Delhi High Court - Orders
Commissioner Of Income Tax ... vs Devki Devi Foundation on 28 February, 2024
Author: Yashwant Varma
Bench: Yashwant Varma, Purushaindra Kumar Kaurav
$~17
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 155/2021
COMMISSIONER OF INCOME TAX (EXEMPTIONS)
DELHI ..... Appellant
Through: Mr. Abhishek Maratha, SSC
with Mr. Parth Semwal, JSC.
versus
DEVKI DEVI FOUNDATION ..... Respondent
Through: Mr. Ajay Vohra, Sr. Advocate
alongwith Mr. Himanshu
Aggarwal, Advocate.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR
KAURAV
ORDER
% 28.02.2024
1. The Commissioner of Income Tax (Exemptions), Delhi seeks to impugn the judgment rendered by the Income Tax Appellate Tribunal1 dated 22 October 2019 and has framed the following questions for our consideration:-
"(i) Whether in the facts and circumstances of the case and in law, Hon'ble Tribunal has erred in restoring the registration u/s 12A of the Income Tax Act, 1961, since inception, ignoring the fact that assessee-foundation has not been operating as a charitable institution as the trustees allowed the property/hospital of the society to be taken-over by the Max-Group by creating the various financial and legal obligations?
(ii) Whether in the facts and circumstances of the case and in law, Hon'ble Tribunal has erred in restoring the registration u/s 12A of the Income Tax Act, 1961, since inception, ignoring the fact that 1 ITAT ITA 155/2021 Page 1 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:14 assessee-trust did not fulfil the minimum notified criteria of providing 25% of OPD and 10% of beds in IPD as free-treatment to the economically weaker section?
(iii) Whether the impugned order passed by Hon'ble Income Tax Appellate Tribunal is perverse both on law and facts?"
2. The issue itself arises out of the purported action of the appellant in cancelling the registration accorded to the assessee under Section 12A of the Income Tax Act, 19612. In the earlier round of litigation, the ITAT, by its order of 31 March 2015, had proceeded to uphold the cancellation of registration. That led to the filing of ITA 484/2015 which came to be allowed on 15 February 2016 and the matter being remanded to the ITAT. The Court had on that occasion interfered with the view expressed by the ITAT upon it finding that its judgment travelled even beyond the allegations set out in the original Show Cause Notice proposing cancellation of registration.
3. As we glean from the facts which are noticed by the ITAT, the Department initiated a process for cancellation of registration primarily based on certain agreements which came to be entered into between the assessee and Max Healthcare Limited3 as well as Max Medical Services Private Limited4.
4. As has been found by the ITAT, the assessee was founded as a charitable society under the Societies Registration Act, 18605 to subserve and work towards the following objects:-
"
"MAIN OBJECT OF THE SOCIETY TO BE PERSUED ON REGISTRATION:
To engage in medical, biological, social, environmental and allied sciences research so as to enhance human 2 Act 3 MHC 4 MMS 5 The 1960 Act ITA 155/2021 Page 2 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:14 understanding regarding the epidemiological basis of health & disease through acquisition, dissemination and sharing of new knowledge concerned with initiation, causation, diagnosis(treatment and rehabilitation of disease and disability in humans in general and with reference to:
- Cardiac speciality
- Cancer detection and care
- Communicable diseases
- Nutritional and deficiency disease
- Diseases of Pregnancy & Newborn
- Diseases of Poverty and Illiteracy."
"3. To promote, establish, maintain and manage
Centres/Institutions of Health/Medical Sciences to provide necessary infrastructure with required physical facilities, equipment, staff, labourers and other inputs including scientific work environment and logistics support for the design, conduct and evaluation of research programs for the accomplishment of the objects of the Society."
