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Facts
The assessee, a charitable trust, applied for renewal of recognition under Section 80G of the Income Tax Act. The CIT(E) rejected the application, concluding that the trust's activities were commercial in nature and not solely for philanthropic purposes, citing income from sales and donations from related entities.
Held
The Tribunal held that the CIT(E)'s rejection of the application was unsustainable. The Tribunal found that the assessee had provided substantial evidence of its predominant object being medical relief to the poor at nominal charges and that the existence of a surplus or minimal charges did not render the activities commercial, especially when such surplus was incidental or reinvested.
Key Issues
Whether the assessee trust's activities, including recovery of charges and income from pharmacy, are commercial or charitable, and whether the CIT(E) erred in rejecting the 80G recognition application based on these findings.
Sections Cited
80G, 12A, 2(15)
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM :
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Exemption), Chennai, dated 31.12.2024.
The grounds raised by the assessee are as follows: (1) The learned Commissioner of Income Tax (Exemptions), Chennai ought to have granted recognition u/s 80G of the Income Tax Act, 1961 as the main objects of the Trust is provide medical relief to the poor at reasonable charges. (2) The learned Commissioner of Income Tax (Exemptions), has erred in coming to the conclusion that the appellant Trust is not carrying on any charitable activity.
:-2-: ITA. No:521/Chny/2025 (3) The learned Commissioner of Income Tax (Exemptions), ought to have appreciated that the Trust is providing medical relief to poor and downtrodden people in a place which is about 14 kms away from the city limit. (4) The learned Commissioner of Income Tax (Exemptions) ought to have appreciated that the Trust is giving medical relief to the people at a nominal fee of Rs.30 for registration at the time of admission in the hospital, with free consultation for seven days (multiple entry). (5) The learned Commissioner of Income Tax (Exemptions), ought to have appreciated that the lab and other investigation charges collected by the Trust are reasonable and not comparable with the charges collected from the hospitals located in the city. (6) The learned Commissioner of Income Tax (Exemptions), ought to have appreciated that the services are provided by the qualified doctors and nursing staff. (7) The learned Commissioner of Income Tax (Exemptions), ought to have appreciated that the income from pharmacy is also very reasonable and incidental to the objects of the Trust. (8) The learned Commissioner of Income Tax (Exemptions), ought to have appreciated that the surplus income is mainly on account of the interest received from banks on fixed deposits. (9) The learned Commissioner of Income Tax (Exemptions), ought to have appreciated that the corpus received from the group companies are for specific purpose that to provide medical relief to the local poor people. (10) The learned Commissioner of Income Tax (Exemptions), ought to have appreciated that the surplus realized both from pharmacy and providing medical relief is very negligible and cannot be considered as activity of the Trust to make profit. (11) The learned Commissioner of Income Tax (Exemptions), ought to have granted renewal of recognition u/s 80G of the Income Tax Act, 1961 considering the increase in number of patients year after year on account of reasonable charges coupled with good services (12) The learned Commissioner of Income Tax (Exemptions), ought to have appreciated that the CSR contribution received from group companies have been spent only for purchase of medical equipment required for running the hospital. (13) For these and other additional grounds of appeal that may be adduced at the time of hearing, the order of the Commissioner of Income Tax (Exemptions), Chennai, rejecting recognition u/s 80G of :-3-: ITA. No:521/Chny/2025 the Income Tax Act, 1961 of the Trust, is opposed to law and unsustainable in the facts and the circumstances of the case.
3. The brief facts of the assessee are that the assessee is a charitable trust registered u/s.12A(1)(ac)(i) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) valid upto A.Y. 2026-27 issued on 24.09.2021. The assessee also filed its application dated 22.06.2024 in Form 10AB under rule 11AA of the IT Rules, 1962 under clause (iii) of first proviso to sub section (5) of Section 80G seeking approval under clause (ii) of 2nd proviso to section 80G(5) of the Act. During the proceedings the assessee was asked to furnish certain details in respect of the objects of the trust along with the activities carried out by the assessee in the previous financial years. The assessee submitted that the main object of the trust is “medical relief”, promotion of health care for the general public.
