1. The revenue has filed appeal against the order passed by the CIT(A) vide A.No. 110/ASR/97-98 dated 18-8-1997 and taken following grounds in appeal : "1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in holding that the assessee hospital deserves the benefit of exemption under section 11 of the Income-tax Act, 1961, as it has failed to fulfil its main object of grant of medical help to the poors.
2. The appellant craves leave to add or amend the grounds of appeal before the appeal if heard or finally disposed of.
3. It is prayed that the order of the Assessing Officer be restored and that of the ld. CIT(A) be vacated." 2. The learned D.R. has relied on the order passed by the Assessing Officer.
3. The assessee has filed return of income along with return of income, the assessee has worked out the excess expenditure over income amounting to Rs. 21,19,608. The Assessing Officer started assessment proceedings and during the assessment proceedings, examined various books of account which has given birth to the controversy in this case.
The Assessing Officer has examined the following registers : 4. The Assessing Officer has observed certain discrepancies according to his perception and asked the assessee to file the reply explaining discrepancies. The discrepancies were of the nature of name and address of the patient, which according to the Assessing Officer were not indicating full names, full postal address, no categorisation regarding allotment of M.R. No. in case of free patients and lack of maintenance of Registration No. in case of free patients. The Assessing Officer asked the assessee to explain die reason why the name of the doctor attending the free patients is not mentioned. Similarly the medicine administered to each free patient is not mentioned. The assessee filed explanation and explained an the objections which are reproduced by the Assessing Officer in para 5 of his order. The Assessing Officer took serious note of these infirmities and made a detailed discussion in the assessment order. He is of the opinion that lack of availability of complete address leads to conclude that no such patients were given free treatment. The register is full of fictitious names and registers are maintained in a bogus manner. Similarly, he is of the opinion that the assessee could not explain, why the Doctors are not mentioned in OPD cases whereas the same are mentioned in other paid patients. He is of the opinion that the register is maintained in the similar handwriting, written with same colour of ink. The Assessing Officer has further discussed that the list of the patients supplied to him are not poor patients but they are the persons with whom the assessee has some sort of relations. He concluded that the hospital is not dominantly charitable. He has observed that if there are charitable cases, they are scattered far and few between and percentage of such patients is very low. To support his contention he has observed in para - 12 of his order that the expenditure or so-called charitable purpose is less than 5% of the total expenditure incurred. His finding is concluded in paras 13 & 14 which is reproduced as follows : "13. As per section 2(15) of the Income-tax Act, 1961, the charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. If we go through the list of hospital charges submitted by the assessee vide his letter dated 22-8-1996 (Ann-IV) it would be clear to us that no person who could be given poor rating under Indian standards can ever enter the building of Batra Hospital (Batra Hospital & Medical Research Centre of Ch. Aishi Ram Batra Public Charitable Trust).
14. I have gone through the dictionary meaning of the word 'general' in reference to general public utility. I have found that the word 'general' has been defined to include all or almost all sections of society. I have observed that the charges of the assessee hospital are so high that they do not cover all or almost all people of poor India. According to Indian Standard, 60% of the population lives below poverty line. The persons below poverty line are considered poor. This is as per the financial version of the statistics compiled by the Government of India. As per these standards, the list of tariff of the hospital is too prohibitive. It caters only to rich class of the society. I, therefore, do not agree that it covers the definition of 'general public utility' as envisaged in section 2(15) of the Act. The assessee hospital does not fulfil the test of general public utility in terms of various judgments including Jamal Mohd. Sahib case [1941] 9 ITR 375 (Mad.) and [1939] 7 ITR 415, 422 (PC). In another case CIT v. Hyderabad Sikanderabad Foodgrains Association Ltd [1989] 175 ITR 574/576 (AP), it has been held that the exemptions in the charitable nature are not automatic. I, therefore, hold that the assessee is not entitled to the benefit provided in sections 11, 12 & 12A. The position reflected by the assessee hospital, is, therefore, accepted on protective basis only." 5. Aggrieved with the order of the Assessing Officer the assessee filed appeal before the CIT(A) and the CIT(A) has given his observation at page 9 of his order which is reproduced below : "After hearing the ld. counsel and the ld. Assessing Officer and careful consideration of the factual and legal position, I hold that the stand taken by the Assessing Officer is not justified. The ld. counsel of the appellant has rightly explained the definition of charitable purposes as contained in section 2(15) of the Act. It is an inclusive definition indicating certain types of charity like relief of the poor, education, medical relief, and the advancement of any other object of general public utility. In other words, the definition covers many other things also which are not mentioned but are covered by the residuary limb of the definition relating to any other object of general public utility. The ten words regarding carrying on of any activity for profit do not exist at present.
