Hospital Operating Modern Facilities and Earning Surplus Retains

Hospital Operating Modern Facilities and Earning Surplus Retains Section 2(15) Charitable Character

Issue

Whether running a modern, tertiary-care hospital with premium facilities, significant receipts, and operational surplus alters the charitable character of “medical relief” under Section 2(15) or invalidates Section 12AB registration.
Whether alleged non-compliance with indigent patient bed reservation under Section 41AA of the Maharashtra Public Trusts Act (IPF Scheme) permits the Commissioner (Exemptions) to cancel or refuse Section 12AB registration without adjudication by the competent state authority.
Whether procuring overseas hospital infrastructure/equipment without prior approval under Section 11(1)(c) constitutes a ground to cancel Section 12AB registration rather than an issue to be examined in assessment proceedings.
Whether the Commissioner (Exemptions) can retrospectively cancel Section 12AB registration while considering a renewal application, in the absence of fraud, misrepresentation, or non-charitable objects.
Whether the consequential rejection of approval under Section 80G(5) is sustainable when the underlying cancellation of Section 12AB registration is set aside.

Facts

The assessee, a Section 8 company running a 550-bed modern tertiary-care hospital in Mumbai, held registration under Section 12A/12AB and approval under Section 80G.
In 2025, the assessee applied for renewal of registration under Section 12AB and extension of approval under Section 80G for Assessment Years 2027-28 onwards.
The Commissioner (Exemptions) refused renewal and cancelled the existing Section 12AB registration retrospectively from September 24, 2021, on multiple grounds:
- The assessee’s activities were commercial due to high fees, premium rooms, sophisticated infrastructure, and substantial annual surpluses.
- The assessee allegedly failed to meet the required percentage of indigent and economically weaker section (EWS) patients under the IPF Scheme governed by the Maharashtra Public Trusts Act, 1950.
- The assessee incurred expenditure outside India on medical equipment, infrastructure, drugs, and services without obtaining prior approval under Section 11(1)(c).
Consequently, the Commissioner (Exemptions) rejected the application for renewal of approval under Section 80G(5).
The assessee challenged the consolidated order before the Tribunal/Court, noting that no finding of private enrichment, diversion of funds, fraud, or misrepresentation had been recorded.

Decision

The Court held that Section 2(15) does not require medical relief to be inexpensive, basic, or affordable to all; organized operations, professional management, and operational surpluses do not convert a dominant charitable purpose into a commercial enterprise.
The Court held that compliance with the IPF Scheme falls under the domain of authorities enforcing the Maharashtra Public Trusts Act; in the absence of a finding by competent state authorities, the CIT(E) cannot independently adjudicate alleged state-law violations to cancel registration under Section 12AB.
The Court held that a dispute regarding Section 11(1)(c) applicability for overseas equipment purchases concerns assessment proceedings under Section 11 and does not prove that the assessee’s activities are non-genuine or non-charitable under Section 12AB.
The Court held that renewal proceedings under Section 12AB cannot be converted into retrospective annulment proceedings without demonstrating fraud, misrepresentation, or non-charitable objects at the time of initial grant.
The Court held that the rejection of Section 80G(5) approval was purely consequential; once the cancellation under Section 12AB was set aside, the CIT(E) was directed to renew the Section 80G approval.

Key Takeaways

Surplus and Scale Do Not Negate “Medical Relief”: Generating operational surpluses, maintaining state-of-the-art facilities, or charging market fees does not strip a modern hospital of its charitable status under Section 2(15), provided there is no private enrichment and funds are applied to charitable objects.
Jurisdictional Separation of Regulatory Enactments: Assessing Officers and CIT(E) cannot assume powers of external regulatory bodies (such as State Charity Commissioners) to adjudicate non-tax state laws (e.g., MPT Act IPF Scheme) as a shortcut to declare an institution non-charitable.
Exemption Disputes vs. Registration Cancellation: Technical infractions regarding application of income (e.g., Section 11(1)(c) foreign expenditure) belong to the domain of assessment proceedings under Section 11 and do not constitute “specified violations” warranting cancellation of Section 12AB registration.
Prohibition on Arbitrary Retrospective Cancellation: Section 12AB renewal applications cannot be used to retrospectively revoke registration unless strict jurisdictional preconditions—such as fraud, suppression, or fundamental invalidity of objects—are established.

IN THE ITAT MUMBAI BENCH ‘D’

Mandke Foundation

CIT (Exemption)

Amit Shukla, Judicial Member
and MAKARAND VASANT MAHADEOKAR, Accountant Member

IT Appeal Nos. 4053 and 4054 (Mum) of 2026
SA No. 65 (Mum) of 2026
[Assessment years 2022-23 to 2031-32]

JUNE 16, 2026

Umashankar Prasad, Ld. AR for the Applicant. Niraj D. Sheth, Ld. DR for the Respondent.

ORDER

Makarand Vasant Mahadeokar, Accountant Member.- These two appeals and the Stay Application arise from two separate orders passed by the learned Commissioner of Income Tax (Exemptions), Mumbai [hereinafter referred to as “the CIT(E)”], both dated 30.03.2026, in the case of the assessee, Mandke Foundation.ITA No. 4054/Mum/2026 is directed against the order passed by the CIT(E) under section 12AB(1)(b)(ii)(B) of the Income-tax Act, 1961[hereinafter referred to as “the Act”], whereby the application filed by the assessee in Form No. 10AB under section 12A(1)(ac)(ii) seeking renewal of registration under section 12AB was rejected and the registration earlier granted under section 12AB(1)(a) vide order dated 24.09.2021 was cancelled.

2. ITA No. 4053/Mum/2026 is directed against the consequential order passed by the CIT(E) rejecting the assessee’s application for approval under section 80G(5) of the Act filed in Form No. 10AB under clause (ii) of the first proviso to section 80G(5). The said application was rejected primarily on the ground that the assessee’s application for renewal of registration under section 12AB had been rejected by the CIT(E) on the same date.

3. The assessee has also filed Stay Application No. 65/Mum/2026 arising out of ITA No. 4054/Mum/2026 seeking stay of operation of the order dated 30.03.2026 passed under section 12AB of the Act whereby renewal of registration was rejected and the existing registration granted under section 12A/12AB was cancelled with retrospective effect.

4. Since the issues involved in both the appeals are interconnected and arise out of the same set of facts and findings recorded by the learned CIT(E), both the appeals as well as the Stay Application were heard together and are being disposed of by this consolidated order for the sake of convenience and brevity.

5. At the outset, it may be noted that these appeals were heard along with the tagged appeals in the case of Reliance Foundation Hospital Trust v. CIT(Exemptions) [IT Appeal Nos. 3798 and 3799 (Mum) of 2026, dated 9-6-2026], wherein identical issues relating to rejection of renewal of registration under section 12AB, cancellation of existing registration and consequential rejection of approval under section 80G came up for consideration before us. Since the issues arising in the present appeals are substantially similar, the arguments advanced by both sides in those appeals have also been duly considered while adjudicating the present appeals. Accordingly, the principles and ratio laid down therein shall apply to the present appeals, to the extent applicable having regard to the facts and grounds involved herein.

6. Grounds raised in ITA No. 4054/Mum/2026

(A) REJECTION OF RENEWAL OF EXISTING REGISTRATION U/S 12A OF THE ACT (A.Y.2027-28 TO A.Y.2031-32)

1. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in rejecting the application for renewal of existing registration granted u/s.12A of the Act.

2. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in alleging that the activities carried out by the appellant are not charitable in nature as defined in section 2(15) of the Act on the ground that they are in the nature of business of providing high end and super specialty health care services for a commercial consideration and thereby rejecting the renewal of registration u/s.12A of the Act.

3. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in alleging that the appellant has failed to comply with the requirement of other material laws namely Maharashtra Public Trust Act, 1950 (MPT Act) read with the IPF Scheme approved by the Bombay High Court and thereby rejecting the renewal of registration u/s.12A of the Act.

4. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in alleging that the funds of the appellant are applied outside India without following the statutory requirement of obtaining prior approval of Central Board of Direct Taxes (CBDT) and thereby alleging that the appellant has failed to comply provisions of section 11(1)(c) of the Act.

5. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in rejecting the application for renewal of existing registration granted u/s.12A of the Act without issuing any specific show-cause notice setting out the alleged defaults and without affording the appellant an opportunity of being heard and without granting personal hearing, in gross violation of section 12AB(1)(b)(ii)(B) of the Act and thus in violation of the principles of natural justice.

Prayer: The Appellant prays that the order of the CIT (Exemption) ought to be quashed and the registration may be granted for further period of 5 years or 10 years effective from 1.4.2026 as the Hon’ble Tribunal deems fit.

(B) CANCELLATION OF EXISTING REGISTRATION (A.Y.2022-23 TO 2026-27)

6. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in cancelling the existing registration granted u/s.12A of the Act from the date of its grant i.e. w.e.f.24.9.2021.

7. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in cancelling the existing registration with retrospective effect from 24.09.2021, without following due process of law.

8. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in cancelling the existing registration with retrospective effect from 24.09.2021, in an order passed for disposing of application filed for renewal of registration, which is without jurisdiction and contrary to provisions of section 12AB(4) of the Act.

9. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in cancelling the existing registration without issuing any specific show-cause notice setting out the alleged defaults and without affording the appellant an effective opportunity of being heard and without granting personal hearing, in gross violation of section 12AB(1)(b)(ii)(B) and / or 12AB(4) of the Act and thus in violation of the principles of natural justice.

10. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in alleging that (i) the activities carried out by the appellant are not charitable in nature as defined in section 2(15) of the Act (ii) failed to comply with the requirement of other material laws namely Maharashtra Public Trust Act, 1950 (MPT Act) read with the IPF Scheme approved by the Bombay High Court and (iii) the funds of the appellant are applied outside India without following the statutory requirement of obtaining prior approval of Central Board of Direct Taxes (CBDT) and thereby alleging that the appellant has failed to comply provisions of section 11(1)(c) of the Act.

Prayer: The Appellant prays that the order of the CIT (Exemption) cancelling the registration already granted effective from 24.9.2021 be cancelled and the registration granted to the Appellant by the order dated 24.9.2021 be restored.

11. The Appellant craves leave to add, amend, delete, rectify, substitute, modify, or otherwise, all or any of the aforesaid grounds or add a new ground(s) at any time before or during the hearing of the above appeal and consider the grounds of appeal as without prejudice to each other.

7. Ground raised in ITA No. 4053/Mum/2026

(A) REJECTION OF RENEWAL OF APPROVAL U/S.80G OF THE ACT

1. On the facts and in the circumstances of the case and in law, the learned CIT(Exemption) erred in rejecting the application for renewal of existing approval granted u/s 80G of the Act on the ground that the Appellant’s application for registration u/s 12A of the Act is rejected vide order dated 30.3.2026.

Prayer: The Appellant prays that the order of the CIT (Exemption) ought to be quashed and the approval may be granted for further period of 5 years effective from 1.4.2026.

(B) GENERAL

2. The Appellant craves leave to add, amend, delete, rectify, substitute, modify, or otherwise, all or any of the aforesaid grounds or add a new ground(s) at any time before or during the hearing of the above appeal and consider the grounds of appeal as without prejudice to each other.

ITA No. 4054/Mum/2026

Facts of the Case

8. The assessee, M/s. Mandke Foundation, having PAN AAATM4557G, is a public charitable institution incorporated on 17.03.1998 as a company under section 25 of the Companies Act, 1956 (now section 8 of the Companies Act, 2013). The assessee was granted registration under section 12A of the Income-tax Act, 1961 vide order dated 29.03.2000 with effect from 17.03.1998 and was subsequently granted approval under section 80G on 24.06.2008. Pursuant to the new registration regime introduced under section 12AB, the registration under section 12A was renewed vide order dated 24.09.2021 for the period A.Y. 2022-23 to A.Y. 2026-27, while approval under section 80G was renewed vide order dated 02.10.2021 for the same period.