"4. To establish collaborative linkages with national and international philanthropic, benevolent and other organizations to share experience and expertise through joint activities/ventures/partnership etc., to provide for the reception and treatment of persons suffering from any illness or defectiveness or for the reception and treatment of persons during convalescence or of the persons requiring medical attention or rehabilitation and for this purpose to do all acts, deeds, things and steps as are necessary for the attainment of the said objects, such as: "
5. The assessee had entered into the aforenoted service agreements and the salient parts of which have also been noticed by the ITAT as would be evident from the following passages appearing in the impugned order:-
"46.1 We find from the order of the DIT(E) as well as the argument of the ld. DR that the allegation of the Revenue regarding diversion of the activity of running the hospital in favour of Max group of entities by creating various financial and legal obligations is based on three agreements, namely, (a) the hospital construction and maintenance agreement; (b) equipment agreement; and (c) leasing agreement and medical service agreement. Apart from the above agreements, there is nothing on record to suggest that the hospital is operated by the said companies or by the Board of Management/Directors or shareholders of those companies. From the various details furnished by the assessee in the paper book, it is ITA 155/2021 Page 3 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 noticed that the hospital activities were always under the control and supervision of its management/Board of Trustees. Clause 1 of the agreement showing scope of services read as under:-
"1. SCOPE OF SERVICES Subject to overall control and supervision and management of the Hospital by DDF, DDF hereby agrees to engage MHC to render medical services, including but not limited to as enumerated hereinbelow (the „services‟) and MHC agrees to render the same subject to the terms and conditions contained herein. ........"
47. Similarly, clause 7 & 8(a) and (b) of the agreement reads as under:-
"8. INDEMNITY
(a) DDF hereby undertakes that DDF shall be responsible and solely liable for any actions that may be initiated against DDF or MHC with respect to the services being provided at the Hospital. DDF further undertakes that MHC shall have no liability whatsoever In connection with any claim asserted against DDF or MHC by any third party including government, state or central, quasi-judicial, judicial, local authorities for any act or omission whatsoever.
(b) Further, it is agreed and understood between the Parties that in complying with its obligations pursuant to this Agreement MHC shall be deemed to be acting entirely on behalf of and for the benefit of DDF vis a vis all third parties.
In the event any claims, actions of any nature whatsoever are made against MHC with, respect to the services rendered by it, DDF shall indemnify MHC and its personnel/staff or authorised representative(s) or agent(s) acting under this Agreement and hold, them harmless from and against any and all claims actions and demands whatsoever including costs, expenses and fees payable to any lawyer or attorney or the like in defending such claims. MHC shall not be liable to DDF or to any third party under any circumstances whatsoever, for any loss with respect to the Services rendered except for any loss caused to DDF due to MHC‟s own proven willful misconduct or gross negligence."
6. The ITAT ultimately and on facts held as follows:-
"48. From the above, it is crystal clear that the activities of the hospital were always under the control and supervision of the management and trustees and Max entities were only service provider/contractor to the extent of activities agreed with them under the agreements which are similar to the agreements for other ITA 155/2021 Page 4 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 services entered with various other parties. A perusal of the analysis of the percentage of payment made by the assessee to Max group of companies vis-àvis the total expenditure incurred by the assessee in various years shows that the same was maximum of 25% in the financial year 2005-06 which has gradually reduced to 20% in financial year 2013-14. The above details furnished by the assessee in the paper book suggest the independence of the assessee vis-à-vis Max entities with gradual decline in the obtaining of services from them over a period of time. This also substantiates that the assessee society was incurring substantial expenses on its own account other than the payments made to Max entities. We find force in the argument of the ld. counsel for the assessee that the assessee, due to lack of own funds and expertise in the field of construction of hospital and rendering medical services being a highly specialized and technical field, has entered into the agreements with Max group of companies who were already engaged in the said field which not only helped the assessee in building the state of the art facility, but, also to attract talent in terms of specialized doctors and other paramedical staff. Under these circumstances, we are of the considered opinion that it is difficult to agree with the allegation of the DIT(E) that there is diversion of the control of the property of the assessee i.e., the hospital in favour of Max group of companies.
