DEVKI DEVI FOUNDATION,NEW DELHI vs. DIT (EXEMPTIONS), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI

BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.1027/Del/2012 Assessment Year: -- Devki Devi Foundation, Vs DIT (Exemptions), Plot No.15, 3rd Floor, 2, Press Enclave Road, Saket, Aayakar Bhawan, New Delhi. Laxmi Nagar District Centre, New Delhi. PAN: AAATD5283G (Appellant) (Respondent) Assessee by : Shri Ajay Vohra, Sr. Advocate, Shri Gaurav Jain, Advocate & Shri Deepesh Jain, CA Revenue by : Ms Nidhi Srivastava, CIT, DR Date of Hearing : 27.08.2019 Date of Pronouncement : 22.10.2019 ORDER PER R.K. PANDA, AM: The appeal filed by the assessee is directed against the order dated 28.12.2011 of the DIT (Exemptions), Delhi withdrawing registration granted earlier u/s 12A of the IT Act since inception.

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object of providing medical relief through running/operating of hospital and

medical research. The society was granted registration u/s 12A of the Act vide order dated 23rd June, 1994 w.e.f. 01.03.1994. Subsequently, a proposal was

received from Assistant Director of Income-tax (E), Investigation Circle-1, New

Delhi on 16.11.2011 for withdrawal of registration granted u/s 12A of the IT Act

on the basis of various facts noted by him during the course of assessment

proceedings for the assessment year 2008-09. Accordingly, the DIT (E) issued a

notice u/s 12AA(3) of the Act on 18.11.2011 requiring the assessee to explain

why registration granted u/s 12A should not be withdrawn for violation of the

provisions of the Act. The relevant portion of the notice reads as under:-

“F.No.DIT(E)/12A/2011-12/ Dated 18.11.2011. To The Principal Officer, Devki Devi Foundation, 10-B, K.G. Marg, New Delhi. i) In Addition to the amounts mentioned in sub-clause (i) above, the Owner shall pay to the contractor every FY a sum equivalent to 2% of the Gross Annual Turnover of the Hospital as defined in clause 8.03 for each Financial year as consideration for completion of the construction of the building (including civil construction, finishing work, plumbing, electrical works etc,) till such time that the amounts under clause 8.02 (i) is liquidated. ii) As a consideration for carrying out the Building's maintenance and repairs after the Building is handed over to the Owner for the entire term of this Agreement, the owner shall be liable to pay to the Contractor a sum equivalent to 6% of the Gross Annual Turnover of the hospital as defined in clause 8.03 for each financial year. 2) Further, it is seen that Devki Devi Foundation (DDF) had entered into a lease agreement for medical equipment with MMK Pvt. Ltd. For supply and maintenance of medical equipments wherein the financial 2

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liability was linked to the Gross Annual Turnover of the hospital at the rate of 10% and with a clause for penalty clause to be paid by the assessee in case of termination of the contract. The term of contracts was for 30 years and could be terminated solely at any time by the company. The user of equipment had no right to terminate this agreement - (Clause 10 of agreement).

3) Service Agreement with Max Health Care Ltd (MHC)- The agreement also provides for deputation of personnel from MHC to DDF Vide clause 2 (c ) the assessee has agreed to provide an area of at least 1500 sq meters in the hospital for exclusive use of MHC and its personnel. No provision for the compensation or legal obligation was created in favour of MHC for such exclusive use. Here again the right to terminate this agreement was reserved in favour of MHC.

4) Further, MMS has also on December 2010 entered into an agreement with the assessee society for supply and lease of plant and machinery and equipment for an initial period of 30 years, the MMS is responsible for acquisition of new equipment, repair, maintenance, services of the said equipment, ensuring adequate insurance coverage from the equipment and replacement of any existing equipment and lease rental are based on fixed percentage of the gross total turnover of the assesses society which are due to MMS on a monthly . Following payments were made by the assessee to group concerns in A. Y. 2008-09.

Name Particulars Amounts (Rs.) Max Health Institute Ltd.(MHC) 132168111/- Fees for medical and nonmedical services. Max Medical Services Pvt. Ltd. (MMS) 131933978/- Equipment and furniture hiring charges. Max Medical Services Pvt. Ltd (MHC) Maintenance charges for building 83493449/-

Max Healthcare Institute Ltd. (MHC) Washing of Uniforms. 28406247/- Max Medical Services Pvt. Ltd(MMS) Consideration of building 24560347/- Total 400562132/-

Following are the expenditure incurred for free treatment / Concessional treatment to patient of EWS category A.Y Total revenue from hospital (in Discount and free Percentage of crores) treatment discounts to 2006-2007 67.71 4.05 5.98% 2007-2008 108.25 4.19 3.87% 2008-09 143.68 6.36 4.42%

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5) Keeping in view the facts narrated above and huge payments to the group concerns under various agreements shows that the assessee concern was working only for the monetary benefit of its group concerns and not working as a philanthropic organization which is further strengthened by the fact that it had not rendered even the minimum statutory services towards the persons of economically weaker section of society as mentioned is above chart. As per the criteria notified by the Delhi High Court to be implemented by the Health Department of Delhi such organisations which have been provided land for hospital at concessional rate have to be provide free treatment/Concessional treatment to patient of EWS category. As per the criteria notified 25% of patients of OPD and 10% of beds in the IPD are to be provided treatment free of all charges. 6) There is, thus, reason to believe that the assesses foundation has not been operating as a charitable institution as the trustees allowed the property/hospital of the society to be taken over by the Max Group by creating various financial and legal obligations, as stated in previous paras. The hospital is virtually run by the Max Group of concerns which are corporate bodies established with the clear intention of profit motive. This is against the basic principles of the charitable organization where in as per law if, such charitable body is unable to function for any reason, the assets and liabilities are transferred to any other charitable organization having the same aims and objects. 7) In view of above facts and circumstances of the case you are required to attend this office on l/12/2011 at 11.30 AM alongwith reply with justification in respect of points observed above, including books of account for the A. Y. 2009-10 to 2011-12 for examination and to show cause why registration granted u/s 12AA should not be withdrawn from the Trust for violation of the provisions of the Act. Please note, in case of non- compliance on the given date, it will be presumed that you have nothing to say and the matter will be decided on the basis of material available on record. Yours faithfully, Sd/- ( S.K. Dash) Director of Income Tax (Exemption), New Delhi.”

the DIT(E). However, he was not satisfied with the arguments advanced by the

assessee. He noted that the trust was allotted a land by the DDA in 1996 for

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hospital which was used by the trust for construction of hospital by way of an

agreement made with MMK Investment Pvt. Ltd. (Now called Max Medical

Services Pvt. Ltd.) in December, 2001. The agreement was for the construction

of hospital and its maintenance for a term of 30 years. As per the agreement, the

same may be terminated any time solely at the option of the contractor. The

society can terminate the agreement only in the case of material breach by the

contractor of its obligations, which remains unremedied within 60 days of

written notice by the owner to the contractor. It is further provided in the

agreement that the owner shall be liable to pay to the contractor with effect from

the month immediately succeeding the month on which the handover date

occurs a minimum sum equal to the total amount spent by the contractor for

completing the construction of the building at the project site (including civil

construction, finishing work, plumbing, electrical works, etc.) divided by the

number of remaining months of this agreement commencing from the month

immediately succeeding the month on which the handover date occurs, towards

repayment of the principal sums expended by the Contractor towards

constructing of the building at the project site. Another clause in the agreement

states that the owner shall pay to the contractor every financial year a sum

equivalent to 2% of the Gross Annual Turnover of the Hospital for each

Financial year as consideration for completion of the construction of the

building (including civil construction, finishing work, plumbing, electrical

works etc,) till such time that the amounts is liquidated. 5

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after the building is handed over to the Owner for the entire term of this

Agreement, the owner shall be liable to pay to the Contractor a sum equivalent

to 6% of the Gross Annual Turnover of the hospital as defined in clause 8.03 for

each financial year.

lease agreement for medical equipment with MMK Pvt. Ltd. for supply and

maintenance of medical equipments wherein the financial liability was linked to

the Gross Annual Turnover of the hospital at the rate of 10% and with a clause

for penalty clause to be paid by the assessee in case of termination of the

contract. The term of contracts was for 30 years and could be terminated solely

at any time by the company. The user of equipment had no right to terminate

this agreement. As per the service Agreement with Max Health Care Ltd

(MHC), agreement also provides for deputation of personnel from MHC to

DDF. As per details available on record, the assessee has agreed to provide an

area of at least 1500 sq meters in the hospital for exclusive use of MHC and its

personnel. No provision for the compensation or legal obligation was created in

favour of MHC for such exclusive use. Here again the right to terminate this

agreement was reserved in favour of MHC. Further, Max Medical Services Pvt.

Ltd. ( MMS ) has also entered into an agreement with the assessee society for

supply and lease of plant and machinery and equipment for an initial period of

30 years, that MMS is responsible for acquisition of new equipment, repair , 6

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maintenance and services of the said equipment, ensuring adequate insurance

coverage from the equipment and replacement of any existing equipment and

lease rental are based on fixed percentage of the gross total turnover of the

assesses society which are due to MMS on a monthly basis.

group concerns in A.Y. 2008-09.

Name Particulars Amounts (Rs.) Max Health Institute Fees for medical and non- 13,21,68,111/- Ltd.(MHC) medical services. Max Medical Services Pvt. Equipment and furniture 13,19,33,978/- Ltd.(MMS) hiring charges.

Max Medical Services Pvt. Ltd Maintenance charges for 8,34,93,449/- (MHC) building Max Healthcare Institute Ltd. Washing of Uniforms. 2,84,06,247/- (MHC) Max Medical Services Pvt. Consideration of building 2,45,60,347/- Ltd(MMS) Total 40,05,62,132/-

has entered into two different agreements with two entities of the same group,

namely Max Health Institute Ltd and Max Medical Services, one for

construction and maintenance of building and supply of medical equipment and

another for providing medical support by way of providing medical services.

Prima facie, the assessee foundation according to him has not been operating as

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a charitable institution as the trustees allowed the property/hospital of the

society to be taken over by the Max Group by creating various financial and

legal obligations. He was of the opinion that the hospital is virtually run by the

Max Group of concerns which are corporate bodies established with the clear

intention of profit motive. This according to DIT(E) is against the basic

principles of the charitable organization where in as per law if, such charitable

body is unable to function for any reason, the assets and liabilities are

transferred to any other charitable organization having the same aims and

objects.

concerns under various agreements the DIT(E) was of the opinion that the

assessee concern was working only for the monetary benefit of certain corporate

concerns and`not working as a philanthropic organization. The assessee society

is being used simply as a 'special Purpose Vehicle' to take advantage of facilities

of concessional land etc offered by the Government while passing off

unilaterally profits to corporate concerns. The complete domination by corporate

body, formed with the basic motive to earn profit can not in any way justify any

element of 'charitable purpose'. He observed that the assessee society did not

select M/s MHC on the basis of any process where comparative advantage to the

assessee society from such multiple corporate entities was analysed and

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compared. Similarly, no details of why the loans from barking channels or other

financial institutions were not availed of, have also been brought on record.

statutory services towards the persons of economically weaker sections of

society. He reproduced the data provided by the assessee in respect of treatment

of patients of economically weaker section category, the details of which are as

under:-

A.Y. Total revenue Discount and free Percentage of from hospital (in treatment discounts to crores) revenue 2006-2007 67.71 4.05 5.98% 2007-2008 108.25 4.19 3.87% 2008-09 143.68 6.36 4.42%

Court to be implemented by the Health Department of Delhi, such organizations

which have been provided land for hospital at concessional rate have to provide

free treatment or concessional treatment to patients of economically weaker

section category. As per the criteria notified, 25% of patients of OPD and 10%

of beds in IPD are to be provided free treatment. However, the assessee has

not complied with such directions. Since free OPD treatment and IPD cases is

0.3% and 2.4%, it is well below the prescribed guidelines of Delhi Government

and the directions of Hon'ble Delhi High Court. Therefore, he held that the

claim of the assessee regarding providing free treatment to EWS patients to

fulfill its charitable objects is contrary to prescribed norms. He accordingly held 9

ITA No.1027/Del/2012

that the assessee foundation has not been operating as a charitable institution as

the trust has allowed the property/hospital of the assessee to be taken over by the

