1. This is an appeal by the assessee against an order of the CIT(A)-XVI, New Delhi, pertaining to asst. yr. 1992-93.
2. The main grievance of the assessee in this appeal is against refusal of exemption under s. 10(22A) of the IT Act, 1961. Alternatively, it was also mentioned that denying of the benefit of exemption under s. 11 of the IT Act, 1961, is unjustified, unwarranted and illegal. While refusing the exemption as such, the CIT(A) has acted on the relevant considerations demonstrated in the ground Nos. 4 to 8 of the grounds of appeal ignoring the fact that in the past the trust had been allowed exemption under s. 10(22A). The last plea of the assessee was that the CIT(A) has also erred in not allowing depreciation under s. 35(1)(iv) of the IT Act on the ground that the assessee-trust had been allowed exemption under ss. 11 and 12 of the Act, which is factually incorrect and contrary to the material available on record.
3. The assessee is a charitable trust duly registered under the name and style as "Skin Institute & Public Services Charitable Trust" under the IT Act and the Trust Act. The claim of the assessee is that it is running a skin institute which is providing medical facility in the field of skin and also carried out research fully recognised by the Central Board of Examinations and offers courses of dermatology. The assessee-trust filed a return declaring Nil income claiming exemption under s. 10(22)/11 of the IT Act. However, the Asstt. Director of IT (Exemption) refused the exemption claimed by the assessee and computed the taxable income at Rs. 17,76,169 vide order dt. 28th March, 1995.
The AO observed that the assessee denied to have received any donation, whereas in the P&L a/c it had claimed to have received donation amounting to Rs. 21,63,259. Similarly, no details regarding treatment of patients free of charge (sic). Though subsequently it was replied that the donation was in fact sale proceeds of medicines. The AO observed that the assessee had been selling medicines from common medical store in the research institute. While the research institute is different identity for which no separate books of accounts are maintained by the assessee in respect of the other services like registration fee, laboratory fee, pathological fee, etc., whereas as per the conditions to qualify for exemption under s. 11, the assessee is required to maintain separate books of accounts. It was also pointed out that Dr. P. N. Bahl, one of the directors of the society, has been charging more consultation fee than other doctors of similar experience and similar qualification causing benefit to himself at the expense of the society within the meaning of s. 13(1)(c) of the Act. Further, frequent payments through self cheques were made like one paid Rs. 5,000 through self cheque to Mrs. Sunita Wag, alleging salary paid to her. No details of services rendered to the society was given.
Similarly, payment for purchase of medicines worth 360.50 Dollars equivalent to Rs. 9,365 was made from a foreign country in Indian currency but no evidence for the payment had been furnished. Therefore, he was refused exemption as claimed. He also added back some expenditure and disallowed depreciation. This was challenged before the CIT(A).
4. Before the CIT(A) it was pointed out that the AO was not justified in treating the claim of the assessee for exemption under s. 10(22A) of the IT Act. As per the submission filed under letter dt. 29th September, 1994, it was pointed out that the assessee is involved in treatment of patients suffering from skin diseases and conducting research in dermatology. Patients are divided into three categories, being free category patients, general category patients are treated on a subsidised basis whereas category A and B patients are treated on full charges basis. Out of 68,000 patients treated during this year, 8,300 patients paid full charges, 42,370 patients paid part charges and balance about approximately 18,000 patients were treated free. It is pointed out that for free category no consultation fees are charged, rather free medicines both to the outdoor and indoor patients were supplied. Even they are given free food, free surgical and injection and treatment. In respect of general category consultancy fee for the first time is charged at Rs. 15 (general category subsidised) and thereafter Rs. 10 on subsequent visits. This meagre amount was only to recover the cost of stationery/administrative work and manpower including specialists involved in handling general category patients.