48.1 We also find from the various details furnished by the assessee such as minutes of the meeting of the governing body of the assessee society substantiating that various financial and operational decisions were taken by the said body without involvement of Max entities. The copy of various approvals applied and allotted were in the name of the assessee society without any indication of Max entities. We find the organizational structure of the assessee society/hospital shows that the assessee had independent management and heads of various departments looking after its various operations which were independent from Max entities and no involvement of Max entities have been brought on record. We, further find that none of the members of the governing body/trustees of the assessee and the directors/board of management of Max are persons specified u/s 13(3) of the IT Act. Further, the number of employees have gone up substantially which were 838 in F.Y. 2008-09 to 1033 in F.Y. 2009-10 and 1150 in 2010-11. From the various details furnished by the assessee in the paper book, we are of the considered opinion that the trust has not handed over the management of the hospital to the Max group of concerns."
7. Apart from the dispute which appears to have arisen from the execution of those service agreements, the Department also appears to ITA 155/2021 Page 5 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 have held against the assessee on an alleged failure on its part to have complied with government directives for a certain percentage of OPD and IPD facilities being earmarked for patients belonging to the Economically Weaker Section6. Insofar as this allegation is concerned, the ITAT has found as follows:-
"56. So far as the other allegation of the Revenue that the assessee trust has not fulfilled the mandatory requirement of admitting the requisite number of OPD and IPD patients in violation of the direction of the Hon'ble Delhi High Court is concerned, the same is also not supported by any evidence. There is nothing on record to suggest that the assessee has refused admission to any person of the economically weaker section nor the Government has taken any action against the assessee for such violation. The argument of the ld. counsel for the assessee that the statistics have always been displayed near the reception giving the list of patients and such copy was also always filed with the Director of Health Services, Government of Delhi and neither any patient has made any complaint nor the Government has taken any action could not be controverted by the ld. DR. Since there is no allegation by the Revenue that the activities of the trust/society are not genuine or are not being carried out in accordance with the objects of the trust and since the ld. counsel for the assessee before us has demonstrated clearly that the management and control of the hospital was always with the assessee society and the assessee society has not virtually handed over the management of the hospital to the Max group of concerns which are corporate bodies established with the clear intention of profit motive and since the Revenue also failed to bring on record any material to suggest that the assessee trust has refused any patient from the economically weaker section of the society in violation of the guidelines laid down by the Hon'ble Delhi High Court, we find no justification on the part of the Ld.DIT(E) for withdrawing the registration granted u/s 12AA of the Act with retrospective effect. We accordingly set aside the order of the DIT(E) and restore the registration granted earlier u/s 12A of the IT Act. Since the assessee succeeds on the main grounds, the additional grounds raised by the assessee challenging the withdrawal of registration since inception or with retrospective effect become academic in nature and hence are not being adjudicated. The appeal filed by the assessee is accordingly allowed."
8. As we note from the objects of the charitable society as set out 6 EWS ITA 155/2021 Page 6 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 in its Memorandum of Association, it had come to be constituted with the primary objective of engaging in medical, biological, social, environmental and allied sciences research. The incidental and ancillary objectives extended to the society promoting, establishing, maintaining and managing centres/institutions relating to health and medical sciences as also to create the necessary physical infrastructure and facilities to aid the principal objectives. It is in the aforesaid backdrop that the ITAT has come to hold that the establishment of a hospital cannot be said to be a venture violative of the principal objectives of the assessee. It has, and in our considered opinion, correctly come to conclude that the medical facility was to aid and facilitate the principal objective for which the trust had been constituted.