9. The assessee is engaged in the charitable activity of providing medical relief through a network of hospitals and healthcare institutions established and operated in furtherance of its charitable objects. The assessee established Kokilaben Dhirubhai Ambani Hospital, Andheri, Mumbai in the year 2009, Kokilaben Dhirubhai Ambani Hospital, Navi Mumbai in the year 2018, and BCM Kokilaben Dhirubhai Ambani Hospital, Indore in the year 2022. The assessee has also established a hospital at Amravati and has undertaken expansion projects for setting up hospitals at Nagpur, Raipur and other locations, thereby continuing to expand its healthcare infrastructure for providing medical relief to the public.

10. For the period commencing from A.Y. 2027-28, the assessee filed an application dated 30.08.2025 seeking renewal of registration under section 12AB and a separate application dated 08.09.2025 seeking renewal of approval under section 80G. During the course of proceedings, the learned CIT(E) issued various notices and show cause notices calling for details regarding the activities of the assessee, alleged application of income outside India and compliance with the Maharashtra Public Trusts Act, 1950. The assessee furnished detailed replies from time to time. It is also pertinent to note that on an earlier occasion, the learned CIT(E) had initiated proceedings on 01.03.2025 concerning the issue of expenditure incurred outside India, which proceedings, after considering the assessee’s detailed reply dated 18.03.2025, were dropped by a speaking order dated 15.07.2025. Subsequently, however, while disposing of the renewal application, the learned CIT(E) passed the impugned order dated 30.03.2026 refusing renewal of registration under section 12AB, cancelling the existing registration granted on 24.09.2021 and consequently rejecting approval under section 80G, giving rise to the present appeals.

11. Prior to passing the impugned order, opportunities were granted to the assessee on 01.11.2025, 12.11.2025, 22.11.2025 and 04.03.2026.The learned CIT(E) observed that under Rule 17A of the Income-tax Rules, 1962, an application in Form No. 10AB is required to be accompanied by prescribed documents. On examination, it was noticed that the application was incomplete and all requisite documents had not been furnished. Accordingly, a notice dated 01.11.2025 was issued, in response to which the assessee filed submissions dated 18.11.2025.

12. Thereafter, the CIT(E) examined the objects contained in the trust deed/Memorandum of Association and formed a prima facie view that several clauses empowered the assessee to apply its funds outside India. The CIT(E) specifically referred to object clauses 3(a)(1), 3(b)(2), 3(b)(14), 3(b)(17), 3(b)(18) and 3(b)(19) and observed that these clauses envisaged activities extending beyond India and therefore indicated an intention to apply trust funds outside India. According to the CIT(E), such clauses attracted the provisions of section 11 of the Act and warranted examination. Consequently, a show cause notice dated 22.11.2025 was issued to the assessee calling for an explanation regarding the perceived violation.

13. In response, the assessee filed detailed submissions on 09.12.2025. The assessee contended that the clauses highlighted by the department merely reflected an inclusive and enabling framework for carrying out charitable activities and did not constitute the principal objects of the foundation. It was submitted that the clauses formed part of the incidental or ancillary objects and did not authorise or mandate application of funds outside India. The assessee further furnished clause-wise explanations in support of its stand.

Sr. No.	Object Clause	Assessee’s Explanation
1	Clause 3(A)(1): To promote and encourage in India and abroad research and development in medical, biological and allied clinical and para-clinical fields.	The clause merely permits research and development activities. The assessee submitted that it participates in multi-centric global clinical trials conducted in India through Indian contract research organisations and with approval of the concerned authorities.
2	Clause 3(B)(2): To establish collaborative linkages with national and international organisations and sponsor visits abroad and host delegations.	The clause merely enables collaboration with international organisations. Such collaborations are intended for improvement of medical relief provided in India through hospitals run by the trust.
3	Clause 3(B)(14): To own, acquire, establish, maintain and support hospitals, clinics and other medical institutions in India and abroad.	The assessee stated that it does not own or operate any hospital or institution outside India and that no such activity has been undertaken abroad.
4	Clause 3(B)(17): To secure, promote and enter into joint ventures, collaborations or agreements with entities in India or abroad.	The assessee submitted that it has not entered into any joint venture agreement nor established any branch outside India.
5	Clause 3(B)(18): To secure incorporation, registration or recognition in any country outside India and establish local registers abroad.	The assessee stated that the clause is merely enabling in nature and that no such incorporation or registration has been obtained in any foreign country.
6	Clause 3(B)(19): To enter into agreements with foreign and Indian parties for obtaining licences, rights, technical knowhow and expert advice.	The assessee submitted that the clause merely facilitates obtaining licences, technical assistance, know-how and expert advice for fulfillment of charitable objects in India.

14. The CIT(E), however, was not satisfied with the explanation furnished by the assessee. According to the CIT(E), even if the clauses formed part of incidental or ancillary objects, they remained an inseparable component of the trust deed and constituted the legal foundation of the activities undertaken by the trust. The CIT(E) further observed that clause 3(B)(2) specifically contemplated sponsorship of foreign visits and therefore directly envisaged expenditure outside India. The CIT(E) concluded that the language employed in the various clauses left scope for future activities requiring application of funds outside India.

15. The CIT(E) further recorded that the assessee had in fact incurred expenditure outside India over the years and that this fact had been admitted by the assessee in its submissions dated 09.12.2025. The order notes that foreign expenditure had been incurred under the following heads:

Sr. No.	Foreign Payment Head
1	Acquisition of capital assets for hospitals/camps
2	Import of drugs, consumables, diagnostics and other medical equipment
3	Travel and related costs
4	Healthcare facilitation fees

16. The CIT(E) thereafter referred extensively to section 11(1)(c) of the Act and observed that application of income outside India is permissible only where the charitable purpose tends to promote international welfare in which India is interested and where approval of the CBDT is obtained by way of a general or special order. According to the CIT(E), the assessee had neither produced any approval obtained from the CBDT nor amended the clauses of the trust deed which, according to the department, enabled application of funds outside India. The CIT(E) also recorded that no evidence was furnished regarding any resolution for amendment of the trust deed or initiation of proceedings before the competent authority for amendment of the relevant clauses.

17. The CIT(E) thereafter examined compliance with section 41AA of the Maharashtra Public Trusts Act, 1950 and the Indigent Patients Fund (“IPF”) Scheme approved by the Hon’ble Bombay High Court in the case of Sanjiv Gajanan Punalekar v. State of Maharashtra [W.P. (PIL) No.3132 of 2004 dated 17.08.2006]. The order reproduces at considerable length the provisions of section 41AA and the broad contours of the IPF Scheme. Particular emphasis was placed on the obligation of charitable hospitals to earmark 10% of operational beds for indigent patients free of cost and 10% for weaker section patients at concessional rates, to maintain an IPF account, to transfer 2% of gross billing to such fund, and to furnish periodic information to the Charity Commissioner.

18. For the purpose of verifying compliance with section 41AA and the IPF Scheme, the CIT(E) called for further information through the notice dated 22.11.2025. The assessee, in response, informed the department that it was operating and maintaining a 550-bed hospital in Mumbai and hospitals having 225 beds and 258 beds at Navi Mumbai and Indore respectively. The order records that details regarding categorisation of beds and related information were furnished by the assessee for examination.The CIT(E) reproduced the categorisation of 550 beds in the Mumbai hospital. The table is as under:

Sr. No.	Class/Category of Bed	No. of Beds	Bed Charges	No. of Beds * Charges Per day	Median Bed charge per day
1	CCU	129	15,000	19,35,000/-	8,483/-
2	3BEDCHEMDAYCARE	6	4,500	27,000/-
3	6BEDCHEMDAYCARE	34	3,400	1,15,600/-
4	Daycare	obscured	500	48,500/-
5	General	83	3,500	2,90,500/-
6	LDRP	4	12,000	48,000/-
7	Newborn	5	3,500	17,500/-
8	Single Classic Room	42	12,000	5,04,000/-
9	Single Deluxe	28	16,000	4,48,000/-
10	Single Regular	–	–	–
11	Twin Sharing	115	4,950	obscured
12	King Suite	5	31,000	obscured
15	Prince Suite	6	18,000	1,08,000/-
16	Queen Suite	4	23,000	92,000/-
17	NICU	15	10,000	1,50,000/-
18	PICU	10	10,000	1,00,000/-
19	Single Economy	–	–	–
20	PICU Stepdown	3	10,500	31,500/-
21	Suppletor	4	12,500	50,000/-
22	STOKE/Isolation	obscured	25,000	6,00,000/-
	Total	550		46,65,600/-

19. The CIT(E) observed that bed charges varied from Rs. 3,400/- per day to Rs. 31,000/- for suite room. The median bed charge per day worked out to Rs. 8,483/-. Out of 550 beds, 270 beds were in higher categories such as CCU, LDRP, Single Classic Room, Single Deluxe, King Suite, Prince Suite, Queen Suite, NICU, PICU, PICU Stepdown, Suppletor and STOKE/Isolation. The CIT(E) therefore concluded that almost 50% of the available beds were in higher categories, where per day rates exceeded Rs. 10,000/- and went up to Rs. 31,000/- per bed per day.

20. The CIT(E) further compared the bed charges with the estimated monthly income of an average household in India, stated to be less than Rs. 10,000/- in 2025 as per Economic Survey 2024-25. The CIT(E) held that the hospital charges were beyond the financial capacity of a common citizen and that if the majority of population could not afford the services, the very object and purpose of the charitable hospital stood fundamentally defeated.

21. The CIT(E) also analysed average cost of treatment per patient in normal category and IPF category during the last three financial years. The table reproduced in the order is as under:

FY	Total Receipt	General Categor y Patient Total patient	General Category Patient Per Patient Cost	Prescribed IPF Fund (2% of total Receipt)	Indigent/Wea ker Section Patient Total IPF/Weaker Patient	Indigent/Weake r Section Patient Actual IPF Expenditure	Indigent/Weake r Section Patient Per patient Cost
2022 -23	12,56,50,66,389/ –	48,492	2,59,116/-	25,13,01,328/-	1,368	25,77,75,394/-	1,88,432/-
2023 -24	14,33,04,00,391/ –	50,610	2,83,154/-	28,66,08,008/-	1,214	21,97,08,979/-	1,80,979/-
2024 -25	16,76,20,20,087/ –	55,138	3,04,001/-	33,52,40,402/-	1,506	31,82,78,178/-	2,11,340/-

22. The CIT(E) held that the average cost of treatment for each patient during the last three financial years ranged between Rs. 2.5 lakh and Rs. 3.04 lakh. The average cost of treatment for each indigent/weaker section patient ranged between Rs. 1.88 lakh and Rs. 2.11 lakh. According to the CIT(E), the average cost of treatment for a general category patient was roughly 25 to 33 times the average monthly household income in India and the average cost of treatment for an indigent/weaker section patient was roughly 18 to 21 times such monthly income. The CIT(E) therefore held that such high-cost medical treatment by a charitable hospital made it clear that its healthcare services were not accessible to the public at large but were confined to affluent sections.

23. The CIT(E) held that the total number of patients treated under indigent/economically weaker section category was short of the prescribed minimum of 20% of total patients. The table reproduced in the order is as under:

FY	Total General Category Patient admitted	Prescribed 20% of total patient (10% Indigent patients + 10% Weaker Section Patient)	Total number of indigent/Weaker Section Patient actually treated	Actual Indigent/Weaker Section Patient (in Percentage with respect to General Patient) treated
2022 23	48,492	9698	1,368	2.82%
2023 24	50,610	10122	1,214	2.40%
2024 25	55,138	11028	1,506	2.73%

24. The CIT(E) held that during F.Y. 2024-25, normal patients admitted were 55,138 whereas only 1,506 patients were treated under IPF category, which came to hardly 2.73%. Similar pattern was noticed for F.Y. 2022-23 and F.Y. 2023-24, where only 2.82% and 2.40% patients were treated under the indigent/economically weaker section category.