The payees 'A' category of patients are treated on fully charged basis for which consultancy fee and doctor's fee is Rs. 150 for first visit and Rs. 100 for subsequent visits. The number of patients examined and treated were given as under :------------------------------------------------------------------------Out-patients Payees A Genl. At Genl. At E. (Free) E (Free) Paid Cat SISD DSI SISD DASNA------------------------------------------------------------------------ SubsidisedNew cases 4,049 21,920 4,668 1,958 329Old cases 4,282 20,450 4,972 2,221 3,885Total 8,331 42,370 9,640 4,179 4,214------------------------------------------------------------------------ Therefore, it was pointed out that the object of the assessee institute is philanthropic. It was further pointed out that in the accounts donation was wrongly shown. In fact it was sale proceeds of medicines supplied on subsidised basis. It was also submitted that payment of Rs. 5,000 was paid to Ms. Sunita Wagh as salary in cash as she requested for payment of the same. It was further pointed out that Dr. P. N. Behl is the Director of the institute. He is considered as a pioneer in skin surgery not only in India but the whole of Asia. Dr. Behl had been paid remuneration only against professional services rendered by him and out of amount received from payees category 50 per cent. The trust/institution could not have received or earned any income but for the services rendered by Dr. P. N. Behl. However, the main object of running the hospital and running medical-aid to the skin disease patients is solely for philanthropic purposes and not for purposes of deriving income or profit. It was also pointed out that other visiting consultants were paid 90 per cent. of the income generated by them.
Besides, they are given salary, free medical facility and contributory P. F. facility. It was also pointed out that non-allowance of depreciation is also uncalled for. Therefore, it was urged that the assessee should have been allowed exemption under s. 10(22A) and under s. 11 of the Act. However, the CIT(A) did not agree with the contention of the assessee. He declined to give exemption as claimed by the assessee for the following reasons : "I have carefully considered the facts of the case. I have also gone through the aims and objects of the society which has been enumerated above. I find that all objects are distinct objects. They are also not for charitable purposes as defined in s. 2(15) of the IT Act. Patients satisfaction and job satisfaction for all staff and academic desire of staff/patients cannot be termed as objects of charitable nature. Sec. 2(15) reads as under : 2(15). "Charitable purpose includes relief of the poor, education, medicine relief and the advancement of any other object of general public utility." 5. The appellant, no doubt, treats patients suffering from skin disease. But from majority of the patients the appellant realises fees.
Only E category of patients who are persons having income less than Rs. 500 a month are treated free for one hour from 9 A.M. to 10 A.M. which is normally the case in other nursing homes paying taxes like ADS Diagnostic Centre, in Greater Kailash. I also find that members of the society are getting benefit from the Institute and from practice. It has been held by the Supreme Court in the case of Dharmaposhana Co. vs.
CIT (1978) 114 ITR 463 (SC) that the object of the society which was "to do the needful for promotion of charity, education, medical relief and other matters of public good" were not for charitable purposes as defined in s. 2(15) of the IT Act as the appellant could pursue a profit-making activity in the course of carrying out the above purposes. The society has some objects which were charitable and others which were not charitable all enjoying equal status. It was open to the society in its discretion to apply its income to any of the objects and no definite part of its income was related to charitable purposes only.
Hence, the society was not entitled to exemption. Dr. Behl is the managing trustee of the society. Dr. Aggarwal is also a member of the society. I find that Dr. Behl has been practising in the premises of the society. He has also been getting 50 per cent. of the receipts from treatment of payees patients treated by him. Other visiting doctors have also been given 90 per cent. of income generated by them. Other members of the society including Dr. Aggarwal besides being paid salary have also been given free transport and other benefits which attract provisions of s. 13 of the IT Act. Part of the income of the society has been given to persons who are authors of the society and the property of the society has also been utilised and applied directly for the benefit of persons who are excluded persons under s. 13(1)(c)(ii) of the IT Act. Sec. 13(2) specifically prohibits such use of property and funds of the society by persons without adequate rent or compensation. Shri Behl is not giving any such rent or compensation to the society for utilising its premises for his practice and for which he has been paid 50 per cent. of the proceed. He has also been paid excessive remuneration as compared to other doctors during the year whereas other doctors have been paid salary and free transport. Such salary amounts to Rs. 7,140 p.m. only whereas Dr. Behl has been paid Rs. 3,09,370 during the year. All these are in violation to the provision of s. 13(1)(c) and 13(2) of the IT Act.