9. The entering into of the service agreements with MHC and MMS was, as the ITAT has found, essentially aimed at enabling the assessee to establish a state of the art health facility. It was with that avowed objective that it entered into a contractual service arrangement with MHC and MMS. The ITAT has also taken note of the service fee obligations which were discharged by the assessee and found on facts that the maximum expenditure incurred in that regard was 25% of the total expenditure pertaining to Financial Year7 2005-2006 and which had come to be gradually reduced to 20% in FY 2013-2014.
10. The aforesaid facts clearly established that the society was incurring substantial expenses on its own account and thus the allegation of the service partners being either unjustly enriched or the funds of the society being diverted to a private entity would not sustain.
7FY ITA 155/2021 Page 7 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15
11. We further note that this is also not a case where the members of the governing body of the society or for that matter the Directors of MHC and MMS would fall within the definition of persons specified under Section 13(3) of the Act. It was on the aforesaid basis and together with the other facts which existed on the record that the ITAT ultimately came to hold that the service arrangement with the Max group of concerns did not amount to either a handover of management or a deprivation of the charitable character of a society.
12. The ITAT has in this regard also taken note of its decision rendered on ITA No. 1721/Del/2008 while dealing with a similar service agreement and the challenge to which decision came to be dismissed by this Court in ITA 1021/2015 in the following terms:-
"4. The ITAT has followed the earlier order passed by the ITAT in the case of the same Assessee for AY 2008-09 where the dismissal was on account of low tax effect. However, in the said order, the ITAT took note of the decision for AY 2004-05 which involved the same question as has been raised in the present appeals. The essential point raised is that the Respondent Assessee, which is a Trust registered under Section 12AA of the Act, has by virtue of an operation and maintenance agreement entered into with Fortis Healthcare Limited („FHL‟) on 29th October 2013, transferred control of the Trust to FHL and by virtue of the said agreement has agreed to pay management fees at 35% of the gross billings of the hospital to FHL.
5. The Commissioner of Income Tax (Appeals) [„CIT (A)‟] has in the order dated 26th February 2010, common to both AYs, disagreed with the Assessing Officer („AO‟) and held that there is no evidence to show that there has been any siphoning off of funds and that by virtue of the agreement control of the Trust has been transferred to FHL."
13. The ITAT has also chosen to rest its ultimate conclusions on the decision of the Supreme Court in Queen's Educational Society vs. CIT8 where the following pertinent observations came to be made:-
8(2015) 8 SCC 47 ITA 155/2021 Page 8 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 "8. In CIT v. Surat Art Silk Cloth Manufacturers' Assn. [(1980) 2 SCC 31 : 1980 SCC (Tax) 170 : (1980) 121 ITR 1] , this Court while construing the definition of "charitable purpose" in Section 2(15) of the Income Tax Act held: (SCC pp. 52-56, paras 17-19) "17. The next question that arises is as to what is the meaning of the expression „activity for profit‟. Every trust or institution must have a purpose for which it is established and every purpose must for its accomplishment involve the carrying on of an activity. The activity must, however, be for profit in order to attract the exclusionary clause and the question therefore is when can an activity be said to be one for [Ed.: The word has been emphasised in original.] profit? The answer to the question obviously depends on the correct connotation of the preposition „for‟. This preposition has many shades of meaning but when used with the active participle of a verb it means „for the purpose of‟ and connotes the end with reference to which something is done. It is not therefore enough that as a matter of fact an activity results in profit but it must be carried on with the object of earning profit. Profit-making must be the end to which the activity must be directed or in other words, the predominant object of the activity must be making a profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak, J.) in Dharmadeepti v. CIT [(1978) 3 SCC 499 : 1978 SCC (Tax) 193] must be „essentially charitable in nature‟ and it must not be a cover for carrying on an activity which has profit-making as its predominant object. This interpretation of the exclusionary clause in Section 2 clause (15) derives considerable support from the speech made by the Finance Minister while introducing that provision. The Finance Minister explained the reason for introducing this exclusionary clause in the following words:
„The definition of "charitable purpose" in that clause is at present so widely worded that it can be taken advantage of even by ITA 155/2021 Page 9 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them, namely, the newspaper industry which while running its concern on commercial lines can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words "not involving the carrying on of any activity for profit" should be added to the definition.‟ It is obvious that the exclusionary clause was added with a view to overcoming the decision of the Privy Council in Tribune case [Tribune Press v. CIT, (1938-39) 66 IA 241 : (1939) 50 LW 339 :
AIR 1939 PC 208 : (1939) 7 ITR 415] where it was held that the object of supplying the community with an organ of educated public opinion by publication of a newspaper was an object of general public utility and hence charitable in character, even though the activity of publication of the newspaper was carried on commercial lines with the object of earning profit. The publication of the newspaper was an activity engaged in by the trust for the purpose of carrying out its charitable purpose and on the facts it was clearly an activity which had profit-making as its predominant object, but even so it was held by the Judicial Committee that since the purpose served was an object of general public utility, it was a charitable purpose. It is clear from the speech of the Finance Minister that it was with a view to setting at naught this decision that the exclusionary clause was added in the definition of „charitable purpose‟. The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg, J., when he said in Lok Shikshana Trust case [Lok Shikshana Trust v. CIT, (1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] that: (SCC pp. 274-75, para 41) „41. ... If the profits must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the ITA 155/2021 Page 10 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on "charity".‟ The learned Judge also added that the restrictive condition „that the purpose should not involve the carrying on of any activity for profit would be satisfied if [Ed.: The matter between asterisks has been emphasised in original.] profit-making is not the real object [Ed.: The matter between asterisks has been emphasised in original.] ‟. We wholly endorse these observations.
18. The application of this test may be illustrated by taking a simple example. Suppose the Gandhi Peace Foundation which has been established for propagation of Gandhian thought and philosophy, which would admittedly be an object of general public utility, undertakes publication of a monthly journal for the purpose of carrying out this charitable object and charges a small price which is more than the cost of the publication and leaves a little profit, would it deprive the Gandhi Peace Foundation of its charitable character? The pricing of the monthly journal would undoubtedly be made in such a manner that it leaves some profit for the Gandhi Peace Foundation, as, indeed, would be done by any prudent and wise management, but that cannot have the effect of polluting the charitable character of the purpose, because the predominant object of the activity of publication of the monthly journal would be to carry out the charitable purpose by propagating Gandhian thought and philosophy and not to make profit or in other words, profit-making would not be the driving force behind this activity. But it is possible that in a given case the degree or extent of profit-making may be of such a nature as to reasonably lead to the inference that the real object of the activity is profit- making and not serving the charitable purpose. If, for example, in the illustration given by us, it is found that the publication of the monthly journal is carried on wholly on commercial lines and the pricing of the monthly journal is made on the same basis on which it would be made by a commercial organisation leaving a large margin of profit, it might be difficult to resist the inference that the activity of publication of the journal is carried on for [ From the Judgment and Order dated 24-9-2007 of the High Court of Uttarakhand at Nainital in Income Tax Appeal No. 103 of 2007] profit and the purpose is non-charitable. We may take by way of illustration another example given by Krishna Iyer, J., in Indian Chamber of Commerce case [Indian Chamber of Commerce v. CIT, (1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] where a blood bank collects blood on payment and supplies blood for a higher price on commercial basis. Undoubtedly, in such a case, the blood bank would be serving an object of general public ITA 155/2021 Page 11 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 utility but since it advances the charitable object by sale of blood as an activity carried on with the object of making profit, it would be difficult to call its purpose charitable. Ordinarily there should be no difficulty in determining whether the predominant object of an activity is advancement of a charitable purpose or profit-making. But cases are bound to arise in practice which may be on the borderline and in such cases the solution of the problem whether the purpose is charitable or not may involve much refinement and present real difficulty.
