Running Hospital and Nursing School is Inseparable Activity, Eligible for Tax Exemption: ITAT [Read Order]


The Cochin bench of the Income Tax Appellate Tribunal (ITAT) has held that the running of hospital and nursing school is an inseparable activity for which, the exemption under section 11 of the Income Tax Act cannot be denied.

The assessee, a charitable trust registered u/s 12A of the Income Tax Act claimed exemption under section 11 in respect of the income received from the hospital and nursing school. However, the Assessing Officer treated the income received from running a hospital and nursing school as business activity and denied the claim. The Assessing Officer also relied on the judgment of the Hon’ble jurisdictional High Court in the case of Lissie Medical Institutions v. CIT and denied depreciation on the assets, the cost of which was allowed as the application of income.

The Tribunal analyzed the objectives of the Trust and noted that the carrying on the activity of nursing school is part of the objects of the assessee-trust and that both medical relief and education are charitable objects entitled for exemption u/s 11(1) of the Income Tax Act.

“The above view was further confirmed by the Department Circular No.11/2008 dated 19.12.2008, wherein it is stated that the activities with regard to education and medical relief are not hit by the restrictive provisions contained in the proviso to section 2(15) of the I.T.Act. Accordingly, the income of the school of nursing is not to be assessed as business income but as arising out of charitable activities of the trust eligible for assessment u/s 11(1) of the I.T.Act,” the Tribunal said.

The bench further relied on the Apex Court decision in the case of Addl CIT v. Surat Art Silk Cloth Manufacturers Association wherein it was held that if the dominant object is charitable then the incidental object for the attainment of the dominant/primary object would also be charitable in nature. It was further held by the Apex Court that there is a very clear distinction between the object of a trust to carry on a business activity and the carrying on an activity of profit for achieving its objects.

“The Hon’ble Apex Court in the case of Thanthi Trust had also held that the assessee is entitled to the assessment u/s 11 of the income derived from an activity incidental to the achievement of the objects of the trust. For these reasons, we hold that the assessee’s activities of running the hospital and the nursing school are intricately connected and dependent on each other and it is one inseparable activity and both are entitled to exemption u/s 11(1) of the I.T.Act,” the Tribunal said.

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