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Facts
The assessee, Ashok Gondhia Memorial Trust, received Rs. 2,30,00,004/- as compensation from Wockhardt Hospitals Ltd. The Assessing Officer treated this as business income and denied the benefit of Section 11 of the Act. The CIT(A) upheld this order. The assessee appealed, arguing that the income should be treated as part of its charitable activities.
Held
The Tribunal held that the issue is covered by previous decisions in the assessee's own case. The compensation received was for permitting Wockhardt Hospitals Ltd. to run the hospital activities from the trust's properties. The Tribunal found that the trust's ownership and control over the property remained, and the funds were applied for the trust's charitable objects, specifically medical relief. Therefore, the income should not be treated as business income.
Key Issues
Whether compensation received from a hospital management company is business income or income eligible for exemption under Section 11 of the Income Tax Act, when the trust's primary object is medical relief.
Sections Cited
11, 144, 250, 263, 2(15)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Rajkot Bench, Rajkot
Before: Dr. Arjun Lal Saini & Dr. Dinesh Mohan Sinha
आदेश /ORDER Per, Dr. Arjun Lal Saini, AM:
Captioned appeal filed by the assessee, pertaining to Assessment Year 2015-16, is directed against the order passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by National Faceless Appeal Centre (NFAC), Delhi / Commissioner of Income-tax (Appeals) (in short ‘Ld. CIT(A)’), dated 03.12.2025, which in turn arises out of an assessment order passed by the Assessing Officer u/s. 144 r.w.s.263 of the Act on 30.03.2022.
The grounds of appeal
raised by the assessee are as under:
1. The learned Commissioner (Appeals), NFAC, Delhi erred in confirming the action of the assessing officer in treating compensation of Rs.2,30,00,004/- received from Wockhardt Hospitals Ltd, as business income and in denying the benefit of Section 11 of the Act to the assessee-trust.
2. The learned Commissioner (Appeals), NFAC, Delhi erred in treating compensation of Rs. 2,30,00,004/- as business income by failing to appreciate benefit of section 11 was already allowed to the assessee in the first appeal filed against the order u/s 143(3) by the CIT(A), NFAC, prior to passing of the impugned order of CIT(A) in respect of order u/s 143(3) r.w.s 263.
3. Alternatively, the learned Commissioner (Appeals), NFAC, Delhi has grievously erred in not allowing the set -off of deficit of the assessment year under consideration and that being brought forward from the earlier years.
4. The learned Commissioner (Appeals), NFAC, Delhi erred in not following the decisions of Hon'ble Rajkot Tribunal in own cases for earlier years.
5. The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.
3. Learned Counsel for the assessee, at the outset submitted that assessing officer made the addition treating the assessee- trust, as if, assessee-trust is engaged in commercial activity, therefore, the hospital management fees receipt of Rs. 2,30,00,004/- received from M/S. Wockhardt Hospitals Ltd was treated as income from business/commercial activities of the assessee and added as income of the assessee -trust. Aggrieved by the order of assessing officer, the assessee carried the matter in appeal before ld. CIT(A), who has confirmed the action of the assessing officer, therefore, assessee is in appeal before this Tribunal.
The Ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee, by the decision of the ITAT Rajkot- Bench, in the assessee’s own case. The ld.Counsel submitted that present appeal is against the order of CIT(A) dated 03-12-2025 arising out of order u/s 144 rws 263 of the Act dated 30-03-2022. The only issue in appeal is regarding the income/receipt of Rs. 2,30,00,004/- received from Wockhardt Hospitals Ltd,
| 5. The ld.Counsel further stated that in the appeal of the assessee before the | |
|---|---|
| CIT(A), filed against the order u/s 143(3) of the Act dated 13-11 2017, is | |
| allowed by the ld. CIT(A), in subsequent year, vide order dated 10-07-2023 for | |
| A.Y. 2015-16, by following the order of Rajkot Tribunal in assessee’s own- | |
| case. The ld.Counsel also stated that for assessment year (AY) 2017-18, in a | |
| speaking order u/s 143(3) of the Act, on the same issue, the Department ( | |
| assessing officer) has accepted the charitable status by allowing benefit of | |
| section 2(15) of the Act. Hence, in view of above, it is prayed by ld.Counsel | |
| that since the issue is squarely covered in favour of assessee-trust by the | |
| decisions of Hon'ble Rajkot Tribunal in own cases, the same may kindly be | |
| followed and amount of Rs.2,30,00,004/- may kindly be allowed u/s 11, as | |
| claimed by the assessee, in the return of income filed for the year. |
The ld.Counsel further stated that in the appeal of the assessee before the CIT(A), filed against the order u/s 143(3) of the Act dated 13-11 2017, is allowed by the ld. CIT(A), in subsequent year, vide order dated 10-07-2023 for A.Y. 2015-16, by following the order of Rajkot Tribunal in assessee’s own- case. The ld.Counsel also stated that for assessment year (AY) 2017-18, in a speaking order u/s 143(3) of the Act, on the same issue, the Department ( assessing officer) has accepted the charitable status by allowing benefit of section 2(15) of the Act. Hence, in view of above, it is prayed by ld.Counsel that since the issue is squarely covered in favour of assessee-trust by the decisions of Hon'ble Rajkot Tribunal in own cases, the same may kindly be followed and amount of Rs.2,30,00,004/- may kindly be allowed u/s 11, as claimed by the assessee, in the return of income filed for the year.
On the other hand, Ld. Sr. DR for the revenue relied on the findings of the assessing officer.
We have heard both the parties. We note that assessee’s case under consideration is squarely covered in assessee’s own case by the judgment of the Co-ordinate Bench of ITAT Rajkot in for assessment year 2007-08, wherein Tribunal held as follows:
“4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the AO denied the claim of exemption u/s.11 of the Act by observing that the assessee-trust entered into an agreement with M/s.Wockhardt Hospitals Ltd. for commercial exploitation of the properties of the trust, therefore the nature of the activity was no more a charitable activity. The AO observed that from the plain reading of the terms of the contract, it is clear that though the ownership of the land and building has not been passed on to M/s.Wockhardt Hospitals Ltd. even then after this contract the whole management of the trust property is under the control of new company and the same is commercially being exploited for the benefit of the said company. The trust does not have any control over the running of the hospital. Even the medical relief said to be provided to the individual patients have been given to the patients who have undergone treatment in M/s.Wockdardt Hospitals Ltd. The trust has stopped carrying out any kind of activity whatsoever with regard to providing medical assistance to the patients. What is merely done is bills of few patients have been discounted by the trust. However, the ld.CIT(A) after considering the submissions and examining the terms of the contract held as under:-
“17. I have carefully considered the rival contentions. I find that the A.O. appears to have been carried away by the management operational agreement entered into by the appellant trust with effect from Aug-2006 with Wockhardt Hospitals Ltd. The A.O. has primarily failed to appreciate that the appellant trust and Wockhardt Hospitals Ltd are two separate legal entities and the commercial aspect of running and operating the hospital with effect from the date of the impugned agreement can be ascribed and attributed to Wockhardt Hospitals Ltd and not to the appellant trust. The salient features of the agreement entered into by the appellant trust with Wockhardt Hospitals Ltd are as under :
(i)Ownership of hospital premises and the land shall remain with the trust. No interest therein of Wockhardt or any other party has been created. Presently owned equipments, furniture etc. will also continue to belong to the trust only.
(ii)Wockhardt has assumed and undertaken all liabilities for running and managing the hospital at its cost and risk. It will invest and has invested substantial amounts by way of equipments, facilities, know-how, administrative skills as well as medical expertise of its team of doctors in professionals into the trust hospital.
(ii)The Trust does not and is not required to run the hospital. The revenue arising from managing the hospital shall be raised and managed by Wockhardt. The trust shall continue to observe and abide by all conditions of utilization of funds for medical treatment, conditions attached by way of means of donors to hospital wards, beds etc., Smriti Divas Daan Yojana subject to which donations in past have been received by the trust in the said
Page 4 of 8 hospital. In other words, the conditions and sentiments attached to all small and large donations shall be continued to be observed under the agreement with Wockhardt.