4. The assessee submitted that the trust has carried out medical relief activities and the details of application of funds in the following manner: Particulars A.Y.2022-23 A.Y.2023-24 A.Y.2024-25 1. Medical Relief – Hospital 1,54,46,376/- 1,56,12,059/- 2,27,51,987/- 2. Admn. Expenses 5,02,406/- 5,32,131/- 7,42,389/- 3. Capital Exp. Incurred 7,49,455/- 00/- 43,68,355/- TOTAL 1,66,98,237/- 1,61,44,190/- 2,78,46,411/-
5. On perusal of the details of expenditure and analysing the audited financials of the assessee for the F.Y. 2022-23 and 2023-24, the ld.CIT(E) drawn a conclusion that the assessee’s activities are in commercial lines and the statement of accounts seems to be a typical trading Profit and :-4-: ITA. No:521/Chny/2025 Loss account. Hence, the ld.CIT(E) rejected application by passing an order dated 31.12.2024 by holding as under: “It is observed from the above financials that the applicant has receipt in the form of "Receipts from Main Objects (Recovery from Patients and Sale of Medicines), "Donation", CSR Contribution Received, etc, and the expenses are towards 'Cost of Material Consumed", "Building Maintenance", "Lab Fee Paid", "Salaries. Bonus & Wages etc. Further, it is seen from the Balance Sheet that "Stock of Medicines & Non Pharma' has been shown. It is evident that the trust runs on "Commercial Lines" and the statement of accounts seems to be a typical Trading P&L a/c The margin earned for the last 2 years can be tabulated as below: FY Income (Rs.) Excess of Income over Expenditure (Rs.) 2022-23 1,71,83,500 6.32,744 2023-24 3,04,78,518 58.46.442 From the above table it is observed that the applicant has earned surplus to the extent of Rs.6.32 lakhs and Rs.58.46 lakhs for FYs 2022-23 & 2023-24 respectively. Hence, it can be construed that the applicant is not existing solely for philanthropic purpose but there existed some profit motive also. Further it is noticed that the donations received for the year ending 31.3.2024 to the extent of Rs.6 lakhs were from M/s. Dera Investments Private Limited and the CSR contribution received to the extent of Rs.25 lakhs were from M/s. Gedee Weiler Private Limited and M/s. G Plast Private Limited. These were nothing but the contributions from the group concerns wherein the trustees are the Directors in the respective companies. Hence, in a truest sense, these are not contributions for a philanthropic purpose from third parties. Regarding the Profit Element, the jurisdictional High Court of Madras in the case of Raja Sir Annamalai Chettiar Foundation vs CCIT 2020 116 Taxman.com 128 has held that where the only source of income for schools run by applicant trust was fees from students and no free education or scholarship was provided, such schools were to be held established with profit motive. Though the applicant's objective is different, yet applying the same principle, in this case, it has failed to furnish the details of free medical services provided /concessional rate charged etc. to substantiate its claim of medical relief.
:-5-: ITA. No:521/Chny/2025 Further, in the case of CIT v P. Krishna Warrier (1972) 84 ITR 119 (Ker.) it was held that if the primary object was treatment of patients then, the incidental object of sale of medicine could not debar the assessee from being considered as for medical relief. But if, as in the case in hand, the treatment of patients was only a negligible proportion of the activities then, the organization's objects could not be considered as for medical relief. In the applicant's case, for FY 2023-24, the "Recovery from patients has been shown as Rs.1.03 cr and "Sale of Medicines" has been shown as Rs.1.21 cr. This clearly shows that the applicant trust is having more income through "Sale of Medicines" which is independently a trading activity. Further, it is noticed from the objectives of the trust deed dated 11.10.2010 that the following has been stated: "Providing medical aid to the general public either free, concessional or otherwise” The inescapable conclusion that can be derived by mention of the word "Otherwise" can be market cost or even more than that. The element of commercial intent cannot be ruled out from that clause by using such term. 3.6 Hence, from the above discussion, it is seen that the activities of the trust cannot be held as "Medical Relief - Charitable as defined in Section 2(15) of the Income Tax Act.
