Case at a glance: The Bombay High Court has quashed two orders refusing Breach Candy Hospital Trust approval under Section 10(23C)(via) of the Income-tax Act and directed approval for AY 2002-03 to 2021-22. It held that depreciation could not be ignored, that a surplus is “relevant, but not conclusive”, and that “free treatment to the poor and needy cannot be the sole philanthropic activity of a hospital.”
The Trust, incorporated in 1946, held exemption under Section 10(22A) and then CBDT approval under Section 10(23C)(via). The Chief Commissioner refused renewal in 2010 for AY 2002-03 to 2010-11 and in 2012 for AY 2011-12 onwards.
The CCIT's method deducted only capital expenditure and ignored depreciation, producing an apparent surplus of Rs 37.02 crore. The Trust challenged both refusals.
The Key Question Before the Court
Does a hospital's surplus, or the way it charges consultants, show that it exists for profit rather than charity under Section 10(23C)(via)?
Surplus, Objects and Activities
The Court held that depreciation could not be ignored under the law then in force, and that on the Trust's figures there was a deficit of Rs 21.87 crore by AY 2010-11. A surplus is relevant but not conclusive; the test is the institution's objects, activities and application of funds. Its Memorandum bars distribution to members and keeps assets dedicated to charity even on dissolution, and modernising facilities does not show a profit motive.
Consultation-room charges and the 10% retained from consultant fees did not show a commercial purpose; Shushrusha and Ashwini Sahakari were distinguished. The section prescribes no minimum ratio of charitable spending, compliance with the Section 41AA charitable-hospital scheme carries weight, and departure from earlier acceptance of the Trust's status requires reasons (Radhasoami Satsang). Relief was limited to AY 2021-22 because the Trust obtained Section 12AB registration in 2021.
What the Court Actually Held
- Both rejection orders were quashed.
- Approval under Section 10(23C)(via) is to issue for AY 2002-03 to 2010-11 and AY 2011-12 to 2021-22, within eight weeks of upload.
- No costs; compliance listing on 14 December 2026.
- The natural-justice ground was not decided.
Why This Judgment Matters
- It clarifies how surpluses and depreciation are treated for hospital exemptions.
- It rejects free treatment as the sole measure of charity.
- It reinforces consistency in tax treatment of long-recognised charities.
What Should Advocates Take Away From the Judgment?
For Charitable Institutions
- Present accounts including depreciation and the application of surpluses to objects.
- Show compliance with state charitable-hospital schemes.
For Revenue
- Give reasons for departing from earlier acceptance of charitable status.
Key Takeaways
- Depreciation cannot be ignored.
- A surplus is not conclusive.
- Free treatment is not the sole charitable test.
- Approval directed for two decades.
Frequently Asked Questions
The CCIT ignored depreciation and wrongly treated an apparent surplus and consultant arrangements as showing profit motive.
AY 2002-03 to 2010-11 and AY 2011-12 to 2021-22.
The Trust obtained Section 12AB registration in 2021.
Conclusion
The judgment offers clear guidance on assessing whether large hospitals remain charitable for tax purposes.
Practical takeaway: Charitable status turns on objects, activities and use of funds, not on a surplus in isolation.