25. The CIT(E) further held that the expenditure on indigent/weaker section patients also fell short of the prescribed minimum 2% of gross receipts. The table reproduced in the order is as under:

FY	Total Receipt	2% of total Receipt	Actual IPF Exp	Shortfall in Prescribed IPF Expenditure
2023 24	14,33,04,00,391/-	28,66,08,008/-	21,97,08,979/-	6,68,99,029/-
2024 25	16,76,20,20,097/-	33,52,40,402/-	31,82,78,178/-	1,69,62,224/-

26. The CIT(E) held that the assessee failed to comply with both conditions prescribed by the IPF Scheme, namely reservation/treatment of 10% indigent and 10% weaker section patients and utilisation of 2% of total receipts for such patients. It was therefore concluded that the assessee had completely violated the directives of the Hon’ble Bombay High Court.

27. The CIT(E) also held that the assessee was not fulfilling even the minimum criteria set by the Hon’ble Bombay High Court and, therefore, the intention of running the hospital was not charitable but profit-oriented. The CIT(E) also analysed the average revenue per bed per day and held that the revenue per bed per day ranged from Rs. 62,591/- to Rs. 83,497/-, which was roughly six to eight times the average monthly household income in India.The CIT(E) further observed that the assessee had accumulated huge surplus funds. The surplus funds were reproduced in the order as under:

Sr. No.	Financial Year	Surplus Fund as per Balance Sheet Item (In Rs.)
1	2021-22	1,40,93,52,000/-
2	2022-23	62,65,04,000/-
3	2023-24	15,71,23,000/-
4	2024-25	1,22,09,89,000/-

28. The CIT(E) observed that despite availability of huge surplus funds, the assessee provided limited services to those who were in real need. Instead of subsidising cost of treatment or increasing the number of indigent/weaker section patients, the assessee accumulated huge surplus over the years.

29. The CIT(E) concluded that the activities of the assessee hospital trust were not genuine because they were not being carried out in accordance with the intent of charitable purposes or in furtherance of stated objects. According to the CIT(E), the activities were carried out on commercial basis with manifest intent to earn substantial profits in a systematic and organised manner. The CIT(E) held that the overall activities were in the nature of business of providing high-end and super-speciality healthcare services for commercial consideration and did not exhibit characteristics genuinely associated with a charitable hospital. The CIT(E) finally rejected the application for renewal of registration on the following grounds:

(i)

violation of section 2(15) of the Act, as activities were held not to be charitable in nature but based on commercial motive and in the nature of providing high-end healthcare services;

(ii)

failure to comply with other laws material for achieving the objects, namely the Maharashtra Public Trusts Act, 1950, within the meaning of section 12AB(1)(b); and

(iii)

failure to comply with section 11(1)(c) of the Act by applying funds outside India without obtaining prior approval of the CBDT.

30. The existing registration was cancelled with effect from the date on which registration was granted, i.e. 24.09.2021, as per section 12AB(1)(b)(ii)(B) of the Act.

31. Consequent to the rejection of the assessee’s application for renewal of registration under section 12AB of the Act and cancellation of the existing registration, the learned CIT(E) proceeded to examine the assessee’s application seeking renewal of approval under section 80G(5) of the Act. The learned CIT(E) observed that registration under section 12AB constitutes a foundational requirement for grant or continuation of approval under section 80G. Since the assessee’s application for renewal of registration under section 12AB had been rejected and the existing registration had also been cancelled vide order dated 30.03.2026, the assessee ceased to satisfy the conditions prescribed for grant of approval under section 80G.Accordingly, without undertaking any independent examination of the conditions prescribed under section 80G, the learned CIT(E) rejected the assessee’s application for renewal of approval under section 80G solely on the basis of the findings recorded in the order passed under section 12AB. The rejection of approval under section 80G was thus purely consequential and derivative of the decision taken by the learned CIT(E) in the proceedings relating to renewal and cancellation of registration under section 12AB of the Act.

32. By way of written submissions as well as submissions during the course of hearing before us, the learned Authorised Representative (AR) contended that none of the grounds relied upon by the learned CIT(E) for cancellation of registration constitute a “specified violation” within the meaning of Explanation to section 12AB of the Act. It was submitted that section 12AB(4) empowers the learned CIT(E) to cancel registration or refuse renewal only upon noticing the occurrence of one or more specified violations enumerated in clauses (a) to (g) of the Explanation to section 12AB. According to the learned AR, the allegations regarding the charitable character of the activities, alleged non-compliance with the provisions of the Maharashtra Public Trusts Act and the IPF Scheme, and the alleged application of funds outside India without approval under section 11(1)(c), do not fall within any of the categories of “specified violation” prescribed under the statute. It was therefore contended that the cancellation of registration and refusal of renewal on the aforesaid grounds are beyond the scope of section 12AB(4) and are legally unsustainable.

33. Without prejudice to the legal contention that the grounds relied upon by the learned CIT(E) do not constitute “specified violations” within the meaning of section 12AB(4), the learned Authorised Representative also assailed the factual findings recorded by the learned CIT(E) while concluding that the assessee’s activities were commercial in nature.

34. The learned AR submitted that the learned CIT(E) called for details of beds maintained in the hospitals operated by the assessee and the per-day bed charges. Based on such details, the learned CIT(E) noted that bed charges ranged from Rs.3,400/-per day to Rs.31,000/- per day and, without any objective basis, categorised 270 out of 550 beds as belonging to a “higher category”. It was submitted that the learned CIT(E) appears to have treated all beds carrying charges in excess of Rs.10,000/-per day as higher-category beds and thereafter compared such charges with the estimated monthly income of an average household in India. According to the learned AR, the entire exercise was misconceived inasmuch as the average bed charge computed by the learned CIT(E) himself was only Rs.8,483/- per day and there existed no rational basis for segregating beds by adopting Rs.10,000/- per day as a benchmark. It was further submitted that the reliance placed on an assumed monthly household income of Rs.10,000/- was factually incorrect. Reference was made to the notification issued by the Government of Maharashtra dated 02.03.2023 prescribing annual income limits of Rs.1,80,000/- for indigent persons and Rs.3,60,000/-for economically weaker section beneficiaries, equivalent to monthly incomes of Rs.15,000/- and Rs.30,000/- respectively. It was accordingly contended that the conclusions drawn by the learned CIT(E) on the basis of the aforesaid comparison were wholly erroneous. It was further submitted that charging different rates for different categories of hospital beds is not prohibited by law and, in any event, cannot constitute a ground for cancellation of registration.

35. The learned AR further submitted that the learned CIT(E) computed the per-patient cost of treatment for general category patients between Rs.2.59 lakh and Rs.3.04 lakh and for IPF/EWS patients between Rs.1.88 lakh and Rs.2.11 lakh during financial years 2022-23 to 2024-25 and compared the same with the assumed monthly household income of Rs.10,000/- to conclude that the charges were excessive. It was contended that the computation itself was fundamentally flawed. According to the learned AR, while computing the per-patient cost, the learned CIT(E) considered revenues of all three hospitals but compared the same only with patient data of the Andheri hospital. It was further submitted that the receipts considered by the learned CIT(E) included not only operating income but also non-operating receipts such as interest income, donations and profit on sale of assets. It was also pointed out that OPD revenues, pharmacy revenues and IPF/EWS billings had been included in the computation, thereby artificially inflating the figures. On this basis, it was argued that the conclusions drawn by the learned CIT(E) regarding the alleged commercial nature of the activities were based on incorrect assumptions and defective computations.

36. With regard to the findings relating to alleged violation of the IPF Scheme and the Maharashtra Public Trusts Act, 1950, the learned AR submitted that the assessee is a section 25 company and, therefore, the provisions of the Maharashtra Public Trusts Act, 1950 do not directly apply to it. Consequently, any alleged violation of the said enactment or the scheme framed thereunder could not constitute a basis for cancellation of registration. It was further argued that the learned CIT(E) had no jurisdiction to adjudicate upon alleged violations of the Maharashtra Public Trusts Act, such power being vested in the authorities administering the said enactment. In support of this proposition, reliance was placed upon the decisions of the Hon’ble Bombay High Court in CIT (Exemptions) v. Sir Kikabhai Premchand Settlement Trust No.XI (Bombay), Pr. CIT v. Milestone Real Estate Fund [ITXA No.3056 of 2019, dated 19-1.2026]andVirendra v. Appropriate Authority [2010] 327 ITR 185 (Bombay).

37. The learned AR further submitted that the learned CIT(E) had specifically enquired whether any objection had been raised by the Charity Commissioner in relation to compliance with the Maharashtra Public Trusts Act and the assessee had categorically informed that no such objection or adverse order existed. It was argued that clause (f) of the Explanation to section 12AB contemplates a specified violation only where there exists an order, direction or decree of the competent authority holding that non-compliance with the requirements of any other law has occurred and such order has either attained finality or remains undisputed. In the absence of any such adjudication by the Charity Commissioner or any other competent authority, it was submitted that the learned CIT(E) could not independently assume jurisdiction to determine violations of the Maharashtra Public Trusts Act. Reliance in this regard was placed upon the decision of the Pune Bench of the Tribunal in Mukund Bhavan Trust v. CIT (Exemption) (Pune – Trib.).

38. The learned AR also relied upon the observations contained in the Budget Speech of the Hon’ble Finance Minister dated 05.07.2019 while introducing the amendments relating to cancellation of registration for violation of other laws. It was submitted that the legislative intent was to treat a violation of another law as a specified violation only where an order holding such violation had been passed and had either become final or remained uncontested.

39. Addressing the findings regarding non-compliance with the IPF Scheme, the learned AR submitted that the assessee had entered into an arrangement with Malti Vasant Heart Trust in relation to the Andheri hospital and that the obligations arising under the Maharashtra Public Trusts Act, insofar as the hospital was concerned, were discharged through the said trust. Nevertheless, according to the learned AR, the assessee voluntarily complied with all requirements of the IPF/EWS scheme.

40. It was submitted that out of the total 550 beds in the Andheri hospital, 55 beds each had been earmarked for IPF and EWS categories. At any point of time, such beds were either occupied by eligible patients or remained vacant due to nonavailability of patients. The learned AR contended that the scheme merely requires earmarking of the prescribed number of beds and does not mandate compulsory occupation of all such beds at all times. It was further submitted that the assessee regularly displayed information regarding availability of such beds at the hospital premises, uploaded daily details on the portal of the Charity Commissioner, Maharashtra and maintained complete records regarding patients treated under IPF and EWS categories. Monthly reports were also stated to have been furnished to the concerned authorities.

41. With regard to the finding of shortfall in transfer of 2% of patient billing to the IPF account, the learned AR submitted that the shortfall figures computed by the learned CIT(E) were based on erroneous assumptions. It was contended that while computing the prescribed contribution, the learned CIT(E) had included revenues of all three hospitals, non-operating income such as interest, donations and profit on sale of assets and had also failed to exclude IPF/EWS billings. According to the learned AR, once the computation was corrected by considering only relevant hospital receipts, there was in fact no shortfall and the actual expenditure incurred exceeded the prescribed requirement. It was further pointed out that as on 31.03.2025, the IPF account reflected a deficit balance of Rs.6,91,03,959/-, demonstrating that expenditure incurred on eligible patients exceeded the prescribed contribution.

42. The learned AR also challenged the computation of average revenue per bed per day ranging from Rs.62,591/- to Rs.83,497/-adopted by the learned CIT(E). It was submitted that the computation incorrectly included OPD revenues and nonoperating receipts and further compared revenues of all hospitals with bed strength of only one hospital. According to the learned AR, upon applying a correct methodology and considering both revenues and bed capacity of all hospitals, the average revenue per bed per day would work out substantially lower. It was therefore argued that the conclusion drawn by the learned CIT(E) that the assessee was engaged in a systematic pursuit of profit and that its activities were commercial in nature was wholly unfounded.

43. The learned AR further submitted that the learned CIT(E) erred in drawing adverse inference merely from the existence of surplus in the accounts of the assessee. It was contended that profit-making by itself does not destroy the charitable character of an institution engaged in medical relief. According to the learned AR, the surplus figures considered by the learned CIT(E) included substantial non-operational receipts and, if such receipts were excluded, the financial results for certain years would disclose deficits or only marginal surpluses. It was submitted that the temporary increase in surplus during the post-Covid period was attributable to a surge in patients undergoing deferred surgeries and treatments. The learned AR further pointed out that the assessee does not receive large donations and is therefore required to rely substantially upon internally generated surplus for its day-to-day operations as well as expansion of charitable medical facilities. In this regard, it was submitted that the assessee had established a new hospital at Indore in the year 2022 and was in the process of setting up hospitals at Raipur and Nagpur. It was therefore contended that any surplus generated was being deployed towards furtherance of its charitable object of providing medical relief and not for private profit.

44. The learned AR submitted that the existence of surplus in the accounts of the assessee cannot by itself lead to an inference that the activities are not charitable. It was argued that generation of surplus while carrying on the charitable activity of medical relief is not prohibited under the Act and that the proviso to section 2(15) applies only to the residuary category of “advancement of any other object of general public utility” and has no application to the independent charitable limb of “medical relief”. Reliance was placed upon CBDT Circular No.11/2008 dated 19.12.2008 and Circular No.1/2009 dated 27.03.2009 in support of the proposition that incidental surplus does not alter the charitable character of an institution engaged in medical relief.

45. The learned AR also disputed the observations of the learned CIT(E) regarding the nature of expenditure incurred by the assessee. It was submitted that the expenditure of approximately Rs.350.97 crore incurred on employees, which according to the learned CIT(E) reflected operation of a luxurious hospital, substantially represented salaries paid to doctors, nurses, paramedical personnel and clinical support staff. Such expenditure, according to the learned AR, was indispensable for providing quality medical services and could not be construed as evidence of commerciality. It was further submitted that these professionals render services to all categories of patients, including economically weaker sections, and therefore the expenditure was directly connected with the charitable activity of medical relief.

46. The learned AR further submitted that the learned CIT(E) had incorrectly observed that the assessee had not undertaken any positive and concrete steps to publicise the availability of concessional treatment under the IPF/EWS scheme. Referring to the material placed before the authorities, it was contended that the assessee had informed the Charity Commissioner in its monthly reports that signboards relating to the charity scheme had been prominently displayed at the hospital entrance and admission counter. Sample copies of such displays had also been furnished before the learned CIT(E). It was further submitted that complete details regarding concessional treatment available to EWS patients had been furnished in response to specific queries raised during the proceedings. According to the learned AR, the relevant details ran into thousands of pages and were therefore not reproduced in entirety in the paper book, but had nevertheless been furnished to the learned CIT(E) during the course of proceedings.

47. The learned AR also challenged the finding recorded by the learned CIT(E) that only four beds were maintained for IPF/EWS patients. It was submitted that the finding was contrary to the material available on record. According to the learned AR, out of the total bed strength of 550 beds, the assessee had earmarked 55 beds for indigent patients and 55 beds for EWS patients, aggregating to 110 beds, fully satisfying the requirement of reserving 10% beds for each category. It was argued that there was no material available on record from which the learned CIT(E) could have concluded that only four beds were reserved for such patients.

48. The learned AR further submitted that the ultimate conclusion of the learned CIT(E) that the activities of the assessee were not genuine was wholly unsustainable. It was argued that there was no dispute regarding the fact that the assessee was actually operating hospitals and providing medical treatment to patients. Once the existence of hospital facilities and actual rendering of medical services was undisputed, the activities could not be characterised as non-genuine. According to the learned AR, at best, the learned CIT(E) had raised certain issues regarding compliance with the IPF Scheme and the methodology adopted for computing various financial parameters, but none of those aspects could lead to a conclusion that the activities themselves were not genuine.

49. Lastly, the learned AR submitted that while arriving at his conclusions, the learned CIT(E) had completely ignored the substantial medical services rendered by the assessee to economically weaker sections through its OPD facilities. It was contended that apart from inpatient treatment provided under the IPF and EWS categories, a significant number of economically weaker patients availed OPD facilities and other concessional medical services. According to the learned AR, these services formed an integral part of the charitable activities of the assessee and ought to have been considered while evaluating the true nature and extent of medical relief provided by the institution.

50. To rebut the findings of the learned CIT(E) regarding alleged commerciality of operations and generation of substantial surplus, the learned AR furnished detailed financial workings demonstrating that the surplus figures relied upon by the learned CIT(E) were distorted by inclusion of non-operating income and receipts not directly attributable to hospital operations.

51. The learned AR furnished a year-wise summary of patient revenues generated by the Mumbai, Indore and Navi Mumbai hospitals together with other operating and non-operating income. The details furnished are summarised below:

Particulars		Total (Rs. in lakhs)
Mumbai Hospital Patient Revenue	1A	591,280.18
Indore Hospital Patient Revenue	1B	14,384.92
Navi Mumbai and Other Hospital Patient Revenue	1C	80,948.88
Revenue from Operations (Patient Revenue)	2	686,613.98
Interest Income	3	16,307.11
Profit on Sale of Assets	4	633.91
Facility Charges		1,569.13
Academic Income		813.86
F&B Revenue Sharing Receipts		1,704.15
Sponsorship Fees		1,010.81
Donations Received (Net)		645.84
Liability Written Back		202.89
Miscellaneous Receipts		1,212.05
Reversal of Provision for Doubtful Debts / Advances		887.59
Grant from Indian Council for Medical Research		34.17
Total of All other Charges	5	8,080.49
Ind AS Adjustments	6	18.22
Total Income	7	7,11,653.27
Total Expenses including Depreciation	8	680276.27
Net Surplus from Patients	9	6,337.70
% of Net Surplus to Patient Revenue	10= “9/2	0.92%

52. The learned AR further prepared a working to demonstrate that after excluding non-operational income and considering only revenues arising from hospital operations, the financial position of the assessee was materially different from that assumed by the learned CIT(E). The year-wise position furnished before the authorities was as under:

Financial Year	Total Income (Rs. in lakhs)	Total Expenses including Depreciation (Rs. in lakhs)	Net Surplus/(Deficit) (Rs. in lakhs)
2019-20	82,027.96	84,549.11	(2,521.15)
2020-21	78,106.46	78,347.57	(241.10)
2021-22	114,944.42	100,805.90	14,093.52
2022-23	125,650.66	119,385.62	6,265.04
2023-24	143,304.00	145,127.71	1571.23
2024-25	167,620.20	155,410.31	12,209.89
Total	711,653.71	680,276.27	31,377.43

53. The learned AR emphasised that, after removing non-operational receipts and making suitable adjustments, there would be deficits in certain years and only modest surpluses in others, thereby negating the allegation that the assessee was engaged in systematic profit-making.

54. To explain the unusually high surplus in FY 2021-22, the learned AR furnished a separate note highlighting the impact of the Covid-19 pandemic on elective surgeries and patient admissions. It was submitted that there was no increase in tariffs during FY 2021-22. The increase in revenues was primarily attributable to a sharp rise in the number of surgeries performed after the easing of pandemic restrictions. The comparative figures furnished were as under:

Particulars	FY 2020-21	FY 2021-22
Total Surgeries	13,078	18,263
Increase in Number of Surgeries	–	5,185
Percentage Increase	–	40%

55. The learned AR explained that during FY 2020-21 many patients had deferred surgeries because of Covid restrictions and uncertainty. With reopening of hospitals and easing of restrictions in FY 2021-22, a large number of postponed surgeries were undertaken, resulting in approximately 5,200 additional surgeries and consequential increase in revenues.

56. Based on the aforesaid data, the learned AR submitted that the surplus generated in FY 2021-22 and partly in FY 2022-23 was an exceptional consequence of post-pandemic normalisation of healthcare services and not the result of any commercial exploitation or increase in charges. It was further submitted that the generated surplus had been deployed for expansion of charitable medical infrastructure, including establishment of the Indore hospital and ongoing projects at Raipur and Nagpur.

57. On the issue relating to the alleged violation of section 11(1)(c), the learned AR submitted that the learned CIT(E) had proceeded on the premise that certain object clauses permitted expenditure outside India and that the assessee had incurred expenditure outside India. According to the learned CIT(E), such expenditure constituted application of income outside India and therefore disentitled the assessee from registration.

58. The learned AR submitted that the expenditure identified by the learned CIT(E) broadly fell under four categories, namely:

Acquisition of capital assets and medical equipment for hospitals;

Import of drugs, consumables, diagnostic equipment and other operational requirements;

Travel and related expenses; and

Healthcare facilitation charges.

59. The learned AR explained that the largest component comprised acquisition of medical equipment and capital assets from overseas suppliers. It was submitted that, as a matter of consistent accounting policy, the assessee does not claim capital expenditure as application of income and only claims depreciation on such assets. Consequently, the purchase of capital assets from abroad could not be regarded as application of income outside India.

60. With regard to travel expenditure, it was submitted that under arrangements entered into with the Madagascar Health Ministry, the assessee facilitates travel of patients referred for treatment in India. The airfare expenditure is subsequently reimbursed by the Madagascar Health Ministry and is accordingly netted off. Therefore, no application of income is ultimately claimed on account of such expenditure.

61. The learned AR further submitted that the expenditure incurred towards imported medicines, consumables, diagnostic equipment and healthcare facilitation services was incurred exclusively for operating hospitals situated in India and for providing medical relief in India. Merely because payment is made to a foreign supplier does not mean that the charitable purpose is pursued outside India. Section 11 prohibits application of income for charitable purposes outside India and not expenditure incurred outside India for carrying out charitable activities within India.

62. In support of this proposition, the learned AR relied upon the following judicial precedents:

(i)

M.K. Nambyar Saarf Law Charitable Trust v. Union of India 269 ITR 556 (Delhi)

It was submitted that the Hon’ble Delhi High Court held that the issue of application of income outside India pertains to eligibility of exemption under section 11 and is not a relevant criterion while considering registration. The Court observed that income applied outside India without requisite approval may affect exemption but cannot constitute a ground for rejecting registration after being satisfied regarding the charitable objects and genuineness of activities.

(ii)

Gem & Jewellery Export Promotion Council v. Sixth ITO [1999] 68 ITD 95 (Mumbai)

The learned AR pointed out that the Mumbai Bench held that section 11 requires the charitable purpose for which income is applied to be in India. The provision does not mandate that the expenditure itself must necessarily be incurred within India. The Tribunal illustrated that expenditure incurred abroad for purchasing books for a library in India or equipment for a charitable hospital in India would still amount to application of income for purposes in India. Therefore, expenditure incurred outside India does not lose eligibility merely because payment is made abroad.

(iii)

National Informatics Centre Services Inc. v. DIT (Exemption) (Del.)

Reliance was placed on the decision wherein it was held that the mere existence of object clauses permitting activities outside India or the absence of approval under section 11(1)(c) cannot justify refusal of registration when no material exists to show that activities were actually carried on outside India or that income had been applied for purposes outside India.

(iv)

CEO Clubs India v. DIT (Exemption) 53 SOT 488 (Mumbai)

The learned AR submitted that the Tribunal held that conducting conferences abroad did not imply that the activities of the institution were carried on outside India, since the ultimate benefit accrued to members and beneficiaries in India. The principle, according to the learned AR, equally applied in the present case where expenditure incurred abroad was solely for facilitating charitable activities in India.