19. There is, however, one comment which is necessary to be made whilst we are on this point and that arises out of certain observations made by this Court in Lok Shikshana Trust case [Lok Shikshana Trust v. CIT, (1976) 1 SCC 254 : 1976 SCC (Tax) 14 :
(1975) 101 ITR 234] as well as Indian Chamber of Commerce case [Indian Chamber of Commerce v. CIT, (1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] . It was said by Khanna, J. in Lok Shikshana Trust case [Lok Shikshana Trust v. CIT, (1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] : (SCC p.
264, para 9) „[I]f the activity of a trust consists of carrying on of a business and there are no restrictions on its making profit, the court would be well justified in assuming in the absence of some indication to the contrary that the object of the trust involves the carrying on of an activity for profit.‟ And to the same effect, observed Krishna Iyer, J. in Indian Chamber of Commerce case [Indian Chamber of Commerce v. CIT, (1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] when he said: (SCC pp. 332 & 335, paras 14 & 23) „14. ... An undertaking by a business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negatived.
***
23. ... A pragmatic condition, written or unwritten, proved by a prescription of profits or by long years of invariable practice or spelt from [some] strong surrounding circumstances indicative of anti-profit motivation -- such a condition will qualify for "charitable purpose".‟ Now we entirely agree with the learned Judges who decided these two cases that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the ITA 155/2021 Page 12 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 charitable purpose. But we find it difficult to accept their thesis that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for [ From the Judgment and Order dated 24-9-2007 of the High Court of Uttarakhand at Nainital in Income Tax Appeal No. 103 of 2007] profit and the charitable purpose involves the carrying on of an activity for profit. We do not think the Court would be justified in drawing any such inference merely because the activity results in profit. It is in our opinion not at all necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on no profit no loss basis or that profit shall be proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit-making or carrying out a charitable purpose. If it is the former, the purpose would not be a charitable purpose, but, if it is the latter, the charitable character of the purpose would not be lost."
(emphasis supplied)
9. Coming closer to the section at hand, in Aditanar Educational Institution v. CIT [(1997) 3 SCC 346 : (1997) 224 ITR 310] this Court while construing the predecessor section, namely, Section 10(22) of the Income Tax Act, held: (SCC p. 352, para 8) "8. ... The High Court has made an observation that any income which has a direct relation or incidental to the running of the institution as such would qualify for exemption. 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 entity concerned."
11. Thus, the law common to Sections 10(23-C)(iii-ad) and (vi) may be summed up as follows:
ITA 155/2021 Page 13 of 15This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:15 (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit.
(2) The predominant object test must be applied--the purpose of education should not be submerged by a profit-making motive.
(3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit.
(4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes.
(5) The ultimate test is whether on an overall view of the matter in the assessment year concerned the object is to make profit as opposed to educating persons."
We thus find no justification to interfere with the view as expressed by the ITAT.
14. Insofar as the usage of OPD and IPD facilities by patients belonging to the EWS category is concerned, we find that the appellants have chosen to draw an adverse inference against the assessee based solely on the number of patients belonging to that category who were admitted. However, and as the ITAT has found, there was no allegation that any member belonging to the EWS had either been refused treatment or denied admission in the OPD and IPD facilities. This, in any case, is a question of fact which is open to be examined and inquired into by the appellant. All that we deem apposite to observe is that the percentage of EWS patients cannot constitute sufficient evidence of a failure on the part of the assessee to abide by government directives. That would be an allegation which would sustain provided it were found that the charitable society was refusing to extend treatment to patients belonging to that category.
ITA 155/2021 Page 14 of 15This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:16
15. On an overall conspectus of the aforesaid, we find that the appeal lacks merit. No substantial question of law arises. It shall consequently stand dismissed.
YASHWANT VARMA, J.
PURUSHAINDRA KUMAR KAURAV, J.
FEBRUARY 28, 2024 neha ITA 155/2021 Page 15 of 15 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/03/2024 at 21:57:16