ITAT Mumbai Quashed Retrospective Cancellation of Section 12AB Registration of Charitable Hospital Trust

Masina Hospital Trust Vs CIT (Exemptions) (ITAT Mumbai)

ITAT Mumbai Set Aside Rejection of Section 12AB Renewal and Retrospective Cancellation of Registration for Charitable Hospital Trust 

The Income Tax Appellate Tribunal, Mumbai Bench, allowed the appeal filed by Masina Hospital Trust against the order dated 30.03.2026 passed by the Commissioner of Income-tax (Exemptions), Mumbai, rejecting its application in Form No. 10AB under Section 12A(1)(ac)(ii) for renewal of registration under Section 12AB of the Income-tax Act, 1961 and cancelling its existing registration retrospectively with effect from 23.09.2021 under Section 12AB(1)(b)(ii)(B). The Tribunal noted that the issues concerning the meaning of “medical relief” under Section 2(15), Sections 11 and 12AB, the relevance of hospital scale and financial structure, alleged non-compliance with Section 41AA of the Maharashtra Public Trusts Act, 1950 and the Indigent Patients’ Fund (IPF) Scheme, and retrospective cancellation of registration were substantially identical to those decided in the connected appeals of Breach Candy Hospital Trust v. CIT(E), and adopted those findings mutatis mutandis.

The CIT(E) had examined the assessee’s application by referring to Rule 17A, Section 41AA of the Maharashtra Public Trusts Act, the Bombay High Court judgment in Sanjiv Gajanan Punalekar v. State of Maharashtra & Others, and the IPF Scheme requiring reservation of beds for indigent and weaker section patients and maintenance of an Indigent Patients’ Fund. After calling for extensive operational and financial information, the CIT(E) analysed patient statistics, treatment costs, average revenue per bed, salary expenditure, IPF balances and utilisation, and concluded that the hospital had treated only a small percentage of indigent and weaker section patients, had allegedly failed to comply with the IPF Scheme, operated on commercial principles, violated Section 2(15), and failed to comply with another law material for achieving its charitable objects. On that basis, the CIT(E) rejected renewal and cancelled the existing registration retrospectively.

Before the Tribunal, the assessee submitted that its activities were identical to those considered in the connected appeals, that it had incurred deficits for several years, regularly furnished reports under the IPF Scheme, and that no adverse finding had been recorded by the Charity Commissioner or any competent authority under the Maharashtra Public Trusts Act. The Revenue supported the impugned order, relying on the patient statistics, treatment costs, hospital receipts, utilisation of the IPF and treatment provided to indigent and weaker section patients.

The Tribunal held, following its separate order in Breach Candy Hospital Trust v. CIT(E), that “medical relief” is an independent head of charitable purpose under Section 2(15), and that the scale of operations, receipts, infrastructure, employment of professional and administrative staff, different categories of accommodation, or organised functioning of a hospital do not by themselves establish that the institution exists for private profit. It observed that the Income-tax Act does not prescribe an affordability index, ceiling on hospital charges, cap on receipts or a particular healthcare delivery model for registration under Section 12AB. The Tribunal further held that the CIT(E), while exercising jurisdiction under Section 12AB, could not assume the functions of authorities under the Maharashtra Public Trusts Act and independently determine violation of Section 41AA or the IPF Scheme in the absence of any adverse order or determination by the competent authority.

The Tribunal found that the CIT(E) had not recorded that the assessee’s objects were non-charitable, that the hospital was not functioning, that medical services were fictitious, that income or property had been diverted for private benefit, or that charitable objects had been abandoned. It held that comparisons based on average revenue per bed, average treatment costs, aggregate salary expenditure, mathematical averages, patient percentages and IPF balances did not establish that the hospital existed for private profit or that its activities were not genuine. It also observed that no instance had been recorded of an eligible indigent or weaker section patient being denied treatment or of the prescribed beds not being reserved or made available. The Tribunal further held that retrospective cancellation from 23.09.2021 was unsustainable in the absence of any finding that registration had been obtained by fraud, misrepresentation, concealment or suppression of material facts, or that the original registration was void at inception.

Accordingly, the Tribunal set aside the order dated 30.03.2026, quashed the rejection of renewal and the retrospective cancellation of registration, and directed the CIT(E) to continue and renew the assessee’s registration under Section 12AB in accordance with law. The appeal was allowed.