63. The learned AR further submitted that the learned CIT(E) himself had examined the issue of foreign expenditure in earlier proceedings initiated under section 12AB(4). After detailed enquiry, consideration of replies and supporting documents, the learned CIT(E), vide order dated 15.07.2025, had dropped the cancellation proceedings. In that order, it was specifically recorded that the foreign expenditure largely represented purchases of medical equipment, drugs, consumables and diagnostic systems required for rendering medical services in India and that such expenditure supported the charitable object of providing medical relief in India. The proceedings were accordingly dropped and the registration under section 12A was allowed to continue. It was therefore argued that the present reliance on the very same facts amounts to a review of an issue already examined and decided by the learned CIT(E), which is impermissible in law.

64. The learned AR also contended that no show-cause notice had been issued alleging violation of section 11 while initiating the present proceedings and, therefore, the impugned action suffers from breach of principles of natural justice. It was further submitted that the concept of “specified violation” was introduced only with effect from AY 2022-23 and could not be retrospectively invoked for earlier years.

65. The learned AR lastly submitted that the rejection of approval under section 80G was consequential to the denial of registration under section 12A and was not founded on any independent reasoning. Accordingly, if registration under section 12A is restored, approval under section 80G would necessarily follow.

66. By way of written submission, the learned Departmental Representative (DR) relied heavily upon the impugned order passed by the learned CIT(E) and reiterated the reasons recorded therein for rejecting the assessee’s application for registration under section 12AB and approval under section 80G.

67. The learned DR supported the impugned order of the learned CIT(E) and submitted that the assessee is operating a large multi-speciality healthcare institution on commercial lines and the substantial surpluses generated year after year demonstrate that the dominant character of the activities is commercial rather than charitable. According to the Revenue, the issue is not merely the existence of surplus but the manner in which the institution is conducted, having regard to the premium facilities, specialised infrastructure and pricing structure adopted by the hospitals.

68. The learned DR further contended that the plea of crosssubsidisation advanced by the assessee is not borne out by the actual implementation of the Indigent Patients Fund (IPF) Scheme and the obligations prescribed under section 41AA of the Maharashtra Public Trusts Act, 1950. It was submitted that there exist substantial deficiencies in the actual utilisation of beds and facilities earmarked for indigent and economically weaker section patients and, therefore, the charitable character claimed by the assessee is not reflected in its actual functioning.

69. It was further argued that after the amendments introduced by the Finance Act, 2021, compliance with other laws material for the achievement of the objects of the trust has assumed statutory significance under section 12AB. According to the Revenue, section 41AA of the Maharashtra Public Trusts Act and the IPF Scheme are directly connected with the charitable activity of providing medical relief and, therefore, alleged non-compliance with such provisions constitutes a relevant consideration while examining entitlement to registration under section 12AB.

70. The learned DR submitted that the absence of any separate proceedings by the Charity Commissioner or the absence of any penal action under the Maharashtra Public Trusts Act would not preclude the learned CIT(E) from examining whether the activities of the assessee are being carried out in accordance with the statutory framework governing charitable hospitals. According to the Revenue, the inquiry undertaken by the learned CIT(E) was confined to examining whether the conditions governing charitable registration continued to be satisfied.

71. The learned DR also relied upon the decision of the Coordinate Bench in Sila for Change Foundation v. CIT (Exemption) [2025] (Mumbai – Trib.) and submitted that the scope of examination under section 12AB has been substantially widened after the amendments introduced by the Finance Act, 2021. According to him, the said decision recognises the authority of the Commissioner to examine compliance with statutory requirements and to consider violations having a bearing on the continuance of registration. The learned DR further submitted that the assessee had admittedly incurred expenditure outside India over a number of years towards acquisition of medical equipment and capital assets, import of drugs and consumables, travel and related activities and healthcare facilitation arrangements abroad. It was contended that once application of income outside India is established, compliance with the requirements of section 11(1)(c) assumes significance and the assessee could not disregard the statutory mandate on the plea that the ultimate benefit of such expenditure accrued to charitable activities carried on in India. According to the learned DR, section 11(1)(c) constitutes a specific statutory provision governing application of income outside India and the requirement of obtaining a general or special approval of the CBDT is a substantive condition prescribed by Parliament. Reliance was also placed upon the observations of the Hon’ble Delhi High Court in National Association of Software & Services Companies (Nasscom) v. Deputy DIT (Exemptions) [2010] 130 TTJ 377 (Delhi), wherein, according to the learned DR, the Court recognised the independent field occupied by section 11(1)(c) and cautioned against interpretations that would render the provision otiose. The learned DR, therefore, submitted that the learned CIT(E) was justified in examining the assessee’s foreign expenditure and its compliance with the statutory framework while considering continuation of registration under section 12AB.

72. On the issue of cancellation of the existing registration, the learned DR submitted that where continuing violations are found to exist, the competent authority is empowered to take corrective action under the scheme of section 12AB and that the challenge raised by the assessee to the retrospective operation of the impugned order is misconceived. According to the Revenue, the impugned order is founded upon continuing and recurring violations and not upon any isolated or technical defect.

73. The learned DR further contended that the learned CIT(E) was justified in examining the affairs of the trust as a whole and was not required to consider each hospital unit in isolation. According to the Revenue, the application for registration and renewal was made by the trust itself and, therefore, the overall conduct and activities of all institutions operated under the trust were relevant for the purposes of adjudication under section 12AB.

74. We further note that the present appeals were heard along with the connected appeals in the case of Reliance Foundation Hospital Trust(supra) involving substantially similar issues arising out of orders passed by the learned CIT(E). The learned DR, while supporting the impugned order, adopted the submissions advanced by the Revenue in the said connected matters on the common issues relating to grant of registration under section 12AB and approval under section 80G, the scope of enquiry permissible to the learned CIT(E), the effect of compliance with the regulatory framework governing charitable hospitals and the validity of the observations recorded in the impugned order. The Revenue thus relied upon the reasoning adopted by the learned CIT(E) and prayed for sustaining the impugned order.

On Alleged violation of section 2(15) of the Act on the ground that the assessee is engaged in commercial activities and is providing high-end healthcare services

75. We have carefully considered the rival submissions, perused the material placed on record and examined the judicial precedents relied upon by the parties.

76. The foundation of the impugned order is that the assessee is operating a modern tertiary care hospital with sophisticated infrastructure, premium categories of rooms, substantial treatment charges and significant annual receipts and, therefore, according to the learned CIT(E), the activities of the assessee are commercial in nature and no longer retain the character of charitable activities within the meaning of section 2(15) of the Act.

77. In our considered view, the aforesaid approach proceeds on a fundamentally incorrect understanding of the statutory scheme governing charitable institutions engaged in medical relief.

78. Section 2(15) of the Act defines “charitable purpose” to include, inter alia, “medical relief”. The legislature has consciously treated medical relief as a distinct and independent head of charity. Unlike the residual category of “advancement of any other object of general public utility”, the concept of medical relief is not conditioned by considerations relating to trade, commerce or business in the manner contemplated for institutions falling under the residuary limb.

79. The Constitution Bench of the Hon’ble Supreme Court in Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority 449 ITR 1 (SC) recognised that section 2(15) contains distinct categories of charitable purposes and that the statutory treatment applicable to one category cannot automatically be imported into another. Similarly, the principles laid down in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1978] 121 ITR 1 (SC), Aditanar Educational Institution v. Addl. CIT 224 ITR 310 (SC) and Queen’s Educational Society v. CIT 372 ITR 699 (SC) establish that the existence of receipts, organised activities or generation of surplus does not by itself destroy charitable character. What is relevant is the dominant object and the application of income.

80. In the context of medical institutions, the Pune Bench of the Tribunal in ITO v. Lata Mangeshkar Medical Foundation [2017] (Pune – Trib.), subsequently affirmed by the Hon’ble Bombay High Court and against which the SLP preferred by the Revenue was dismissed by the Hon’ble Supreme Court, held that medical relief need not be confined only to poor persons and that so long as the institution is engaged in medical activities, it falls within the ambit of charitable purpose. Similar principles were recognised by the Mumbai Bench in ITO v. Kaushalya Medical Foundation [2009] 31 SOT 119 (Mumbai).

81. Applying the aforesaid principles to the facts of the present case, we find that there is no dispute whatsoever that the assessee is engaged in providing medical relief. The learned CIT(E) has not disputed the charitable objects of the trust. He has not held that the hospital is not functioning. He has not held that the medical services rendered are not genuine. He has not recorded any finding that the trust has abandoned its objects or diverted its activities towards non-charitable purposes.

82. On the contrary, the entire impugned order proceeds on the admitted position that the assessee is running a fully functional hospital and providing medical treatment. The objection of the learned CIT(E) is not to the existence of medical relief but to the cost, scale and sophistication of such medical relief.

83. In our view, neither section 2(15) nor any other provision of the Act prescribes that medical relief would qualify as charity only if it is inexpensive, only if it is provided through basic facilities, or only if it is affordable to every section of society. The Act does not create any distinction between primary healthcare and tertiary healthcare, between ordinary treatment and advanced treatment, or between basic hospitals and superspeciality hospitals.

84. The Co-ordinate Bench in Reliance Foundation Hospital Trust (supra) has succinctly explained the legal position in the following terms:

“The learned CIT(E) has also erred in treating affordability as a statutory precondition. No doubt, medical charity has a deep social content and access to healthcare for weaker sections is an important public value. However, the Income Tax Act does not prescribe that medical relief will qualify as charity only if it is provided at a particular price, or only if every service is affordable to the average household, or only if premium facilities are absent. A cancer hospital, a cardiac hospital, a transplant centre or a multi-speciality tertiary care institution may necessarily involve expensive treatment. That does not mean that the institution is not rendering medical relief. The law does not recognise a distinction between basic medical relief and advanced medical relief for the purpose of section 2(15). The moment the enquiry is shifted from ‘whether medical relief is being provided’ to ‘whether the medical relief is sufficiently inexpensive’, the authority travels beyond the statutory text. The learned CIT(E) has precisely committed this error.” (para 131)

85. We respectfully adopt the aforesaid reasoning.

86. The learned CIT(E) has also attached considerable significance to the existence of premium rooms, suites and higher-category accommodation. In our considered view, this factor by itself is wholly neutral. Different categories of accommodation are a recognised feature of modern hospital administration and cannot automatically lead to the conclusion that the institution is being run with a profit motive.In this regard, the Co-ordinate Bench observed as under:

“The learned CIT(E) has also attached considerable significance to the existence of premium rooms and higher-category accommodation. In our considered opinion, this factor by itself is legally neutral. The Act does not prohibit a charitable hospital from offering different categories of accommodation. Nor does it mandate a uniform tariff structure. What is material is whether the institution exists for private profit or whether its resources continue to remain dedicated to charitable purposes. The impugned order does not record any finding that income has been distributed to trustees, diverted for private benefit or applied for noncharitable purposes.” (para 94)

87. Equally important is the fact that the learned CIT(E) has not recorded any finding of private enrichment, diversion of income, siphoning of funds or application of income for non-charitable purposes. The entire receipts of the institution continue to remain dedicated to its stated objects.

88. The Co-ordinate Bench further held:

“What is relevant is whether the activity is carried out for private profit or whether the receipts remain dedicated to the charitable purpose. In the present case, there is no finding that the assessee has distributed profits, diverted income for private benefit, applied funds outside its objects or abandoned medical relief. Once these essential facts are absent, the conclusion that the assessee is not charitable merely because its hospital is large, sophisticated and financially substantial cannot be sustained.” (para 129)

89. The same principle squarely applies to the facts before us. Likewise, the mere existence of organised operations, professional management systems, large employee strength and substantial revenues cannot be treated as evidence of commerciality. A modern hospital necessarily requires highly qualified doctors, nurses, technicians, administrators and sophisticated medical equipment. Such organisational features demonstrate the scale of medical activity and not its non-charitable character.

90. As observed by the Co-ordinate Bench:

“Even where the activity of a charitable institution is carried on in an organised manner resembling business operations, the Act itself provides an answer in section 11(4A). In the case of a hospital, the carrying on of medical operations, charging of fees from patients, maintenance of accounts, employment of professional staff and acquisition of modern equipment are all integrally connected with the object of medical relief. They are not extraneous commercial adventures covered by section 11(4A).” (para 130)

91. The financial analysis undertaken by the learned CIT(E) also does not advance the Revenue’s case. Generation of surplus, assuming there is any surplus, is not determinative of charitable character. The settled law is that the destination and application of the surplus are relevant and not the mere existence of surplus. No material has been brought on record to establish that any part of the income has been distributed for private benefit or utilised for purposes alien to the objects of the trust.

92. The Co-ordinate Bench further explained:

“A charitable hospital may have paying patients, subsidised patients and free patients. It may use receipts from one segment to sustain services for another. It may receive donations and deploy them for infrastructure. It may charge full cost from those who can afford and provide relief to those who cannot. These are matters of institutional design and financial sustainability. The Income Tax Act does not prohibit such a model. What it prohibits is diversion of income, private enrichment, application of funds outside charitable purposes and violation of the discipline of sections 11 to 13. No such finding has been recorded in the impugned order. Therefore, the learned CIT(E)’s emphasis on the existence of premium-paying patients is not sufficient to dislodge the assessee’s charitable status.” (para 132)

93. At this stage it would be apposite to reiterate the statutory scheme governing charitable institutions under sections 11, 12, 12A and 12AB of the Act. The legislative framework proceeds on the recognition that a charitable institution may own and hold property under trust and may derive income therefrom. The expression “property held under trust” occurring in section 11 has consistently received a broad interpretation and includes not only immovable properties but also hospitals, educational institutions, business undertakings held under trust, investments and other assets capable of generating income. The Act does not prohibit a charitable institution from earning income. On the contrary, section 11 itself proceeds on the premise that income would arise from property held under trust and grants exemption in respect thereof subject to satisfaction of the prescribed conditions.

94. The central requirement of section 11(1)(a) is that the income derived from property held wholly for charitable or religious purposes must be applied towards such purposes in India. The statute itself permits accumulation of a specified portion of such income and contemplates application of at least 85% thereof towards the charitable objects of the institution. Thus, the legislative emphasis is not on the generation of income but on the utilisation and application of such income for the advancement of charitable purposes.

95. The statutory framework, therefore, clearly recognises that charitable institutions may generate substantial receipts in the course of carrying out their objects. A hospital engaged in medical relief may necessarily recover charges from patients, acquire sophisticated medical equipment, employ highly qualified medical professionals and create modern infrastructure for delivery of healthcare services. Likewise, educational institutions may collect fees from students and charitable organisations may derive income from investments and other assets held under trust. Mere generation of income, collection of fees or charges, creation of reserves, expansion of infrastructure or emergence of surplus in a particular year does not, by itself, detract from the charitable character of the institution so long as the dominant purpose continues to be charitable and the income is applied in accordance with the provisions of sections 11 to 13 of the Act.

96. In this regard, the Hon’ble Supreme Court in Surat Art Silk Cloth Manufacturers Association(supra) held that the decisive test is the dominant purpose of the institution and not the fact that income is generated in the course of carrying on its activities. Similar principles were reiterated in Aditanar Educational Institution(supra) and Queen’s Educational Society(supra), wherein it was held that the existence of surplus does not by itself establish a profit motive, provided such surplus is deployed towards the attainment and furtherance of the charitable objects of the institution.

97. Accordingly, under the statutory scheme, three aspects assume significance: firstly, the property must be held under trust for charitable purposes; secondly, income may legitimately arise from such property and from activities undertaken in furtherance of the charitable objects; and thirdly, such income must be substantially applied towards those charitable purposes in accordance with section 11 of the Act. Once these conditions stand satisfied, neither the magnitude of receipts, nor the scale of operations, nor the existence of surplus can, in isolation, justify an inference that the institution has ceased to exist for charitable purposes.

98. Having regard to the statutory provisions, the judicial precedents discussed above and the undisputed factual position that the assessee continues to carry on genuine activities of medical relief in accordance with its objects, we are unable to sustain the conclusion of the learned CIT(E) that the assessee’s activities are not charitable merely because the hospital provides advanced healthcare services, charges fees from patients, maintains sophisticated infrastructure or generates substantial receipts.

99. Accordingly, the finding of the learned CIT(E) that the assessee has violated section 2(15) of the Act and has ceased to be engaged in charitable activities is unsustainable in law and is hereby set aside.

On alleged non-compliance with Section 41AA of the Maharashtra Public Trusts Act and the IPF Scheme

100. At the outset, it is necessary to appreciate the true nature of the allegation levelled by the learned CIT(E). The gravamen of the impugned order is not that the assessee has ceased to carry on the activity of medical relief. Nor is it the case of the learned CIT(E) that the hospital is not functioning or that medical treatment is not being provided. The allegation proceeds on the basis that the assessee has allegedly not achieved the prescribed percentage of indigent and economically weaker section patients contemplated under the scheme framed under section 41AA of the Maharashtra Public Trusts Act, 1950 and, therefore, has failed to comply with a law material for achieving its objects.

101. While dealing with an identical issue in the case of Reliance Foundation Hospital Trust (supra), the co-ordinate Bench extensively examined the statutory framework of section 41AA and the Indigent Patient Fund (IPF) Scheme. The Bench recorded the following findings:

“In the present case, despite extensive arguments advanced by the Revenue, we have not been shown any order of the Charity Commissioner, any determination by an authority functioning under the Maharashtra Public Trusts Act, any decree of a competent forum, or any final adjudication holding that the assessee has violated section 41AA or the IPF Scheme. This fact assumes immense significance because section 41AA is not a provision under the Income Tax Act. It forms part of a specialised regulatory framework governing charitable hospitals in the State of Maharashtra. The legislature has entrusted administration of that framework to specific authorities possessing expertise, statutory powers and institutional responsibility under that enactment. The learned CIT(E), however, has independently interpreted the scheme, analysed patient ratios, computed alleged deficiencies, concluded that there exists a shortfall and thereafter held that the assessee has violated the law. In effect, he has assumed unto himself the role of the primary adjudicatory authority under another enactment. Such an approach, in our considered opinion, travels beyond the scheme contemplated by section 12AB.” (para 99)

“The argument of the Revenue that the Commissioner is entitled to independently satisfy himself regarding compliance with another law cannot be accepted in the broad manner canvassed before us. If such an interpretation were accepted, the Commissioner would effectively become a parallel regulator under every enactment applicable to a charitable institution. A trust may be subject to municipal laws, environmental laws, labour laws, medical regulations, educational regulations, building regulations and a host of other statutory frameworks. To hold that the Commissioner may independently adjudicate alleged violations under each of these enactments and then proceed to cancel registration on that basis would not only render the safeguards incorporated by Parliament redundant but would also create an unworkable and potentially arbitrary regime. The law does not contemplate the Commissioner functioning as a super-regulator exercising appellate or original jurisdiction over specialised statutory authorities. Such a consequence would be contrary to both legislative intent and principles of institutional competence.” (para 100)

“There is another equally important aspect of the matter. Even assuming for a moment that the learned CIT(E) was entitled to examine whether the requirements of section 41AA were being broadly observed, the conclusions ultimately reached by him proceed upon a particular interpretation of the IPF Scheme, namely that actual utilisation of beds by indigent and economically weaker section patients constitutes the sole measure of compliance. The assessee, on the other hand, has consistently contended that the scheme mandates reservation and earmarking of beds and not guaranteed occupancy. Upon a careful examination of the material placed before us, we find substantial force in the assessee’s submission that the learned CIT(E) has conflated the concept of reservation with that of utilisation. The distinction is not merely semantic. A hospital may reserve and keep available the prescribed number of beds and yet the actual occupancy may vary depending upon factors beyond its control. To automatically equate lower occupancy with statutory violation would require a clear mandate in the scheme itself. We do not find such a mandate reflected in the material brought before us.” (para 101)

102. The aforesaid observations are directly relevant. Section 41AA itself does not prescribe that at all times 20% of actual admissions must necessarily consist of indigent and weaker section patients. The scheme essentially requires reservation and earmarking of specified facilities and creates a regulatory mechanism under the supervision of the Charity Commissioner. Consequently, if there is any perceived inadequacy in the design, operation or implementation of the scheme, such issue pertains to the regulatory framework administered under the Maharashtra Public Trusts Act.

103. The Co-ordinate Bench in Reliance Foundation Hospital Trust has clearly recognised that the learned CIT(E) proceeded on the premise that actual utilisation alone is the test of compliance. However, the scheme itself contemplates reservation and availability of facilities. Therefore, the alleged shortfall noticed by the learned CIT(E) arises not from any demonstrated cessation of charitable activity but from the particular interpretation adopted by him of the scheme framed under section 41AA.

104. Viewed from another perspective, the very data placed on record by the assessee demonstrates the practical limitations inherent in insisting upon actual occupancy of all earmarked indigent-patient beds at all times. The learned Authorised Representative drew our attention to the dashboard maintained by the Government of Maharashtra on the Charitable Hospital Helpdesk portal, which reflects the statewide position of charitable hospitals covered under the regulatory framework. As per the latest data available on the said portal, there are 488 charitable hospitals having an aggregate bed capacity of 12,763 beds, out of which 10,600 beds are shown as available. Thus, nearly 83% of the total bed capacity across the charitable hospital sector remains unoccupied at the current point of time. This factual position itself demonstrates that non-occupancy of beds cannot automatically be equated with refusal of treatment or breach of charitable obligations. Occupancy levels are dependent upon numerous factors such as patient inflow, disease patterns, geographical location, speciality of treatment, referral systems and prevailing healthcare conditions, all of which are beyond the control of an individual hospital. Therefore, the mere fact that all earmarked beds are not occupied throughout the year cannot, by itself, justify an inference that the institution has abandoned its charitable character or ceased to carry on activities of medical relief.

105. Viewed thus, even assuming that the percentages of actual occupancy by indigent or weaker-section patients fall below the benchmarks prescribed under the applicable regulatory framework, such circumstance by itself cannot lead to the conclusion that the assessee has ceased to carry on charitable activities or that registration under section 12AB deserves to be denied, refused or cancelled. More importantly, the question whether there has been compliance with the obligations arising under section 41AA of the Maharashtra Public Trusts Act and the relevant IPF Scheme falls within the domain of the authorities entrusted with administration and enforcement of the said enactment. The Co-ordinate Bench in Reliance Foundation Hospital Trust has specifically held that the learned CIT(E) cannot substitute himself for the statutory authorities administering the Maharashtra Public Trusts Act and cannot independently adjudicate alleged violations thereunder for the purpose of withdrawing charitable registration under the Incometax Act. Consequently, the alleged shortfall in occupancy, even if assumed to exist, cannot furnish a valid basis for holding that the assessee’s activities are no longer charitable within the meaning of section 2(15) or for cancelling the registration granted under section 12AB of the Act.

106. Accordingly, following the aforesaid decision, we hold that the finding of the learned CIT(E) proceeds upon an erroneous understanding of the scope and operation of the scheme framed under section 41AA. If at all any deficiency is perceived in the manner in which actual utilisation is measured vis-a-vis reserved facilities, the same lies within the regulatory domain of the scheme and the authorities administering the Maharashtra Public Trusts Act, as canvased by the assessee. Such perceived deficiency cannot, by itself, furnish a valid basis for holding that the assessee has ceased to exist for charitable purposes or for denying the benefit of registration under section 12AB of the Act. Therefore, finding recorded by the learned CIT(E) on this issue is therefore set aside.