Max group by creating various financial and legal obligations. Through the

artifice on a maze of contractual obligations, the management of the hospital has

been virtually handed over to the Max group of concerns which are corporate

bodies established with the clear intention of profit motive. This, according to

the ld.DIT (E) is against the basic principles of the charitable organizations. He,

therefore, held that the assessee is not entitled to the exemption u/s 11 as its

activities cannot be classified as charitable activities since inception. Therefore,

the registration granted u/s 12A was cancelled by him since inception.

cancelling the registration of the assessee granted u/s 12A of the Act since its

inception. The assessee approached the Hon'ble High Court against the order of the Tribunal and the Hon'ble High Court vide ITA No.484/2015, order dated 15th

February, 2016, restored the issue to the file of the Tribunal for fresh decision in

accordance with law. It was further directed that while rendering a fresh

decision, the Tribunal will be uninfluenced by its earlier order which has been

set aside. The relevant observation of the Hon'ble High Court reads as under:- “3. One of the principal grievances of the Appellant both before the ITAT and this Court is regarding violation of principles of natural justice and denial of sufficient opportunity to the Appellant in response to the show cause notice (‘SCN’) issued on 18th November 2011. In particular it is

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pointed out that whereas a reply of the Assessee was filed on 27th December 2011, the impugned order under Section 12AA (3) of the Act was passed by the DIT (E) just one day later on 28th December 2011 without dealing with the reply filed by the Petitioner and the documents enclosed therewith. 4. The further ground urged before this Court as regards the impugned order of the ITAT is that apart from the reasons stated in the SCN and the order of the DIT (E), the ITAT has adverted to other reasons which do not find place in the said SCN or order of the DIT. This concerned the Assessee not having achieved the objects for which the Trust was formed in terms of the research activities undertaken by the Assessee. 5. It was submitted by Mr. M.S. Syali, learned Senior counsel appearing for the Appellant, that the Appellant would be satisfied if a fresh hearing will be given to the Appellant-Assessee by the ITAT. He submitted that comprehensive submissions could be made before the ITAT both by the Assessee as well as the Revenue on all the grounds/pleas raised in the Assessee's appeal. 6. Mr. P. Roy Chaudhuri, learned Senior standing counsel for the Revenue states that the Revenue would have no objection if the matter is remanded to the ITAT for fresh determination of all the pleas raised in the Assessee's appeal before the ITAT. 7. In that view of the matter, this Court sets aside the impugned order dated 31st March 2015 passed by the ITAT and restores ITA No. 1027/Del/2012 to the file of the ITAT for a fresh decision in accordance with law. It will be permissible for the Appellant as well as the Revenue to file their respective written notes of submissions in advance of the date of hearing of the appeal with reference to the grounds raised in the appeal and the documents already on record. In rendering a fresh decision in the appeal, the ITAT will be uninfluenced by its earlier which has been set aside by this order.”

“1. That the Director of Income Tax (Exemptions), New Delhi [‘DIT(E)’] erred on facts and in law in passing order, dated 28/12/2011, under section 12AA(3) withdrawing the approval/registration granted to the Appellant Society under section 12A of the Income-tax Act, 1961 (“the Act”).

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2.1 That the DIT(E) erred on facts in law in observing that the Appellant Society undertook huge/adverse financial obligations by entering into agreements for construction and maintenance of hospital building, supply of medical equipments, provisions of medical staff/services with companies belonging to Max Group, which was a colourable device to transfer profits to such companies.

2.2 That the DIT(E) erred on facts in law in observing that the Assessee Society was merely a “special purpose vehicle” to take advantage of concessional land allotted by the State Government and to pass off profit earned from operating hospital to companies belonging to Max Group.

3.1 That the DIT(E) erred on facts in law in not appreciating that the non-fulfillment of aforesaid criteria was beyond the control of the Appellant Society and, in any case, not a valid ground to hold that the Appellant- Society was not carrying on ‘charitable purpose’ as referred to in section 2(15) and for withdrawing registration under section 12A of the Act on that basis.”

additional grounds:-

“Without prejudice:

4.1 That the DIT(E) erred on facts and in law in not appreciating that the power under section 12AA(3) of the Act could not have been exercised

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retrospectively to cancel/ withdraw registration for period prior to issue of notice for withdrawal/ cancellation under that section.”

NTPC Ltd. vs. CIT, 229 ITR 383 and in the case of Jute Corporation of India vs.

CIT, 187 ITR 688, the ld. counsel for the assessee submitted that these grounds

being purely legal in nature and all material facts are already on record and no

new facts are required to be investigated, therefore, the additional grounds

should be admitted for adjudication.

being purely legal in nature are admitted for adjudication.

of the following additional evidences in terms of Rule 29 of the Income-tax

(Appellate Tribunal) Rules, 1963 by mentioning as under:-

“Re: Application for admission of additional evidence in terms of Rule 29 of the Income-tax (Appellate Tribuna1) Rules. 1963

It is respectfully submitted as under:

The applicant/ assessee craves leave for admission of the following documents (placed in volume I of supplementary paper book - from pages 1 to 52 and 136 to 427) filed on 2.5.2018 as additional evidences under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 in connection with the captioned appeals:

Sl. No. Particulars Page No. Filed before Re: Addendums to existing agreement with Max Group Entities 1. Copy of Supplementary Construction & 1-3 Additional Maintenance Agreement dated 24.7.2013 entered Evidence into between the appellant and Max Medical Services Ltd, whereby, inter alia, building repairs/ maintenance services availed by the appellant from

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the latter were discontinued 2. Copy of Supplementary Equipment Use Agreement 4-7 dated 22.7.2013 entered into between the appellant and Max Medical Services Ltd, whereby, inter alia, service fee payable by the appellant to latter is reduced from 8% to 7% of Adjusted Turnover 3. Copy of letter dated 4.1.2010 issued by Max 8-9 Healthcare Institute Ltd., inter alia, accepting proposal of the appellant to reduce fixed service fee (as per Medical Services Agreement) to Rs.6 crores pa for financial years 2009-1- & 2010-11. 4. Copy of Supplementary Medical Services 10-17 Agreement 24.7.2013 entered into between the appellant and Max Healthcare Institute Ltd., whereby, inter alia, non-medical services availed by the appellant from the latter were discontinued and existing fee was revised Re: Independent existence of appellant trust (not part of Max entities/Group) 5. Chart showing Organizational Structure of the 18 Additional appellant society to demonstrate that none of the evidence key members of the society is related to any Max entity 19 6. (i) Statement showing list of trustees of the Additional evidence appellant society for AYs 2005-06 to 2011-12;

(ii) List of Directors of Max Medical Services Ltd. 20-21 & Max Healthcare Institute Ltd. for AYs 2005-06 to 2011-12 7. List of relevant licenses government approvals/ 22-23 Additional licenses granted to the appellant by the evidence Government/ authorities, alongwith following licenses on sample basis:

- Copies of nursing home registration certificate/ applications granted to the appellant by Directorate, 24-32 Health Services, NCT of Delhi - Copies of registration certificate granted to the appellant by South District, NCT of Delhi relating 33-34 to ultrasound clinic - Copies of Drug Licenses grand to the appellant 35-50 from time to time Copy of license for Blood Bank granted in the name 51-52 of the appellant

136-141 Additional 9. Details of segregation of employees (Dept, and grade wise) employed by the appellant trust for FYs evidence 2008-09, 2009-10 and

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2010-11 11. Copies of agreements, on sample basis, entered into 143-174 Additional by the appellant with vendors on own account (Eg. evidence For provision of food and beverages) 12. Statement showing addition to various fixed assets 175 Additional made by the appellant (independent of Max entity) evidence from FYs 2006-07 to 2016-17 13. Statement showing bifurcation of expenditure 176-177 incurred by the appellant into (i) payments made towards contractual payments to Max entities; and (ii) other payments, for financial years 2006-07 to 2009-10 14. Statement showing percentage application of 178 revenue of the appellant in lieu of services availed from Max entities 15. Statement showing financial impact of transactions 179-180 (construction/repair/equipment use) between appellant and Max Medical Services Ltd. considering interest/ IRR of 15% and 20% Re: Research objective carried out/fulfilled by the appellant 16. Details of various research/ studies carried out by Additional 181-192 the appellant through its Doctors evidence - 17. Copy of recognition/ registration letter granted to the appellant by Scientific and Industrial Research 193-237 Organization (SIRO) 18. Copy of ‘Clinical Study Agreement’ dated 5.3.2010 entered into between the appellant and Daiichi 238-253 Sankyo Pharma Development 19. Copy of ‘Grant Agreement’ dated 20.09.2010 entered into between Pfizer Ltd. and the appellant 254-268 for advancement of clinical research 20. Copy of ‘Research Agreement’ dated 1.07.2010 entered into between Imperial College of Science Technology and Medicine, Max Healthcare Institute 269-271 Ltd. and the appellant for advancement of clinical research 21. Copies of various research papers/ analysis carried out by the appellant (through its doctors) published 272-421 in reputed journals Re: Free Treatment/Facility to poor 22. Statement showing revenues applied for free treatment/ discounts by the appellant for financial 422 Additional years 2004-05 to 2013- 14 Evidences 23. Copies of inspection notes/ appreciation letters issued by the Directorate of Health Services, Govt, 423-427 of NCT of Delhi appreciating treatment given by the appellant to EWs category patients.

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The aforesaid additional evidences are relevant for adjudication of Grounds of Appeal filed on 01.03.2012 before the Tribunal relating to withdrawal of registration granted under section 12AA of the Income Tax Act, 1961 (“the Act”).

The brief facts and reason for filing the additional evidences are set out as under:

The captioned appeal was filed before the Tribunal against the order dated 28.12.2011 passed by DIT(E) withdrawing registration granted under section 12AA of the Act alleging/ holding that the activities carried out by the applicant were not charitable and were disguisedly for the benefit of the Max Group entities.

The Tribunal earlier dismissed applicant’s appeal vide order dated 31.03.2015, and upheld the action of DIT(E) in withdrawing exemption under section 12AA of the Act observing that - (a) no ‘research’ work was undertaken by the applicant which was its main objectives as detailed in Memorandum of Association; (b) no treatment at concessional cost was being provided to economically weaker sections of the society by the applicant trust; (c) the activities of the trust is tilted to given undue benefit to Max Group entities; (d) the applicant is running hospital on commercial lines.

The aforesaid order of Hon’ble Tribunal was challenged before the Hon’ble Delhi High Court in ITA No.484/2015. The Hon’ble High Court was, vide order dated 15.2.2015, pleased to remand the matter back to the Tribunal for fresh adjudication in accordance with law.

In this regard, it is respectfully submitted that the aforesaid additional evidences are being placed on record to buttress the consistent submissions/ contention/ arguments of the applicant already on record that applicant was engaged in carrying on charitable activities and is not related nor was working for the benefit of Max Group entities. Certain documents (S.No. 16 to 21) have been placed on record to rebut the observations of the Hon’ble Tribunal in the original order (first round- set aside by High Court) that the applicant had not earned on research activities in the medical field.

The aforesaid documents were could not be placed on record before the DIT(E) for the following reasons;

- Impugned order was passed by DIT (E) without considering the detailed submissions of the applicant and providing adequate opportunity of being heard to the applicant in gross violation of principles of natural justice which is evident from the fact that the impugned order was passed by the DIT(E) in undue haste on 28.12.2011, i.e., on the very next day of applicant

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filing submissions and paperbook(s) running into 4300 pages on 27.12.2011. The applicant was sanguine that the DIT(E) would be pleased to drop the proceedings considering the submissions and voluminous papers placed on record. It was, only on receipt of the impugned order that the applicant came to know that the exemption had been withdrawn by the DIT(E) that too, without calling for any further information and even not considering the submission and papers furnished by the applicant; - Certain extraneous observation/ allegation that the applicant was not carrying on activities in consonance with its objectives were, it is with utmost respect submitted, erroneously made by the Hon’ble Tribunal in the order dated 31.03.2015, which did not form part of the show cause notice or order of the DIT(E). Being so, though the Hon’ble High Court had directed that the Tribunal must remain uninfluenced by its earlier decision dated 31.3.2015 while adjudicating the issue afresh, however, the applicant seeks to place certain documents on record to rebut the said observations/ allegations to err on the side of caution; - Certain documents (at S.No. 1,2,4) are supplementary agreement to main agreement already on record, which had come into existence after passing of impugned order and thus could not be placed on record before the DIT(E). In fact the submissions of the applicant that the DIT(E) did not grant adequate opportunity to the applicant and that the findings of the Tribunal were extraneous to the show cause notice and the order of DIT(E) has been on record before the Hon’ble High Court also.

In view of the aforesaid, it is humbly prayed that the above documents may, in the interests of equity and justice, kindly be admitted and taken into consideration for adjudication of the captioned appeal.”

17.1 After hearing both sides, the additional evidences filed by the assessee are

admitted.

chronology of events:-

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CHART OF DATES Date Particulars 1.3.1994 Registration of assessee society under Societies Registration Act, 1860. 23.6.1994 Registration under section 12A of Income-tax Act, 1961 (the Act) w.e.f. 1.3.1994 [refer page 1 of paper book]. 5.6.1996 Date of allotment of land by DDA for construction of hospital [refer pages 68-75 of paper book].

10.12.2001 Agreement with Max Medical Services Ltd. [formerly known as MMK Investments (P) Ltd.] [“MMS”] [refer pages 48-67 of paperbook] for constructing hospital building on land allotted to assessee and carrying out repair and maintenance thereof post completion of construction, at following consideration, at following considerations: (a) Total construction of the main building to be paid in equal installments over 26.5 years, from the date of handover of the completed building; (b) 2% of gross annual turnover of the hospital as consideration for construction of building for a period of 26.5 years; (c) 6% of the adjusted turnover of the hospital for each financial year as a consideration for carrying out the repair and maintenance of the building during the term of the agreement.

21.02.2009 Subsequently, the aforesaid was reduced to 5% of adjusted turnover vide supplementary agreement dated 21.02.2009 [refer pages 76-79 of paper book]. Later, the said building repairs/ maintenance services availed by the appellant from the MMS were discontinued vide Supplementary Construction & Maintenance Agreement dated 24.7.2013 [refer pages 1-3 of supplementary paper book] 24.07.2013

10.12.2001 Agreement with MMS for obtaining medical equipment on lease for the purpose of use at the hospital including maintenance thereof afterwards, at consideration of 10% of the adjusted turnover [refer pages 80-97 of paperbook]. Vide supplementary agreement dated 21.02.2009 [refer pages 98-101 of paperbook] the 21.02.2009 consideration was reduced to 8% of adjusted turnover; and further to 7% by supplementary agreement dated 22.07.2013 [refer pages 4-7 of supplementary paperbook] 22.07.2013

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30.6.2004 Service Agreement with Max Healthcare Institute Ltd. (“MHC”) for providing various service, like Doctors, etc. required for running the hospital at the following consideration [refer pages 103-124 of paperbook]: - Rs. 12 crores per annum plus reimbursement of salary/ costs of Doctors at MHC deputed to the hospital and any other expenditure incurred for and on behalf of the assessee. The aforesaid fee of Rs.12 crores was reduced to Rs.6 crore for financial year 2009-10 and 2010- 04.01.2010 11 and duration was increased from 30 to 40 years [refer pages 8-9 of supplementary paper book] The arrangement was revised vide supplementary agreement dated 24.7.2013 [refer pages 10-17 of supplementary paperbook] whereby non-medical services earlier availed from MHC were discontinued were and fee for medical services was revised. 24.07.2013

March 2005 Completion of construction of building

under the Societies Registration Act, 1860 on 01.03.1994 with the main

charitable object of providing medical relief through running/operation of

hospital and medical research. Referring to the copy of the Memorandum of

Association of Devki Devi Foundation, copy of which is placed at pages 2 to 19

of the paper book, he drew the attention of the Bench to the main objects of the

society to be pursued on registration which are as under:-

“MAIN OBJECT OF THE SOCIETY TO BE PERSUED ON REGISTRATION:

To engage in medical, biological, social, environmental and allied sciences research so as to enhance human understanding regarding the epidemiological basis of health & disease through acquisition, dissemination and sharing of new knowledge concerned with initiation, causation, diagnosis, treatment and rehabilitation of disease and disability in humans in general and with reference to:

- Cardiac Speciality - Cancer detection and care - Communicable Diseases - Nutritional and Deficiency Disease - Diseases of Pregnancy & Newborn 19

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- Diseases of Poverty and Illiteracy.”

main object as per clause 3 and 4 of the Memorandum of Association, he drew

the attention of the Bench to the same which are as under:-

“3. To promote, establish, maintain and manage Centres/Institutions of Health/Medical Sciences to provide necessary infrastructure with required physical facilities, equipment, staff, labourers and other inputs including scientific work environment and logistics support for the design, conduct and evaluation of research programs for the accomplishment of the objects of the Society.” “4. To establish collaborative linkages with national and international philanthropic, benevolent and other organizations to share experience and expertise through joint activities/ventures/partnership etc., to provide for the reception and treatment of persons suffering from any illness or defectiveness or for the reception and treatment of persons during convalescence or of the persons requiring medical attention or rehabilitation and for this purpose to do all acts, deeds, things and steps as are necessary for the attainment of the said objects, such as: ”

1994 w.e.f. 01.03.1994. He submitted that the DDA vide perpetual lease agreement dated 5th June, 1996 allotted 1.23 acres of land at Saket to the

assessee for the only purpose of construction and running/operating of hospital

thereon. Due to constraints of resources available with the assessee to achieve

the stated objects of imparting medical relief as well as carrying on of medical

research, the assessee, inter alia, entered into agreement with independent third

parties to construct and maintain a hospital building on the aforesaid land, for

lease of equipment and rendering medical services. He submitted that the

ITA No.1027/Del/2012

construction of the hospital building was completed in March, 2005 and the

hospital was running thereafter. Since the assessee was registered u/s 12A, the

income arising from the aforesaid activities was claimed exempt as per the

provisions of section 11 in the return of income filed for each year which was

accepted by the Assessing Officer in the assessments completed u/s 143(3) of

the Act for the assessment years 2005-06, 2006-07 and 2007-08. He submitted that a survey u/s 133A was conducted on 23rd August 2005 to verify the

genuineness of activities carried on and the assessment was completed u/s 143(3) vide order dated 31st December, 2007 for assessment year 2005-06

accepting the genuineness of activities. He submitted that in the course of

assessment proceedings for the assessment year 2008-09, the Assessing Officer,

for the first time, held that the activities of the assessee were not charitable in

nature and, therefore, made reference to the DIT(E) to review registration

granted to the assessee u/s 12A of the Act. He submitted that the DIT(E)

initiated proceedings u/s 12AA(3) and withdrew the registration granted to the

assessee u/s 12A of the Act since inception holding that the assessee was not

operating towards achieving ‘charitable purposes’ basically for two reasons:-

“1. the appellant through entering into various agreements with two companies belonging to the Max Group mentioned supra, had virtually handed over the hospital to that group and, therefore, the hospital was operated on commercial basis as opposed to charitable basis; 2. the appellant did not meet the minimum statutory criteria of providing free treatment to economically weaker sections (EWS) of the society.”

ITA No.1027/Del/2012

appreciation of the facts and the legal position and, therefore, the same needs to

be quashed.

registration is beyond the scope of section 12AA(3) of the Act. Referring to the

relevant provision of section 12AA(3) of the Act as amended by the Finance

Act, 2010 w.e.f. 01.06.2010, he submitted that the said provisions read as

under:-

“(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (I) or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. ”

withdraw registration granted to a charitable institution only if either of the

following two conditions are satisfied, namely, (i) the activities of the trust are

not genuine; or (ii) the activities of the trust are not carried on in accordance

with the objects of the trust. He submitted that in the present case, the

allegations made by the DIT(E) in the impugned order that the activities of the

assessee were not charitable in nature does not fall within the purview of any

ITA No.1027/Del/2012

one of the aforesaid two conditions precedent for withdrawal of registration u/s 12AA(3) of the Act since: (a) the assessee society is undisputably running a hospital which provides medical relief and there is no allegation in the order that the activities of the assessee society are not genuine; and (b) since the object of the assessee society was, inter alia, to impart medical services and to carry on research, the aforesaid activity of running hospital is in accordance with the objects of the assessee society. It is nobody’s case that the assessee is not carrying on the activities in accordance with its objects. He submitted that the allegations made in the impugned order that the hospital set up by the assessee was being run on commercial basis inasmuch as: (i) Control was handed over to the Max group; (ii) Stipulated norms regarding free treatment to EWS were not adhered to cannot result in withdrawal of registration u/s 12AA of the Act. 25. Relying on the decision of the Hon'ble Madras High Court in the case of CIT vs. Sarvodaya Ilakkiya Pannai, 343 ITR 300, the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Marina Social Service Society, 408 ITR 462, the decision of the Hon'ble Supreme Court in the case of American Hotel & Lodging Association Educational Institute vs. CBDT, 301 ITR 86, decision of the Hon'ble Patna High Court in the case of St. Michaels Educational Association vs. CIT vide Miscellaneous Appeal No.438 of 2015, order dated 13th August, 2019 and various other decisions, he submitted that the question whether exemption u/s 11 of the Act would be admissible to the 23

ITA No.1027/Del/2012

assessee would be a question to be gone into in the assessment of each year.

Referring to the following decisions, he submitted that registration u/s 12AA(3)

of the Act can only be withdrawn on satisfaction of either of the twin conditions

specified in the said section:-

• Maharashtra Housing & Area Development Authority vs. ADIT(E):

58 SOT 196 (Mum.)

• Urmila Devi Charitable Trust v. CIT(E): ITA No.4136/Del/2017 (Del

Trib.)

• Project Management Institute v. DIT(E): 142 ITD 239 (Hyd.)

• Guru Gobind Singh Educational Society vs. CIT: 118 ITD 207 (Asr.)

• Chaturvedi Har Prasad Educational Society v. CIT: 134 TTJ 781

(Lucknow)

• H.P. Government Energy Development Agency vs. CIT: 134 TTJ 33

(Chd.)

registration u/s 12AA(3) of the Act since none of the conditions precedent to

withdraw registration u/s 12AA(3) are satisfied in the present case.

the activities of the assessee society fall within the meaning of ‘charitable

purpose’ u/s 2(15) read with section 11 of the Act. He submitted that the

assessee society, pursuant to its objects, is engaged in the activity of running

ITA No.1027/Del/2012

hospital with a view to provide medical relief. In accordance with the

Memorandum of Association of the assessee, all incomes/earning of the assessee

society shall be solely utilized and applied towards the promotion of aims and

objects of the society. Referring to the provisions of section 11, the ld. counsel

for the assessee submitted that an assessee is eligible for exemption in respect of

income derived from property held under trust for ‘charitable purposes’

provided such assessee is registered u/s 12A of the Act. The ld. counsel for the

assessee drew the attention of the Bench to the provisions of section 2(15) of the

Act which defines ‘charitable purpose’ and which reads as under:-

“2. Definitions. In this Act, unless the context otherwise requires,— ……….. (15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, …..”

medical relief, per se, is considered as charitable purpose. He submitted that the

word ‘medical relief’ means providing medical aid to the patients. The ld.

counsel for the assessee submitted that the aforesaid proviso to section 2(15) of

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the Act denying exemption to organization carrying on trade/commercial

activity is only applicable to the last/residual limb of the charitable activities,

i.e., to organization carrying on activities towards advancement of any other

object of general public utility and not to other limbs of activities such as relief

to the poor, education, medical relief, preservation of environment, etc. For the

above proposition, he relied on the following decisions:-

Central Board of Direct Taxes (CBDT) Circular No. 11 dated - 19th December, 2008 reported in 221 CTR (St) 1

India Trade Promotion Organization vs. DIT(E): 371 ITR 333 -

(Del.)

Hamdard Laboratories India v. ADIT: 379 ITR 393 (Del.) -

Bureau of Indian Standard vs. DGIT(E) : 358 ITR 78 (Del.) -

GS1 India vs. DGIT(Exemptions): 262 CTR 585 (Del.) -

Institute of Chartered Accountants of India v. DGIT -

(Exemptions): 347 ITR 99 (Del.),

DIT (Exemptions) v. Commerce Teachers Association: 203 -

Taxman 171 (Del.)

CIT v. Sri Magunta Raghava Reddy Charitable Trust: 395 ITR 663 -

(Mad.)

- Society for Participatory Research In Asia Vs. ITO: ITA No.

1553/Del/2015 (Del Trib.),

ITA No.1027/Del/2012

- India HIV/AIDS Alliance v. CIT: [2019] 175 ITD 1 (Delhi - Trib.)

towards achieving object of providing medical relief since the assessee is

undisputedly running a hospital wherein medical services are provided to the

general public.

Memorandum of Association, the entire assets and liabilities as well as

income/surplus of the assessee is to be retained in the society and cannot be

distributed among members. Accordingly, the assets and surplus (if any) of the

assessee society is held for the public at large, the surplus earned is ploughed

back for the charitable object of providing medical relief. He accordingly

submitted that the assessee fully meets the conditions for claiming exemption

u/s 11 read with section 2(15) of the Act. There is no stipulation that the activity, inter alia, of providing medical relief is to be carried out without

charging fees or without profit.

the Finance Act, 1983 w.e.f. 01.04.1984, provisions of section 2(15) specifically

excluded from its ambit carrying out of ‘object of general public utility not

involving the carrying on of any activity for profit.’ However, after the

amendment, the words ‘not involving carrying on of any activity for profit’ were

deleted which clearly demonstrates that even in the case of pursuing an object of 27

ITA No.1027/Del/2012

general public utility, the earning of profit was not prohibited. He accordingly submitted that if provisions of medical relief is the objective with which the

entity has been set up, the same would be regarded as charitable purpose in terms of section 2(15) of the Act notwithstanding that the fee is charged in lieu of services or profit is made for carrying out such activity. The ld. counsel for

the assessee reiterated that so long as the activity of medical relief is carried by an entity and the income and profit arising therefrom are retained in the entity for furtherance of the aforesaid objective in the future years and is not distributed among the members, it cannot be said that the entity has been set up

with a profit motive notwithstanding that fee is charged for rendering the services and profit is earned in the process. Referring to various decisions, he submitted that in order to see whether the applicant exist for the purpose of

charity or not what is relevant is the predominant objective of the assessee. If the predominant object of the assessee is to carry out a charitable purpose and does not exist for the purpose of profit, then, the assessee is entitled to claim

registration/approval u/s 12A of the Act. For the above proposition, the ld. counsel for the assessee relied on the following decisions:- i) CIT vs. Surat Art Silk Cloth Manufacturers, 121 ITR 1 (SC); ii) Queen’s Educational Society vs. CIT, 372 ITR 699 (SC); iii) CIT vs. Pulikkal Medical Foundation Pvt. Ltd., 210 ITR 299 (Ker); iv) Breach Candy Hospital Trust vs. CCIT, 322 ITR 246 (Bom); v) CIT vs. Bar Council of Maharashtra, 130 ITR 28 (SC);

ITA No.1027/Del/2012

vi) CIT vs. Andhra Pradesh State Road Transport Corporation: 159 ITR 1 (SC) vii) Victoria Technical Institute vs. CIT: 188 ITR 57 (SC) viii) Aditanar Educational Institution V. ACIT: 224 ITR 310 (SC) ix) Samaritan Society vs. CIT : 225 ITR 652 ( SC ) x) Thiagarajar Charities vs. Addl. CIT: 225 ITR 1010, 1026 (SC) xi) CIT v. St. Peter’s Educational Society: 385 ITR 66 (SC) xii) Tolani Education Society v. Dy. DIT(Exemptions)- 351 ITR 184 (Bom.)- (approved by SC Queen's Educational Society v CIT in 372 ITR 699) xiii) CIT v Delhi Kannada Education Society: 246 ITR 73 l(Del.) xiv) CIT vs. Krishi Utpadan Mandi Samiti, Purva, Unnao: 186 Taxman 460 (All.) xv) Shree Kamdar Education trust v. ITO : 243 Taxman 76 (Guj.) xvi) Saint Kabir Education Society v. CIT(E): ITA No. 6449/Del/2017 (Del Trib.) xvii) Aryan Educational Society v. CIT: 94 TTJ 462 (Del Trib.) xviii) O.P. Jindal Global University v. CIT: 127 ITD 164 (Del Trib.) xix) Gaur Brahmin Vidya Pracharini Sabha vs. CIT : 34 SOT 371(Del Trib.) xx) ITO v. Trilok Tirath Vidyavati Chuttani Charitable Trust: 90 ITD 569 (Chd.) xxi) Indo American Society v. ADIT(E): 96 TTJ 578 (Mum Trib.) xxii) CIT v. Rajneesh Foundation: 148 Taxman 396 (Pune Trib.) xxiii) DDIT v. Willingdon Charitable Trust (Chennai): 107 ITD 493 (Chn. Trib.) xxiv) DCIT v. Vellore Institute of Technology: 46 SOT 224 (Chn. Trib.)

ITA No.1027/Del/2012

from such activity is to be retained by the society, the assessee is clearly eligible for exemption u/s 11 read with section 2(15) of the IT Act. He submitted that the ld. DIT(E) have drawn certain adverse inference against the assessee

alleging that the assessee is not operating as a charitable institution and, therefore, not entitled to registration u/s 12A of the IT Act for the following broad reasons:-

(1) It has been stated that having regard to the financial and legal obligations

created by the appellant in favour of Max Group of Companies under the aforesaid agreements, the appellant society was working for the monetary benefit of that Group which were established with the clear intention of

profit motive; (2) The appellant had entered into agreements for construction of hospital at Saket and for use of medical equipment employed therein with MMS, under which huge payments were made, which was terminable only at the

option of MMS; and in the event of termination by the appellant in certain situations, severe penalties were imposable on the appellant society. (3) The services relating to running of the hospital, including deputation of

doctors was provided by MHC, pursuant to Medical Services Agreement dated 30.6.2004 involving huge payment and the said agreement, too,

ITA No.1027/Del/2012

could not be terminated at the option of the appellant. The appellant was

also required to provide at least 1500 sq. ft (erroneously mentioned as sq.

metres) of space for the exclusive use of MHC’s personnel, for which no

charges were payable by MHC to the appellant. The hospital was,

therefore, virtually being run by Max group of companies. (4) The appellant did not render the meet the minimum notified criteria of

providing 25% of OPD and 10% of beds in IPD, as free treatment to

EWS.”

services from commercial entities to achieve its objectives is concerned, he

submitted that there is no bar for availing services from commercial entities to

achieve its objectives. He submitted that entering into agreements/contracts by a

charitable organization with unrelated third party, private/commercial entities

not falling within the prohibited category of persons specified u/s 13(3) to avail

services for the purpose of achieving the charitable object does not militate

against the charitable nature of the organization to deny exemption u/s 11 or

withdraw registration u/s 12AA of the IT Act. For the above proposition, he

relied on the decision of the Delhi Bench of the Tribunal in the case of ADIT(E)

vs. R.B. Seth Jesa Ram and Bros Charitable Hospital Trust vide ITA

No.1721/Del/2008 wherein the assessee entered into the operation and

maintenance agreement with Fortis Healthcare Pvt. Ltd., whereby the assessee

ITA No.1027/Del/2012

trust was obliged to pay consideration of 35% of the gross billing of the hospital to Fortis Healthcare Pvt. Ltd. Further, the right to terminate such agreement

vested only with Fortis Healthcare Ltd. In view of the above facts, exemption u/s 11 of the Act was denied by the Assessing Officer holding that the assessee trust had no role in carrying out the charitable activities of the hospital which

was in effect carried on by Fortis Healthcare Pvt. Ltd. The ld.CIT(A) allowed the appeal of the assessee and in appeal by the Revenue, the Tribunal dismissed the appeal of the Revenue on the ground that the Revenue could not point out any fact indicating the misuse of funds by the management or the activities were

not carried out for the object of the trust. That the assessee continues to provide medical facilities to the public and the expenditure has exceeded the revenue. Further, the overall management of the trust continues to remain with the

trustees and all the decisions taken by Fortis Healthcare Pvt. Ltd. are subject to the approval and consent of the trustees. There was no violation of provisions of section 11 and 13. Accordingly, it was held that the exemption u/s 11 of the

Act cannot be denied to the assessee. He submitted that on further appeal by the Revenue the Hon'ble High Court, vide order dated 4th January, 2016 in ITA No.1021/2015, dismissed the appeal filed by the Revenue.

33.1 Referring to the decision of the Delhi Bench of the Tribunal in the case of ITO (E) vs. Balaji Medical and Trust Diagnostic Research Centre, ITA No.4317/Del/2012, he submitted that under identical facts, the Tribunal held that

ITA No.1027/Del/2012

exemption u/s 11 of the Act could not have been denied to the assessee. He

accordingly submitted that the DIT (E) in the present case erred in

misinterpreting the arrangement between the assessee and the Max group of

companies and alleging that the control of the assessee’s hospital vested with

such companies without appreciating that the said agreements were for availing

certain specific services in order to fulfill the charitable object of providing

medical relief for which such unrelated companies were remunerated at arm’s

length and none of the companies are covered u/s 13(3) of the IT Act. He also

relied on the decision of the Delhi Bench of the Tribunal in the case of DCIT vs. Wood Stock School, ITA No.3838/Del/2014, order dated 25th February, 2019.

rendered minimum statutory free medical services to EWS is concerned, he

submitted that the assessee had displayed the relevant information. He drew the

attention of the bench to the following written synopsis:-

“……the appellant had displayed relevant information at the Reception of the hospital building to inform the public that the aforesaid free services were available to patients from EWS categories. The appellant always entertained patients from such category as and when they visited the appellant’s hospital. The actual percentage of discount/ free treatment to patients from EWS category, vis-a-vis total revenue from the hospital was dependent on number of beyond the control of the appellant. Accordingly, non-achievement o the statutory limit, which was beyond the control of the appellant cannot be a ground to allege that the appellant society was not providing such free services to the patients of EWS sector as per the aforesaid Notification/Court order. That apart, it is undisputed that the appellant is regularly providing free treatment and medical help to the poor- refer details of free treatment placed at pages 449 to 957 of paperbook. Details of amount spent by the

ITA No.1027/Del/2012

assessee on free treatment is captured at p g 422 of supplementary paperbook. It is further pertinent to highlight that Directorate of Health Services (DHS) Govt, of NCT of Delhi has issued appreciating remarks/ certificate mentioning good work done by the appellant society for treatment of people of EWS category- refer pages 423-427 ol supplementary paperbook. No violation of any regulation/ norm has been pointed by the DHS Department. Further, the State Government is presently monitoring the to EWS category through nodal/ liasion officers deputed in the hospital. No adverse allegation/ inference has been drawn by the relevant officer against the appellant. Further, it may be pointed out (purely for the sake of argument) that even if the appellant were to violate the minimum criteria norms it will have no bearing insofar as the availability of exemption under section 11 to the appellant and its charitable nature under the Ac is concerned, since provision of free treatment is not a criteria to be eligible for claiming exemption under section 11 of the Act, discussed in detail in the Synopsis. Emphatic reliance in this regard is placed on the decision of the Delhi Bench of the Tribunal in the case of Civil Services Society v. DIT(E): 143 ITD 408 wherein it has been held that DIT(E) cannot cancel registration granted to the assessee society under section 12AA of the Act on that ground that the assessee-school did not provide admission to students of EWS category in accordance with percentage prescribed in Government policy.”

drew the attention of the Bench to the Profit & Loss Account of Max Medical

Services Pvt. Ltd., for the financial year 2004-05 i.e., assessment year 2005-06

wherein the entire receipt has been shown. Referring to page 103 to 124 of the

paper book, he drew the attention of the Bench to the service agreement between

the assessee and Max Healthcare Institute Ltd., according to which the assessee

was to receive know-how for the medical services. Referring to page 106 of the

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paper book i.e., page 3 of the agreement, he drew the attention of the bench to

clause 1 of the agreement i.e., scope of services, which reads as under:-

“Subject to overall control and supervision and management of the hospital by DDF, DDF hereby agrees to engage MHC to render medical services including but not limited to as enumerated hereinbelow (the services) and MHC agrees to render the same subject to the terms and conditions contained herein.”

the assessee submitted that the control of the hospital was always with DDF.

Referring to indemnity clause at page 14 of the agreement, the ld. counsel for

the assessee drew the attention of the Bench to the same and submitted that it

was clearly mentioned that DDF shall be responsible and solely liable for any

actions that may be initiated against DDF or MHC with respect to the services

being provided to the hospital. It was further made clear that MHC shall have

no liability whatsoever in connection with any claim asserted against DDF or

MHC by any third party including Government, State or Central, quasi judicial,

judicial, local authorities for any act or omission whatsoever. Referring to pages

130 to 212 of the paper book, which contain the minutes of the AGM on

different dates, he submitted that the assessee society is acting on its own right

having independent Board of Governors and the assessee has not transferred the

ownership of the hospital to Max group of companies. Referring to page 180 of

the supplementary paper book, Volume 1, the ld. counsel drew the attention of

the Bench to the statement showing financial impact/benefit of outsourcing

construction and repair of building and leasing of equipment and submitted that 35

ITA No.1027/Del/2012

the assessee rather got benefit by giving contractual payment by the assessee to

MMS. Referring to page 254 to 268 of the paper book, the ld. counsel drew the

attention of the bench to the agreement between Pfizer Ltd. and the assessee

society and submitted that Pfizer Ltd. has granted an amount of Rs.50 lac as

grant to the assessee society which highlights the independent existence of the

assessee trust. Referring to various pages of the paper book, he submitted that

the assessee has not refused anybody for treatment on account of non-payment

of fees being person from the economically weaker section.