Cases Discussed

• Breach Candy Hospital Trust v. CIT(E), ITA Nos. 5374/Mum/2026 and 5350/Mum/2026
• Sanjiv Gajanan Punalekar v. State of Maharashtra & Others (Bombay HC), Writ Petition (PIL) No. 3132 of 2004

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal filed by the assessee, Masina Hospital Trust, is directed against the order dated 30.03.2026 passed by the learned Commissioner of Income-tax (Exemptions), Mumbai [hereinafter referred to as “the learned CIT(E)”], in Form No. 10AD. By the impugned order, the learned CIT(E) rejected the assessee’s application in Form No. 10AB filed under section 12A(1)(ac)(ii) of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], seeking renewal of registration under section 12AB of the Act. The learned CIT(E) further cancelled the existing registration with effect from 23.09.2021, being the date on which such registration had been granted, by invoking section 12AB(1)(b)(ii)(B) of the Act.

2. At the outset, it may be noted that the present appeal was heard along with the connected appeals in the case of Breach Candy Hospital Trust v. CIT(E), being ITA Nos. 5374/Mum/2026 and 5350/Mum/2026. The issues arising in the present appeal concerning the meaning and scope of “medical relief” under section 2(15), the application of sections 11 and 12AB, the relevance of the scale and financial structure of a charitable hospital, the alleged violation of section 41AA of the Maharashtra Public Trusts Act, 1950, read with the Indigent Patients’ Fund Scheme, and the validity of retrospective cancellation of registration are substantially similar to the issues adjudicated in the aforesaid connected appeals. The arguments advanced by the learned representatives of both sides in the present appeal are also substantially the same as those advanced in the connected appeals. Those arguments have, therefore, been duly considered while disposing of the present appeal. Accordingly, the findings, reasoning and observations recorded in the order passed in the case of Breach Candy Hospital Trust v. CIT(E) shall apply mutatis mutandis to the present appeal, insofar as they are relevant to and consistent with the facts and grounds arising herein.

3. The assessee has raised the following grounds of appeal:

1. On the facts and circumstances of the case and in law, the ld. CIT(E) erred in rejecting the Appellant’s application for renewal of registration under section 12AB of the Act and further erred in cancelling its existing registration under the said provision.

2. On the facts and in law, the ld. CIT(E) erred in holding that the Appellant has not complied with the Indigent Patient Fund (IPF) scheme formulated under section 41AA of the Maharashtra Public Trusts Act, 1950.

3. In holding so, the ld. CIT(E) inter alia failed to appreciate that the Appellant has been regularly sending reports under the IPF Scheme to the prescribed authority under the Maharashtra Public Trusts Act, 1950, and such authority has not found the Appellant to be in violation of the scheme.

4. On the facts and in law, the findings of the ld. CIT(E) regarding the average cost of treatment per patient, the percentage of indigent/weaker section patients receiving treatment at the hospital, expenditure incurred on indigent/weaker section patients, the average revenue per bed per day, the beds offered to public at affordable cost are factually incorrect.

5. On the facts and in law, the ld. CIT(E) has made several factually erroneous observations in the impugned order such as- the Appellant had inflated the amounts spent for treatment of indigent/weaker section patients; the Appellant is operating the hospital with a profit motive and not on charitable basis; the Appellant has surplus funds etc.

6. On the facts and in law, the impugned order dated 30th March, 2026 has been passed in gross violation of principles of natural justice inter alia for the reason that no show cause notice was issued before passing the impugned order; several allegations relating to the Appellant’s failure to furnish certain documents have been made in the impugned order without ever asking for such documents in the first place.

7. On the facts and in law, the ld. CIT(E) erred in holding that the activities of the Appellant are not genuine without giving any supporting reasons.

8. On the facts and in law, the ld. CIT(E) erred in holding that the activities of the Appellant are akin to a business providing high-end healthcare services for a commercial consideration, and, therefore, do not satisfy the test of section 2(15) of the Act.

9. Without prejudice to the fact that the activities of the Appellant are not carried out on commercial principles, however, even if it is assumed so, the same could not have led to the rejection and cancellation of registration as the test of commerciality under the proviso to section 2(15) is only relevant for objects of general public utility and not medical objects.

10. On the facts and in law, the ld. CIT(E) erred in recording an ‘advisory note’ which is not only based on factually incorrect assumptions but is also beyond his jurisdiction.

