COMMISSIONER OF INCOME TAX Vs. SAHRUDAYA HOSPITAL

JUDGEMENT

(1.) The question raised in the connected appeals filed by the revenue against the very same Assessee is whether the Tribunal was justified in holding that the Respondent-Assessee cannot be separately assessed for the income from a hospital merely because it was not entitled to exemption under Section 10(23C)(via) of the Income-tax Act. We have heard standing counsel appearing for the Appellants and have gone through the orders issued by all the authorities, including the Tribunal.

(2.) Respondent is a hospital owned and managed by a society by name Social Welfare Society located at Alappuzha which admittedly is granted registration as a charitable institution under Section 12A of the Act. However, the Assessee appears to have claimed separate exemption under Section 10(23C)(via) of the Act which requires separate approval by the prescribed authority. The assessments were completed demanding tax on the entire income for the reason that it is not granted approval as a hospital under Section 10(23C)(via) of the Act. Since the assessments got confirmed in appeals, Assessee filed second appeals before the Tribunal. The Tribunal however noticed that being a charitable institution, Assessee need not apply for separate exemption under Section 10(23C)(via) for claiming exemption on the income from the hospital. After going through the Tribunal's orders and after hearing standing counsel, we notice that there is no dispute about entitlement of the society which owns hospital for exemption by virtue of the certificate issued to them under Section 12A of the Act. The scheme of exemption for charitable institutions covered by Section 11 provides exemption only for the expenditure actually incurred for such purposes and if there is diversion of income or misapplication of funds for the purposes for which exemption is granted it was open to the Department to decline exemption and demand tax.

(3.) Admittedly society is engaged in several charitable activities, including running of Old Age Home for the poor, Training Institute for Mentally Challenged, and a hospital for rendering medical assistance to the poor. Even if one of the branches of operations leads to gain or profit, still the society is entitled to exemption, if the funds were applied for other charitable purposes. We do not know how different institutions owned by the same Assessee could be assessed separately. In fact, only a legal entity could be assessed and not an institution, business concern or establishment. In short, the claim of exemption or liability should have been considered at the hands of the person who owns and manages the hospital, which is a society. In our view, there is serious lapse on the part of the Assessing Officer in not having done this. Secondly, it is seen that Assessee itself contended before the Assessing Officer that hospital is run by the society which is a charitable institution. Inspite of the claim made by the Assessee, the Assessing Officer has not considered whether the institution, that is, the Assessee, namely, society, runs the institution for the purposes for which it was granted exemption under Section 12A. On the other hand, even the return filed is not seen considered by the Assessing Officer in the assessment of the society. All what the Tribunal has held is that separate exemption need be claimed by the society for the hospital when it is assessable for all other income which does not arise here because of Section 12A registration granted to the society. We are in complete agreement with the finding of the Tribunal on this issue. However, if there is violation of the scheme of exemption granted under Section 12A it is always open to the department to bring to tax such of the income that could be assessed under the Act after issuing notice to the Assessee.