CASE LAWS
2017-TIOL-509-HC-DEL-IT
VENU CHARITABLE SOCIETY Vs DGIT: DELHI HIGH COURT (Dated: March 8, 2017)
Income tax - Sections 2(15) & 10(23C)
Keywords - ophthalmic services - charging fees from pateints - charity - grant of exemption
The assessee society is registered under the Societies Registration Act, 1860 and formed with the objective of rendering comprehensive eye care services, inclusive of all forms of ophthalmic services. To further its objects, it established the "Venu Eye Institute and Research Centre in Delhi", with five satellite hospitals and seven vision centers in Haryana, Uttar Pradesh, Uttarakhand and Rajasthan. Its claim was that its objects, for A.Ys 2005-2006 to 2009-2010 were charitable in terms of Section 2(15). However, for 2011-2012 its application in Form 56D for grant of exemption u/s 10(23C)(via) was rejected by the DGIT by observing that the assessee had not applied for exemption in the immediately preceding two years. He then went on to analyze the nature of the charges recovered by the assessee from its patients and concluded that the so called subsidized rates charged by the assessee forms almost 42% to 100% of the private charges clearly showed that the same was beyond the reach of poor people, and could not be termed as charity as envisaged in. sec. 2(15). Although the society was having the facility of free treatment to the patients on the basis of payment of one time normal charges, however the said treatment were provided to the patients on payment basis which itself proved that the, society was existing not solely for philanthropic purposes but for the purposes of profit. In response, the assessee challenged the decision of DGIT by arguing that the expression, "not for purposes of profit" u/s 10(23C) did not mean that a hospital or institution could not or should not charge any fees from its patients.
On appeal, the High Court held that,
Whether a society would continue to costitute as a 'charitable society' if it provides 'relief to the poor; education & medical relief', even if it incidentally involved the carrying on of commercial activities - YES: HC
Whether once the prescribed authority is satisfied that the institution existed during the relevant year solely for educational purposes and not for profit, it would not be justified to deny approval u/s 10(23C) on other grounds - YES: HC
++ it is seen that the DGIT has rejected the exemption application u/s 10(23C)(via) on ground of failure to establish 'charitable activity'. It is however seen that in case of ACIT v. Surat Art Silk Cloth Manufacturers Association, it was held that the test of predominant object of the activity is to be seen to determine whether it exists solely for education and not to earn profit. However, the purpose would not lose its character merely because some profit arises from the activity. To carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit, would not only be difficult for practical realization, but would reflect unsound principles of management. In order to ascertain whether the Institute is carried on with the object of making profit or not, it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established. Section 10(23C) exempts any hospital or other institution for treatment of illness or mental deficiencies or treatment during convalescence requiring medical attention or rehabilitation solely for philanthropic purposes and not for purposes of profit. If the government does not fund it, then, its annual receipts should not exceed the prescribed limit. Section 2(15) defines "Charitable Purpose" and includes the following- i) Relief of the poor; ii) Education; iii) Medical relief and iv) advancement of any other object of general public utility. An entity with such a purpose is eligible for exemption from tax u/s 11 or alternatively u/s 10(23C). There was a proviso inserted in 2008 which prescribed that "Advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of- a) any activity in the nature of trade, commerce or business; b) any activity of rendering any service in relation to trade, commerce or business; for a cess or fee or any other consideration." However, this proviso was inapplicable to the first three limbs of the Section 2(15) and they continue to constitute a charitable purpose even if incidentally involved the carrying on of commercial activities. In case of American Hotel and Lodging Association Educational Institute vs. CBDT, the Supreme Court held that at the time of granting approval u/s 10(23C)(vi), the prescribed authority is to be satisfied that the institution existed during the relevant year solely for educational purposes and not for profit. Once the prescribed authority is satisfied about fulfillment of this criteria i.e., the threshold precondition of actual existence of an educational institution u/s 10(23C)(vi), it would not be justifiable, in denying approval on other grounds;
Whether Section 10(23C) prescribes any stipulation, which makes registration u/s 12AA a mandatory condition - NO: HC
Whether application filed previously for exemption u/s 11, would debar a society from claiming exemption u/s 10(23C) simultaneously - NO: HC
++ the Revenue's other contention was that the assessee had applied for exemption u/s 11 as well as Section 10(23C) in the same year. Section 10(23C) does not prescribe any stipulation, which makes registration u/s 12AA a mandatory condition. The provisions of Section 11 and 10(23C) are two parallel regimes and operate independently in their respective realms. In order to avail exemption u/s 11, 12 and 13, the entity should be registered u/s 12AA. The Sections 11, 12, 12A, 12AA and 13 of the Income Tax Act constitute a complete code governing the grant, cancellation or withdrawal of registration, providing exemption to income, and also the conditions subject to which a charitable trust or institution is required to function in order to be eligible for exemption. The primary objective of providing exemption in case of charitable institution is that income derived from the property held under trust should be applied and utilized for the object or purpose for which the institution or trust has been established. The Act was also amended to provide specifically that where a trust or an institution has been granted registration for purposes of availing exemption u/s 11, and the registration is in force for a previous year, then such trust or institution cannot claim any exemption under any provision of Section 10. Similarly, entities which have been approved or notified for claiming benefit of exemption u/s 10(23C), would not be entitled to claim any benefit of exemption under other provisions of Section 10, which means that one can claim exemption u/s 11 and Section 10 (23C). Coming back to what a charitable purpose is, an educational institution may qualify for relief u/s 10 (23C), as well as, Section 11. In the present case, the assessee provides training courses to students and nursing staff, which qualify for exemption. The main objective of the program must be the availability of such a training to the public at large and imparting some kind of knowledge through it;