4. The aforesaid grounds are interconnected and arise from the common factual and legal foundation adopted by the learned CIT(E). They are, therefore, considered together.

Facts and summary of the order passed by the learned CIT(E)

5. The assessee is a public charitable trust and is operating Masina Hospital at Byculla, Mumbai. The nature of the assessee’s activities was described in Form No. 10AD as “Charitable”. The assessee filed an application in Form No. 10AB under section 12A(1)(ac)(ii), seeking renewal of registration under section 12AB of the Act.

6. The learned CIT(E) initially referred to Rule 17A of the Income-tax Rules, 1962, and recorded that an application in Form No. 10AB was required to be accompanied by the prescribed documents. On verification of the application, the learned CIT(E) found that the application was incomplete and that all the documents required under Rule 17A had not been furnished. A notice dated 01.11.2025 was issued to the assessee, in response to which the assessee furnished its submission on 10.11.2025.

7. The learned CIT(E) thereafter referred to section 41AA of the Maharashtra Public Trusts Act, 1950 [hereinafter referred to as “the MPT Act”], and observed that the said provision empowered the Charity Commissioner and the State Government to issue directions to charitable hospitals for reserving and earmarking beds and making medical facilities available to poorer classes of people free of charge or at concessional rates.

8. The learned CIT(E) further referred to the judgment dated 17.08.2006 of the Hon’ble Bombay High Court in Sanjiv Gajanan Punalekar v. State of Maharashtra & Others, Writ Petition (PIL) No. 3132 of 2004. It was recorded that, pursuant to and for the purposes of section 41AA of the MPT Act, the Hon’ble Bombay High Court had approved a scheme for treatment of indigent and weaker section patients in charitable hospitals in the State of Maharashtra, referred to in the impugned order as the “IPF Scheme”.

9. The learned CIT(E) noted that the IPF Scheme required a public charitable hospital to reserve and earmark 10 per cent of its operational beds for indigent patients and provide treatment to them free of cost. A further 10 per cent of the operational beds was required to be reserved and earmarked for weaker section patients, who were to be treated at concessional rates. The hospital was also required to create a separate Indigent Patients’ Fund and credit thereto 2 per cent of the gross billing of patients other than indigent and weaker section patients.

10. The learned CIT(E) issued a further notice dated 03.01.2026 calling upon the assessee to furnish extensive details regarding its hospital operations. The information sought included the number and categories of beds and the applicable charges; the number of patients admitted under each category; the number of indigent and weaker section patients treated; expenditure incurred under the IPF Scheme; reports submitted to the office of the Charity Commissioner; schedules of charges for medical treatment and diagnostic services; surgeries performed; educational courses conducted; rent or compensation received for space provided to third parties; expenditure on foreign tours and conferences; professional charges; related-party payments; and miscellaneous expenses.

11. The assessee furnished its response on 17.03.2026. On examining the reply, the learned CIT(E) recorded that the assessee operated a 272-bed hospital. The bed strength furnished by the assessee was reproduced in the impugned order as under:

12. The learned CIT(E) observed that although the assessee had furnished the number of beds under each class, it had not furnished the charges applicable to each category.

13. The learned CIT(E) also reproduced the data concerning the total number of patients treated and the number of indigent or weaker section patients as under:

14. On the basis of the aforesaid data, the learned CIT(E) observed that only 29 out of 8,606 patients in the financial year 2023-24, 81 out of 7,006 patients in the financial year 2024-25 and 53 out of 7,321 patients up to February 2026 had received treatment under the indigent or weaker section category. According to the learned CIT(E), the percentages worked out to approximately 0.33 per cent, 1.15 per cent and 0.72 per cent, respectively.

15. The learned CIT(E) further observed that the assessee had not furnished the data regarding indigent or weaker section patients for the financial years 2021-22 and 2022-23. On that basis, the learned CIT(E) presumed that no indigent or weaker section patient had received treatment during those years. He held that the low percentage of such patients demonstrated that the assessee was not functioning with a charitable intention and had violated the IPF Scheme and the directions of the Hon’ble Bombay High Court.

