Please find attached Newsflash on judgement by Hon’ble Mumbai Bench of Income Tax Appellate Tribunal (hereinafter referred to as ‘Hon’ble ITAT’ or ‘Tribunal’) in the case of Reliance Foundation Hospital Trust v. Commissioner of Income Tax (Exemptions) Mumbai, wherein the Tribunal quashed the order of the CIT(E) cancelling registration under Sections 12AB and 80G of the Income Tax Act, 1961 (“the Act”) with retrospective effect, and extended the registration for a further period of five years.

The ruling highlights that charitable hospital registration cannot be denied merely on account of premium facilities or surplus generation, and that retrospective cancellation requires independent examination. It also clarifies that compliance checks under Section 12AB are limited to instances where such compliance is material to achieving charitable objectives.

Key Highlights of the ruling include:

•The Tribunal held that “Medical Relief” is recognised as an independent charitable purpose under section 2(15) of the Act. Unlike the category of “general public utility”, hospitals are not required to satisfy any affordability test or prove that services are offered only to economically weaker sections. The jurisdiction of section 12AB does not permit withdrawal of registration for falling short of an ideal model of charity.

•A hospital does not lose its charitable character merely because it provides luxury rooms, advanced medical facilities, or levies substantial fees. Modern healthcare delivery/ education requires investment in technology, infrastructure, and skilled professionals.

•The Hon’ble ITAT emphasized that the law regulates the application of income, not the quantum of income earned. If surplus is reinvested to further charitable objectives, it remains charitable in essence.   

•Alleged violations of Section 41AA of the Maharashtra Public Trust Act (‘MPT Act’) and Indigent Patient Fund (‘IPF’) Scheme can be determined only by competent authorities under that law. CIT(E) cannot independently conclude such violations.

•The Tribunal emphasized retrospective registration requires an independent examination. A registration validly granted by a competent authority carries with it a presumption of legality unless the circumstances justifying its withdrawal are clearly established in accordance with law.

•Renewal rejection and cancellation of registration are distinct in nature and effect. Proceedings initiated as a renewal cannot automatically be converted into retrospective cancellation.

The above ruling is expected to have a far reaching impact on Charitable institutions engaged in recognized purposes such as medical relief, education, and yoga under Section 2(15) of the Act and are seeking registration under section 12AB and 80G, as it clearly delineates the limits of the Commissioner’s jurisdiction and affirms that commercial indicators such as fees, infrastructure scale or surplus generation cannot be the sole purpose for denying or cancelling charitable status.

Click here to download - RSM India Newsflash- Mumbai ITAT - Premium Healthcare Services do not undermine the Charitable Status of a Hospital Trust