Alleged violation of Section 11(1)(c) of the Act by application of funds outside India without approval of CBDT

107. We shall now deal with the third objection of the learned CIT(E), namely that the assessee has allegedly violated the provisions of section 11(1)(c) of the Act by incurring expenditure outside India without obtaining prior approval of the Central Board of Direct Taxes and, therefore, was not entitled to renewal of registration under section 12AB.

108. The learned CIT(E) has proceeded on the premise that certain expenditure incurred by the assessee outside India towards acquisition of medical equipment and capital assets, import of drugs and consumables, travel and related expenses, and healthcare facilitation services constituted application of income outside India within the meaning of section 11(1)(c) of the Act. According to him, in the absence of approval from the CBDT, such expenditure resulted in violation of section 11(1)(c) and consequently rendered the assessee ineligible for continuation of registration.

109. Before examining the facts, it would be appropriate to notice the statutory scheme. Section 11(1)(a) grants exemption in respect of income derived from property held under trust wholly for charitable purposes to the extent such income is applied to such purposes in India. Section 11(1)(c) is an enabling provision which extends the benefit of exemption in certain specified circumstances where income is applied outside India for charitable purposes subject to fulfilment of prescribed conditions and approval of the Board. The provision regulates the availability of exemption in respect of such expenditure while computing taxable income. The provision does not deal with grant, renewal or cancellation of registration under section 12AB.

110. The distinction between application of income outside India and application of income for purposes outside India assumes significance. What is relevant under section 11 is the purpose for which the expenditure is incurred. Merely because payment is made to a foreign vendor or expenditure is incurred outside India does not necessarily lead to the conclusion that the charitable purpose itself is situated outside India.

111. The assessee has explained that the expenditure referred to by the learned CIT(E) substantially relates to procurement of medical equipment, hospital infrastructure, drugs, consumables, diagnostic systems and other facilities utilised in hospitals operated by the assessee in India. It has also been explained that travel-related expenses were either reimbursed or were incurred in connection with the functioning of hospitals in India. Thus, according to the assessee, the ultimate charitable purpose and beneficiary remained within India notwithstanding that certain payments were made abroad.

112. In support of the aforesaid proposition, reliance was placed upon the decision of the Delhi High Court in M.K. Nambyar SAARF Law Charitable Trust(supra). The relevant observations reproduced by the assessee read as under:

“So far as income which is applied outside India is concerned, is not a relevant criteria for rejecting the application. In absence of order under section 11(1)(a)/(c), one cannot seek benefit for application of income for charitable or religious purposes outside India. Therefore, the order dated 24-2-2004 made by the Director of Income-tax (Exemptions) which is based on irrelevant criteria is quashed and set aside with a direction to consider the application strictly in accordance with law.” (para 3)

113. The assessee also relied upon the decision of the Coordinate Bench in Gem & Jewellery Export Promotion Council(supra) wherein the Tribunal explained the distinction between the place where expenditure is incurred and the place where the charitable purpose is achieved. The relevant observations relied upon by the assessee are reproduced below:

“A bare reading of section 11(1)(a) does not leave us in doubt that the requirement under section 11 is for application of income for purposes in India and it does not restrict the application of income within the territory of India. The charitable purpose for which the income should be applied for claiming exemption under section 11(1)(a) should be in India.” (para 33)

114. Further, while explaining the principle, the Co-ordinate Bench observed:

“The mere fact that the expenditure has been incurred abroad does not disqualify the Trust from claiming that the expenditure has been incurred for the purposes in India.” (para 33)

115. Reliance was also placed upon National Informatics Centre Services Inc.(supra) wherein it was held that the mere existence of objects permitting activities outside India or expenditure outside India cannot by itself furnish a ground for refusal of registration in the absence of material establishing that activities have actually been carried on outside India in violation of law.

116. We find considerable force in the aforesaid submissions. The issue before the learned CIT(E) was not assessment of exemption under section 11 in a particular assessment year. The proceedings before him concerned renewal of registration under section 12AB. The scope of enquiry under section 12AB is confined to examination of the objects of the institution and the genuineness of its activities together with the existence of any specified violation contemplated by the statute.

117. Even assuming that the Revenue’s interpretation of section 11(1)(c) is accepted for the sake of argument, the consequence would ordinarily arise while examining the allowability of exemption in a particular assessment year. Whether a particular item of expenditure constitutes application outside India, whether approval of the Board was required, and what tax consequences follow therefrom are matters falling within the domain of assessment proceedings. Such questions do not automatically establish that the activities of the institution are not genuine or that its charitable character stands extinguished.

118. More importantly, the material placed before us shows that the expenditure referred to by the learned CIT(E) relates predominantly to procurement of medical equipment, drugs, consumables and hospital facilities utilised in providing medical relief in India. The charitable purpose for which such expenditure was incurred remained the operation of hospitals and rendering of medical relief within India. Therefore, merely because payments were made to entities situated outside India, it cannot ipso facto be concluded that the assessee applied its income for charitable purposes outside India.

119. We also note that the learned CIT(E) himself had earlier initiated proceedings under section 12AB(4) on substantially similar allegations concerning expenditure outside India. After examining the assessee’s explanation, supporting documents, bank statements, ledgers and other evidence, those proceedings were dropped by order dated 15.07.2025. The relevant conclusion recorded therein was that the expenditure incurred outside India was towards purchase of medical equipment, drugs, consumables and diagnostic systems utilised for supporting the medical services rendered by the assessee in India and that the issues raised in the show cause notice stood satisfactorily explained. The Revenue has not brought any material on record demonstrating any change in facts thereafter.

120. We shall now deal with the principal contention advanced on behalf of the Revenue that the assessee has admittedly applied funds outside India without obtaining approval of the CBDT under section 11(1)(c) and, therefore, did not satisfy the statutory conditions governing continuation of registration under section 12AB. The learned DR submitted that section 11(1)(c) prescribes a mandatory statutory condition and that the expenditure admittedly incurred outside India towards acquisition of medical equipment, import of drugs and consumables, travel-related expenditure and healthcare facilitation activities constituted actual application of income outside India. It was contended that once such expenditure stood admitted and no approval of the CBDT was produced, the learned CIT(E) was justified in treating the assessee as having failed to satisfy the statutory framework applicable to charitable institutions.

121. The learned DR further contended that the assessee’s plea that the expenditure incurred abroad was merely ancillary or incidental to its principal object of providing medical relief in India was misconceived. According to the Revenue, the test under section 11(1)(c) is not whether the expenditure ultimately benefits charitable activities in India but whether income has been applied outside India and, if so, whether the statutory approval contemplated by the provision has been obtained. Reliance was also placed upon the decision of the Hon’ble Delhi High Court in NASSCOM and the decision of the Co-ordinate Bench of the Tribunal in Sila for Change Foundation(supra) to contend that compliance with statutory requirements is an integral part of the examination contemplated under section 12AB.

122. We have given our thoughtful consideration to the aforesaid submissions. In our considered view, the Revenue’s argument proceeds on the assumption that every alleged infraction of section 11 necessarily furnishes a ground for refusal or withdrawal of registration under section 12AB. Such an interpretation does not emerge from the statutory scheme. The provisions of sections 11 and 12AB operate in distinct though interconnected fields. Section 11 governs the availability and computation of exemption in a particular assessment year and determines the extent to which income derived from property held under trust qualifies for exemption. Section 12AB, on the other hand, is concerned with the existence of the institution as a charitable entity, the charitable nature of its objects and the genuineness of its activities.

123. It is true that compliance with the provisions of the Act may be relevant while examining an application under section 12AB. However, the enquiry contemplated therein cannot be divorced from the statutory grounds on which registration may be granted, continued or withdrawn. The Commissioner is required to satisfy himself regarding the objects of the trust and the genuineness of its activities. An alleged violation of section 11, by itself, does not automatically establish that the objects of the institution have ceased to be charitable or that its activities are not genuine. Whether a particular expenditure qualifies as application of income, whether exemption is available in respect thereof and what consequences follow from non-compliance with section 11 are matters which ordinarily fall within the domain of assessment proceedings.

124. We also find considerable force in the assessee’s contention that Parliament, while introducing the comprehensive framework of section 12AB through the Finance Act, 2021, consciously identified certain defaults as “specified violations” warranting cancellation proceedings. Explanation 1 to section 12AB(4) exhaustively enumerates the circumstances which constitute specified violations. Admittedly, an alleged violation of section 11(1)(c) does not find place amongst the specified violations so enumerated. Though the absence of a particular violation from the said Explanation may not be conclusive in every case, it nevertheless furnishes a strong indication that Parliament did not intend every alleged infraction of section 11 to automatically result in denial, cancellation or withdrawal of registration.

125. The learned DR contended that even if an alleged violation of section 11(1)(c) does not fall within the ambit of “specified violation” as defined in Explanation 1 to section 12AB(4), the learned CIT(E) was nevertheless competent to examine the issue while considering renewal of registration under section 12AB(1). There can be no quarrel with the proposition that, while exercising jurisdiction under section 12AB(1), the Commissioner is entitled to examine not only the charitable nature of the objects and the genuineness of the activities but also such statutory requirements as are relevant for determining whether the institution continues to satisfy the conditions governing registration. However, the scope of such enquiry must ultimately remain linked to the statutory considerations embodied in section 12AB, namely the charitable character of the institution, the genuineness of its activities and compliance with requirements material for achieving its objects. The mere existence of a dispute regarding the applicability of section 11 to a particular item of expenditure cannot, without anything further, lead to the conclusion that the institution has ceased to pursue charitable objects or that its activities are not genuine.

126. In the present case, the learned CIT(E) has not recorded any finding that the assessee’s objects have ceased to be charitable. Nor has he recorded any finding that the activities of medical relief carried on by the assessee are not genuine, are being conducted for private profit or are otherwise inconsistent with the objects for which the institution was established. The hospitals established and operated by the assessee continue to provide medical services in furtherance of its stated objects. The entire objection proceeds on the footing that certain expenditure incurred outside India may not satisfy the requirements of section 11(1)(c). Even assuming such objection to be correct, the consequence would ordinarily relate to the determination of exemption available under section 11 in the relevant assessment proceedings. By itself, such an issue does not establish either absence of charitable objects or lack of genuineness of activities so as to justify refusal of renewal under section 12AB.

127. We also find it significant that while enacting the framework of section 12AB(4), Parliament identified certain defaults as “specified violations” warranting cancellation proceedings. Admittedly, an alleged infraction of section 11(1)(c) does not find place amongst the specified violations enumerated in Explanation 1. Though such omission may not by itself be conclusive, it nevertheless indicates that Parliament did not intend every dispute relating to application of income under section 11 to automatically assume the character of a ground for denial or cancellation of registration. The legislative scheme, therefore, does not support the proposition that every dispute concerning application of income under section 11 must necessarily assume the character of a ground for denial or cancellation of registration.

128. We have also carefully considered the decision of the Coordinate Bench in Sila for Change Foundation (supra) relied upon by the learned DR. There can be no dispute with the principle recognised therein that, after the amendments introduced by the Finance Act, 2021, the Commissioner is entitled to examine compliance with statutory requirements while exercising jurisdiction under section 12AB and that the scope of enquiry is not confined merely to a mechanical examination of the trust deed. However, the said decision was rendered in the context of an assessee seeking regular registration where the trust deed itself contained an object clause authorising activities outside India and the assessee had not amended the said clause despite specific objections raised by the Commissioner. The decision cannot be read as laying down a proposition that every alleged infraction of the Act, irrespective of its nature and irrespective of its impact on the charitable objects or genuineness of activities, automatically warrants denial or cancellation of registration. On the contrary, the satisfaction contemplated under section 12AB must still be founded upon the statutory criteria governing registration.