16. The learned CIT(E) thereafter analysed the average cost of treatment per patient and the expenditure under the IPF Scheme as under:

17. The learned CIT(E) observed that the average cost of treatment of a general-category patient ranged from Rs.92,677/-to Rs.1,12,933/-, whereas the average cost of treatment of an indigent or weaker section patient ranged from Rs.77,083/- to Rs.1,40,821/-. These amounts were compared with the estimated monthly income of an average Indian household, stated to be less than Rs.10,000/- during 2025 with reference to the Economic Survey 2024-25.

18. The learned CIT(E) found it difficult to understand how the average cost of treatment of an indigent or weaker section patient during the financial year 2024-25 exceeded the average cost incurred on a general-category patient, particularly when the IPF Scheme required certain non-billable services to be provided free of cost and billable services to be valued at the rates applicable to the lowest class. On this basis, the learned CIT(E) observed that the assessee appeared to have inflated the amount stated to have been spent on indigent or weaker section patients.

19. The learned CIT(E) also held that the number of indigent or weaker section patients treated was substantially below what he considered to be the prescribed minimum of 20 per cent of the total patients. The comparative figures reproduced in the impugned order were as under:

20. The learned CIT(E) further computed an alleged shortfall in IPF expenditure as under:

21. On the basis of these calculations, the learned CIT(E) held that the assessee had failed to comply with the requirement concerning the reservation of beds and the requirement concerning the utilisation of 2 per cent of the gross billing for indigent or weaker section patients. According to him, the assessee had thereby violated the IPF Scheme and the directions of the Hon’ble Bombay High Court.

22. The learned CIT(E) also analysed the average revenue per bed per day as under:

23. The learned CIT(E) observed that the average revenue per bed per day ranged between Rs.7,049/- and Rs. 8,007/-. The said amount was again compared with the estimated monthly household income of less than Rs.10,000/-. The learned CIT(E) inferred that the hospital’s earnings reflected a systematic pursuit of profit and that its activities were commercial rather than charitable.

24. The learned CIT(E) thereafter referred to the balances appearing under the head “Indigent Patient Fund” in the financial statements:

25. The learned CIT(E) observed that the assessee had accumulated funds exceeding Rs.2 crore under the IPF account during the financial years 2023-24 and 2024-25, while incurring comparatively limited expenditure on indigent or weaker section patients. According to him, the accumulation of the IPF balance, instead of its utilisation for subsidising treatment or increasing the number of beneficiaries, showed that the assessee had no intention to serve the public at large through affordable medical services.

26. The learned CIT(E) further observed that the hospital had a well-established organisational setup of the nature required by a private hospital carrying on healthcare services on a commercial basis. It had departments such as administration and finance and employed a large number of workers and staff. The learned CIT(E) referred to expenditure of Rs.23.57 crore incurred towards salaries and wages during the financial year 2024-25.

27. According to the learned CIT(E), the hospital’s activities were well-organised, systematic and carried on continuously, resulting in substantial receipts and accumulation of funds. He held that only a limited portion of the funds and services was utilised for underprivileged persons, merely to maintain what he described as a facade of charity.

28. The learned CIT(E) further observed that the object of the IPF Scheme was not merely to maintain documentation and fulfil the minimum numerical requirements. In his view, a charitable hospital was required to demonstrate charity in letter and spirit by making medical services accessible to persons from the lower strata of society. He held that the reservation of beds and allocation of 2 per cent of gross billing represented only the minimum obligation and not the outer limit of a charitable hospital’s responsibility.

29. The learned CIT(E) concluded that the assessee’s reply was neither satisfactory nor conclusive and that the hospital was being run with an intention to earn profit while claiming exemption as a charitable institution. He held that the activities of the assessee were not genuine, as they were not carried on in accordance with the intent of charitable purposes or in furtherance of its stated objects.

30. The learned CIT(E) ultimately held that the application for renewal was not allowable on the following grounds:

i. violation of section 2(15) of the Act, since the activities were held to be commercial in nature and in the nature of providing high-end healthcare services; and

ii. failure to comply with other laws material for achieving the assessee’s objects, namely the Maharashtra Public Trusts Act, 1950, within the meaning of section 12AB(1)(b) of the Act.

31. Accordingly, the learned CIT(E) rejected the application for renewal of registration and cancelled the existing registration with effect from 23.09.2021 under section 12AB(1)(b)(ii)(B) of the Act.

