The judgment established that incidental profits from charitable activities do not disqualify an institution from claiming exemption under Section 10(23C)(via) of the Income Tax Act, emphasizing the application of the dominant purpose test.

S. RAVINDRA BHAT, J.

1. The petitioner 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 is that its objects, for assessment years 2005-2006 to 2009-2010 were charitable in terms of Section 2(15) of the Act. However, for 2011-2012 its application in Form 56D for grant of exemption under Section 10(23C)(via) of the Act was rejected by the respondent by its impugned order, dated 27 April, 2012. It, therefore, seeks quashing of the order and appropriate consequential directions.

2. The petitioner, to promote its objectives categorized its patients into three - Charity, Subsidized and Private. It argued, before the respondent/Revenue in its application for exemption, that treatment of the same quality is provided to all patients and that the fee charged is reasonable and does not involve any profit element. Its objects and activities were, therefore, wholly philanthropic and for the benefit of the public at large. The petitioner argued that the expression, “not for purposes of profit” under Section 10 (23C) cannot mean that a hospital or institution cannot or should not charge any fees from its patients. It only means that one cannot reap profits on commercial lines. It is submitted that philanthropy not only means free treatment but also means concessional treatment and the petitioner charges a nominal fee from the patients to cover running expenses of the hospital. It was also stated that the petitioner imparts training, which too is a charitable object, covered by its memorandum and that the fees and charges recovered by it are entirely reasonable, aimed at meeting the expenses for such activity.

3. The Director General of Income Tax (DGIT) for exemption by the impugned order, noticed that the petitioner had not applied for exemption in the immediately preceding two years. The impugned order then went on to analyze the nature of the charges recovered by the petitioner from its patients and concluded that,

"From the above chart it is seen that the so called subsidized rates charged by the applicant forms almost 42% to 100% of the private charges which clearly shows that the same is beyond the reach of poor people, and cannot be termed as charity as envisaged in. sec. 2(15) of the I.T. Act, 1961. Although the society is also having the facility of free treatment to the patients on the basis of payment of one time normal charges, however it is also not disputed; that the treatment are provided to the patients on payment basis which itself proved that the, society is existing not solely for philanthropic purposes but for the purposes of profit."

The provision of medical services in the satellite centres was also viewed as a profit driven motive :

"6. It is seen that the applicant society is running a base hospital at Delhi and 5 satellite hospitals. On 14/03/2011 the applicant society has made a collaboration agreement with Sant Bhagat Singhji Maharaj Charitable Hospital with regard to satellite hospital at Faridabad. The society has also made collaboration agreement with Om Indu Jain Charitable Trust with regard to satellite hospital at Dhankot. As per the terms and conditions of the agreement with Om Indu Jain Charitable Trust the applicant society had to invest Rs. 10 lakh for construction of the ground floor of the premise at Dhankot and had to provide complete infrastructure facilities for establishment of an eye hospital including equipment and other resources including man power. The period of both these agreements was 20 years. One of the conditions in these agreements is that the applicant society can also treat the patients at these satellite hospitals on payment basis. The inclusi