Income derived from a health centre run by a charitable institution is exempt under Section 10(22A) of the Income Tax Act, 1961, even if the surplus income is utilized for establishing another health centre.

Ajit K. Sengupta, J.

1. IN this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1982-83, the following question of law has been referred to this court:

"Whether, on the facts and in the circumstances of the case, the income of the health centre owned by the assessee is exempt under Section 10(22A) of the Income-tax Act, 1961 ?"

The facts leading to this reference are stated hereinafter : The assessee was registered under Section 25 of the Companies Act, 1956, on December 23, 1971. It is engaged in running a health centre for the benefit of persons suffering from illness or requiring medical attention or rehabilitation. It also derives income from business in contracts. It appeared that the assessee was being treated as a charitable institution and its income was being exempted under Section 11 of the Act. During the year under consideration, the income-tax Officer held that the assessee was not entitled to the exemption under Section 11 of the Act because the provisions of Section 13(2) of the Act were infringed. The assessee had also claimed, alternatively, exemption under Section 10(22A) of the Act in respect of income derived from the health centre. The Income-tax Officer denied this exemption also on the ground that the assessee had utilised the surplus of the health centre for creating a fund to be used for future health centres. IN that view of the matter, the Income-tax Officer denied exemption to the assessee and made the assessment accordingly. The assessee appealed to the Commissioner of Income-tax (Appeals) and contended that the Income-tax Officer erred in his decision. The Commissioner of INcome-tax (Appeals) considered the contentions of the assessee and held that the health centre run by the assessee was entitled to the exemption under Section 10(22A) of the Act because the surplus of the health centre had been utilised for purchasing land and medical equipment and the land was intended to be used for setting up another health centre.

2. THE Department appealed to the Tribunal and contended that the Commissioner of Income-tax (Appeals) erred in his decision. It was urged that the assessee was doing business in contract work and the income from the health centre as well as the contract business was mixed up and a common income and expenditure account had been drawn up. There was no separate balance-sheet for the health centre even though a separate income and expenditure account had been drawn up for the health centre showing a surplus of Rs.3,70,279. THE said surplus of the health centre was adjusted against the deficit of the business income so that it was not utilised for any philanthropic purposes. There were separate rules and regulations for the health centre. Hence, it was urged that the decision of the Commissioner of Income-tax (Appeals) deserved to be reversed.

The Tribunal held that the accumulated amount has been spent towards its philanthropic objects of establishing another health centre and, accordingly, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) that the income from the health centre of the assessee is exempted under Section 10(22A) of the Act

3. BEFORE us, the Revenue reiterated the contentions raised before the Tribunal.

4. SECTION 10(22A) provides that any income of a hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit. In this case, as we have already indicated, the assessee is registered under Section 25 of the Companies Act. It is a charitable institution. It cannot, therefore, have any profit to declare any dividend. The memorandum of association of the company flowed the assessee to establish health centres and the day-to-day administration of the hea