In view of the above, the application filed by the applicant in section code 80G(5)(iii) in Form 10AB is not maintainable as such deserves for rejection. Under the facts and circumstances of the case, its application dated 22.06.2024 filed in Form No. 10AB under clause (iii) of first proviso to section 80G(5) of the Income Tax Act, 1961, seeking approval u/s. 80G is not maintainable for the reasons stated in para 3.1 to 3.6 of this order and hence the application is rejected.
Aggrieved by the order of the ld.CIT(E) the assessee is before us.
The Ld.AR for the assessee submitted that the ld.CIT(E) has erred in rejecting the application of the assessee filed in form 10AB seeking approval u/s.80G(5)(iii) of the Act. The ld.CIT(E) is bound to give approval after verifying the genuineness of the activities carried out in accordance
:-6-: ITA. No:521/Chny/2025 with the objects of the assessee trust. The ld.CIT(E) has rejected the application arbitrarily assuming and deciding the activities carried out by the trust is in commercial lines without assigning any reasons. Hence, the ld.AR prayed for setting aside the order of the ld.CIT(E) and direct the ld.CIT(E) to grant the approval as per the application filed by the assessee.
Per contra the ld.DR relied on the orders of the ld.CIT(E) and prayed for confirming the same.
We have heard both the parties, perused materials available on record and gone through orders of the ld.CIT(E). Admittedly, the assessee is already enjoying the exemption after obtaining the registration u/s.12A of the Act upto the A.Y. 2026-27. Further, the assessee filed its application in form 10AB seeking approval u/s.80G(5)(iii) of the Act on 22.06.2024. We note that the ld.CIT(E) has rejected the application stating the activities carried out by the assessee is seems to be in commercial lines. We note that the assessee has furnished substantial evidence demonstrating that its predominant object is providing medical relief to the poor and general public at nominal charges, which squarely falls under the definition of charitable purpose as per section 2(15) of the Act. The Trust has consistently incurred substantial expenditure on medical relief, as evident from the details of application of funds over the assessment years 2022–23 to 2024–25, showing increasing investment in charitable medical services. The nominal registration charges, free consultation period, moderate
:-7-: ITA. No:521/Chny/2025 investigation/lab fees, and services by qualified doctors further establish the charitable character of the activities.
Further, we note that the mere existence of surplus or recovery of minimal charges from beneficiaries does not render the activities commercial, especially when such surplus is either incidental or arises from interest income on fixed deposits and is ploughed back into charitable purposes. The Hon’ble Supreme Court in various decisions (e.g., CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC); CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC)) has held that earning income in the course of pursuing charitable objects does not disentitle an entity from claiming charitable status, so long as the dominant purpose remains charitable and not profit-making.
The Commissioner’s comparison of the assessee’s financials with commercial hospital accounts or typical trading profit and loss accounts is misplaced and legally untenable, especially when the objects, financial deployment, and mode of operations all substantiate a bona fide charitable intention.
The CSR contributions and corpus donations received from group companies were used for acquiring medical equipment and other capital assets for the hospital. These are aligned with the objects of the trust and cannot be used as a basis to reject its charitable status u/s.80G of the Act. Accordingly, we are of the considered view that the rejection of approval under section 80G(5)(iii) by the ld.CIT(E) is unsustainable in law and on :-8-: ITA. No:521/Chny/2025 facts. The assessee has satisfactorily demonstrated the genuineness of its activities and compliance with the conditions required for grant of section 80G recognition. Therefore, the order of the learned CIT(E), dated 31.12.2024 is hereby set aside, and the CIT(E) is directed to grant approval under section 80G(5)(iii) of the Act as per law.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the court on 15th July, 2025 at Chennai.