Whether the fact that some of the beneficiaries pay for the benefits they get from the institution, would be fatal to the charitable character of the institution - NO: HC
Whether a nursing home / hospital would cease to be a charitable association, merely on basis of charging fees from ed its patients for the services rendered - NO: HC
Whether mere charging of fees by a hospital for running educational courses or giving medical treatment, or providing treatment which involves a layered subsidization programme, can be a ground for rejection of its application u/s 10(23C) - NO: HC
++ the fact that some of the beneficiaries pay for the benefits they get from the institution would not be fatal to the charitable character of the institution. Accordingly, where an association, which was in charge of a nursing home and hospital, charged its patients for the services rendered, it was held it would not cease to be charitable. Likewise, the assessee's providing medical facilities on wholly charitable, or partly subsidized basis to some patients and charging others at rates par with other institutions per se cannot debar it from the benefit of being treated as charitable. The dominant purpose test presupposes that as long as the activity answers the description of charity and conforms to the objects of the trust or society, that profits or surpluses are generated, incidentally cannot rob it of the benefits. If the profits from business feed charitable objects, then it is not an activity for profit, so the exemption need not be lost. Therefore, total charity to some poor and deserving patients, partial subsidization of some others and charging of full rates from some, does not rob the essential and dominant object of the society, i.e. medical service and education. It is now well established that an educational institution existing solely for educational purposes would not cease to be so only for the reason that some of its activities have yielded surpluses. In the facts of the present case, it is seen that the objects of the assessee society are solely for the purposes of education and medical care and not for purpose of profit. It is only if it is found that the assessee has been carrying on its activities for the purposes of profit, contrary to its objects, the prescribed authority would be justified in rejecting the application for approval u/s 10(23C)(vi). Merely because it charges fees for educational courses or that it entered into arrangements with other institutions to set up satellite centers, to give medical treatment, or that its treatment involves a layered subsidization programme, would not justify rejection of its application. For these reasons, the impugned order, denying exemption u/s 10(23) is hereby quashed.
Assessee's petition allowed
2017-TIOL-508-HC-MAD-IT
CIT Vs GUMANMAL JAIN: MADRAS HIGH COURT (Dated: March 3, 2017)
Income Tax - Section 54F
Keywords - change in residence - exemption - location of flats - same address - residential house
The assessee, an individual had filed its return declaring a total income of Rs.2,49,980/-. Consequently, the case was selected for scrutiny and notices u/s 143(2) and 142(1) were served on the assessee. During assessment, it was noticed that the Assessee and his two sons own certain contiguous extents of land, the total extent of which was available at 24,840 square feet, upon aggregation. The AO also noted that the assessee along with his two sons entered into a Joint Development Agreement with a builder to develop the said land by constructing 16 flats therein with a total built up area of 56,945 square feet. In consideration, the assessee and the builder agreed to share the flats in 70:30 ratio between them. However, in lieu of such ratio set out in the builders agreement, the assessee got 9 flats and his two sons got 3 flats each. Post scrutiny, the AO passed an assessment order inter alia holding/quantifying long term capital gain of assessee at Rs.2,31,56,430/- and demand was raised. Relying upon interpretation of Section 54-F, the AO proceeded on the basis that the assessee had got more than 'a residential house'. On appeal, the CIT(A) reversed the order of AO.
On appeal, the High Court held that,
Whether location of flats in different blocks & towers, would not disentitle the owner from getting benefit of section 54F, as long as those flats are occupied on same address - YES : HC
++ it is to be noted that the assessee having got 15 flats along with his two sons will not disentitle him from getting the benefit u/s 54-F only on the ground that all the 15 flats are not in the same Block, particularly in the light of the admitted factual position that all the 15 flats are located at the same address namely. Once it is in the same location/address, the question of whether it is in the same block or in different blocks does not arise for consideration. Thus, as long as all the flats are in the same address/location even if they are located in separate blocks or towers it does not alter the position. In the instant case, after all, all the flats are a product of one development agreement of the same piece of land. Therefore, it is abundantly clear that even if flats/apartments are in different blocks and different towers as long as they are in same address/location, it does not disentitle the assessee from getting the benefit of Section 54-F.
Revenue's Appeal Dismissed