32. During the course of hearing, the learned Authorised Representative for the assessee reiterated the facts in brief and submitted that the issues arising from the impugned order were substantially identical to those arising in the connected appeals of Breach Candy Hospital Trust. He submitted that in both cases the learned CIT(E) had treated the scale of hospital operations, treatment costs, financial receipts, patient statistics and alleged non-compliance with the IPF Scheme as grounds for denying renewal and cancelling the existing registration. The learned AR further submitted that, contrary to the observations of the learned CIT(E), the assessee has been incurring deficits for several years and is not operating with any profit motive.

33. The learned AR adopted the submissions advanced in the appeals of Breach Candy Hospital Trust and submitted that medical relief constituted an independent head of charitable purpose under section 2(15); that charging fees, maintaining modern infrastructure or generating receipts did not by themselves destroy the charitable character; and that the learned CIT(E) could not independently adjudicate an alleged violation of section 41AA of the MPT Act or the IPF Scheme in the absence of an adverse determination by the authority competent under the said enactment.

34. The learned AR further submitted that the assessee had regularly submitted reports under the IPF Scheme to the prescribed authority under the MPT Act and that no adverse order had been passed by the Charity Commissioner or any other competent authority holding that the assessee had violated the Scheme.

35. The learned Departmental Representative, on the other hand, relied upon the impugned order passed by the learned CIT(E) and adopted the submissions advanced on behalf of the Revenue in the connected appeals of Breach Candy Hospital Trust. He submitted that the learned CIT(E), upon examining the patient statistics, treatment costs, hospital receipts, utilisation of the IPF and the extent of treatment provided to indigent and weaker section patients, had rightly concluded that the assessee had failed to carry on its activities in the true spirit of charity and had not complied with section 41AA of the MPT Act and the IPF Scheme. He, therefore, supported the rejection of renewal and cancellation of the existing registration.

36. The following findings and conclusion may be incorporated after the rival submissions. They expressly adopt the reasoning in the connected appeals of Breach Candy Hospital Trust while dealing with the factual distinctions appearing in the present case.

37. We have heard the rival submissions and carefully perused the impugned order and the material placed before us. As noted in the preceding paragraphs, the present appeal was heard along with the connected appeals in the case of Breach Candy Hospital Trust v. CIT(E), being ITA Nos. 5374/Mum/2026 and 5350/Mum/2026. The issues arising in the present appeal are substantially identical to those considered in the aforesaid appeals. The arguments advanced by the learned representatives of both sides are also substantially the same as those advanced in the connected appeals.

38. By our separate order of even date passed in the case of Breach Candy Hospital Trust v. CIT(E), we have examined in detail the statutory scheme of sections 2(15), 11, 12A and 12AB of the Act; the nature and scope of the enquiry permissible to the learned CIT(E) while considering an application for renewal of registration; the relevance of the tariff structure, scale of operations, receipts, expenditure and surplus of a charitable hospital; the requirements of section 41AA of the Maharashtra Public Trusts Act, 1950, read with the IPF Scheme; the observations of the Hon’ble Bombay High Court in Sanjiv Gajanan Punalekar v. State of Maharashtra & Others, Writ Petition (PIL) No. 3132 of 2004; and the validity of retrospective cancellation of an existing registration in proceedings arising from an application for renewal.

39. In the said order, we have held that “medical relief” is an independent and specific head of charitable purpose under section 2(15) of the Act. It does not fall within the residual limb concerning advancement of any other object of general public utility. Consequently, the test of commerciality contained in the proviso to section 2(15), which principally operates in relation to the residual limb, cannot be mechanically applied to an institution whose admitted object and activity are the provision of medical relief.

40. We have further held that section 11 proceeds on the statutory premise that income may be derived from property held under trust. The Act does not prohibit a charitable institution from earning income or generating a surplus. What the statutory scheme regulates is the destination and application of such income. The scale of receipts, maintenance of infrastructure, employment of professional and administrative staff, provision of different categories of accommodation and the organised manner in which a hospital carries on its operations do not, by themselves, establish that the institution exists for private profit.

41. The Income-tax Act does not prescribe an affordability index, a ceiling on hospital charges, a cap on receipts or a particular model of healthcare delivery as a condition for registration under section 12AB. The decisive considerations are whether the institution is genuinely engaged in medical relief, whether its activities are carried on in furtherance of its objects, and whether its income and resources remain devoted to such charitable objects.

