Income Tax Appellate Tribunal - Bangalore
M/S Vivekanand General Hospital , Hubli vs Assessee on 30 January, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
ITA Nos.1195 & 1196/Bang/2012
Assessment year : N.A.
M/s. Vivekanand General Vs. The Commissioner of
Hospital, Income Tax,
Circuit House Road, Hubli.
Hubli.
APPELLANT RESPONDENT
Appellant by : Ms. Sheetal Borkar, Advocate
Respondent by : Shri Ronmoy Das, CIT-I (DR)
Date of hearing : 30.01.2014
Date of Pronouncement : 07.02.2014
ORDER
Per N.V. Vasudevan, Judicial Member
These two appeals are by the assessee against the two separate orders of the Commissioner of Income Tax (CIT), Hubli. ITA No.1195/B/12 is an appeal against the order dated 25.07.2012 cancelling registration granted to the assessee u/s. 12AA and ITA No.1196/B/12 is an appeal ITA Nos.1195 & 1196/Bang/2012 Page 2 of 11 against the order dated 13.08.2012 withdrawing recognition granted u/s. 80G of the Act.
2. The assessee is a trust which came into existence by trust deed dated 01.03.1996. The object of the trust was to give medical relief, besides other charitable objects. The assessee had applied for grant of registration u/s. 12AA of the Act. The assessee was also registered under the Charitable Public Trusts Act, 1950 (Bombay XXIX of 1950). The assessee was also granted certificate of registration u/s. 12AA of the Act by the office of CIT, Hubli by order dated 9.4.2002. This registration was to take effect from 1.3.1996. The assessee was also granted recognition u/s. 80G of the Act.
3. The CIT in exercise of his powers u/s. 12AA(3) of the Act issued a show cause notice on 14.05.2012, whereby he proposed to withdraw the registration granted to the assessee u/s. 12AA of the Act. The show cause notice refers to the fact that the Jt. CIT, Range 3, Hubli had submitted a detailed enquiry report dated 8.4.2012 stating that the activities carried on by the trust were not in the nature of charitable activities as defined in section 2(15) of the Act and that the activities of the assessee are not being carried out in accordance with the objects of the trust. The assessee sent a detailed reply dated 26.05.2012 denying the allegations made in the show cause notice dated 14.05.2012. The CIT passed an order dated 25.07.2012 withdrawing the registration u/s. 12AA of the Act, ITA Nos.1195 & 1196/Bang/2012 Page 3 of 11 Consequently, the CIT also passed an order withdrawing the recognition granted u/s. 80G of the Act.
4. The reasons given by the CIT for withdrawing the registration u/s. 12AA of the Act may be summarised as follows:-
(a) The CIT referred to the definition of 'charitable purpose' as given in section 2(15) of the Act as amended by the Finance Act, 2008 w.e.f.
1.4.2009, which reads thus:-
"(15) "charitable purpose" includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity"
(b) According to the CIT, as per the proviso introduced by the Finance Act, 2008, if a trust or other charitable institution has its objects falling in the category of "any other object of general public utility"
given in Sec.2(15) of the Act, and if in carrying out its objects, it carries on activities in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business; then the activities carried on by the Assessee cannot be regarded as 'charitable'.
(c) Thereafter, the CIT referred to the fact that the assessee was charging much more than what private hospitals were charging in ITA Nos.1195 & 1196/Bang/2012 Page 4 of 11 the very same area and in this regard has given a comparative chart of charges in para 3.5 of his order.
(d) The CIT was also of the view that the assessee was ploughing back its income in purchase of machineries and doing so well would not be charitable.
(e) The CIT also found that the concessions provided by the assessee to the patients was insignificant portion compared to the professional receipts.
5. For all the above reasons, the CIT came to the conclusion that the assessee was carrying on commercial activities and its activities were not charitable.
6. The final conclusions of the CIT were as follows:-
"7. In view of the above VGH cannot be said to have satisfied the conditions of being a trust engaged in providing medical relief or relief to poor. Therefore, the VGH does not satisfy the very intent of the word medical relief or relief to poor relief or relief to poor defined in section 2(15) of I.T. Act 1961. The trust is running a hospital and collects huge sums of money from the patients for every kind of services for the purpose of making profit or surplus. This itself goes to show that the assessee's intention is to make profit. There is no element of charity involved in the case as the VGH is not imparting the services free of cost but for a consideration. Therefore, there is no element of relief to poor or weaker sections as claimed in the objects. The objections filed are in the nature of general recitals. Therefore, the activities do not come under the purview of even any other objects of general public utility also.
8. In the light of the above cumulative factors, the VGH has rendered itself liable for discontinuance of registration granted u/s 12AA w.e.f. 01.04.2006. Therefore, in exercise of powers ITA Nos.1195 & 1196/Bang/2012 Page 5 of 11 under section 12AA(3), the registration granted to Vivekananda General Hospital is withdrawn and discontinued w.e.f. 01.04.2006."