Thus, even if an activity is carried on for the purpose of profit, but such profits are applied only for the objects of the organisation, it continues to be eligible for exemption under section 11 of the Act subject to the fulfilment of other conditions and there is no mention of any violation thereof in the assessment order. The Assessing Officer has dwelt upon at length on this aspect that the appellant was providing medical relief not only to poor but also to rich and influential persons. To my mind, there is no such bar under the law. When the medical relief has to be provided, the poor and rich both deserve it equally. There is no requirement under the law that medical relief should be only for poor persons. The Assessing Officer seems to be confusing the word 'relief to the poor with medical relief'. In fact, both these terms have no connection.
The same are separate activities for the claim of exemption under the law. The elaborate discussion and arguments advanced by the ld. counsel supported by certain case laws clearly give an impression that the appellant was providing medical relief to every one, whosoever came to hospital, and such an activity was covered by the definition of 'charitable purpose.' There is absolutely no material in the assessment order to show that any financial benefit was being taken by any other persons prohibited under the law. Even the last letter of the Assessing Officer does not bring to light any such material. It rather shows that the Assessing Officer is only guessing that if not now, 'but in future even, the assets and income of the trust can go to the benefit of trustees or persons claiming to them.' Under the Income-tax law every year is an independent year. Whether the appellant is entitled to exemption under section 11 of the Act will have to be seen on the facts and circumstances for that year only. A decision cannot be taken in this regard on any future possibility or presumption. I, therefore, hold that the appellant deserves the benefit of exemption under section 11 of the Act. The Assessing Officer is directed to allow the relief accordingly. In the result, the appeal is allowed.' 6. The ld. counsel of the appellant has taken plea that the appellant is a charitable trust which is registered under the Registration of Societies, under Registration No. 433-B of 1979. The ld. counsel has filed a copy of the assessment order where Assessing Officer has accepted that the appellant trust is a charitable trust which is running Research Medical Centre at New Delhi. The same status is maintained by the department for the assessment years 1986-87, 1987-88 and 1988-89. The ld. counsel has also submitted that the CIT(A) has recognised the trust as charitable trust which is indicated by the certificate under section 80-G granted upto 31-3-85, 31-3-91 and 31-3-1996. The ld. counsel pleaded that the Assessing Officer was not justified in denying the exemption under section 11 by observing that the trust is not a charitable institution and providing free medical facilities to the patients. The ld. counsel relied on the decision of ITAT in case of ITO v. Deccan Gymkhana [1989] 30 ITD 16 (Pune) (TM) and in the case of Vishwa Dharamayatan Trust v. Dy. Director Income-tax [1996] 56 ITD 37 (Delhi). The ld. counsel submitted that the Hon'ble Delhi High Court has defined charitable purpose in the case of CIT v.Shree Ram Memorial Foundation [1986] 158 ITR 3/[1987] 33 Taxman 438.
The Hon'ble High Court has held that when a particular party has been recognised as such for several years and is carrying on the same object without any protest it is not for the Court to reopen the same point from time to time. The ld. counsel pleaded that the institution has been recognised by the department and only on simple technical matter the issue has been reopened. The ld. counsel also relied on other decision of Delhi High Court in case of Addl. CIT v. Hamdard Dawakhana (Wakf) [1986] 157 ITR 639/25 Taxman 185. The ld. counsel pleaded that the Hon'ble Court has observed that it is immaterial how the money for achieving or implementing the purpose of trust was found and the fact that the Money was obtained by running of an activity for profit would not make the object of the trust non-charitable.' The ld. counsel also relied on the decision of Madhya Pradesh High Court in the case of CIT v. Indore Table Tennis Trust [1997] 227 ITR 836/92 Taxman 199. The ld.counsel pleaded that the Hon'ble High Court has held that in case there are no direct evidence available with the department to establish that the trust has contravened any law the trust cannot be denied exemption unless and until the conditions mentioned in section 13 are applied on the facts and circumstances of the case.
7. We have gone through the material available and the controversy that has arisen out of the order passed by the Assessing Officer. It is very important to understand the purpose of the institution and the trust.
