court is inclined to draw factual inference that the petitioner / Medical Foundation is providing free medical services to the poor, needy and deserving people restrictedly and to the limited extent for the purpose of retaining the free land allotted by the Government in G.O.M-s.No.460, Revenue dated 10.04.1992. The value of the land in Anna Nagar Location is running in several crores. Such a valuable land is allotted at free of cost in favour of the petitioner to run the medical institution and under the guise of maintenance of building and other infrastructures, the petitioners are collecting huge charges from the patients and providing least services to the poor and needy. Thus, such factors are to be inspected by the Government for the purpose of ascertaining, whether the Charitable institutions are functioning for the welfare of the poor, needy and deserving people and in the event of any contra facts, all suitable actions are to be initiated.
45. As far as the provisions of the Chennai City Municipal Corporation Act is concerned, it is unambiguous that Charitable Hospitals are eligible for exemption. However, the character of the Charitable Hospitals are to be scrutinized as the loss of Revenue is detrimental to the interest of public at large. Thus, the authorities are bound to be cautious, while scrutinizing all material facts and circumstances, for taking a decision. In the present case, the respondents have conducted inspection regarding the functioning of the petitioner / Medical Foundation and formed an opinion that they are providing free Medical services to 15% of the patients and they are collecting charges from 85% and further, the charges collected from the patients are comparable on par with the established reputed Hospitals in Chennai City.”
17. I have considered the arguments advanced by the learned Senior Counsel for the petitioner and the learned counsel for the respondents. I have perused the case laws relied on by the learned Senior Counsel for the petitioner and the learned counsel for the respondent.
18. The Immaculate Conception Convent Hospital was established in the year 1879. After the Tamil Nadu District Municipalities Act, 1920 was enacted, the said hospital would have been governed by the provisions of the said Act.
19. Later, the petitioner was organised and registered as a society under the provisions of the Tamil Nadu Societies Registration Act, 1860 in the year 1973. It was not registered as a trust under the provisions of the Indian Trusts Act, 1882. The petitioner took over the hospital and the said hospital thus came under the purview of the petitioner society.
20. After 1920, levy of property tax on the subject building would have been governed by the provisions of the Tamil Nadu District Municipalities Act, 1920.
21. In 1981, when the Coimbatore City Municipal Corporation Act, 1981 was enacted under which aslo lands and buildings of Charitable Hospitals and Dispensaries were exempted from payment of property tax.
22. It appears that till about 1981, the subject building of the petitioner was given exemption from payment of property tax under Section 83 of the Tamil Nadu District Municipalities Act, 1920 though there are no records to indicate the same. The exemption was sought to be denied by the first respondent Commissioner of Municipal Corporation vide communication/ letter dated 12.11.1981.
23. The first respondent Commissioner of Municipal Corporation stated that there was no provision in the Coimbatore City Municipal Corporation Act, 1981 for granting exemption to the buildings of the petitioner.
24. The first respondent thus sought to impose property tax under the provisions of the Coimbatore City Municipal Corporation Act, 1981, by fixing the annual value of the land in year 1981. The petitioner challenged the same before the Taxation Appellate Tribunal (T.A.T.) in T.A.No.431 of 1993.
25. By an order dated 25.04.1995, the Taxation Appellate Tribunal had partially granted relief to the petitioner by stating that the petitioner will have to file appropriate application before the first respondent to justify its claims for exemption under the provisions of the Coimbatore City Municipal Corporation Act, 1981.
26. The petitioner appears to have filed an application pursuant to the aforesaid order dated 25.04.1995 of the T.A.T. According to the petitioner, the said application is still pending before the first respondent. On the other hand, the first respondent in the counter has stated that the said application was rejected. However, details of orders have not been furnished before this Court.
27. The petitioner later received a demand notice dated 08.07.2009 from the second respondent. The petitioner was called upon to pay a sum of Rs.6,59,876/- as property tax for the period between 1998-99 to 200910.
28. The petitioner thereafter received another demand notice dated 09.01.2019 from the second respondent. The petitioner was called upon to pay a sum of Rs.13,60,636/- as property tax up to the date of demand. There are however no details of period for which the aforesaid amount was demanded.
29. Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981 is pari materia with Section 101(e) of the Chennai City Municipal Corporation Act, 1919 and Section 83 of the Tamil Nadu District Municipalities Act, 1920. These provisions exempts “Charitable Hospital and Dispensaries” from payment of property tax. These provisions are reproduced below:-
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