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.
On the basis of details as submitted by the petitioner the respondent no,.1 has rightly come to a conclusion that the concessional treatment as given by the petitioner for the above assessment years being meagre 3.56 %, 6.45% and 4.45% respectively, definitely does not speak of the existence of the petitioner for philanthropic purposes.
One more factor which needs to be noted is in regard to the resolution dated 28.8.2008 passed by the petitioner which does not specify the purpose of acquisition of the land but only authorises the acquisition of the land at a particular price from one Birla India Ltd. The contention on behalf of the petitioner that the preamble of the resolution is required to be taken into consideration is misconceived and cannot be accepted seen from the totality of the circumstances. The alarming figures of large surplus as generated by the petitioner and the utilization of those surplus for acquisition of assets would speak against the petitioner existing solely for philanthropic purpose and not for profit. This would disentitle the petitioner to the benefit of section 10 (23) (via). If the petitioner was to solely exist for philanthropic purposes and was to conduct the hospital to achieve that object by providing treatment to the weaker sections of the society, it could not have been possible for the petitioner to achieve such a huge surplus and the consequent enabling of the petitioner to utilize such surplus funds to generate assets. In our opinion, the material as placed on record do not show that the application of the petitioner under section 10 (23C) (via) of the Act is inappropriately and arbitrarily rejected by the respondent no.1 so as to warrant our interference in exercise of jurisdiction under Article 226 of the Constitution of India.
The contention on behalf of the petitioner that looking to the manner in which the exemption was allowed in the past, respondent no.1 ought to have granted its application under section 10 (23C) (via) of the Act, in our opinion, is completely misconceived and contrary to the requirement of the statutory provision. It was the legal duty of respondent no.1 to consider independently the application of the petitioner for the assessment year in question on the basis of the material as submitted by the petitioner and applying the requirements of the provisions of subclause 23C (via) of section 10 decide the same independently. Any deduction and/or exemption as granted to the petitioner for earlier assessment years cannot be claimed to be of any consequence by the petitioner so as claim this deduction as a matter of right for A.Y.200910 and thereafter. We therefore, reject this submission as urged on behalf of the petitioner.
The decision of the Division Bench of this Court in the case of Breach Candy Hospital vs CCIT & ors (supra) as relied on behalf of the petitioner is of no assistance to the petitioner. The Division Bench in the facts of the case had held that there was absence of any material to show that generally there was a profit in the hospital activities of the petitioner therein. In this context, it was held that it cannot be said that the petitioner did not exist solely for philanthropic purpose but, for the purpose of profit and the rejection of the application of the petitioner therein was held not valid. However, situation in the present case is quite different. In petitioner’s case there is accumulation of surplus and there is utilization of this surplus for generation of assets.
The reliance of the petitioner on the decision of the Division bench of this Court in Tolani Educational Institution vs Director of Income Tax (Exemption) (supra) also is of no avail. In this case, activities of the petitioner were educational and the surplus was utilized towards upgrading college facilities. It was held that with the advancement of technology no college or institution can afford to remain stagnant and hence applying the provisions of section 10 (23C) (vi) it was held that it does not require that the college must maintain status quo, as it were, in regard to its knowledge based infrastructure. It was observed that educational institutions have to modernise, upgrade and respond to the changing ethos of education. In this context, it was held that section 10 (23C) cannot be interpreted regressively to deny exemption as educational institution exist for educational purpose and not for profit. There is no finding of the Court that the utilization of surplus was for acquisition of fixed assets. It was also not the case that the petitioner had not spent on educational activities but, for some other purpose outside the parameters of educational activity which was the sole object of the petitioner. However, in the present case, the petitioner has successively incurred a meagre expenditure on philanthropic activity namely expenditure towards treatment of weaker sections of the society and major amount was utilized for generation of assets. These facts therefore, completely differentiate the case of the petitioner from the facts of the case in Tolani Education Society (supra.) The intention of the legislature in making provisions of section 10 (23C) (via) is that an institution shall exist solely for philanthropic purpose and not for the purpose of profits. The expression “solely for philanthropic purpose” and “not for the purpose of profits” spells out a clear intention of the legislature that the institution should not merely exist for philanthropic purpose but existence shall not be for profits. Satisfaction of this twin test by an institution claiming a deduction would entitle it for the benefit of the provisions of section 10 (23C) (via) of the Act. In the petitioner’s case, from the details of the accounts as submitted by the petitioner, this position remains hardly satisfied so as to enable the respondent no.1 to grant an approval for the purpose of the petitioner claiming exemption under the said provisions.
The decision of the Division Bench in the case of Rukmarani Education Foundation (supra) as relied by the petitioner in support of the proposition that the petitioner has not been informed by the respondent no.1 on the grounds and reasons before the application by the petitioner was rejected. The petitioner in the said case had sought to furnish information/evidence to meet the grounds on which the impugned order was passed which is not the position in the present case. In the present case respondent no.1 had issued a show cause to the petitioner. Apart from that ample opportunity was given to the petitioner to place all the material to show that the petitioner becomes eligible to the deduction as claimed for the assessment year in question. A personal hearing was also granted to the petitioner ‘s representative to present the facts of the case on 23.9.2010. After taking into consideration the entire material respondent no.1 has passed a detailed order giving reasons as to why application of the petitioner has not been accepted. The petitioner has not made out any case of a prejudice it has suffered for want of hearing. We are therefore of the clear opinion that respondent no.1 in passing the impugned order has in no manner acted in breach of the principles of natural justice.
Learned counsel for the Respondents has appropriately relied on the decision of the Supreme Court in S.H.Medical Centre Hospital vs State of Kerala & ors (supra). 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 and 17 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”. (Emphasis supplied)
In the petitioner’s case it may be that the memorandum of association shows that it is established for philanthropic purpose but as to whether such philanthropic activities are reflected from the actual conduct of the institution is a fact which is required to be seen by the appropriate authority by appreciating the evidence in that regard in considering the application under section 10 (23C) (via). Such examination is an independent examination and it is only on the basis of the material as submitted by the petitioner, the respondent no.1 has taken a decision to reject the application of the petitioner.
The observations of the Supreme Court in its decision in the case of Aditanar Educational Institution vs Addl.Commissioner of Income Tax (1997) 3 SCC 346 are squarely applicable to the issue in hand. In dealing with an issue arising under section 10 (22) of the Act which concerned income of a University or other educational institution existing solely for educational purpose and not for profit the Supreme Court observed thus :
“ We may state that the language of section 10 (22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for the purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity.” (Emphasis supplied)
In the light of our above observations, we are certain that the writ petition does not call for any interference of this Court. Writ Petition is accordingly dismissed. In the facts and circumstances of the case,there shall be no order as to costs.