Vide clause 4 of the agreement, Wockhardt Hospitals Ltd has been granted permission or license to manage the trust hospital and to use the equipment, utilities and ancillary facilities and to do all acts and deeds necessary for operating and managing the hospital.
Under clause 7, detailed rights and obligations of Wockhardt Hospitals Ltd are provided for. All expenses and liabilities are to be borne by WHL to the total exclusion of Ashok Gondhia Memorial Trust. Wockhardt Hospitals Ltd is not an agent or representative of Ashok Gondhia Memorial Trust. Sub-clause (n) specifically provides that Wockhardt shall not (i) describe itself as an agent, lessee or representative of Ashok Gondhia Memorial( Trust; (ii) make any representations to any customer or any third party or give an impression that it has a relationship with Ashok Gondhia Memorial Trust which may require Ashok Gondhia Memorial Trust to undertake to or be liable for, whether directly or indirectly, any obligation and or responsibility to any customer or third party. Clause 8, described rights and covenants of Ashok Gondhia Memorial Trust. Ashok Gondhia Memorial Trust can inspect the hospital at any time, it can escort donors, visitors etc. and can receive donations for the purpose of objects of the charitable activities of the said hospital etc. Ashok Gondhia Memorial Trust shall continue to own its assets in the hospital and shall also continue to pay for any loans taken by it.
Under clause 8,, Ashok Gondhia Memorial Trust shall not use the trade name or logo of Wockhardt Hospitals Ltd. at any time and shall also not describe itself as agent, lessor or representative of Wockhardt Hospitals Ltd. As per sub-clause (I), trust is not an agent, lessor or representative of Wockhardt Hospitals Ltd. and the trust shall not make any representations to any customer or any third party or give an impression that it has a relationship with Wockhardt Hospitals Ltd. which may require Wockhardt Hospitals Ltd. to undertake to or be liable for, whether directly or indirectly, any obligation and or responsibility to any customer or third party. The title to the .hospital, i.e. the ownership of the building, land and existing assets of Ashok Gondhia Memorial Trust shall continue to be exclusively vested with Ashok Gondhia Memorial Trust and Ashok Gondhia Memorial Trust continues in legal possession of its assets.
Clause 11.6 provides that the billing to patients is to be done by Wockhardt Hospitals Ltd. As can be observed from the above that the trust itself will continue to apply its income from hospital and its other activities for its medical/charitable objects only. Even prior to the agreement, like many other trust hospitals or charitable educational institutions all over the country, the trust has been charging medical service fees from patients. Even after the management by Wockhardt, the revenue coming to the trust shall continue to be used for the medical/charitable objects of the trust in accordance with all applicable laws this regard. Hence, there is no basic change in the objects or character of the trust or its properties. The properties shall continue to be held in trust and income therefrom shall continue to be applied for medical objects, as at present. Nowhere in the entire agreement, is there any clause which leads to even a remote indication that the operations of the hospital are joint responsibilities of both the appellant trust and Wockhardt Hospitals Ltd. The silent features of the Management agreement reproduced by the A.O. at para- 5.2 of her order clearly state that it is only the management and the operations of the hospital that are now being handed over by the appellant trust to Wockhardt Hospitals Ltd. No rights are created in the land or the property of the trust. The agreement clearly shows and also nowhere provides that Wockhardt Hospitals Ltd is an agent of the trust or vice versa. On the contrary, there are negative averments in the agreement to this effect. The actual conduct of both the parties supports the agreement, because both parties being separate legal entities organised
Page 5 of 8 under different laws governing them, they have prepared separate accounts, their incomes are separate and the trust has not received any thing by running the hospital but it has only received income from investment arid compensation from Wockhardt Hospitals Ltd for permitting Wockhardt Hospitals Ltd to run the hospital activities of and by Wockhardt Hospitals Ltd from properties of the trust: The income so received by the trust has been duly utilised by it on its objects, as mandated by sec.
