Charitable Trust can Exclude Doctors’ Fees to Calculate 2% Indigent Patient Fund Contribution: Bombay HC sustains ₹11.9 Cr Deduction [Read Order]

The Bombay High Court recently upheld an order of the Income Tax Appellate Tribunal (ITAT), which allowed a charitable trust to exclude doctors’ fees while calculating the mandatory 2% contribution from its gross billing to the Indigent Patient Fund (IPF) - a sum payable annually under the Indigent Patient and Weaker Section Scheme framed by the Court.

The assessee, Sir Kikabhai Premchand Settlement Trust No. XI is a charitable trust running a hospital in Mumbai, and is subject to the Indigent Patient and Weaker Section Scheme which mandates that 2% of the Trust’s gross billing must be transferred annually to the Indigent Patient Fund Account.

Also Read: Bombay HC Rejects Discharge Plea of CGST Officers in Rs. 1000 Bribery Case

During the Assessment Year (A.Y.) 2012-13, the Trust transferred the prescribed amount to the IPF Account after excluding ₹11,90,04,614 spent towards doctors’ fees, contending that such fees were paid directly to doctors and not retained by the hospital. The Trust maintained that nearly 86% of its total receipts had been utilised for charitable purposes and that its computation was fully compliant with the IPF Scheme.

The calculation made by the trust was disputed by the assessing officer (AO), however, the same was successfully appealed by the Trust before the Commissioner of Income Tax(Appeals) ( CIT(A) ), and subsequently, the Income Tax Appellate Tribunal (ITAT), leading to the Revenue’s appeal before the Bombay High Court.

Also Read: Supreme Court upholds 100% Income Tax Addition on Bogus Purchases u/s 69C, Dismisses SLP

Before the High Court, Suresh Kumar, counsel appearing for the appellant-revenue argued that the Tribunal’s interpretation of Section 11 of the Income Tax Act and the IPF Scheme was erroneous and that the entire gross billing, including doctors’ fees, ought to have been considered for the 2% contribution.

Rohan Shah, Vidushi Maheshwari and Renita Alex, appearing for the assessee submitted that the present appeal does not raise any substantial question of law, and that the ITAT had rightly followed its earlier decisions in the Assessee's own case from A.Y. 2010-11 and A.Y. 2011-12 to confirm the decision of the CIT(A) and dismiss the contentions of the AO.

The Division Bench of Justice R.I. Chagla and Justice Farhan P. Dubash observed that the Tribunal had rightly applied its consistent view taken in earlier years in the assessee’s own case.

A key observation raised by the High Court was that the CIT had earlier noted that the jurisdiction to determine whether the Trust is liable to remit 2% of its gross billing amount to the IPF account lies exclusively with the Charity Commissioner and not the AO.

The ITAT had further noted that the AO could not usurp the power of the Charity Commissioner and record an erroneous finding in the absence of any evidence that the Charity Commissioner had revoked the concerned Trust's registration.

Also Read: Insolvency Plea cannot be made to Evade Paying Maintenance: Bombay HC Rejects Dance Teacher’sPlea

The High Court further referred to its own decision in Commissioner of Income Tax-9 vs. Future Corporate Resources Ltd (2021) to clarify the meaning of ‘erroneous’. The Court stated that the CIT(A) may not entertain a case without being certain that the decision of the AO is erroneous in nature.

The Bombay High Court accordingly noted that the ITAT had neither committed any perversity nor applied incorrect principles to the given facts, and proceeded to dismiss the Revenue’s appeal, thereby upholding the ₹11.9 crore deduction allowed to the Trust.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates