Bombay High Court
Baun Foundation Trust vs Chief Commissioner Of Income-Tax on 27 March, 2012
Author: D.Y.Chandrachud
Bench: D.Y. Chandrachud, M.S. Sanklecha
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.1206 OF 2010
Baun Foundation Trust ..Petitioner.
versus
Chief Commissioner of Income-tax-1
and another ..Respondents.
.....
Mr. S.C. Tiwari with Ms. Natasha Mangat for the Petitioner.
Mr. Suresh Kumar for the Respondents.
......
CORAM : DR.D.Y.CHANDRACHUD &
ig M.S. SANKLECHA, JJ.
27 March 2012.
ORAL JUDGMENT (Per DR.D.Y.CHANDRACHUD, J.) :
1. The Petitioner is a public charitable trust created under a deed of trust dated 4 February 1964 and is registered under the Bombay Public Trust Act 1950.
The trust runs the hospital in the name and style of Cumballa Hill Hospital and Heart Institution. The Petitioner has been granted the benefit of exemption under Section 10(22A) or Section 10(23C) (via) or under Section 11, as the case may be, upto Assessment Years 2007-08. By an application dated 31 March 2009 the Petitioner sought continuation of its exemption for the period from 1 April 2008. Particulars and information as sought by the First Respondent were submitted. On 29 April 2010 the First Respondent rejected the application filed by the Petitioner seeking approval under Section 10(23C)(via) for the period from 2009-10 onwards.
2. The sole ground on which the Chief Commissioner of Income Tax has denied his approval is that the Petitioner conducts a chemist shop in the premises of the hospital. The Chief Commissioner has computed the net surplus from the chemist shop as a percentage of the income and came to the conclusion that it varied between 15% for 2007-08 to 18% for 2008-09. Moreover, it has been ::: Downloaded on - 09/06/2013 18:21:43 ::: PNP 2/4 WP1206-27.3.sxw observed that 73% of the total turnover is from inpatients, while 27% is from the general public which would include purchases made by the patients coming to the Out Patients' Department (OPD). The percentage of surplus from the chemist shop to the total turnover is stated to range between 3.72% to 5.19% between 2006-07 and 2008-09. Having so observed, the Chief Commissioner in his impugned order has accepted the position that the surplus which is earned from the chemist shop is utilized for the purposes of the hospital. Despite this, the Chief Commissioner has held that the nature of a chemist shop is not exclusive to the patients coming to the hospital and is commercial or akin to trading activity. Hence, it has been concluded that the trust does not exist solely for the purposes of philanthropy. As a result, the application has been rejected.
3. Counsel appearing on behalf of the Petitioner submits that the fundamental test which is required to be adopted is whether the object of the trust is to make a profit or contrariwise whether the trust exists solely for philanthropic purposes. Learned counsel submitted that it is the dominant nature of the purpose for which the trust exists that has to be borne in mind and if that is found to be philanthropic, any other object merely ancillary or incidental to the primary or dominant purpose would not detract from the true nature or character of the trust. Consequently, it was urged that the Chief Commissioner has misapplied himself in law. On the other hand counsel appearing on behalf of the Revenue has supported the order passed by the Chief Commissioner.
4. In Aditanar Education Institute Etc. v. Additional Commissioner of Income Tax1, the Supreme Court has observed, while construing the provisions of Section 10(22) that the decisive or acid test is whether on an overall view of the matter the object is to make a profit. If after meeting the expenditure any surplus results incidentally from the activity lawfully carried on by the institution, it will not cease to be one existing solely for the statutorily stipulated purpose so long as the object is not to make a profit. Again, it is a well settled position in law that the dominant nature of the purpose for which the trust exists has to be 1 (1997) 224 ITR 310(SC) ::: Downloaded on - 09/06/2013 18:21:43 ::: PNP 3/4 WP1206-27.3.sxw considered. The Chief Commissioner has not doubted the genuineness of the trust or the fact that it is conducting a hospital. Even if the figures which are taken into account by the Chief Commissioner are to be had regard to, it is evident that the activity of a chemist shop is an activity which is incidental or ancillary to the dominant object and purpose which is to run a hospital. The Chief Commissioner has accepted that the surplus which is earned from the operation of a chemist shop is utilized for the purposes of the hospital. A hospital must of necessity have a section or department where medicines can be dispensed and it is not uncommon for a medical hospital which exists even for philanthropic purposes to have a chemist shop where pharmaceutical products are sold. This is a facility which is intended to be used predominantly by patients and their relatives. Though the members of the general public are not prohibited from using the facility, the crucial question to ask or the test to answer is whether the establishment of a chemist shop is incidental or ancillary to the dominant object and purpose which is to set up and conduct a hospital for philanthropic purposes. As a matter of fact, Section 10(23C) permits the accumulation of income upto a certain stipulated amount over a stipulated period. In our view, the Chief Commissioner of Income Tax has clearly misapplied himself in law by having regard to a clearly ancillary or incidental activity and elevating it to the status of the dominant purpose for which the hospital has been established. Running the chemist shop in the present case is not the dominant object or purpose of the trust. Nor would the figures as disclosed indicate that the nature of the activity has assumed such a dominating or overwhelming importance so as to cast doubt on the true nature and character of the hospital which is conducted by the Petitioner. The Chief Commissioner has acted contrary to the judgments of the Supreme Court which hold the field consequent upon which the impugned order would have to be set aside.
5. We accordingly quash and set aside the impugned order of the Chief Commissioner dated 29 April 2010 and direct that the application filed by the Petitioner under the provisions of Section 10(23C)(via) shall be considered in the light of the observations contained in the earlier part of this judgment. We clarify ::: Downloaded on - 09/06/2013 18:21:43 ::: PNP 4/4 WP1206-27.3.sxw that it would not be open to the Chief Commissioner upon remand to reject the application on the grounds for rejection in the impugned order which has been quashed and set aside. The Chief Commissioner shall pass a fresh order after furnishing to the Petitioner an opportunity of being heard and this exercise shall be completed within a period of two weeks from the date on which an authenticated copy of this order is produced by the Petitioner. Rule is made absolute in these terms.
There shall be no order as to costs.
(Dr. D.Y. Chandrachud, J.)
ig (M.S. Sanklecha, J.)
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