It is also not in dispute that the entire responsibility and the liability of running and operating the hospital rests with Wockhardt Hospitals Ltd. The risk and rewards of running the hospital are that of Wockhardt Hospitals Ltd and not of either the appellant trust or joint. Hence the trust cannot be said to be engaged in the business of running the hospital. Wockhardt Hospitals Ltd is a corporate entity which has appropriated entirely the receipts arising from running the hospital in its own name and hence what does not rightfully belong to the trust but belongs to WHL, cannot be branded as activity carried out by the trust. The AO has failed to appreciate that the property continues to belong to the trust, that it is not the trust which has used it to run the hospital on commercial basis. I therefore find that fundamental presumption drawn by the A.O. that the appellant trust has engaged itself in the business activities is contrary to the facts. If the analogy adopted by the A.O. were to be correct then in all those cases where public charitable trust have given properties on rent, the business of the! tenant would essentially become the business of the landlord charitable trust. Such a position cannot be accepted under Law. The A.O. in my view has failed to observe that the appellant trust has no participation whatsoever in running the hospital nor any liabilities there to and it is only entitled to the consideration that is so agreed upon between the appellant trust and the Wockhardt Hospitals Ltd and to that extent, it cannot be factually concluded that the appellant trust has entered into business operations. I also find that the A.O. has not appreciated the objects of the trust as so laid out in par'a-5.1 of the trust deed in a correct perspective. All the objects stated are plainly the objects of the trust and all these objects have been accepted as charitable in nature in the past. The object stated at Clause6-7 of the trust deed states “To carry out activities concerning medical need and/or relief” Carrying out activities concerning medical relief and/or need is also one of the objects of the appellant trust. I also find that the A.O. has drawn an incorrect inference on facts by concluding that medical relief can per se only be considered as such if it is backed up by some kind of medical institution and infrastructural back up. Section 2(15} of the act defines charitable purpose to include (i) relief of the poor, education, medical relief & the advancement of any other object of general public utility. The term relief is not qualified by the requirement of any infrastructure. If | the AO's analogy were to be accepted than even the term "relief to the poor" would essentially mean relief which has some infrastructure to serve the poor. The AO's analogy would qualify the term relief which is not the intention of the legislature. The meaning of the term relief as per the Random House Dictionary means -(1) alleviation, ease, or deliverance I through the removal of pain, distress, oppression etc. (2) a means or thing that relieves pain, distress, anxiety etc (3) money, food or other help given to those in poverty or need. Section 2(15) merely uses the term relief and the said term is qualified only by the purpose for which the said relief is to be considered which is relief to the poor and medical relief. The term relief therefore has to be read in the ordinary sense of the term. It is not in dispute that carrying out of activities concerning medical relief is one of the objects of the appellant trust. It is also not in dispute that the said objective is charitable in nature. The only dispute appears to be to the interpretation of the term relief given by the AO since in her opinion, medical relief can be considered as such only when the same is provided along with some allied medical infrastructure. As per the contention of the AO merely providing financial assistance for medical purposes to needy patients does not constitute medical relief. The AO considers the same to be incidental activity and in the opinion of the AO the same can be considered as being "medical relief" for a charitable trust would be only when the same is backed by some medical infrastructure. The AO has sought to extend the scope of the objects of the trust as so laid out in its deed by importing the requirement of running of a hospital. This the AO is not empowered to do. The objects of a trust have to be read as they are. That the appellant trust has provided financial assistance to needy patients for medical purposes Is also not in dispute, The AO's content/on that the appellant trust has discounted bills of a few patients is misplaced on facts since providing of financial relief cannot be considered as discounting of bills since the relief is provided qua patient. The AO’s reliance on the decision of the Hon. Gujarat High Court in the case of CIT vs. Sorabj Nusserwanji Parekh's case (201 ITR 939) and (211 ITR
