Exempiton U/s 10 (23C)(VIA) OF Income Tax Act allowable only when existance of claimant is for philanthropic purpose

A plain reading of the aforesaid provision makes it clear that the legislature has categorised for deduction income of those institutions which “exist solely” for philanthropic purpose with a further stipulation that they would exist “not for the purpose of profit”. 

The present petition was filed against the impugned order rejecting the petitioner’s (hospital) application for grant of approval under section 10 (23C)(via) of the Income Tax Act, 1961 (Act) for A.Y.2009-10 on the ground that the primary requirement of section 10 (23C) that the petitioner was established for philanthropic purposes did not get fulfilled as found evident from the creation of capital assets from the surplus funds. It was the case of Revenue that during the relevant assessment years there was a significant increase in asset base along with generation of surplus showing systematic generation of profits from the activities of the trust and the increase in assets helped the petitioner to generate more income and profits.

The issue to be considered was as to whether Revenue was correct in its holding that the petitioner was not entitled for an approval under section 10 (23C)(via) of the Act. 

A plain reading of the aforesaid provision makes it clear that the legislature has categorised for deduction income of those institutions which “exist solely” for philanthropic purpose with a further stipulation that they would exist “not for the purpose of profit”. In other words, the institution should not exist for a commercial purpose. The first proviso to this subsection requires an assessee to make an application in a prescribed form to the prescribed authority for the purpose of grant of exemption or continuance thereof. The second proviso provides that the prescribed authority before granting an approval may call for such documents, including audited annual accounts or information and as it may think necessary in order to satisfy itself about the genuineness of activities of such a trust or fund and may make such inquiries as may deem necessary in that behalf. It is the further requirement of the provision that an assessee should apply its income solely and exclusively for the objects for which it is established. Rule 2CA of the Income Tax Rules lay down the guidelines for grant of approval.

A plain reading of the above provision, as noted by Court, shows that the legislative emphasis is on a twin requirement. Firstly the purpose for which the trust is existing, which should be solely an existence for a philanthropic purpose and secondly it should not be for profit. This interpretation subserves the object of the provision. The clear language of the provision shows that the intention of the legislature is to benefit those institutions which cater to variety of illness and suffering as a service to the society and solely for philanthropic purpose and not for the purpose of profit. An existence of the institution ostensibly for a philanthropic purpose and in reality for profit, would not qualify an institution for a deduction under this provision.

In the instant case from the material on record it was reflected that the petitioner was earning surplus revenue from its activities and that the assets were increasing. The fact that surplus was generated was not disputed by the petitioner. This surplus revenue was utilized for acquisition of assets which was capable of generating more income.   

Accordingly it was held that on the basis of the details as submitted by the petitioner it was a correct conclusion that the concessional treatment as given by the petitioner for the relevant AYs did not speak of the existence of the petitioner for philanthropic purposes.

[M/s. Yash Society vs, CCIT, Mumbai & Ors.]
(Bombay HC, 12.03.2015 – W.P. 2565 0f 2010)