No Exemption u/s 10(23C) to Hospital if rates being charged are at par with other hospitals which run on commercial basis : Supreme Court

ORDER

1. The short question which arises for consideration is the claim of the appellant for benefit under section 10 (23C) (via) of the Income-tax Act, 1961 for the assessment years 1999-2000 to 2002- 2003. The benefits in terms of the section are available to any hospital existing solely for philanthropic purposes and not for purposes of profit.

2. We may note that this was the position which existed even earlier under section 10 (22A) prior to the amended provision under the Finance (No.2) Act, 1998 with effect from 1-4-1999. The only change which was made was requiring it “may be approved by the prescribed authority”. It appears that the legislative intent of the same was that considering the experience over some years it may have been felt that some entities which were not entitled to it were availing of the benefit.

3. We say so aforesaid because one of the arguments of learned senior counsel for the appellant is that the appellant has been granted benefit for earlier ten years but then we put to learned counsel that the same cannot ipso facto entitle the appellant for the benefit in the relevant assessment years.

4. On perusal of the order passed by the Chief Commissioner, Income Tax- II, Pune, dated 31.3.2005, the exemption has been denied. The denial of the exemption has been upheld by the High Court in terms of the impugned judgment dated 5-12-2005.

5. There is a dual reasoning permeating both the orders which seek to deny the exemption. Firstly, that remuneration has been paid from the earnings of the IPD to the doctors who may not be working in that department and, secondly, that the rates being charged by the appellant are at par with other hospitals which run on commercial basis.

6. Insofar as the second aspect is concerned, learned counsel for the appellant sought to canvas that there was no basis for the same and even when information was sought in this behalf after the order was passed by the Commissioner with a letter dated 12.5.2005 there was no response. In the counter affidavit also nothing has been set out in this behalf.

7. If the aforesaid had been the only matter to be tested, we may have been inclined to remit the matter on account of failure to disclose the relevant information which form the basis of that conclusion. However, that is not the only reason and it is not as if the requirement is for the twin reasons to exist in order to denying the benefit to the appellant. Each one of these reasons could have been sufficient.

8. In our view the most material aspect is the first one set out above and that too on the basis of what we perceived to be an admission of the appellant emerging from the pleadings in the writ petition filed before the High Court. In order to appreciate the same, we consider it appropriate to reproduce paragraph No.3(x) & (xi) as under:-

“3 (x) The scheme of the remuneration payable to the Doctors from OPD and IPD has been devised in a manner where all the Doctors are paid 50% of the receipt from the patients visiting for consultation in OPD (Out Patient Department), except consultants of minor branches where 70% of the receipts are paid to them. With regard to IPD patients receipts, the remuneration payable to member Doctors vary from 20% to 30% depending on the qualification (Super Specialists Consultants-30%, Non-surgical consultants having no personal nursing homes-25%, all other Doctors including surgeons and consultants having their personal nursing homes- 20%).

(xi) The 20% to 30% professional charges/remuneration payable to Doctors/Consultants as mentioned above is out of the net collection, which is worked out, after deducting from the receipts of the IPD patients , certain payments, on account of Pathology/Radiology/OT charges etc. However, the receipts on account of Bed/room charges, injection charges, saline charges, oxygen charges, ECG charges, attendant charges, set charges are taken into account for arriving at the net collection figure and such shares (of 20% – 30% of net collection) have been paid to the concerned consultants (Physical/Specialist/Surgeons). Thus, apart from the consultancy charges received in OPD, the member doctors, some of whom are also Directors, have received shares from the collection made from the IPD patients by the Hospital ranging from 20% to 30%.”

9. A reading of the aforesaid leaves no manner of doubt that while referring to the remuneration payable to member doctors with regard to IPD patients receipts, the same is not confined to the doctors performing the task. Learned counsel for the appellant did seek to canvas, despite this, as if only doctors performing the task in the IPD are paid. However, that would run contrary to the own pleading of the appellant specially towards the end of paragraph (xi) extracted aforesaid which makes it clear that the receipts from IPD are distributed across the board for doctors.

10. We are, thus, of the view that the decision on facts made by the competent authority and as affirmed by the High Court cannot be said to be perverse or having complete absence of rationality for us to interfere in the same.

11. We make it clear that if the appellant wants to rectify the position, as emerging from aforesaid, that would not preclude the appellant from claiming exemptions for relevant subsequent years.

12. The civil appeal stands dismissed accordingly.

ORDER

1. Civil appeal is dismissed in terms of the signed order. Pending application(s), if any, stands disposed of.