36.1 The ld. counsel, in yet another alternate argument, submitted that

retrospective withdrawal of registration since inception is not permissible. The

ld. counsel, referring to the provisions of section 12AA(3), submitted that the

said provisions provide power to the Commissioner to withdraw registration

granted to a charitable organization u/s 12A of the Act w.e.f. 01.06.2010 and

does not grant absolute power to the CIT/DIT(E) to withdraw registration from

an earlier or retrospective date. For the above proposition, he relied on the decision of the Hon'ble Allahabad High Court in the case of ACIT vs. Agra

Development Authority, 407 ITR 462 wherein the Hon'ble High Court held that

registration granted to an assessee could only be withdrawn from the date of

issue of show cause notice for withdrawal and not from an earlier date, much

less retrospectively from the date of inception. He also relied on the decision of the Hon'ble Madras High Court in the case of Auro Lab vs. ITO, 411 ITR 308

ITA No.1027/Del/2012

(Mad) and the decision of the Delhi Bench of the Tribunal in the case of Urmila Devi Charitable Trust vs. CIT(E), vide ITA No.4136/Del/2017. He accordingly

submitted that the registration granted u/s 12AA can, if at all, be withdrawn only

from the date of issue of show cause notice and not from any preceding period.

Since, in the present case, the proceedings for withdrawal of registration granted

u/s 12A were initiated vide show cause notice dated 18.11.2011, therefore, in

view of the decisions cited (supra), the registration could have been withdrawn

only w.e.f. 18.11.2011 and not from an earlier date, much less from the date of

inception. He accordingly submitted that the DIT (E) is not justified in

withdrawing the registration since inception.

37 The ld. DR, on the other hand, heavily relied on the order of the DIT(E).

He submitted that having regard to the financial and legal obligations created by

the assessee in favour of the Max group of companies under the various

agreements the assessee was working for the monetary benefits of Max group of

companies which are corporate bodies. The assessee was virtually operated by

Max group of entities. The assessee has entered into agreement for construction

of hospital at Saket and for use of medical equipment employed therein with

MMS, a Max group company, under which huge payments were made which

were terminable only at the option of MMS and in the event of termination by

the assessee in certain situation, severe penalties were imposable on the

assessee. Further, the services relating to running of the hospital including the

ITA No.1027/Del/2012

deputation of doctors was provided by Max Healthcare Institute Ltd., pursuant to medical service agreement dated 30th June, 2004 involving huge payments

which could not have been terminated at the option of the assessee. Further, the assessee was also required to provide at least 1500 sq. ft. of space for the exclusive use of MHC’s personnel for which no charges were payable by MHC

to the assessee. He submitted that aggregate payment of Rs.40,05,62,132/- was made by the assessee to Max group of companies in assessment year 2008-09. Further, the assessee has not rendered minimum statutory free medical service to the EWSs of the society. The ld. DR, referring to the main objectives and

ancillary objectives of the society, submitted that the assessee has not met its primary objects and the ancillary objects weigh higher than the primary objects. Therefore, the activities of the assessee trust are not charitable in nature.

Further, meager amount was spent on various charitable activities. Referring to section 12AA(3), he submitted that the assessee’s case falls under this category. Whereas the objects of the assessee trust are research, the assessee is running a

hospital, therefore, there is ambiguity in the objects. Relying on various decisions, the ld. DR submitted that the ld. DIT(E) was fully justified in withdrawing the registration granted earlier u/s 12A of the Act.

by the ld. DR. So far as the allegation that the assessee was working for the monetary benefit of Max group of companies which are corporate bodies and the

ITA No.1027/Del/2012

hospital was virtually operated by the Max group are concerned, the ld. counsel submitted that since the assessee did not have enough funds to construct the

hospital on the land allotted by DDA and, further, to acquire and install necessary and essential medical equipment and was not in a position to take loans for the said purpose and to service interest payments thereon, therefore,

the assessee entered into agreement with MMS for construction and maintenance of the hospital building. In addition to the above agreement for construction, the assessee had also entered into operating lease agreement with MMS on 10th December, 2001 to take on lease plant & machinery, office

equipment, medical equipment and fixtures. Under the terms of the lease agreement MMS was responsible for acquisition of new equipments, repair, maintenance and servicing of the said equipments, ensuring adequate insurance

coverage for the equipment replacement of any existing equipment. The consideration for the aforesaid services/obligations/activities undertaken by MMS was linked with reference to percentage of turnover of the hospital which

saved the society from undertaking any financial obligation of making fixed interest payment in a situation where the hospital was not to run successfully post commencement of activities. This according to the assessee is a

commercially prudent decision. Further, the governing body of the assessee society comprised of eminent persons who are in no way connected with MMS or MHC. It is the governing body that is responsible for the affairs of the

assessee society and takes decision relating to the management and operation of 39

ITA No.1027/Del/2012

the assessee. Referring to the various clauses of the agreement, he submitted

that the assessee had supervisory control over construction and repair and

maintenance of hospital by MMS. The ld. counsel for the assessee drew the

attention of the Bench to the following written synopsis regarding the various

clauses. � “Clause 1 and clause 2 of the agreement clearly stipulate that the appellant had appointed an architect, who was entrusted with the task of making drawings/ specifications in relation to construction of hospital and MMS need to construct the hospital in accordance with business and specifications provided by the aforesaid architect. � It had been provided that MMS had to carry out and complete the construction of hospital under the overall supervision and direction of the aforesaid architect, appointed by the Appellant.

� Under clause 5 of the agreement, it had been clearly stipulated that the ownership of the hospital building, including partially constructed building during the period of construction, shall always remain vested with the Society and MMS shall at all times be deemed debtor of the appellant in respect of amounts expended by the MMS on construction of such building. � Under clause 6 of the agreement, it had been provided that the work to be carried out by MMS should be in accordance with specifications given by the appellant / architect appointed by the Appellant and the Appellant has right to give instructions to the employees of MMS during the course of construction of hospital. � Under clause 6.07 of the agreement, it was stipulated that in the event MMS did not complete the construction and hand over building before a specified date agreed in the agreement, the MMS would be liable to pay liquidated damages to the Appellant for the period of delay. � Under clause 6.13 of the agreement, it had been provided that specifications /work schedules/ drawings in relation to the hospital building would be returned by the MMS to appellant on completion and handover of hospital building.

ITA No.1027/Del/2012

� Under clause 7.04, it was provided that it was the responsibility of the Appellant to obtain electricity, water and telephone connections at the hospital site. � Under clause 8.07, it had been provided that the appellant was entitled to withhold any payment on account of following: (a) Defective work not remedied; (b) Third party claims filed, or reasonableness evidence indicating a probable filing of such claims; (c) Failure of the Contractor to make payment promptly to subcontractors or for labour, materials, or equipment; (d) Reasonable indication that the Work would not be completed within the contracted time; or (e) Unsatisfactory execution of the Work by the Contractor. � Further, by virtue of obligation undertaken under the Agreement, MMS deposited a sum of Rs.7,83,00,000 as performance guarantee with the appellant.”

vested in the assessee and MHC was acting as a contractor. Therefore, it cannot

be said that the control over the hospital was abdicated by the assessee in favour

of the MMS.

employed therein by MMS, huge payments were made to MMS and the

agreement was terminable only at the option of the MMS whereas in the event

of termination by the assessee in certain situation, severe penalties were

imposable on the assessee society is concerned, he submitted that the assessee

had entered into service agreement with MHC to avail benefit of MHC’s

experience, expertise and knowledge to provide quality services in healthcare,

medical and related services of international standards in the said hospital 41

ITA No.1027/Del/2012

owned by the assessee. Thus, the assessee availed services of MHC and

remunerated MHC by way of service fees. Referring to various clauses of

service agreement between the assessee and the MHC, he submitted that it

would be clear that the ultimate control over running the hospital vested in the

assessee only. The ld. counsel drew the attention of the Bench to the following

written synopsis explaining the various clauses to substantiate that substantial

responsibilities and obligations in connection with running, operation and

management of the hospital were cast upon the assessee. It was only in certain

areas relating to medical services and marketing services in which MHC has

specialization, that were availed from MHC:

� Vide clause 1 (Scope of Services), it was clearly provided that the appellant had agreed to engage MHC to run certain specified medical services, subject to overall control, supervision and management being vested with the appellant. � The aforesaid medical services were to be rendered by employees of MHC on deputation to the appellant, at request of the appellant. � Vide clause 6 of the agreement, the appellant undertook following obligations/ responsibilities: To obtain all necessary permissions, information, permits, licenses - in connection with construction and operation of the hospital. It was specifically agreed that MHC shall not be responsible for any - consequences arising out of the failure to obtain such licenses/permissions. Maintain accounts and ensure audit of such accounts in accordance - with law. It was also agreed that the Appellant had the authority to - run/operate the hospital. � Vide clause 7 of the agreement, it was agreed by MHC that: 42

ITA No.1027/Del/2012

MHC shall be responsible for performing and discharging services - agreed under the agreement; - All the properties in the hospital including land, moveable and - immovable properties shall continue to absolutely vest in the assessee, and MHC shall have no right, title and interest therein by virtue of any provision of the agreement; It was also provided that appellant shall not be liable to indemnify - MHC for any claim made against MHC on account of MHC’s own proven willful misconduct or gross negligence. � The duties to comply with all the statutory guidelines/compliances with respect to environment, health standards, professional ethics, etc. were vested in the appellant and MHC was not responsible for violation of the same. � Vide clause 9, the Appellant had the responsibility to undertake expense on account of all insurances required by any law. � Vide clause 1, the MHC also paid deposit of Rs.50 lacs on account of performance guarantee to the appellant.” 41. He accordingly submitted that the allegation of the ld. DR that the

assessee is working for the benefit of Max group which is virtually running the

hospital is factually incorrect and devoid of any merit. The ld. counsel, referring

to the following written synopsis submitted that the assessee was independently

running/operating and controlling the hospital and the Max group entities only

acted as third party service providers for rendering certain specific services:-

- “Chart showing organizational structure of the appellant society demonstrating that none of the key members of society were related to any Max entity or directors/shareholders thereof- refer page 18 of supplementary paperbook. - Statement showing list of trustees of the appellant society for AYs 2005-06 to 2011-12 and list of Directors of Max Medical Services Ltd. & Max Healthcare Institute Ltd. for AYs 2005-06 to 2011-12 which clearly demonstrates that the management personnel of the appellant and Max entities were not common- refer pages 19-21 of supplementary paperbook.