6. I also find that the trust has also concealed the facts in order to get undue benefit of ss. 11 and 10(22) by claiming the amount from sale of medicine amounting to more than Rs. 21 lakhs as donation which was detected only by investigation conducted by the AO. The society cannot be said to be charitable only because it sees some patients free. The society has been running the institute as a business concern, earning huge profits on its activity as during the year its surplus is more than Rs. 13 lakhs. It has also been paying huge salaries and remuneration to its managing trustee Dr. Behl. The society has not maintained separate books of account as prescribed under s. 11(4A) for its business activity in order to qualify exemption under s. 11 of the IT Act.
7. As regards the claim of exemption under s. 10(22A) is concerned, the appellant did not make any such claim in its return. Only through a letter during the course of assessment proceedings it claimed that its case for exemption under s. 10(22A) be also examined. From the facts stated above it becomes clear that the appellant has been running a skin institute purely as a business concern with motive of profit earning. I also find that it is not engaged only in treatment of patients it also runs a school of dermatology and some teaching is provided after realisation of fees. It has also published books which are priced publications and it is getting income from the same. It also runs workshops programme from which a fee of Rs. 64,690 has been realised. I also find that the society has paid a donation of Rs. 5,45,526 during the year which cannot be the case in case of a hospital. Like a business concern it has incurred expenditure under the head entertainment amounting to Rs. 8,207. It has also incurred an expenditure of Rs. 7,909 on advertisement. From the income and expenditure statement it is clear that the society has all the ingredients of a business concern. Hence, it cannot be allowed the exemption under s. 10(22A) on facts of the case. Hence, the appellant's claim for exemption under s. 10(22A) is rejected." 5. The learned assessee's counsel invited our attention to the Memorandum of Association of the assessee-trust given from pp. 15 to 33 and it is pointed out that all the main aims and objectives of this trust are as under : (i) Service to all without distinction of caste, creed, sex, economic status, religion, etc., in human and missionary manner.
(ii) Patient's satisfaction in the sense that treatment can be completed without economic hardship or financial harassment.
(iv) Academic desires of staff/patients are satisfied by providing research, writing and teaching facilities." Further, inviting our attention to the brief details of assessment given at p. 200 and also assessment orders filed on record from asst.
yrs. 1973-74 to 1991-92 the assessee had been granted exemption under s. 10(22A) and also under s. 11 of the IT Act. It pointed out that all these orders were passed under s. 143(3) of the IT Act after application of mind. It was also pointed out that in assessment year under consideration the assessee made similar request vide note given at p. 195 of the paper-book wherein it is claimed that the income of the trust is exempted under s. 10(22A) of the IT Act, 1961. It was also argued that the institute has been registered as a charitable trust under the Societies Registration Act, and orders were passed granting exemption from time to time, which is on record from pp. 34 to 47. The learned assessee's counsel also pointed out that the Asstt. Director of IT (Exemption) was informed vide letters dt. 29th September, 1994, and 14th November, 1992, that there is no change in the aims and objectives of the activities in this year and the trust is maintaining a hospital run for the poor and needy person basically who are unable to pay the bare minimum charges. It was also pointed out that registration was granted under s. 12A of the IT Act. Therefore, on the basis of the past history that there is no change in the aims and objects of the assessee's activities, which is promoting research work in medical aid to the community at large, there is no reason to reject the claim of exemption under s. 10(22A)/11 of the IT Act. The learned assessee's counsel very vehemently argued that the information regarding the activities of the trust is given in pp. 48 to 62 of the paper-book, wherein it was pointed out that the main ingredients for skin treatment is the silver nitrate lotion. In other hospitals the charges of silver nitrate ranges between Rs. 60 to 80 and this, however, at the skin institute of assessee-trust, since it is its own preparation only Rs. 15 the cost of 100 gms, is being charged from the patients whereas the cost of 100 gms. silver nitrate is Rs. 1,200. It was also pointed out that bills from Escorts Heart Institute and National Heart Institute for the treatment of Dr. P. N. Behl's wife showed Rs. 45,265 for just 8 days hospitalisation and then Dr. Behl himself had to pay Rs. 2,535 including Rs. 300 as consultation fee to Dr. Padmavati (a colleague of Dr. Behl) at the National Heart Institute. Whereas the rates of the assessee-trust are cheaper than the other hospitals. This is the only Institute in the country which imparts dermatology course to doctors during dermatological workshops. Deserving poor and needy patients were/are given facility of free surgery/accommodation/food, etc. by Dr.
