HYDERABAD: The Income Tax Appellate Tribunal (ITAT) has held that hospitals charging market rates are not eligible for ‘tax-exempt’ registration.
The appellate, Fernandez Foundation, had moved the Hyderabad Bench of ITAT after its plea for exemption was rejected by the Commissioner of Income Tax (Exemption). The Bench held that the hospital is charging on the basis of commercial rates from the patients and is not entitled to registration as a charitable organization under Section 12A of the Income Tax Act.
The two-member Bench observed that the assessee is charging on the basis of commercial rates from the patients, either outdoor or indoor, and it has failed to demonstrate that the charges or fee charged by it were based on a reasonable markup on the cost.
The ITAT relied on the decision of the Supreme Court in the case of New Noble Educational Society versus The Chief Commissioner of Income Tax in which it was held that the CIT(E) was well within his right to examine the audited records/other financial statements with a view to deciphering the nature of the activities.
The Supreme Court held that where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C) of the Income Tax Act
The assessee was a private limited company, and on August 3, 2018, it converted the company into a Section 8 company and changed the name to ‘Fernandez Hospital’.