42. We have also held in the connected appeals that the learned CIT(E), while exercising jurisdiction under section 12AB, cannot assume the functions of the Charity Commissioner or the authorities entrusted with the administration of the Maharashtra Public Trusts Act and independently adjudicate whether a hospital has violated section 41AA or the IPF Scheme. In the absence of an order, direction, decree or other determination by the authority competent under the said enactment holding that a violation has occurred, the learned CIT(E) cannot create such a violation himself and thereafter employ it as a ground for rejection or cancellation of registration.

43. We have further held that the requirement to reserve and earmark beds for indigent and weaker section patients cannot be equated with a guarantee that the prescribed beds must remain occupied at all times. Actual utilisation depends upon the number of eligible patients approaching the hospital and several other circumstances which may be beyond the control of the institution. A lower percentage of actual occupancy, without a finding that admission or treatment was refused to an eligible patient, cannot automatically be treated as a violation of the Scheme.

44. The findings, reasoning and observations recorded in the order passed in the case of Breach Candy Hospital Trust v. CIT(E) shall, therefore, apply mutatis mutandis to the present appeal, insofar as they are relevant to and consistent with the facts and grounds arising herein. For the sake of brevity and to avoid repetition, the detailed statutory and judicial analysis recorded in the said order is not reproduced herein and shall be read as forming an integral part of the present order.

45. Adverting to the facts of the present case, it is undisputed that the assessee is operating Masina Hospital and is engaged in providing medical treatment. The learned CIT(E) has not found that the objects of the assessee are non-charitable, that the hospital is not functioning, that the medical services are fictitious or that the assessee has abandoned the object of medical relief.

46. There is also no finding that any part of the income or property of the assessee has been distributed among its trustees, diverted for private benefit, applied for non-charitable purposes or otherwise employed for an object unconnected with medical relief. On the contrary, the assessee has specifically submitted that it has been incurring deficits for several years and has not been operating with a profit motive.

47. The principal basis adopted by the learned CIT(E) for treating the activities as commercial consists of the number of indigent and weaker section patients treated, the average treatment cost, the average revenue per bed per day, salary expenditure, the alleged accumulation of the IPF balance and the organised manner in which the hospital operates. These considerations, either individually or collectively, do not establish that the assessee exists for private profit or that its medical activities are not genuine.

48. The learned CIT(E) observed that the average revenue per bed per day ranged between Rs.7,049/- and Rs.8,007/- and compared the same with the estimated monthly income of an average Indian household. Such a comparison proceeds on the same affordability test which has been found by us to be outside the statutory framework of sections 2(15) and 12AB. Average revenue per bed is an accounting average derived by dividing the aggregate receipts by the number of beds and days. It cannot, without examination of the nature of services included in the receipts, be treated as the daily bed charge payable by an individual patient or as evidence of a profit motive.

49. The learned CIT(E) also referred to the expenditure of Rs.23.57 crore incurred towards salaries and wages during the financial year 2024-25. A hospital employing doctors, nurses, technicians, attendants, administrators and other support personnel necessarily incurs substantial employee expenditure. In the absence of an examination of the number of employees, their qualifications, functions and remuneration, the aggregate salary expenditure cannot support an inference that the hospital was being operated for profit.

50. The learned CIT(E) further presumed that no indigent or weaker section patients had been treated during the financial years 2021-22 and 2022-23 merely because the relevant data was recorded as not having been furnished. Non-furnishing of particulars, by itself, could not justify a conclusive presumption that no such patient had been treated. More importantly, before drawing such an adverse inference and using it as a basis for rejection and retrospective cancellation of registration, the proposed inference was required to be specifically put to the assessee with an effective opportunity to explain the position.

51. The learned CIT(E) also observed that the expenditure incurred on indigent or weaker section patients appeared to have been inflated because, during the financial year 2024-25, the average expenditure per such patient was higher than the average receipts attributable to a general-category patient. The said conclusion is founded only upon a mathematical comparison of averages. The nature and gravity of the medical conditions, duration of hospitalisation, surgical procedures, medicines, implants, consumables and other patient-specific factors were not examined. A higher average expenditure in one category cannot, without examination of the underlying patient-wise records, sustain an allegation that the expenditure had been inflated.