P. N. Behl. It was pointed out that payments to regular doctors/visiting consultants and stipend to resident trainee doctors during 1991-92, in addition to salaries, free transport, free medical and contributory P.F. facilities formed nearly 90 per cent. of their income, whereas Dr. P. N. Behl had been paid remuneration only against professional services rendered by him and out of the amount received from payees category resulting in benefit to the assessee-trust/assessee institution. The CIT(A) has completely ignored the fact that but for the services of Shri P. N. Behl the assessee-trust could not have received or earned any income. Therefore, if 50 per cent. of the income generated by him from payees category is given for rendering services to the patients under resolution of the trust dt. 6th February, 1975, it will not be considered in itself a benefit to himself, so as to attract the provision of s. 13(1)(c) of the IT Act. It was also pointed out that Dr. Behl has not been paid for any managerial or administrative supervision of the trust. Rather he has been paid for services rendered to the patients as a doctor. As regards the plea that the assessee has shown donations of Rs. 21,63,259, it was pointed out that by mistake this amount has been shown as a donation but in fact it is the sale proceeds of the medicines. Our attention was invited to the explanation of the assessee in its letter dt. 31st October, 1995, wherein it is mentioned that the rates for silver nitrate solution from the patients are being charged at the rate of Rs. 15 whereas the other hospitals charge Rs. 60 to 80, which is highly subsidised. It was pointed out that the cost of 100 gms. of silver nitrate is Rs. 1,200. Therefore, according to the understanding of the trust, sale of silver nitrate medicine to the patients on a highly subsidised basis was a kind of donation though after being pointed out the same was correctly mentioned as sale proceeds of medicines. It was further pointed out that all types of surgery relating to skin problems are conducted on a highly subsidised basis. It is clear from the details given in the said letter. It was explained that salary was paid to Sunita Wagh because she wanted cash.
Therefore, issuance of cheque cannot be a ground to refuse exemption.
It is also pointed out that the CIT(A) while deciding the case of the assessee did not consider the exemption claimed under s. 10(22A). It is further pointed out that in the asst. yr. 1975-76 when the ITO opined that the institute's activities fall under s. 11 but not under s.
10(22A), the assessee filed the reasons against that order before the CIT, Delhi-VI, New Delhi, who after considering the material on record and the objects of the assessee-trust observed as under : "There is no denying the fact that the appellant trust is running a hospital rendering medical aid for the reception and treatment of the persons suffering from illness and specially in skin diseases requiring medical attention or rehabilitation and crisis (sic) solely for philanthropic purposes and not for purposes of profits.
All other activities are a part and parcel of and ancillary to its main object i.e., running of a hospital. The appellant is accordingly held entitled to the benefit of exemption under s.
10(22A)." It is also pointed out that s. 10(22A) is pari materia to s. 10(22).
Therefore, the reasons tendered in connection with that section are equally application in respect of s. 10(22A). In this connection, reliance was placed on the decisions in : (1) CIT vs. Pulikkal Medical Foundation (P) Ltd. (1994) 210 ITR 299 (Ker); (2) Addl. CIT vs. Aditanar Educational Institution (1979) 118 ITR 235 (Mad); (3) CIT vs. Institute of Franciscan Missionaries of Mary Society (1989) 180 ITR 647 (Mad); (4) Governing Body of Rangaraya Medical College vs. ITO (1978) 117 ITR 284 (AP); (7) CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 (Mad) and in the case of In this connection, our attention was also invited to the Board's Circular No. 45, dt. 2nd September, 1970, reported in (1971) 79 ITR (St.) 33 and also the decision of the Tribunal reported in (1996) 56 ITR 37 (Del), in the case of Vishwa Dharmayatan Trust vs. Dy. Director of IT. It is pointed out that Dr. P. N. Behl is the founder trustee of the trust and has no income from the trust except that he is charging 50 per cent. of the income for rendering medical services to the trust.
It is also pointed out that the condition laid down under s. 11 is not applicable in the context of exemption laid down under s. 10(22A).
