Whether Hospitals carrying out commercial activities fall under Section 1o(23C) (iiiae), Income Tax Act, 1961

It was clarified that a hospital or institution to fall within the sub clause must exist solely for philanthropic purposes and not for the purpose of profit

The substantial question of law formulated for adjudication before the High Court was Assessee’s maternity hospital facilitating the deliveries is a natural process of god and cannot said to be any illness to be treated in Assessee’s hospital as envisaged under section 10(23C) (iiiae) of the Income Tax Act, 1961″

In the present matter, the Assessee (running maternity hospital) had filed an appeal before the CIT (A) against the assessment order of Assessing Officer (AO) denying the benefit of exemption under Section 10(23C)(iiiae). The appeal was rejected with the observation that provision of Section 10(23C)(iiiae) does not match with the Assessee’s activity as hospital in the present case is a general hospital pertaining to maternity, while hospital/institution, as envisaged in section 10(23C)(iiiae) is in respect of mental diseases or illness rehabilitation and also to exist solely for philanthropic purposes and the Assessee did not prove any of the ingredients/requirements prescribed in the relevant provision.

The Tribunal also decided against the Assessee holding that the child birth is the natural process/ act of God who designs a child conceived in the womb to be born into this world and the Assessee’s maternity hospital would have been facilitating the deliveries, i.e. a natural process of God, therefore, in no way it would mean any illness to be treated in the hospital under the relevant provision, thus the claim was rightly disallowed.

High Court rejected the findings given by Courts below holding the same as not a correct assessment either out of modern science or of statutory interpretation and held that even as a matter of common experience a hospital providing for maternity care has to deal with emergencies and on occasion, such hospitals have to provide emergent care which is often necessary to save the lives of the mother and the child. Patients do not visit hospitals of such nature only to relieve themselves of the discomfort of pain during labor.

It was clarified that a hospital or institution to fall within the sub clause must exist solely for philanthropic purposes and not for the purpose of profit and the aggregate annual receipts of the hospital or institution must not exceed the amount as may be prescribed.
The instant matter was accordingly remanded back to the AO to reconsider the matter in view of the above clarification.

[Nehru Prasutika Aspatal Samiti vs. Commissioner of Income Tax]
(Allahabad HC, 06.01.2014)