7. Similar order withdrawing recognition u/s. 80G of the Act was also passed by the CIT.
8. Aggrieved by the aforesaid orders, the assessee has preferred the present appeals before the Tribunal.
9. We have heard the submissions of the ld. counsel for the assessee. She submitted that the assessee is admittedly running a hospital. It was her submission that this fact is duly recognized in the impugned order passed by the CIT. She drew our attention to the definition of 'charitable purpose' in section 2(15) of the Act and submitted that "medical relief" is by itself a charitable purpose, irrespective of the fact that whether medical relief is given for consideration or free of cost. It is not the requirement u/s. 2(15) of the Act that "medical relief" should be provided at a concessional rate or free of cost to be regarded as "Charitable Purpose". It was further submitted that proviso to section 2(15) of the Act prohibiting a charitable organization from carrying on business is applicable only when the charitable organization exists for 'any other objects of general public utility'. It was submitted that since the assessee in the present case was doing a charitable activity of "medical relief", proviso to section 2(15) of the Act will not be applicable.
ITA Nos.1195 & 1196/Bang/2012 Page 6 of 11
10. The ld. counsel for the assessee then drew our attention to the provisions of section 12AA(3) of the Act and submitted that the registration granted can be cancelled only where the trust or institution is not genuine or the activities are not being carried out in accordance with the objects of the trust or institution. It was her submission that in the present case, there is no such complaint by the DIT in the impugned order. It was submitted that the CIT has admitted the fact that the assessee provides "medical relief", but the only complaint of the revenue is that "medical relief" was provided on commercial lines. According to her, exercise of power u/s. 12AA(3) of the Act, cannot be done on the aforesaid ground. In this regard, our attention was drawn to the judgment of the Hon'ble Karnataka High Court in the case of DIT(E) v. M/s. Venkatesha Education Society, ITA No.182 of 2011, dated 10.07.2012, wherein the Hon'ble High Court in a case where registration u/s. 12A was not granted held as follows:-
"13. The two relevant examinations are that the authority should satisfy himself that the objects of the Trust should be in the nature of charitable purposes and the genuineness of the activities of such institution, and on being satisfied on both counts, the applicant can be granted registration under Section 12-A of the Act. The object of the Trust so long as it fits into any one of the objects as mentioned under Section 2(15) of the Act, the first requirement is fulfilled and the second requirement will be met by the genuineness of the activities of such institutions are also to the satisfaction of the authority. We do not find any recording by the Registering Authority about the lack of genuineness of activities, but the Registering Authority did notice some shortcomings on the part of the Society, in the manner of its functioning.
ITA Nos.1195 & 1196/Bang/2012 Page 7 of 11
14. We are of the opinion that the shortcomings by themselves cannot be put on par with lack of genuineness of the Society, in the activities of the Society. However, as noticed in the judgment of this court rendered in the case of GARDEN CITY EDUCATIONAL TRUST (Supra), this is the exercise which perhaps the assessing authority may have to indulge in at the time of examining the returns filed by a Charitable Organisation claiming exemption in terms of Sections 11 and 12 of the Act."
11. Based on the above observations of the Hon'ble High Court of Karnataka, the ld. counsel submitted that the presence of commercial motive cannot be a ground to cancel registration u/s. 12AA(3) of the Act. Further reliance was placed on the decision of this Tribunal in the case of Krupanidhi Educational Trust v. DIT (E), (2012) 6 TaxCorp (A.T.) 30107 (Bangalore) / ITA No.1272(BNG)/2011 dated 22.11.2012; where in the case of a trust which existed for the purpose of education and whose registration was canceled u/s. 12AA(3) of the Act, the Tribunal quashed the order u/s. 12AA(3) of the Act and observed as follows:-
"19. We are also of the view that the other reasons given by the DIT(E) in the order u/s 12AA(3) of the Act, do not make out any case, which can show the activities of the assessee are not genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution. The fact that the Assessee was paying commission to persons who solicit students for studying in the Assessee's institution cannot lead to the conclusion that the Assessee is not imparting education. Similarly purchase of a BMW car, borrowing of loans from Sindhi Financiers, non maintenance of regular books of accounts, violations of provisions of Sec.13(1)( c) of the Act in as much as the trustees were paid enormous salary are all by way of passing reference having no relevance to whether or not the Assessee was pursuing education as its main object. There are no ITA Nos.1195 & 1196/Bang/2012 Page 8 of 11 facts brought out in the impugned order regarding the genuineness of the activities of the trust or as to whether the object of education was not pursued by the Assessee as its main and predominant activity. In fact, the order of the DIT(E) does not anywhere show that the assessee is not imparting education. The complaint of the revenue seems to be that education is being imparted but on commercial lines. The definition of Charitable Purpose is given in Sec.2(15) of the Act. The same refers to "relief to poor, medical relief, education and the advancement of any other object of general public utility". The proviso to Sec.2(15) of the Act introduced by the Finance Act, 2008 w.e.f. 1.4.2008 regarding excluding organizations where there is profit motive from the definition of charitable purpose applies only to the category of trusts which has as its object, the object of "advancement of any other object of general public utility". It does not apply to the other categories of charitable purpose viz., "relief to poor, education and medical relief". As rightly pointed out by the learned counsel for the assessee, eleemosynary element is not essential element of charity. It is also not a necessary element in a charitable purpose that it should provide something for nothing or for less than it costs or for less than the ordinary price. The surplus generated, if it is held for charitable purpose and applied for charitable purpose of the assessee, and then the Assessee has to be considered as existing for a charitable purpose. There are enough safeguards provided in Sec.12 and 13 of the Act to ensure that personal benefits of the persons in control of the trusts are not treated as having applied for charitable purpose and for being brought to tax like provisions of Sec.13(1) (c ) of the Act which restricts unreasonable and excessive payments to certain category of persons connected with a trust or other institution. In such circumstances, we are of the view, that the order u/s 12AA(3) of the Act, cannot be sustained."