Clause 3 of the Trustee Deed mention objects as follows : "The objects of the Society to be pursued shall in general be to undertake activities for relief of the poor, education, medical relief and other objects of general, public utility and in particular :- According to Medical relief in such Manner as the trustees may think fit, including :- 1. Setting up of hospitals or other medical institutions, managing of hospitals or other medical institutions or granting of sub-scriptions and donations to the Hospitals, Dispensaries, Convalescent, Homes, Asylums, Nursing Homes and other public institutions for administering medical relief to needy.
3. Endowments to and help or support to Hospitals, Maternity Homes, Sanatoriums and Dispensaries.
4. Grant of medical help to the poor and grant of medical help to persons affected during epidemics, famine, flood, earthquake or any unforeseen calamity or war/war-like operations." In pursuing the object the Trust has undertaken three main activities namely, the first activity was achieved by establishing hospitals - namely Batra Hospital, the second activity was to develop the medical education which was carried in the hospital itself, the third was medical and clinical research which was carried by the doctors in the hospital and the last activity was to grant medical help to poor.
8. We do not find that the trust has deviated from the objects in any manner as spelled out by the Trust itself. The Assessing Officer has examined various registers, where there is some infirmity according to him in maintenance of those registers. He has observed that there is in existence a system of providing key medicines to poor and needy. His objection is that some of the persons are not poor according to his own perception or some of the persons are dependents of hig-ups. He has collected very few instances of such nature but he admitted that the assessee has provided free treatment to 52817 persons and incurred approximately expenditure to the tune of Rs. 66.47 lakhs. Similarly at page 3 of the paper book, the details of free charges regarding laboratory, medicine, X-ray, C.T. Scan, Ultrasound and physiotherapy is mentioned by the ld. counsel. This clearly shows that the assessee has provided free medical aid however there are some minor defects in maintaining the records or one or two cases where complimentary medical treatment is given to some officials or to friends will not justify under any circumstances to deny the exemption to an institution of such a big dimension. Nowhere, objects of the trust has costed upon itself to ear-mark certain portion of the receipts to be spend on the treatment to be given to the poor. The ld. counsel submitted that the trustees have not taken any benefit from the facilities provided by the trust without paying for utilising those facilities. It is also a matter of record that the trust has created rules and procedure for admitting a patient for free treatment and by and large the procedure is followed by the doctors and the internal administration of the institution and complete procedure is being followed. Some minor irregularities by the administration in maintaining of records or admission of few non-eligible cases will not be so fatal as to so invoked section 113 of the Act.
9. The second doubt in the mind of the assessing Officer relates to income earned from paid patients. The law is now settled on the issue that for carrying on charitable purpose the trust can have activity of profit as well as property which can give income so as to maintain and execute the basic aim and object of the trust. The only exception is that the profit earning should not be the real object. The real object of the trust is medical relief.
10. It is important to give a finding Whether the trust under consideration is for charitable purpose. The charitable purpose is defined in section 2(15) of the Income-tax Act which includes medical relief as one of the objects apart from other objects like education, relief to the poor and the advancement of any other object of general public utility. In the case of the assessee, not only clause 3 of the objects are in tune with the definition mentioned in section 2(15) but in practice the relief to the poor has been given, medical education by imparting training to the Nurses have been established and medical relief is an on going activity along with the medical research.
11. It is important to note that prior to 1-4-1984, if an activity was related to the advancement of any other object of general public relief then the same activity should not have been involving the carrying on of any activity for profit. However, from 1-4-1984, the legislature has dropped the words "not involving the carrying on of any activity for profit". Similarly, in section 13, sub-clause (1), clause (bb) was introduced which reads as follows : "(bb) in the case of charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business is carried in the course of the actual carrying out of a primary purpose of the trust or institution." This section was omitted w.e.f. 1-4-1984. The law after 1-4-1984 stands at a different situation regarding carrying on activity for profit.
However, there was a judicial rider to such activity because activity should be for carrying out the goal envisaged for charitable purpose.
If the property which includes running business is held for charitable and religious purposes and fulfil all the conditions envisaged under section 11 and does not come under any of the exceptional clauses under section 13, there is no authority with the Assessing Officer to deny the benefit provided to such trust under section 11 of the Income-tax Act.