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- It is, thus, undisputed that Max Group entities did not fall within ambit of persons specified under section 13(3) of the Act. - List of relevant licenses / Government approvals granted to the appellant by the Government authorities (refer pages 22-23 of supplementary paperbook). All the statutory/ regulatory licenses were applied by and accorded in the name of the appellant and not in the name of any of the Max entities. Certain licenses on sample basis are: � Nursing home registration certificate/ applications granted to the appellant by Directorate, Health Services, NCT of Delhi- refer pages 24-32 of supplementary paperbook. � Registration certificate granted to the appellant by South District, NCT of Delhi relating to ultrasound clinic- refer pages 33-34 of supplementary paperbook. � Drug Licenses granted to the appellant from time to time-refer pages 35-50 of supplementary paperbook. � License for Blood Bank granted in the name of the appellant- refer pages 51-52 of supplementary paperbook. - Copy of minutes of meetings of the Governing Body of the appellant substantiates that various financial and operating decisions were taken by the appellant, independent of Max Group. On perusal of minutes, it would be noted that the various functions/ responsibilities in relation to day-to-day operations as well as major decisions like purchase of equipment/ investment of funds belonging to hospital, etc. were taken by the Governing Body of appellant itself, without any involvement of representatives of companies belonging to Max Group- refer pages 53-135 of supplementary paperbook. - Detail of segregation of employees (Dept, and grade wise) employed by the appellant trust for FYs 2008-09, 2009-10 and 2010-11- refer pages 136-141 of supplementary paperbook. The said detail clearly shows that major employees relating to various Departments including doctors and head of Departments etc. were directly employed by the appellant society on its own account, and balance were deputed by MHC. - Statement showing bifurcation of workforce and salary cost relating to employees of (i) the appellant; and (ii) MHI for financial year 2007-08 to 2010- 11- refer page 142 of supplementary paperbook. The said detail clearly shows that about 90% to 98% of employees were on payroll of the appellant society and corresponding salary cost of such employees on payroll of the appellant varied in the range of 65% to 93% (increasing over year) of the total salary cost and only the balance cost was towards reimbursement of salary of doctors/ staff 44

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deputed from MHC. The aforesaid establishes that substantial number of employees and their cost was directly borne by the appellant as opposed to payment to MHC, as grossly misconstrued in the impugned order. It would further be appreciated that the increasing trend of direct employment by the appellant shows reduced dependency of the appellant on MHC over the years. - Agreements, on sample basis, which were independently entered by the appellant with certain other third-party vendors (Eg. for provision of food and beverages) - refer pages 143-174 of supplementary paperbook. - Statement showing addition to various fixed assets made by the appellant (independent of Max entity) including equipments from FYs 2006-07 to 2016- 17- refer page 175 of supplementary paperbook, which demonstrates that the appellant had built its own capabilities in terms of assets and equipment over the years. - Statement showing bifurcation of expenditure incurred by the appellant into (i) contractual payments to Max entities; and (ii) other payments, for financial years 2006-07 to 2009-10- refer pages 176-177 of supplementary paperbook. This shows that major expenses were incurred by the appellant on its own account and expenditure in relation to contractual payments to Max entities were substantially lower as compared to other expenses. For instance, for financial year 2006-07, out of total expenses of Rs. 139.44 crores, the contractual payments made to Max entities were only Rs.32.66 crores; and in financial years 2009-10, the aforesaid percentage got further substantially reduced inasmuch as out of the total expense of Rs. 163.5 9 crores, only Rs.20.29 crores was paid to Max group. - Statement showing percentage of revenue given out by way of payment to Max entities in lieu of services availed therefrom - refer pages 176-177 of supplementary paperbook. The tabular representation clearly reflects that only around 10% to 27% [expenses FY 2005-06 (39%) and 2006-07 (32%)] were applied for payments to Max entities for services rendered over the years. Further, there is steady decline in the aforesaid percentage of payment to Max entities over the years, indicating decreased reliance on that group and increased independence of the appellant. - Statement showing financial impact of transactions (construction/ repair/ equipment use) between appellant and Max Medical Services Ltd. It would be appreciated that the payments made by appellant to MMS were much lower than the IRR of 15- 20% of funds invested by MMS in the appellant- refer pages 179- 180 of supplementary paperbook. Thus, the whole allegation that the appellant was paying compensation at %age of turnover and was, therefore, excessive, is clearly flawed, if viewed from the aforesaid perspective. The aforesaid basis of determining compensation was only a mode of computation,

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which was much less than the IRR of 15%, had funds being lent on interest by MMS to the appellant. - Appellant is directly placing order and buying all its requirement for drugs. Payments are also being made directly to the vendors. - Since July 2013, appellant is taking care of the repairs and maintenance of its equipment, building and infrastructure at its own - Appellant is no longer dependent on MHC for replacement and addition to equipment/technology. The appellant had invested Rs 23Cr from its own kitty in last 3 years.

- Appellant was not dependent on Max Group for any of its non medical services like legal, taxation, bio-medical etc. It had either developed expertise in-house or had hired the services o third-party independent providers, apart from Max entities.

From the financial statements of MMS placed at pages 428-735of supplementary paperbook, it would be appreciated that MMS was consistently running into losses, which strengthens that the decision of the appellant to outsource certain services (as per the agreements detailed above) to MMS was commercially prudent from the appellant’s side. Had such services were undertaken by the appellant suo-motu, the same would have enhanced losses of the appellant.

It is further respectfully submitted that the Revenue cannot blow hot and cold at the same time, in as much as, while in the case of appellant it is contended that the compensation paid by the appellant to MMS @6% for repair and maintenance of hospital building and @ 10% for equipment lease is excessive, in the hands of MMS, in the assessment completed for assessment years 2010- 11 and onwards, it has been held that MMS should have charged higher percentage only instead of agreeing to reduction in the aforesaid percentages - refer pages 748-816 of paperbook.

In view of the above, the payments made by the appellant to MMS, an unrelated party not covered under section 13(3) of the Act were not excessive/unfavorably skewed in favor of Max Group and were agreed on arm’s length basis, having regard to commercial expediency.

Further, in the assessment completed for assessment year 2005-06, 2006-07 and 2007-08 (refer pages 965-980 of the paperbook), the assessing officer after considering all the agreements in detail, had categorically held that the appellant was eligible for exemption under section 11&12 of the Act. In all fairness, it is pointed out that pursuant to the impugned order passed by DIT(E) withdrawing

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registration under section 12A, the aforesaid assessments were re-opened under section 147 of the Act, which on a writ petition filed by the appellant were stayed for passing by the Delhi High Court. Notwithstanding the reopening of the concluded assessments on the basis of the impugned order the fact remains that on the same facts, the assessing officer(s) had accepted this charitable status of the appellant in those years. In this regard, it is respectfully submitted that it is well settled that although the principle of res judicata is not applicable to income tax proceedings, in the absence of any change in facts and circumstances, the accepted position should not be disturbed in other years on changing mood of the Revenue authorities [refer Radhaswaomi Satsangv. CIT: 193 ITR 321 (SC), CITv. Excel Industries: 358 ITR 295 (SC), DIT v. Lovely Balshiksha Parishad: 266 ITR 344 (Del.), DITv. Apparel Export Promotion Council: 244 ITR 735 (Del.), DIT v. Escorts Cardiac Diseases Hospital Society: 300 ITR 75 (Del.)]”

agreement for construction of hospital at Saket and for use of medical equipment

employed therein with MMS, huge payments were made which was terminable

only at the option of MMS and in the event of termination by the assessee in

certain situations, severe penalties were imposable on the assessee is concerned,

the ld. counsel drew the attention of the bench to the following written

submission:-

“The right of termination accrued to MMS only if the appellant failed to make payment for a continuous period of three years (refer clause 4.02 to 4.03.3 of the agreement at pages 52-43 of paperbook). It was but natural for MMS to reserve such right considering that the MMS was to invest huge sums of money at its own cost on the construction of the hospital and purchase of equipment. Accordingly, it was stipulated, that if the consideration was continuously not paid by the appellant for a period of three years, MMS would have the right to terminate the agreement and seek all pending dues from the appellant along with penal interest of 2% per annum over the short term prime lending rate along with liquidated damages of Rs.12 crores.

The aforesaid provision was included only to secure MMS in the event of default in payment of consideration by the appellant, which is a normal condition in such contracts; the agreement cannot be said to be 47

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unfavourably skewed in favour of MMS for that reason. The aforesaid penal clause in fact establishes/ supports the position that agreement was entered between the appellant and MMS on arm’s length basis with huge amounts to be expended by MMS, to be compensated by the appellant over time; and liquidated damages to be paid by both the parties in the event of default of corresponding obligations undertaken by each party under the Agreement.” Further, it is grossly incorrect to allege that the appellant did not have right to terminate the agreement. Attention in this regard is invited to clause 4.02 of Construction/Repair & Maintenance agreement, whereby the appellant/ owner had to the right to terminate the agreement in case of material breach of contractual obligations by MMS, which remain unremedied/ uncured within 60 days of written notice by the appellant/ owner to the MMS/ contractor. It would be pertinent to note that, once the appellant had gained sufficient experience and resources, the aforesaid building repairs/ maintenance services agreement was infact terminated vide Supplementary Construction & Maintenance Agreement dated 24.7.2013 [refer pages 1-3 of supplementary paperbook]. In view of the above, the adverse inferences on the aforesaid termination right with MMS were wrongly drawn in the impugned order, which needs to be completely disregarded and ignored.”

of the hospital including deputation of doctors was provided by Max Healthcare Institute Ltd., pursuant to medical service agreement dated 13th June, 2004

involved huge payment which could not have been terminated at the option of

the assessee and that the assessee also required to provide 1500 sq. ft. of space

for the exclusive use of MHCs personnel for which no charges were payable by

MHC to the assessee is concerned, the ld. counsel drew the attention of the

Bench to the following synopsis:-

“As regards the quantum of compensation agreed to be paid by the appellant to MHC, the same having regard to the volume and nature of

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services to be provided by the latter, as discussed in detail supra, was justified and cannot be held to be excessive. The aforesaid originally agreed fee was subsequently reduced, when the scope of services to be availed from MHC was reduced. Refer supplementary agreement dated 24.7.2013 [refer pages 10-17 of supplementary paperbook] whereby non-medical services earlier availed from MHC were terminated and fee for medical services was revised.

As regards the allegation that no provision was made in the Services Agreement for compensation to appellant in respect of the area of 1500 sq. feet (erroneously mentioned as sq. meters in the impugned order) in the hospital provided for exclusive use of MHC and its personnel, it is submitted, that the medical services to be availed by the appellant from MHC involved deputation of technical personnel by MHC at hospital belonging to appellant; it was, therefore, incumbent on the part of appellant society to make necessary space available to such deputed personnel(s) of MHC. There was no question of charging rent for such space by the appellant, since MHC personnel were providing services to/ on behalf of the appellant and provision of the above space was necessary for effective discharge of obligation by MHC under the service contract.”

Rs.40,05,62,132/- was made by the assessee to the Max group in assessment

year 2008-09 is concerned, he drew the attention of the Bench to the following

synopsis:-

Total expenditure incurred by the appellant during the AY 2008-09 was Rs. 159,77,62,161 (Rs. 159.77 crores) against which payments to Max group, aggregating to Rs. 40.05 crores constituted 25% only of total expenditure. The DIT(E) by quoting the absolute figure of payments made to Max Group has drawn erroneous conclusion which needs to be ignored.

allegations made by the ld.DIT(E) while cancelling the registration granted

earlier u/s 12A of the Act are misplaced, not in accordance with law and

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contrary to facts and, therefore, the same should be set aside and the registration

granted earlier be restored.

the order of the ld. DIT (E) and the paper books filed on behalf of the assessee.

We have also gone through the various decisions cited before us. We find the

DIT(E), in the instant case, has withdrawn the registration granted earlier u/s

12A of the IT Act on the ground that the assessee foundation has not been

operating as a charitable institution as the trust has allowed the property/hospital

of the society to be taken over by Max group by creating various financial and

legal obligations and has virtually handed over the activity of the hospital to

Max group which are corporate bodies established with a clear intention of

profit motive which, according to him, is against the basic principles of

charitable organizations. Further, it is also his allegation that the assessee trust

did not fulfill the minimum notified criteria of providing 25% of OPD and 10%

of beds in IPD as free treatment to the economically weaker section. Under

these circumstances, we have to decide as to whether on the basis of the facts

available on record, the assessee trust is operating as a charitable institution or

not and whether the assessee trust has virtually handed over the affairs of the

trust to the Max group of concerns which are corporate bodies established with

the clear intention of profit motive and as to whether the assessee has violated

ITA No.1027/Del/2012

the mandatory provisions of treating particular number of patients from the

economically weaker section category both under OPD and IPD.

46.1 We find from the order of the DIT(E) as well as the argument of the ld.

DR that the allegation of the Revenue regarding diversion of the activity of

running the hospital in favour of Max group of entities by creating various

financial and legal obligations is based on three agreements, namely, (a) the

hospital construction and maintenance agreement; (b) equipment agreement; and

(c) leasing agreement and medical service agreement. Apart from the above

agreements, there is nothing on record to suggest that the hospital is operated by

the said companies or by the Board of Management/Directors or shareholders of

those companies. From the various details furnished by the assessee in the paper

book, it is noticed that the hospital activities were always under the control and

supervision of its management/Board of Trustees. Clause 1 of the agreement

showing scope of services read as under:-

“1. SCOPE OF SERVICES Subject to overall control and supervision and management of the Hospital by DDF, DDF hereby agrees to engage MHC to render medical services, including but not limited to as enumerated hereinbelow (the ‘services’) and MHC agrees to render the same subject to the terms and conditions contained herein. ……..”

46.2 We find clause 5 of the agreement regarding service fees reads as under:-

“5. SERVICES FEES (a) In consideration of MHC rendering the Services, DDF shall pay fees on such terms and conditions as enumerated in Annexure-1 hereto

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(the ‘Service Fee’). The Annexure shall be considered an integral part of this Agreement. (b) The Services are only inclusive and not exhaustive, however, if any additional services are required to be rendered during the term of this Agreement the Parties shall discuss and determine the fees for such additional services by mutual agreement.”