12. Drawing our attention to the order of the Tribunal, the ld. counsel for the assessee submitted that it was not a necessary element for a charitable purpose that it should be providing something for nothing or for less than what it costs or for less than the ordinary price. It was submitted that the ITA Nos.1195 & 1196/Bang/2012 Page 9 of 11 order u/s. 12AA(3) of the Act has to be cancelled and consequently order withdrawing recognition u/s. 80G of the Act should also be cancelled.
13. The ld. counsel for the assessee also placed reliance on the decision of the ITAT Delhi Bench in the case of ITO v. Dharmashila Cancer Foundation & Research Centre, 128 ITD 1 (Del), wherein the Tribunal in a case of assessment denying relief u/s. 11 of the Act to a charitable organization providing 'medical relief', held that profitability is not the sole criterion to judge charitable nature of the society.
14. The ld. DR relied on the order of the CIT.
15. We have considered the rival submissions. We are in agreement with the arguments put forth on behalf of the assessee. As rightly contended by the ld. counsel for the assessee, the definition of 'charitable purpose' has several limbs viz., (i) relief of the poor, (ii) education, (iii) medical relief, (iv) preservation of environment (including watershed, forest & wildlife), (v) preservation of monuments or places or objects of artistic or historic interest, and (vi) advancement of any other object of general public utility. Proviso to section 2(15) of the Act is applicable only in respect of a charitable institution which has the object of 'any other object of general public utility'. The assessee, admittedly, is running a hospital and even as per the objects, the trust was established for the purpose of providing "medical relief". Therefore proviso to section 2(15) of the Act will not be applicable. It is further seen that this Tribunal in the case of Krupanidhi ITA Nos.1195 & 1196/Bang/2012 Page 10 of 11 Educational Trust (supra), had taken a view that in case of charitable purpose of providing education, the fact that educational institutions are being run on a commercial scale cannot be a ground to invoke the provisions of section 12AA(3) of the Act and cancel registration granted to a trust. The observations of the Tribunal have already been extracted in the earlier part of this order and are not being repeated. We also find from the impugned order that the assessee has been pursuing the objects as per the objectives of the trust viz., providing medical relief. There is no whisper about the genuineness of the activities of the assessee in the impugned order. Therefore the two conditions for invoking the provisions of section 12AA(3) of the Act are totally absent. As already stated, the complaint of the revenue in the impugned order is only with reference to the hospital being run on commercial lines. As we have already observed, so long as the income of the trust is applied for charitable purpose, there can be no question of any tax liability on the assessee. If there is any shortcoming in the application of income for charitable purpose, then to that extent the Assessing Officer in the assessment of the assessee, is free to tax such income which is not applied for charitable purpose. In such circumstances, canceling the registration u/s. 12AA of the Act would not be the appropriate course of action for the revenue. We, therefore, are of the view that the impugned order u/s. 12AA(3) of the Act deserves to be cancelled. It is ordered accordingly.
ITA Nos.1195 & 1196/Bang/2012 Page 11 of 11
16. In view of our order restoring registration u/s. 12AA of the Act, recognition granted u/s. 80G of the Act should also be restored. We hold and direct accordingly.
17. In the result, both the appeals by the assessee are allowed.
Pronounced in the open court on this 7th day of February, 2014.
Sd/- Sd/-
( JASON P. BOAZ ) ( N.V. VASUDEVAN )
Accountant Member Judicial Member
Bangalore,
Dated, the 7th February, 2014.
/D S/
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.