Therefore, there is no need to maintain separate accounts as pointed out by the CIT(A). Alternatively, it was submitted that incidentally any profit is derived which is not the motive of the trust, this cannot be a ground to reject exemption in view of several decisions cited above. As against this the learned Departmental Representative relied on the order of the CIT(A). It is pointed out that every assessment year is a separate assessment till the facts are distinguishable from earlier year, the order passed in earlier year cannot be mechanically applied. It is also pointed out that to claim exemption under s.
10(22A) the assessee has to satisfy that it is solely for philanthropic purposes and not for purposes of deriving profit. In this connection, it is pointed out that Dr. P. N. Behl is receiving 50 per cent. of the profits, which is much more than what the other distinguished doctors are receiving. Dr. P. N. Behl has been paid Rs. 3,09,370 during this year in violation of provisions of s. 13(1)(c) and 13(2) of the IT Act.
Unless it is pointed out that the amount of donation is in fact not a donation but the amount received from sale of medicines, which is more than Rs. 21 lakhs, therefore, the society cannot be said to be charitable only because it is also giving free medical aid to poor patients. It is pointed out that Dr. P. N. Behl has participated in the profits of the trust which has gone to him. Therefore, exemption under s. 10(22A) cannot be granted because the sole purpose of the trust cannot be said to be philanthropic.
In this connection, the learned Departmental Representative pointed out that the ratio laid down in the decision of CIT vs. Pulikkal Medical Foundation (P) Ltd. (supra) is not applicable to the facts of the instant case. It is pointed out that the Revenue authorities in the past has not noticed that the activities carried on by the assessee were such on which the exemption could not be granted. It is admitted that if benefit of s. 10(22A)/11 of the IT Act is denied to the assessee, depreciation has to be allowed. In reply, the learned assessee's counsel has submitted that one has to see whether the facts in this year are different from the earlier years. It is pointed out that in the earlier year also the assessee has been selling medicines in the same way, because the main constituent of the medicine is the silver nitrate, which is very costly item, as pointed out above.
However, the assessee is supplying it at a very subsidised rate.
Therefore, it has treated it as a donation to the poor, the AO termed the sale as a donation. In fact Dr. P. N. Behl is not receiving any income of the trust, rather he is receiving 50 per cent. of the income of the payees category, but he is not charging anything for managerial or administrative services. Therefore, if Dr. P. N. Behl is paid out of the medical services rendered to the patients, it cannot be a benefit of the trust to the promoter itself.
6. We have considered the rival submissions and have gone through the material on record. The assessee has claimed exemption under s. 10(22A) and also under s. 11 of the IT Act. So far as the exemption under s. 11 is concerned, the relevant provisions relating to this exemption are as under : "11(1) Subject to the provisions of ss. 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income : (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property." ..........
"(4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the AO shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes." "(4A) sub-s. (1) or sub-s. (2) or sub-s. (3) or sub-s. (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business." ...........
"13(1) Nothing contained in s. 11 or s. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof : (a) any part of the income from the property held under a trust for private religious purposes which does not ensure for the benefit of the public; (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof : ...........
(ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied directly or indirectly for the benefit of any person referred to in sub-s. (3) : Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-cl. (ii) shall not apply to any use application, whether directly or indirectly, of any part of such income or any or property of the trust or institution for the benefit of any person referred to in sub-s. (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-cl. (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-s. (3) insofar as such use or application relates to any period before the 1st day of June, 1970." The category of persons mentioned in cl. (ii) of sub-s. (1) of s. 13 are mentioned in sub-s. (3) of s. 13, which includes the author of the trust or the founder of the institution. From the facts enumerated in the order of the CIT(A), which are not disputed, it is clear that 50 per cent. income generated by the trust is being given to Dr. P. N.Behl who is the founder director of the institute and in the assessment year under consideration a sum of Rs. 3,09,370 paid to him as against Rs. 7,140 per month paid to various other doctors by way of salary, besides free transport, etc. This is also clear from the extract of Item No. 7 of minutes of meeting given at p. 78 of the paper-book, where Dr. P. N. Behl, founder and director of the institute was authorised to collect 50 per cent. of his private work. This fact is also clear from the submissions made before the CIT(A) vide letter dt.
