Section 80G Approval Denied: Outsourcing Hospital & Low Charitable Spend is Not "Charity"

Section 80G Approval Denied: Outsourcing Hospital & Low Charitable Spend is Not “Charity”

Issue

Whether a trust is entitled to approval under Section 80G if it outsources its primary medical facility to a third party in exchange for a percentage of turnover, and its actual spending on charitable relief is disproportionately low compared to its income.

Facts

The Setup: The assessee-trust acquired a building to run a hospital.
The Operation (or lack thereof): Instead of running the hospital itself, the trust outsourced the hospital functions to another entity.
Revenue Model: The trust earned income calculated as a percentage of the hospital’s turnover, effectively acting as a landlord/partner rather than a charitable operator.
Assessee’s Plea: The trust argued it was still charitable because it ran two medical shops selling generic medicines in the hospital premises.
Financial Discrepancy: The trust’s income was over Rs. 1 Crore, but the relief provided to patients (charitable spend) was barely Rs. 30 Lakhs for FY 2022-23.
Rejection: The Commissioner (Exemption) denied the Section 80G registration, citing a lack of genuine charitable activity.

Decision

Commercial Nature: The Tribunal held that earning income based on a percentage of turnover from an outsourced entity resembles a commercial arrangement (renting/leasing) rather than a charitable obligation.
Insufficient Charity: The Court noted the huge gap between income (>1 Cr) and relief (~30 L). A charitable institution must demonstrate that its primary objective and application of funds are for charitable purposes.
Burden of Proof: The assessee failed to prove it was conducting “pure charitable activities.” Merely running a generic pharmacy while the main hospital is commercially outsourced does not justify 80G status.
Outcome: The denial of approval was upheld. In favour of Revenue.

Key Takeaways

Active vs. Passive: To qualify for 80G, a trust must generally be actively engaged in charity. Simply owning a building and letting someone else run a business in it (even a hospital) often disqualifies the owner from tax benefits unless the arrangement itself is charitable (e.g., free treatment clauses).
Application Ratio Matters: While 85% application is the standard for Section 11 exemption, for 80G approval, the Commissioner looks at the genuineness of the activity. Spending only ~30% of income on actual relief raises red flags.
Substance over Form: You cannot mask a commercial lease agreement (revenue share) as a charitable medical activity.

IN THE ITAT RANCHI BENCH

Jeevan Rekha Trust

Commissioner of Income-tax(Exemption)^*

George Mathan, Judicial Member
and Ratnesh Nandan Sahay, Accountant Member

IT Appeal No. 23 & 24 (RAN) of 2025
[Assessment years 2023-2024 and 2024-2025]

JANUARY 5, 2026

S.M.K. Chowdhary, AR for the Appellant. Rajib Jain, CIT-DR for the Respondent.

ORDER

1. These two appeals are filed by the assessee against the separate orders passed by the ld.CIT(E), Patna, dated 30.11.2024, thereby refusing to grant the assessee recognition u/s.80G of the Act, for the assessment year 2023-2024 & 2024-2025.

2. It was submitted by the Ld.AR that the assessee has obtained a building for running a hospital. It was submission that as the assessee found that it was unable to run the hospital. It had outsourced the hospital function to another trust under the name Blue Sapphire Healthcare Private Limited. It was submitted that the assessee was also running two medical shops in the said hospital, where generic medicines were sold. It was submission that the assessee was receiving consideration in the form of 3% of the total turnover of Blue Sapphire Healthcare Private Limited. It was submission that the running of the medical shops itself was incurring losses. It was submission that the assessee was engaged in charitable activities. It was submission that the Ld.CIT(Exemption) should be directed to grant the assessee to recognition u/s.80G of the Act.

3. In reply, ld. CIT-DR submitted that the assessee has a building in which a Super Speciality Hospital is operating. Ld. CIT-DR drew our attention to the page 5 of the order of the ld. CIT(E), Patna to submit that the surplus generated were substantial. It was the submission that the assessee was receiving fee for professional and technical services, insofar as the TDS was being deducted u/s.194JB of the Act. It was the submission that the assessee has not shown any charitable activities. It was the submission that the provision of Section 80G of the Act for recognition is in regard to a receipt which is used for charitable purposes. It was the submission that the assessee is receiving fee for professional services, which is evident that TDS being deducted and its rental income under the guise of professional receipts at a percentage of total turnover of the Super Speciality Hospital. It was the submission that this is purely a commercial activity and the assessee is not entitled to the recognition u/s.80G of the Act. He placed reliance on the decision of the Hon’ble Supreme Court in the case of New Noble Educational Society, v. Chief Commissioner of Income Tax/[2022] 448 ITR 594 (SC)/[Civil appeal no. 3795 of 2014 dated October 19, 2022].

4. We have considered the rival submissions. The facts in present case clearly shows that the Hon’ble Supreme Court in the case of New Noble Educational Society (supra) has laid down the principle in regard to educational institution claiming exemption u/s.10(23C) of the Act. The Hon’ble Supreme Court has in the orbiter dictum given interpretation to charitable activities. The Hon’ble Supreme Court has categorically brought out the fact that charitable activities are not commercial activities. In the impugned appeals, the facts clearly show that the outsourcing of the building of the assessee for the purpose of running a hospital is clearly not a charitable activity. The income generated by the assessee from the outsourcing of the building of the assessee for the purpose of running a hospital is at a percentage of the turnover of the hospital. The TDS in respect of remuneration or amount received by the assessee from the outsourcing of the building is being made u/s.194JB of the Act. The ld. CIT(E) has also brought out the fact that the mergers being the surplus is huge year after year. The assessee has not been able to show any utilization of the services for pure charitable activities. Ld. CIT(E) has also brought out the fact that the assessee is not following its objects insofar as the objectives were clearly for the purpose of a running hospital, clinic etc. ld. CIT(E) in page 4 has also brought out that the relief to the patients is barely Rs.30 lakhs to a maximum in the financial year 2022-2023 though the income is more than a crore. The assessee has not been able to dislodge any of these findings of fact as has been recorded by the ld. CIT(E). This being so, as it is noticed that the assessee is not having any charitable activity nor has been able to prove its charitable activity, the denial of the recognition u/s.80G of the Act by the ld. CIT(E) in both the appeals of the assessee is found to be in order and both appeals filed by the assessee stand dismissed.

5. In the result, both appeals of the assessee are dismissed.