12. The Hon'ble Supreme Court has decided the issue in case of Dharmadeepti v. CIT [1978] 114 ITR 454. The Hon'ble Supreme Court was interpreting section 2(15) whereby they interpreted 'Not involving the carrying on of any activity for profit'. The Hon'ble Supreme Court has observed that these words are not related to the relief of poor, education and medical relief but these words are only related to the area's of general public utility. The relevant portion is reproduced as follows : "It is, therefore, clear that the words 'not involving the carrying on of any activity for profit' govern the words 'the advancement of any other object of general public utility' and not the words 'relief of the poor, education and medical relief' remained unqualified by any express statutory restriction and income arising from a profit making activity linked with those heads enjoyed exemption without express limitation until section 13(1)(bb) was inserted in the Act by the Taxation Laws (Amendment) Act, 1975, with effect from April, 1, 1977." 13. The Hon'ble Supreme Court has given the decision when the law was strict on the activity of the trust in carrying on of business of profit but the Hon'ble Supreme Court has limited this activity to an area of general public utility. Therefore, carrying on the activity of profit if utilised for the achievement of the goals of the trust in the area of relief of poor, education and medical relief then such activity will not debar the from claiming the exemption. In CIT v. Tata Steel Charitable Trust [1993] 203 ITR 764 (Pat.), it has been held that income derived from the properties held in trust had been exclusively applied for achieving the charitable purposes for which the trust had been created, under these circumstances the trust will get the benefits provided under section 11(1)(a) of the Act.
14. The Hon'ble Karnataka High Court in the case of CIT v. Bel Employees Death Relief Fund Service Benefit Fund Association [1997] 225 ITR 270 has dealt with the issue of conducting the business and its impact on the definition of 'charitable purpose' under section 2(15).
The Hon'ble High Court has held that if the rules of the assessee-association unambiguously indicated that the benefit of the scheme or the alleged charitable purpose could be utilised only by specified persons who were required to be the subscribers or their dependents then the contributions to the fund allegedly collected for their personal benefits could not be held to be forming an association for charitable purpose. The interpretation of the decision is that if the business activity is not for the charitable goals and aims but for the benefit of the trustees or for the benefit of the Members of the Associations and the profits are transmitted directly or indirectly to the members or trustees then the carrying on such business from profit will not make the trust as charitable one. The facts of the appellant trust are not so.
15. The issue has been settled by the Hon'ble Supreme Court in the case of Thiagarajar Charities v. Addl. CIT [1997] 225 ITR 1010/92 Taxman 152. The Hon'ble Supreme Court has given a fine definition regarding difference between aims and objects of the trust vis-a-vis powers given to the trustees. The Hon'ble Supreme Court has held that if the objects of the trust are charitable then the trustees can give the direction and power to the trustees to carry on the full activities which will earn income so as to meet the goal of the aims and objects which are charitable. The direction will include carrying on of business and if the business carried on by the trustee becomes part and parcel of corpus or property held under the trust, the income produced or resulted from the trust is applied for the aims and objects of the trust then the carrying on such business or maintaining such property by the trust will definitely be an activity which is essential ingredients of the activities of the trust and trust will be entitled for exemption under section 11 under such circumstances. The Hon'ble Supreme Court reversed the finding of the Hon'ble Madras High Court and the finding of the Madras High Court was almost of similar line as developed by the Assessing Officer. The relevant portion of the Hon'ble Supreme Court's decision is reproduced as follows : "Counsel for the appellant-assessee drew our attention to a decision rendered by a Constitution Bench of this Court in Addl CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 122 ITR 1, and contended that the dominant purpose as could be gleaned from the various clauses of the trust deed is only to subserve the charitable purpose and not to earn profit and so, the appellant-assessee is entitled, in any view of the matter [even if this case falls under the fourth limb of section 2(15)] to the exemption under section 11 of the Act.
Our attention was invited to the following observations of Bhagwati, J. (who delivered the judgement of the majority) at pages 25-26 of the report which is to the following effect : 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 pet-sons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and A. 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 the Sole, Trustee, Loka Sikhasana Trust's case [1975] 101 ITR 234, 256 (SC) that : B. purpose under the terms of the trust, the mere fact that the activities of the 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.
C. 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 profit making is not the real object.' We wholly endorse these observations.' D. We are of the view that the above test is also satisfied on the facts of the case." 16. The similar view has been held by Hon'ble Supreme Court in the case of Samaritan Society v. CIT [1997] 225 ITR 652.
17. Keeping in view the above discussions, we confirm the order passed by the, CIT(A) and the appeal filed by the revenue is dismissed.