31st October, 1995, at p. 59 of the paper-book. Therefore, from the above facts it is clear that out of the income of the trust part of such income is being used directly or indirectly for the benefit of the founder-member which comes within the prohibited category referred to in sub-s. (3) of s. 13 of the IT Act. Therefore, so far as exemption under s. 11 is concerned, this cannot be granted in view of violation of provisions of cl. (ii)(c) of sub-s. (1) of s. 13 r/w sub-s. (3) of s. 13 of the IT Act.
7. Now we will consider whether the CIT(A) has rightly refused exemption under s. 10(22A) of the IT Act. A perusal of the assessment orders relating to earlier years would reveal a continued and consistent position adopted by the Revenue recognising the assessee-trust as a public charitable trust and granting exemption to it either under s. 11(1) or under s. 10(22A) of the IT Act, 1961. The question was whether when the trust was recognised as a public religious and charitable trust in all the earlier years before asst.
yr. 1991-92, whether there is material evidence and circumstances on record under which a different treatment of the status of the trust is warranted. The AO would be within his rights to refuse exemption if tangible evidence is found on record showing that the directors or members of the trust had utilised the profits for their personal purposes. The CIT(A) has basically pointed out that Dr. P. N. Behl, who is managing trustee of the society and founder member is getting 50 per cent. of the receipts from treatment of skin patients treated by the institute. Thereby the society has been utilising and applying directly the income from the trust for the benefit of persons excluded under s.
13(1)(c)(ii) of the IT Act. Sub-s. (3) of s. 13 prohibits such use of property and funds of the society. Though he has also mentioned that the society is not maintaining any separate books of accounts as prescribed under s. 11(4A) of the IT Act and also made payments through self-cheques to Mrs. Sunita Wagh. The frequent payment through self-cheque to Mrs. Sunita Wagh will not be a sufficient ground, as according to the assessee, Smt. Sunita Wagh was being paid salary through self-cheque. However, the main question for consideration is whether the payment made to Dr. P. N. Behl, who is managing trustee and founder of the skin institute at the rate of 50 per cent. is sufficient to hold that the philanthropic purpose of the society has been frustrated. The learned assessee's counsel has reliance on case law relating to s. 10(22), which is in pari materia with s. 10(22A) for the proposition that merely because certain surplus arose from the society's operation, it cannot be held that the institution was run for purpose of profit so long as no person or individual was entitled to any portion of the said profit and the said profit was utilised for the purpose and for the promotion of the objects of the institution.
Reliance was also placed on the decision of the Kerala High Court in the case of CIT vs. Pulikkal Medical Foundation (P) Ltd. (supra), for the proposition that in case a hospital exists only for philanthropic purpose even if incidentally profit is earned, the hospital is still entitled to benefit under s. 10(22A) of the IT Act. Our attention was also invited to the decision of the Tribunal in the case of Vishwa Dharmayatan Trust vs. Dy. Director of IT (supra) for the purpose that even in earlier years upto previous assessment the trust was recognised as a public charitable trust without stating circumstances under which the different treatment of status of the trust is warranted the AO could not hold the trust as a non-charitable. It is not in dispute that provisions of s. 10(22A) and s. 10(22A) are in pari materia.
8. Sec. 10(22A) provides that the income of the hospital existing only for philanthropic purposes and not for the purposes of profit is entitled to exemption. The word 'philanthropy' is not defined in the IT Act. The general meaning of the word 'philanthropy' includes activities promoting goodwill to mankind or activities beneficial to humanity at large as opposed to activities solely for the benefit of a few individuals. It will be pertinent to mention here that when cl. 10(22A) was added to s. 10 with almost similar wording as cl. (22), it will only be proper to infer that the legislature used those words in cl.
(22A) taking note of the interpretation given to those words occurring in cl. (22). In this connection reference may be made to Circular No.45, dt. 2nd September, 1970, which contains the explanatory notes on the provisions of the Taxation Laws (Amendment) Act, 1970, which clarifies the position that hospitals and other institutions which exist solely for philanthropic purposes and not for purposes of profit will be totally exempt from tax, as in the case of universities and other educational institutions.