52. The learned CIT(E) treated 20 per cent of the total patients as the mandatory minimum number of indigent and weaker section patients who ought to have been treated. As held in the connected appeals, the statutory and regulatory provisions concern reservation and earmarking of the prescribed percentage of beds and capacity. They cannot be read as imposing an absolute obligation upon the hospital to ensure that a fixed percentage of the total patients actually treated during every period must belong to the specified categories, irrespective of the number of eligible patients approaching the hospital.

53. The impugned order does not record any instance where an eligible indigent or weaker section patient approaching the assessee was denied admission, medical examination or treatment. Nor has any material been brought on record to demonstrate that the assessee refused to reserve or make available the prescribed beds or facilities.

54. The learned CIT(E) also computed an alleged annual shortfall by comparing 2 per cent of the hospital receipts with the expenditure incurred during the respective financial year. This exercise overlooks the cumulative nature of the IPF account and the possibility of adjustment of a monthly surplus or shortfall in subsequent periods under the Scheme. The balance appearing in the IPF account cannot, without examining the opening balance, monthly credits, utilisation and subsequent adjustments, be treated as conclusive evidence of non-compliance or an absence of charitable intention.

55. More importantly, the impugned order does not refer to any adverse order of the Charity Commissioner, the State Government, the Monitoring Committee or any other competent authority under the MPT Act holding that the assessee had violated section 41AA or the IPF Scheme. The assessee has specifically stated that it had been regularly furnishing reports under the Scheme to the prescribed authority and that no adverse finding had been recorded against it.

56. In the absence of any determination by the competent authority under the MPT Act, the learned CIT(E) was not justified in independently interpreting the Scheme, computing alleged deficiencies and concluding that the assessee had violated another law material for achieving its objects. The findings recorded in the connected appeals of Breach Candy Hospital Trust on this issue apply with equal force to the present case.

57. The observations of the Hon’ble Bombay High Court in Sanjiv Gajanan Punalekar v. State of Maharashtra & Others undoubtedly emphasise the humanitarian object and spirit underlying the IPF Scheme. However, those observations do not create a separate or additional statutory condition for registration under sections 12A and 12AB of the Act. The Scheme itself was approved pursuant to the said judgment for the purposes of section 41AA of the MPT Act and is to be administered, supervised and enforced through the statutory machinery provided under that enactment.

58. The exhortation that public charitable hospitals must remain conscious of the human service for which they came into existence cannot be construed as empowering the learned CIT(E) to assume the role of the Charity Commissioner and independently declare that a hospital has violated the Scheme. The humanitarian object of the Scheme and the statutory safeguards governing refusal or cancellation of registration under section 12AB operate in their respective fields.

59. We accordingly hold that the learned CIT(E) was not justified in treating the assessee’s activities as non-genuine or commercial merely on the basis of the patient statistics, average treatment costs, average revenue per bed, salary expenditure, IPF balances and the organised manner in which the hospital was operated.

60. We further hold that the learned CIT(E) was not justified in independently declaring that the assessee had violated section 41AA of the MPT Act or the IPF Scheme in the absence of any adverse determination by the authority competent under the said enactment.

61. The proceedings before the learned CIT(E) arose from the assessee’s application seeking renewal of an existing registration. While rejecting the application, the learned CIT(E) proceeded further to cancel the registration retrospectively with effect from 23.09.2021. Such retrospective cancellation carries serious civil and fiscal consequences and could not have been ordered in the absence of a specified violation established in accordance with the statutory requirements.

62. There is no finding that the registration granted on 23.09.2021 had been obtained by fraud, misrepresentation, concealment or suppression of material facts. There is also no finding that the assessee’s objects were non-charitable on the date of grant or that the original registration was void at its inception.

63. In these circumstances, the learned CIT(E) could not have converted proceedings concerning renewal of registration into proceedings for retrospective annulment of the existing registration from the very date of its grant. The cancellation of registration with effect from 23.09.2021 is, therefore, unsustainable.

64. In view of the foregoing discussion and consistently with the findings, reasoning and conclusions recorded in the connected appeals of Breach Candy Hospital Trust v. CIT(E), we set aside the impugned order dated 30.03.2026. The rejection of the assessee’s application for renewal of registration under section 12AB and the cancellation of the existing registration with effect from 23.09.2021 are quashed. The learned CIT(E) is directed to continue and renew the registration of the assessee under section 12AB of the Act in accordance with law.

65. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 30.06.2026.