“8. INDEMNITY (a) DDF hereby undertakes that DDF shall be responsible and solely liable for any actions that may be initiated against DDF or MHC with respect to the services being provided at the Hospital. DDF further undertakes that MHC shall have no liability whatsoever In connection with any claim asserted against DDF or MHC by any third party including government, state or central, quasi-judicial, judicial, local authorities for any act or omission whatsoever. (b) Further, it is agreed and understood between the Parties that in complying with its obligations pursuant to this Agreement MHC shall be deemed to be acting entirely on behalf of and for the benefit of DDF vis a vis all third parties. In the event any claims, actions of any nature whatsoever are made against MHC with, respect to the services rendered by it, DDF shall indemnify MHC and its personnel/staff or authorised representative(s) or agent(s) acting under this Agreement and hold, them harmless from and against any and all claims actions and demands whatsoever including costs, expenses and fees payable to any lawyer or attorney or the like in defending such claims. MHC shall not be liable to DDF or to any third party under any circumstances whatsoever, for any loss with respect to the Services rendered except for any loss caused to DDF due to MHC’s own proven willful misconduct or gross negligence.”

always under the control and supervision of the management and trustees and

Max entities were only service provider/contractor to the extent of activities

agreed with them under the agreements which are similar to the agreements for

other services entered with various other parties. A perusal of the analysis of the

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percentage of payment made by the assessee to Max group of companies vis-à-

vis the total expenditure incurred by the assessee in various years shows that the

same was maximum of 25% in the financial year 2005-06 which has gradually

reduced to 20% in financial year 2013-14. The above details furnished by the

assessee in the paper book suggest the independence of the assessee vis-à-vis

Max entities with gradual decline in the obtaining of services from them over a

period of time. This also substantiates that the assessee society was incurring

substantial expenses on its own account other than the payments made to Max

entities. We find force in the argument of the ld. counsel for the assessee that

the assessee, due to lack of own funds and expertise in the field of construction

of hospital and rendering medical services being a highly specialized and

technical field, has entered into the agreements with Max group of companies

who were already engaged in the said field which not only helped the assessee in

building the state of the art facility, but, also to attract talent in terms of

specialized doctors and other paramedical staff. Under these circumstances, we

are of the considered opinion that it is difficult to agree with the allegation of the

DIT(E) that there is diversion of the control of the property of the assessee i.e.,

the hospital in favour of Max group of companies.

48.1 We also find from the various details furnished by the assessee such as

minutes of the meeting of the governing body of the assessee society

substantiating that various financial and operational decisions were taken by the

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said body without involvement of Max entities. The copy of various approvals

applied and allotted were in the name of the assessee society without any

indication of Max entities. We find the organizational structure of the assessee

society/hospital shows that the assessee had independent management and heads

of various departments looking after its various operations which were

independent from Max entities and no involvement of Max entities have been

brought on record. We, further find that none of the members of the governing

body/trustees of the assessee and the directors/board of management of Max are

persons specified u/s 13(3) of the IT Act. Further, the number of employees

have gone up substantially which were 838 in F.Y. 2008-09 to 1033 in F.Y.

2009-10 and 1150 in 2010-11. From the various details furnished by the

assessee in the paper book, we are of the considered opinion that the trust has

not handed over the management of the hospital to the Max group of concerns.

agreements/contracts by a charitable organization with unrelated third

party/private commercial entities not falling within the prohibited category of

persons specified u/s 13(3) to avail the services for achieving the purpose of

charitable object does not militate against the charitable nature of the

organisation and to deny exemption u/s 11 or withdraw registration u/s 12AA

(3) of the IT Act. We find the Delhi Bench of the Tribunal in the case of

ADIT(E) vs. R.P. Seth Jessa Ram Charitable Hospital, vide ITA

ITA No.1027/Del/2012

No.1721/Del/2008 has upheld the order of the CIT(A) directing the Assessing

Officer to allow exemption u/s 11 of the Act under somewhat similar

circumstances. In that case, the respondent entered into operation and

maintenance agreement with Fortis Healthcare Private Limited, whereby the

assessee trust was obliged to pay consideration of 35% of the gross billing of the

hospital to Fortis Healthcare Private Limited. Further the right to terminate the

said agreement vested only with Fortis Healthcare Pvt. Ltd. Having regard to the

aforesaid facts (pari materia to the case of the appellant) exemption under

section 11 of the Act was denied by the assessing officer holding that the

assessee trust had no role in carrying out the charitable activities of the hospital

which was in effect carried on by Fortis Healthcare Private Limited. The first

appeal of the assessee was allowed which was challenged in further appeal

before the Tribunal by the Revenue. The coordinate Bench of the Tribunal

considering that - (i) to make state of the art hospital and for installation of

equipment, large sum of money was required, which the assessee trust was

unable to provide, (ii) trained doctors etc. to provide medical services were not

available with the assessee trust, (iii) Fortis Healthcare Pvt. Ltd. was appointed

as an agent/ service provider to run and maintain the hospital; and (iv) overall

management of trust remained with the trust, held that there was no basis to

deny exemption under section 11 of the Act. Relevant extracts of the decision

of the Tribunal are reproduced hereunder:

ITA No.1027/Del/2012

“4. Ld. CIT(A) after considering the arguments advanced by the assesse observed that there was nothing to suggest that the asssessee had violated any of the provisions and the conditions contained in section 11 to 13 of the Act. The control and supervision and overall affairs of the hospital were with the assessee. It did not have enough resources to make a state of the art hospital. The hospital required large sum of money for installation of modern equipment’s; appointment of trained doctors to run them so as to enable the trust to provide medical care to the public. It could have done the same by itself but it found itself unable to provide financial resources and the management of the hospital effectively. In view of the limited resources, it had engaged an agency in the form of Fortis Healthcare Ltd./Onus Healthcare Pvt. Ltd. to run and maintain the hospital. The overall management of the trust continued to remain with the trustee. Most of the decisions were subject to approval and consent of trustees. Ld. CIT(A) further observed that the trust in any way does not have any surplus for which the exemption had been claimed. It had continued losses i.e. the expenditure far exceeds the receipt. No benefit had been taken by the trustee or by the management agent. On the same facts and circumstances, he had held that the assessee was eligible for exemption u/s 11 of the Act while disposing of the appeal for the immediately preceding assessment year 2003-04. Ld. CIT(A) following his decision for assessment year 2003- 04, held that the agreement with Fortis Healthcare Ltd./Onus Healthcare Pvt. Ltd. were not all against the interest of the assessee and it in no way reduced the charitable character of the assessee. The agreements have augmented the resources of the assessee to be able to pursue its object to be more effective and efficiently. He, accordingly, directed the Assessing Officer to allow exemption u/s 11 of the Act.

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been violated. In the absence of any such material, in our considered view, exemption u/s 11 of the Act cannot be denied to the assessee. We, accordingly, do not find any infirmity in the order passed by Ld. CIT(A) directing the Assessing Officer to allow exemption u/s 11 of the Act” (emphasis supplied) 50. We find the appeal by the Revenue was dismissed by the Hon'ble

jurisdictional High Court vide order dated 04.01.2016 in ITA No. 1021 of 2015,

observing as under:

“4. The IT AT has followed the earlier order passed by the IT AT in the case of the same Assessee for AY 2008-09 where the dismissal was on account of low tax effect. However, in the said order, the IT AT took note of the decision for AY 2004-05 which involved the same question as has been raised in the present appeals. The essential point raised is that the Respondent Assessee, which is a Trust registered under Section 12AA of the Act, has by virtue of an operation and maintenance agreement entered into with Fortis Healthcare Limited (‘FHLj on 29th October 2013, transferred control of the Trust to FHL and by virtue of the said agreement has agreed to pay management fees at 35% of the gross billings of the hospital to FHL. 5. The Commissioner of Income Tax (Appeals) [‘CIT (A) ’] has in the order dated 26th February 2010,common to both AYs, disagreed with the Assessing Officer (‘AO’) and held that there is no evidence to show that there has been any siphoning off of funds and that by virtue of the agreement control of the Trust has been transferred to FHL. 6. On the facts of the present case, therefore, the Court is not inclined to frame any question of law as has been urged by the Revenue.”

and Trust Diagnostic Research Centre, vide ITA No.4317/Del/2012, has upheld

the order of the CIT(A) in deleting the disallowance of exemption u/s 11 of the

IT Act under similar circumstances. In that case, exemption under section 11 of

the Act was denied to the assessee, inter alia, on the grounds that - (i) by

entering into agreement with Max Healthcare Institute Ltd. (MHC) for operating

ITA No.1027/Del/2012

the assessee’s own hospital, was for the benefit of MHC as the hospital was in

de-facto control of that company; (ii) motive was to earn profit in garb of

charitable activity; and (iii) hospital was not providing free treatment to EWS

category patients.

documents (which are similar to the appellant’s case) it was held that since - (a)

the assessee had provided free treatment to patients which was also corroborated

by the appreciation letters of Directorate of Health Services; (b) the assessee was

not in the default category list issued by relevant authority in respect of EWS

patients; (c) payments made to MHC constituted only 50% expense of the

hospital and balance expenditure was done on other accounts by the assessee

trust; and (d) assessee enjoyed registration under section 12A of the Act; no

adverse inference could be drawn from agreement between MHC and the

assessee. It was accordingly held that exemption under section 11 of the Act

could not have been denied observing as under:

“6. Considering the above submissions, we find that with the assistance of the above stated documents under the certificate that these were made available before the authorities below as well, the assessee has successfully tried to rebut the adverse observation made by the Assessing Officer. At page Nos. 56 to 436 of the paper book, the assessee has made available the details of patients to whom free treatment was given during the relevant financial year. In these details, name of each of the patients with the details of medical help provided to each of them has been furnished. At page Nos. 35 to 50 of the paper book filed on 27.5.2016 has been made available the chart of comparative room rent charged by various hospitals offering services of similar standard during the financial year 2012-13. At page Nos. 28 to 34 of the paper book dated 27.5.2016 has been made available, copies of letter of appreciation dated 18.4.2012 issued by the Directorate of Health Services, Govt, of NCT of Delhi praising the charitable activities of the 58

ITA No.1027/Del/2012

assessee; notice dated 11.2.2019 issued by the Directorate of Health Services, Govt, of NCT of Delhi to various hospitals, including assessee, for verification of implementation of EWS guidelines in hospitals and minutes of meeting dated 20.10.2015 of the Special Committed constituted by the Directorate of Health Services, Govt, of NCT of Delhi, wherein list of defaulting hospitals after verification of EWS guidelines implementation were identified and assessee was not included in such lists. The Learned CIT(Appeals) has discussed in detail all the important aspect of the case supported by the above documents. There is no dispute on the object of the society and the fact that it was enjoying registration under sec. 12A of the Income-tax Act, 1961 issued by the department during the course of assessment proceedings for the year- under consideration. The Learned AR also referred page Nos. 437 to 874 of the paper book Volume-II wherein have been furnished the copies of details of patients to whom free treatment was given during the relevant financial year along with details of each one of them; details of patients to whom discount of Rs. 5,000 or more was given during the year, guidelines for provisions of free treatment facility to patients of EWS categories in private hospitals in pursuance of directions of Hon’ble High Court of Delhi in W.P.(C) No. 2866/2002 in the matter of Social Jurist vs. JNCT, Delhi; letters to the Director of Health Services regarding provisions of free beds/treatment during the year; inspection report dated 29.2.2008 issued by the Director of Health Sciences, Govt, of NCT of Delhi stating that the assessee’s hospital is providing free treatment to patients including supply of free medicines, letter dated 14.9.2010 from Mr. Ashok Aggarwal, a social activist, appreciating the assessee’s efforts in providing free quality treatment with respect of free/discounted treatment provided to late Shri Vijay Kumar Verma, Smt. Asmeen Begum and Master Sidhu along with their affidavits and the copies of report furnished by the assesses to the Medical Superintendent of Director of Free Treatment to the patients; service agreement dated 16.12.2010 entered into between the assessee and Max Health Care Institute Ltd; letter dated 16.12.2010 from Max Health Care Institute Ltd. certifying the amounts charged from the assessee during the previous year relevant to the assessment year; letter to Registrar of Societies dated 25.9.2008 notifying the updated list of office bearers and members of the governing body of the assessee; relevant extracts from the minutes ofannual general body meetings and governing body meetings of Balaji Medical & Diagnosis Research Centre held from time to time; and remaining are the copies of submissions made time to time before the Assessing Officer and submissions filed before the Learned CIT(Appeals) as well as remand report dated 21.11.2011 and rejoinder dated 18.1.2012. 6.1 It is an established proportion of law that Assessing Officer cannot doubt charitable nature of organization once registration under sec. 12A of the Act is granted. The charging of fee in the course of achieving charitable purpose is irrelevant for the purpose of exemption under sec. 11 of the