9. In the case of CIT vs. Pulikkal Medical Foundation (P) Ltd. (supra), the assessee-hospital claimed exemption under s. 10(22A). The question arose whether the hospital is existing solely for philanthropic purposes or for purposes of profit; where the medical trust hospital was originally run by a firm of partners. That firm was dissolved and business was taken over by the assessee-company giving the partners of the firm due credit. The assessee had a net profit after making adjustment for income-tax purposes. When the assessee earned profit, the question arose whether exemption under s. 10(22A) of the IT Act can be given on the ground that the hospital existed solely for philanthropic purposes and not for the purposes of profit. In this context, the Hon'ble Kerala High Court has held that in a case where hospital exists only for philanthropic purposes, even if incidentally profit is earned, the hospital is entitled to the benefit under s.
10(22A). In order to achieve the main philanthropic objects, the hospital may do some profit-earning business provided such profit is appropriated towards the expansion and development of the hospital or to start another institution with the same philanthropic objectives.
The real test is to find out what the dominant or primary purpose of the institution is. If the primary purpose is philanthropic, the inclusion of some objects for earning profit for the implementation of the primary object would not alter the character of that primary object. It was further observed that the directors or members of the assessee-company did not participate in the profits or dividends of the company in any form. In fact, the directors were not receiving any salary. Therefore, the directors and members had strictly complied with the prohibition in the memorandum of association against distribution of profits or dividends. Thus, there was no evidence that the directors or shareholders of the assessee had utilised the profit for their personal purposes.
10. Applying the ratio laid down by Hon'ble Kerala High Court in the case of CIT vs. Pulikkal Medical Foundation (P) Ltd. (supra) to the facts of this case, we find in this case that the assessee-society is running a skin institute for service to all without distinction of caste, creed, sex, or economic status or religion for treatment of skin diseases. The skin institute have kept three categories of patients, one, paid full charges, second, paid on part charges and the third being patients who are treated free of charges. During the assessment year under consideration out of 68,000 patients treated, 8,300 patients were treated on full charge, 42,370 patients were treated on part charge and balance patients were treated on free charge. Out of the income earned from these patients, Dr. P. N. Behl, who is the managing trustee and founder of the skin institute, has been paid 50 per cent.
of the income i.e., Rs. 3,09,370 in this year, whereas the other doctors who attended the job were paid salary of Rs. 7,140 per month.
It is also found that the assessee-trust had sold medicines to the several patients. Such receipts in this year comes to Rs. 21,63,259.
The case of the assessee is that the medicine is supplied on subsidised charges. Therefore, it is donation. However, keeping in view the volume of the amount of Rs. 21,63,259, it cannot be treated as donation but sale of medicines. As per the decision of the Hon'ble Kerala High Court, the purpose of hospital solely existing for philanthropic purpose will not frustrate if incidentally profit is earned by the hospital but it was opined that the benefit should not be appropriated or utilised for personal purposes of the director or the office-bearers of the trust but it should be appropriated towards the expansion and development of hospital. In the present case we find that the managing trustee, Dr. P. N. Behl has utilised the profit for personal purposes.
Therefore, it is clear that the managing trustee had participated in the profit of the trust and had utilised the profits for this personal purposes. The Hon'ble Kerala High Court in the case of CIT vs. Pulikkal Medical Foundation (P) Ltd. (supra) has specifically observed that the aim of the philanthropic object of the hospital will be frustrated if there is evidence to show that the director or shareholders have utilised the profit for their personal purposes. Then it cannot be said that the hospital is existing solely for the philanthropic purposes but there was no objection if incidentally the profits were earned by the hospital for the benefit of the hospital, where the profit is appropriated towards the expansion and development of hospital or to start another institute with same philanthropic objectives. In view of the above facts, we are of the opinion that since Dr. P. N. Behl, who is the managing trustee and also the founder director has participated in the profit to the extent of 50 per cent. of the income of the trust and it has not been shown by the assessee-trust that it has been utilised or appropriated towards the expansion and development of the hospital or to start any other institution with the same philanthropic objects. Therefore, the philanthropic objective is frustrated.
11. In view of above discussion, we are of the opinion that the exemption under s. 10(22A) was rightly refused by the CIT(A).
12. The next question arises whether depreciation under s. 35(1)(iv) of the IT Act should be granted to the assessee-trust. Since we are of the opinion that exemption under s. 10(22A) or 11 of the IT Act is not available to the assessee, the assessee will be entitled to claim depreciation under s. 35(1)(iv) of the IT Act. Accordingly, we direct the AO to allow the same.