129. Similarly, the reliance placed by the Revenue on the decision of the Hon’ble Delhi High Court in National Association of Software and Service Companies (NASSCOM) (supra) is misplaced in the facts of the present case. The observations relied upon by the Revenue were rendered in the context of interpretation and application of sections 11(1)(a) and 11(1)(c) and the conditions governing availability of exemption where income is applied outside India. The controversy before the Hon’ble High Court related to the allowability of exemption under section 11 and the scope of the statutory requirement contained in section 11(1)(c). The issue before us, however, is materially different. We are not concerned with the computation of exempt income or the allowability of exemption in a particular assessment year but with the validity of refusal of renewal of registration under section 12AB.More importantly, in the present case, the expenditure identified by the learned CIT(E) principally relates to acquisition of medical equipment, import of drugs, consumables and diagnostic systems, travel-related expenditure and healthcare facilitation arrangements undertaken for operating and strengthening hospitals situated in India and for carrying on the assessee’s activities of medical relief in India. The learned CIT(E) has not recorded any finding that the assessee carried on independent charitable activities outside India or that its charitable objects were pursued outside India. The question whether a particular item of expenditure constitutes application of income outside India and the consequences flowing therefrom may undoubtedly arise in assessment proceedings while examining entitlement to exemption under section 11. However, the decision in NASSCOM does not lay down that every dispute concerning section 11(1)(c), irrespective of its nature, automatically affects the charitable character of an institution or constitutes a valid ground for denial or cancellation of registration under section 12AB. We are therefore unable to accept the Revenue’s reliance upon the said decision in support of the impugned order.

130. We therefore find that neither of the authorities relied upon by the learned DR supports the proposition that the assessee’s registration could be denied or cancelled merely because the learned CIT(E) entertained a view that certain expenditure incurred outside India may attract section 11(1)(c), particularly when no finding has been recorded that such expenditure altered the charitable character of the institution, affected the genuineness of its activities or resulted in non-compliance with any requirement material for achieving its objects and the earlier proceedings initiated on the very same issue had already been dropped by the competent authority.

131. There is yet another aspect of the matter. The expenditure identified by the learned CIT(E) principally comprises acquisition of medical equipment and capital assets, import of drugs, consumables and diagnostic systems, travel-related expenditure and healthcare facilitation charges. The consistent stand of the assessee has been that such expenditure was incurred for operating and strengthening hospitals situated in India and for providing medical relief in India. Significantly, the learned CIT(E) has not recorded any finding that the assessee carried on any independent charitable activity outside India or that the charitable purpose itself was pursued outside India. The objection proceeds essentially on the premise that certain payments were made outside India and, therefore, attracted the provisions of section 11(1)(c). Even assuming such a view to be possible, the issue would still remain one concerning the application of section 11 and the availability of exemption in the relevant assessment year.

132. It is further seen from the record that substantially the same issue concerning expenditure incurred outside India had earlier been examined by the learned CIT(E) in proceedings initiated under section 12AB(4). After considering the assessee’s explanation, supporting material and the nature of the expenditure incurred, the learned CIT(E), by order dated 15.07.2025, dropped the proceedings. Thus, the competent authority had already examined the very issue and consciously chose not to invoke the cancellation provisions.

133. In these circumstances, the same facts, in the absence of any fresh material or any finding affecting the charitable nature of the objects or the genuineness of the activities, could not have been relied upon as an independent basis for refusing renewal under section 12AB(1), particularly when no finding has been recorded that the assessee’s objects have ceased to be charitable, that its activities of medical relief are not genuine, or that the expenditure in question has resulted in abandonment of the charitable purposes for which the institution was established. Having regard to the statutory scheme of sections 11 and 12AB, the nature of the expenditure incurred by the assessee, the legislative framework governing specified violations, the judicial precedents discussed hereinbefore and the earlier order dated 15.07.2025 dropping proceedings on the same issue, we are unable to uphold the conclusion of the learned CIT(E) that the alleged infraction of section 11(1)(c) constituted a valid ground for refusing renewal of registration. The finding recorded by the learned CIT(E) on this issue is accordingly set aside.

On the issue of retrospective cancellation from 24.09.2021

134. At this stage it is necessary to consider whether, assuming the learned CIT(E) possessed the jurisdiction to cancel the registration, such cancellation could at all have been directed to operate retrospectively from the date of original grant.

135. The scheme of section 12AB contemplates grant, renewal and cancellation of registration. Cancellation undoubtedly has serious consequences, but cancellation with retrospective effect stands on an altogether different footing. Such action not only affects future entitlement but seeks to nullify a registration that had already been granted and had remained operative for a substantial period. Therefore, retrospective cancellation requires a much stronger factual and legal foundation than what may ordinarily be required for refusing renewal or for prospective withdrawal of registration.

136. In this regard, the Co-ordinate Bench in Reliance Foundation Hospital Trust (supra) observed as under:

“117. Having dealt with the two substantive pillars upon which the impugned order rests, namely the alleged violation of section 41AA and the conclusion that the assessee has ceased to be charitable because of its operational and financial profile, we now turn to the consequential action taken by the learned CIT(E), namely cancellation of the registration already granted under section 12AB with retrospective effect from 23.09.2021. In our considered opinion, cancellation of registration with retrospective effect requires an independent examination because even assuming for the sake of argument that some concerns existed regarding the functioning of the institution, it does not automatically follow that registration validly granted several years earlier could be obliterated from its inception. The distinction between refusal of renewal and retrospective cancellation is not merely procedural; it goes to the very nature and consequences of the power exercised. A renewal proceeding proceeds on the footing that registration exists and the authority is required to examine whether it should continue. Retrospective cancellation, on the other hand, proceeds on a far more serious premise, namely that the registration already granted deserves to be nullified from the very date of its grant. Such a consequence necessarily requires a far stronger legal and factual foundation than what would ordinarily be required in a simple renewal proceeding.”

137. The Co-ordinate Bench thereafter noted that where the allegations themselves pertain to subsequent years, cancellation from the date of original registration becomes inherently incongruous:

“118. A careful reading of the impugned order shows that the entire exercise undertaken by the learned CIT(E) arose from the assessee’s application seeking renewal of registration. The findings recorded in the impugned order are themselves founded on data relating to Financial Years 2022-23, 2023-24 and 2024-25. However, despite the fact that the entire factual examination concerns subsequent years, the ultimate consequence imposed is cancellation of registration from 23.09.2021. This, in our opinion, creates a serious disconnect between the material relied upon and the consequence ultimately imposed.”

138. The Co-ordinate Bench further emphasised that retrospective cancellation necessarily presupposes some defect in the original grant itself, such as fraud, suppression or misrepresentation:

“119. It is important to note that nowhere in the impugned order has the learned CIT(E) recorded a finding that the registration granted on 23.09.2021 was obtained by fraud, suppression of material facts, misrepresentation or concealment of relevant information. There is no finding that the assessee had misled the Department while obtaining registration. There is no finding that the objects of the trust as disclosed at the time of grant were false or fictitious. There is no finding that the hospital was not carrying on medical relief activities at the time registration was granted. There is equally no finding that the registration itself was void ab initio. In the absence of such findings, it becomes difficult to appreciate how the registration could be retrospectively extinguished from the date of its inception. The logic underlying retrospective cancellation necessarily presupposes that something was fundamentally wrong with the grant itself or that the foundation on which it rested stood vitiated from the beginning. The impugned order, however, does not identify any such foundational defect.”

139. Applying the aforesaid principles, we find that the impugned order nowhere records any finding that the registration originally granted to the assessee was obtained by fraud, misrepresentation, suppression of material facts or furnishing of false particulars. Nor is there any finding that the objects of the assessee were non-charitable when registration was originally granted.

140. On the contrary, the allegations relied upon by the learned CIT(E) pertain to the subsequent conduct of the institution and the manner in which its activities were allegedly carried on. Even assuming such allegations were capable of examination under section 12AB, they could not, by themselves, justify nullifying a registration from the very date of its original grant unless it was demonstrated that the registration itself was vitiated at inception.

141. The power to cancel registration cannot be exercised so as to rewrite legal history. A registration validly granted by a competent authority carries with it a presumption of validity and legality. Unless the very foundation of the grant is shown to be defective, retrospective cancellation would amount to treating a valid statutory registration as though it never existed, a consequence which cannot be lightly inferred.

142. We further note that the proceedings before the learned CIT(E) originated from an application seeking renewal of registration. A renewal proceeding proceeds on the assumption that a valid registration already exists. Such proceedings cannot ordinarily be converted into proceedings for annulment of the original registration from inception without satisfying the strict jurisdictional and factual requirements necessary for such drastic action.

143. Accordingly, even independently of our findings on the merits of the alleged violations, we hold that the learned CIT(E) was not justified in cancelling the assessee’s registration retrospectively from 24.09.2021. The retrospective cancellation is therefore liable to be quashed on this ground also.The impugned order is therefore set aside and the learned CIT(E) is directed to grant/continue the registration sought by the assessee in accordance with law.

144. In view of the foregoing discussion, we hold that none of the reasons assigned by the learned CIT(E) for refusing renewal of registration and cancelling the existing registration under section 12AB of the Act can be sustained.

145. Accordingly, the impugned order passed by the learned CIT(E) refusing renewal of registration and cancelling the existing registration granted to the assessee under section 12AB is set aside. The learned CIT(E) is directed to continue/renew the registration of the assessee in accordance with law. The grounds raised by the assessee challenging the refusal of renewal and cancellation of registration under section 12AB are allowed.

ITA No. 4053/Mum/2026

146. The assessee has also challenged the order of the learned CIT(E) rejecting approval under section 80G of the Act. A perusal of the impugned order reveals that the rejection of approval under section 80G is not founded upon any independent examination of the conditions prescribed under section 80G(5). The approval has been denied solely because the learned CIT(E) held that the assessee was not entitled to registration under section 12AB and had further proceeded to cancel the existing registration.

147. We have already held in the preceding paragraphs that the findings recorded by the learned CIT(E) regarding violation of section 2(15), alleged non-compliance with the provisions of the Maharashtra Public Trusts Act and alleged violation of section 11(1)(c) are unsustainable in law. We have further held that the cancellation of the existing registration granted under section 12AB with retrospective effect from 24.09.2021 is without jurisdiction and contrary to law. Consequently, the very foundation on which approval under section 80G has been denied no longer survives.

148. It is pertinent to note that section 80G and section 12AB operate in the same statutory framework governing charitable institutions. Once the assessee is held entitled to registration under section 12AB and continues to carry on genuine charitable activities in accordance with its objects, denial of approval under section 80G merely on account of the impugned findings regarding registration cannot be sustained.

149. We also note that the learned CIT(E) has not recorded any independent finding that the assessee has failed to satisfy any of the conditions prescribed under section 80G(5) of the Act. There is no finding regarding diversion of funds, non-genuine activities, violation of the conditions governing donations or any other statutory disqualification contemplated under section 80G. The rejection is purely consequential to the denial of registration under section 12AB.

150. In these circumstances, once the order refusing renewal and cancelling the registration under section 12AB is set aside, the consequential rejection of approval under section 80G also cannot survive. Accordingly, the impugned order rejecting approval under section 80G is set aside.

151. Since no independent adverse finding survives against the assessee and the denial of approval was solely consequential to the refusal of registration under section 12AB, we direct the learned CIT(E) to grant/renew approval under section 80G of the Act in accordance with law.

152. Accordingly, the grounds raised by the assessee challenging rejection of approval under section 80G are allowed.

SA No.65/Mum/2026

153. Since we have allowed the appeals of the assessee and set aside the impugned orders passed by the learned CIT(E) refusing renewal/cancellation of registration under section 12AB and consequential denial of approval under section 80G of the Act, the relief sought in the present stay application no longer survives for consideration.

154. Accordingly, the stay application filed by the assessee has become infructuous and is dismissed as such.

155. In the combined result, ITA Nos. 4053/Mum/2026 and 4054/Mum/2026 are allowed and the Stay Application (SA No.65/Mum/2026) is dismissed as infructuous.