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Income-tax Act, 1961. The Hon’ble Supreme Court in the case of Queen Educational Society vs. CIT (supra), has been pleased to hold that whether institution exists solely for educational purposes and not for profit, the finding that the society makes profit does not necessarily mean it exists for profit. The Hon’ble Delhi High Court in the case of DIT (E) vs. R.B. Seth Jessaram & Bros. Charitable Hospital Trust (supra) wherein it has been held that there is no evidence to show that there has been any siphoning of funds and that by virtue of the agreement, control of the trust has been transferred to Fortis Health Care Ltd. The Hon’ble Bombay High Court in the case of Breach Candy Hospital Trust vs. CCI (supra) has been pleased to observe that philanthropy is not restricted to give free treatment to the extremely poor, but it M>ould also be philanthropy to give treatment at a concessional rate to those who though not extremely poor cannot afford to pay the full and normal charges. It was held that in absence of any material to show that generally there was a profit, it cannot be said that the petitioner does not exist solely for the philanthropic purpose but exists for the purpose of profit. It is not the case of the Assessing Officer before us that entire receipts were not used for the treatment of patients and medical care. In the case of Pine Grove International Charitable Trust vs. Union of India (supra), the Hon’ble Punjab & Haryana High Court has been pleased to hold that generation of surplus over four or five years after meeting expenditure is not a disqualification. Whether institution applying profits wholly and exclusively to object for which is established is to be seen. So far as the allegation that control over running the hospital was given in favour of MHC is concerned, we find it relevant to reproduce hereunder the unrebutted finding of the Learned CIT(Appeals) in this regard; “………………… The aforesaid expenditure is less than 50% of the total expenditure incurred by the appellant during the year in relation to running and maintenance of the Hospital. That apart, the appellant incurred expenditure aggregating to Rs. 1,44,51,598 towards purchase of various medical equipment’s/plant and machinery/other fixed assets for the hospital and incurred equipment’s/plant and machinery/other fixed assets for the hospital and incurred expenditure of Rs. 8,49,54,122 towards capital work in progress. It would be appreciated that MHC had no say whatsoever in the incurrence of aforesaid expenses. In view of above, no inference can be drawn that the control over running the hospital was given in favour of MHC. The finding of the A.O. and MHC was in de facto control of the hospital with a motive of profit earning was not based on any factual or legal ground, and are merely written on the basis of incorrect appreciation of facts. Therefore, the finding of the A.O. in this regard is not justified, hence needs to be set aside. In the result,

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ground Nos. 1,2.1, 2.2, 2.3, 2.4, 2.5 and ground No. 3.1 and 3.2 of the appellant are allowed. ” 6.2 And above all, it is an undisputed fact that the appellant was enjoying registration under sec. 12A of the Act during the year under consideration and is still enjoying and that in the assessment years 2006-07 and 2007-08, the Revenue has accepted the exemption and there is no material change in the facts of the case during the year to justify the action of the Assessing Officer in withdrawing the exemption. We are thus of the view that the Learned CIT(Appeals) was justified in deleting the disallowance of exemption with this finding that appellant is charitable organization and running the hospital to achieve its charitable objects. The first appellate order in this regard is upheld. In result, grounds are rejected,

case of DCIT vs. Wood Stock School, vide ITA No.3838/Del/2014, order dated

25.02.2019. In that case, the assessing officer withdrew exemption under

section 11 of the Act qua payment made to Mars Catering Services Pvt. Ltd., a

high level catering company engaged by the school for managing and operating

food services at school and boarding and lodging of students/ teachers. The

assessing officer alleged that the main purpose of such agreement was to allow

undue monetary benefit to the above company.

assessee trust, in violation of section 13 and that hotel facility and catering

services were utilized for the purposes of the school, the Tribunal decided the

issue in favour of the assessee and dismissed the appeal of the Revenue. The

observations of the Tribunal are as under:

“8. We have carefully considered rival contention and perused orders of lower authorities. Assessee is running a boarding school and teachers training College. It is a society registered under societies registration act as well as granted registration u/s 12 A of the act. Its main objects are 61

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promotion of Christian education according to ideals and essential beliefs held in common by different societies represented on general body of society and education to be given to youth of sexes as well as Americans and Europeans, Anglo Indians and Indian Christians. It is also maintaining a school as a non-profit Christian minority institution in order to provide and promote education, which is Christian, international and internationally accredited. It is also serving children of all nationalities, communities, and religions. It is maintaining a lodging and boarding school in Mussoorie. School entered into agreement with Marsh enterprises a partnership firm, which is engaged in business of developing and operating foodservice facilities including restaurants, providing food, and catering services. Assessee society wanted to upgrade its foodservice department to offer a high level of quality catering services and therefore it has entered into an agreement with Mars catering services. School was to provide above facilities at four different places, including a hotel, which is used as a hostel by the society, and obligation of Mars catering services is mentioned in clause 5 of agreement entered into between societies as well as Mars Catering services dated 17/07/2007. According to this agreement, INR 3,780,000/- at rate of INR 315,000/- for each month was to be provided by school to Mars catering services. In terms of above agreement, as on 01/04/2009 there was a credit balance of INR 1,039,000 in account of Mars catering services private limited in books of account of assessee. Along with that after giving further credit for services rendered as well as to Mars reimbursement of expenses incurred, total credit stood at INR 7 198470 including opening balance to credit of above company. Out of that 6819789/- was paid and still there is a credit balance of INR 3 78681/- outstanding as payable by society to Mars catering services. The Id Ao disallowed the above sum holding that such advances is for the benefit of Mar catering services and it is not for the object of trust assessee. Looking at the activity of the school, it is a boarding school and teachers training college. No doubt, it has hired a hostel for accommodation of student, which is a hotel. However, it is not doubted that such hotel is not used by assessee is a hostel. Catering services were part of the boarding and lodging activity of students of assessee society who were staying in that hostel along with other locations. It is not case of revenue that Mars enterprises were any way associated with assessee society except in status of a service provider. None of shareholders of Mars services is in any way connected with assessee society. It is also not case of revenue that whatever is paid by society assessee to Mars enterprises is excessive or is not in terms of agreement. Furthermore, it is not denied by assessing officer that assessee society is providing lodging and boarding facilities to students of school. It is also not case that in impugned property, which is incidentally a hotel but not denied to have been used for any other purpose other than a hostel, is occupied by assessee society for residential facilities of students It is imperative that for students residing in that impugned hostel are required to provide catering facilities. For provision of services, assessee has engaged

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Mars catering services, which is also part of Mars enterprises. There is an agreement also of assignment of original agreement from Mars enterprise to Mars catering services private limited. Expenditure has been incurred by assessee only for purpose of educational facilities to be given to student of lodging and boarding for staying in Mussoorie and studying in the assessee society. It is not denied or can be disputed that assessee is providing education to students and lodging and boarding facilities are incidental to education. No violation of section 13 has been pointed out by learned AO. In view of this, it cannot be said that expenditure incurred by assessee is not for purpose of education. For all these considerations as stated above learned CIT - A has deleted addition. Merely because some celebrities are holding shareholding in one of entities to which assessee society has engaged for provision of services does not make any difference in allowance or disallowance of a expenditure for object of society. Further, merely because a hotel is rented by assessee society for using, as a hostel for student, does not make any difference, as far as student of the society exclusively uses the same. These facts do not exclude assessee from provision of section 2 (15) of the act. It is also not the case of AO that assessee is carrying on business activity, which is tainted with profit motives and is not an educational activity. The LD AO in this appeal does not dispute further repair expenditure of such hotel used as hostel by assessee. Hence, we do not find any infirmity in order of learned CIT(A) in disallowing above claim. In result, ground number 1 of appeal of learned assessing officer is dismissed. ” (emphasis supplied)

case of Delhi and District Cricket Association vs. DIT(E) reported in 38 ITR

326.

55.1 We find the Hon'ble Supreme Court in the case of Queen’s Educational

Society (supra) has held as under (short notes):-

“The law common to sub-clauses (iiiad) and (vi) of section 10(23C) of the Income-tax Act, 1961, may be summed up as follows : (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied—the purpose of education should not be submerged by a profit-making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education

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results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year in question the object is to make profit as opposed to educating persons. These tests would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit. Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC), Aditanar Educational Institution V. Addl. CIT [1997] 224 ITR 310 (SC) and American Hotel and Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86 (SC) applied. It is dear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit. S. RM. M. CT. M. Tiruppani Trust V. CIT [1998] 230 ITR 636 (SC) relied on. The tests laid down in Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC), Aditanar Educational Institution [1997] 224 ITR 310 (SC) and American Hotel and Lodging Association Educational Institute [2008] 301 ITR 86 (SC) would apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit. The thirteenth proviso to section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. For assessment years 2000-01 and 2001-02, the assessee showed a net sur-plus of Rs. 6,58,862 and Rs.7,82,632, respectively. Since the assessee was established with the sole object of imparting education, it claimed exemption under section 10(23C)(iiiad). The Assessing Officer rejected the claim on the ground that the assessee had made profits and did not exist for solely for educational purposes. The Commissioner (Appeals) allowed the assessee's appeal, and the Appellate Tribunal dismissed the Department's appeal holding that the assessee was undoubtedly engaged in imparting education, that if the amount of investment in fixed assets such as building, furniture and fixtures was also kept in view, there was hardly any surplus left and that profit was only incidental to the main object of spreading education. On appeal to the High Court, the High Court reversed the

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Tribunal's order and restored the order of the Assessing Officer in view of the profits earned. On appeal: Held, affirming the order of the Tribunal, that the final conclusion of the High Court that if a surplus is made by an educational society and ploughed back to construct its own premises, it would fall foul of section 10(23C) was to ignore the language of the section and to ignore the tests laid down by the Supreme Court in Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC), Aditanar Educational Institution [1997] 224 ITR 310 (SC) and American Hotel and Lodging Association Educational Institute [2008] 301ITR 86 (SC). Decision of the Uttarakhand High Court in CIT v. QUEENS' EDUCATIONAL SOCIETY [2009] 319 ITR 160 (Uttarakhand) reversed. Where by various orders, the Chief Commissioner withdrew exemptions granted under section 10(23C)(vi) of the Act to the assessees for various assessment years from 2001-02 to 2007-08 on the ground that the profits were substantial and arose year after year but the High Court set aside his orders holding that merely because an institution has earned profit that would not be the deciding factor to conclude that the educational institution exists for profit, on appeals by the Department: Held, that the appeals were liable to be dismissed.”

fulfilled the mandatory requirement of admitting the requisite number of OPD

and IPD patients in violation of the direction of the Hon'ble Delhi High Court is

concerned, the same is also not supported by any evidence. There is nothing on

record to suggest that the assessee has refused admission to any person of the

economically weaker section nor the Government has taken any action against

the assessee for such violation. The argument of the ld. counsel for the assessee

that the statistics have always been displayed near the reception giving the list of

patients and such copy was also always filed with the Director of Health

Services, Government of Delhi and neither any patient has made any complaint

nor the Government has taken any action could not be controverted by the ld.

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DR. Since there is no allegation by the Revenue that the activities of the

trust/society are not genuine or are not being carried out in accordance with the

objects of the trust and since the ld. counsel for the assessee before us has

demonstrated clearly that the management and control of the hospital was

always with the assessee society and the assessee society has not virtually

handed over the management of the hospital to the Max group of concerns

which are corporate bodies established with the clear intention of profit motive

and since the Revenue also failed to bring on record any material to suggest that

the assessee trust has refused any patient from the economically weaker section

of the society in violation of the guidelines laid down by the Hon'ble Delhi High

Court, we find no justification on the part of the Ld.DIT(E) for withdrawing the

registration granted u/s 12AA of the Act with retrospective effect. We

accordingly set aside the order of the DIT(E) and restore the registration granted

earlier u/s 12A of the IT Act. Since the assessee succeeds on the main grounds,

the additional grounds raised by the assessee challenging the withdrawal of

registration since inception or with retrospective effect become academic in

nature and hence are not being adjudicated. The appeal filed by the assessee is

accordingly allowed.

ITA No.1027/Del/2012