John Mathew, J. - (1.)WHETHER the assessee's hospital is existing solely for philanthropic purposes and not for purposes of profit is the important question of law involved in this reference. The assessee (Pulikkal Medical Foundation) is a private company as defined under the Companies Act, 1956. The liability of its members is limited. It was incorporated on June 23, 1976. It is running a hospital at Cochin known as "Medical Trust Hospital". The company became a deemed public company under Section 43A(1A) with effect from January 1, 1986. The word "private" in the name of the company was cancelled from that date. A fresh certificate of incorporation consequent on the change of name was given on May 12, 1988. The Medical Trust Hospital was originally run by a firm of partners. That firm was dissolved on October 15, 1976, and its business was taken over by the assessee-company giving the partners of the firm due credit.
(2.)FOR the assessment year 1981-82, the assessee had a net profit of Rs. 6,02,123. After making adjustments, the net income for income-tax purposes was shown by the assessee at Rs. 3,81,811. FOR the assessment year 1982-83, the profit of the assessee was Rs. 18,61,241. However, its total income for income-tax purposes was determined at Rs. 18,97,400. The assessee claimed exemption under Section 10(22A) of the Income-tax Act for both these assessment years on the ground that the hospital is existing solely for philanthropic purposes and not for purposes of profit. The Income-tax Officer rejected the claim for exemption and that order was confirmed by the Commissioner of Income-tax (Appeals). However, the Income-tax Appellate Tribunal allowed the appeals filed by the assessee holding that the hospital is existing solely for philanthropic purposes and not for purposes of profit. In obedience to the directions dated September 16, 1991, of this court in O. P. Nos. 6120 of 1988 and 6121 of 1988, the Income-tax Appellate Tribunal has referred the case to this court.
Section 10(22A) of the Act is as follows ;

"10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-

(1 to 22 omitted)

(22A) any income of a hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit;"

(Clauses 23 onwards omitted)

It is not disputed that the hospital is an institution for the reception and treatment of persons suffering from illness or of persons requiring medical attention. Therefore, it is only necessary to examine whether the hospital is "existing solely for philanthropic purposes and not for purposes of profit".

The word "philanthropy" is not defined in the Income-tax Act. However, Section 2(15) defines "charitable purpose", which is as follows:

"2.(15) 'charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit."

(3.)SUBJECT to the provisions of Sections 60 to 63, Section 11 of the Act provides for limited exclusion of the income from property held for charitable or religious purposes, to the extent to which such income is applied to such purposes in India.
The words "charitable purpose" and "not involving any activity for profit" have come up for interpretation by different High Courts and the Supreme Court. It is not necessary to consider all the authorities referred to by learned senior counsel, Sri. P.K. Ravindranatha Menon, appearing for the Revenue, and learned senior counsel, Sri K. Parasaran, appearing for the assessee. Since most of those decisions were considered in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 (SC), we may refer to that judgment alone. According to the judgment of the Supreme Court in that case, the main test to find out whether an institution is run for charitable purposes is to find out what is the dominant or primary purpose of the assessee--whether the purpose was to promote commerce and trade in art silk, etc., or the advancement of an object of general public utility. It was also held that if the primary or dominant purpose of an institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the dominant purpose would not prevent the institution from being a charitable institution. It was further held that if the purpose of an institution is the advancement of an object of general public utility, it is that object and not its accomplishment which must not involve the carrying on of any activity for profit. So long as the dominant purpose of the institution does not involve the carrying on of any activity for profit, it is immaterial how the money for achieving that purpose is found, whether by carrying on an activity for profit or not. The learned Appellate Tribunal mainly relied on this authority to hold that the assessee is entitled to exemption under Section 10(22A) of the Act. However, according to learned counsel for the Revenue, the words "not involving the carrying on of any activity for profit" occurring in Section 2(15) and the words "not for purposes of profit" occurring in Section 10(22A) cannot be equated since they have different meanings. According to learned counsel, the words in Section 2(15) indicate motive for profit and the words in Section 10(22A) indicate profit. . According to learned counsel, profit motive has a wider meaning than the word "profit". So much so, the further contention is that the Tribunal ought to have examined the facts of this case in greater detail without relying on Surat Art Silk Cloth Mfrs. Association's case [1980] 121 ITR 1 (SC). In this connection, learned counsel also relied on Municipal Corporation of Delhi v. Children Book Trust [1992] 3 SCC 390, in support of his contention that if the hospital is run on commercial lines, it would not be entitled to exemption under Section 10(22A) of the Income-tax Act.

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