Page 6 of 8 633) is also misplaced and much to the contrary goes on to advance the case of the appellant in as much as in the said case the trust was created solely for running an educational institution and the assessee trust had claimed exemption u/s. 10(22) of the Act & in the said decision itself the Hon. Gujarat High Court has held that the trust was entitled to the benefits of 11 of the Act but not entitled to the exemption u/s. 10(22) of the act since the said exemption was available only if an assessee operated an educational institution. It was under this set of facts that the Hon. Gujarat High Court held' that since the assessee was not running an educational institution it could not fall within the ambit of sec 10(22). However the Hon. Gujarat High Court has not denied claim u/s. 11 which is what the appellant trust is assessed under. The AO's reliance on the decision of the Hon. Madras High court in the case of Add. CIT v/s. Victoria Technical institute (120 ITR 358) is also .incorrect since the said decision has since been reversed by the Hon. Supreme Court in 188 ITR 57.The AO's reliance on the decision of the Hon. Supreme Court in the case of Sole Trustee Lok Shikshana Trust V/s CIT ( 101 ITR 234) is also incorrect on facts apart from the facts that a major part of the said decision has since been overruled by a larger bench of the Hon, Supreme Court in the case of Addl CIT V/s Surat Art Silk Cloth Manufacturer Association (121 ITR 1 SC). This apart the case of Lok Shikshana Trust dealt with a wholly different issue where a sole trustee had tried to establish his business of publishing a newspaper as being charitable in nature. I therefore hold that the AO's contention that the appellant has not provided medical relief and is therefore not entitled to the benefits of section 11 is not correct both on facts ;and in law and direct that the appellant is entitled to the benefits of section 11 . I also hold that the AC's contention that medical relief can be said to have been provided only when it is backed up and accompanied by some medical infrastructure is not tenable in law and travels beyond the definition of charitable purpose laid down in section 2(15) of the Act and therefore hold that the expenses on medical relief incurred by the appellant are expenses incurred for the objects of the appellant trust. I also hold that the AO's contention that the appellant has engaged in business and therefore the provisions of section 11(4A) are attracted is also incorrect on facts and in law. Even otherwise as so held by the Hon.Supreme Court in the case of Thanthi Trust, that even if there is business run by the trust, so long as the trust applies the income from such business for objects of the trust, it amounts to application of income for the purposes of sec.11 and that the appellant has applied its income solely for providing financial relief to the needy patients is not in dispute and to that extent it will constitute application of income within the meaning of section 11. I therefore decide Ground nos.1,2 & 6 in favour of the appellant.”
4.1 We find that the AO denied the exemption u/s.11 of the Act on the basis of inference that the assessee is not carrying out the activities as per its Object. However, the ld.CIT(A) has given a finding that the inference as drawn by the AO is incorrect. As per one of the Objects, embedded into the clause-7 of the trust-deed, it is envisaged to carry out activities concerning medical need and or relief. It is undisputed fact that the assessee-trust has given monitory benefits to the patients by discounting the bills and also by giving financial aid to the patients. It is not the case of the AO that the funds of the assessee-trust has been applied for other than the Objects of the trust-deed. The only objection of the AO is that the assessee-trust has executed an agreement with a company which is commercially exploiting the properties of the assessee-trust. The ld.CIT(A) has observed that the appellant-trust has applied its income to the needy patients. This finding on fact is not controverted by the Revenue by placing any material on record. Further, the AO wrongly construed the term ‘medical relief’. The ld.CIT(A) has rightly held that the ‘medical relief’ is not dependent upon infrastructure. In that event, the medical camps organized by a trust with the help or on payment to any hospital would not fall under medical relief as the trust has only made payment of medicine, doctor’s fee and other medical facility. This in our considered view would defeat the very object of the provision of section-11. Moreover, the assessee has drawn our attention to the order of the Charity Commissioner who has observed that looking to all the facts, it is seen that no immovable property of the trust has been transferred. The ownership of the trust is also seen in the name of the assessee-trust in the Revenue records. The activities carried out as per the Objects of the trust. A statement of the list of the treatments given by the trust is submitted in the matter, which shows that as the trust’s income increases, there has been a corresponding and successive increase also in the treatment help given by the trust. Therefore, we do not see
Page 7 of 8 any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, ground No.1 Revenue’s appeal is rejected.
As the issue is squarely covered in favour of the assessee, by the decision of the Coordinate Bench, in assessee`s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Coordinate Bench (supra). We find no reason to interfere in the said order of the Coordinate Bench, therefore, respectfully following the binding judgment of the Coordinate Bench in assessee’s own case we delete the addition made by assessing Officer, and allow the appeal of the assessee.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 10/04/2026.