IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 15/03/2004
CORAM
The Honourable Mr. Justice K.GOVINDARAJAN
and
The Honourable Mr. Justice N.KANNADASAN
L.P.A.No.210 of 1999
The Municipal Corporation-
of Coimbatore by its Commissioner,
(Coimbatore Municipality, 1st defendant
was constituted as a Corporation under
Act, 25 of 1981.) ... Appellant
-Vs-
Govindasamy Naidu Hospital,
(K.G.Hospital) by its
Govindasamy Naidu Trust,
rep. by its Managing Trustee,
K.Govindasamy. ... Respondent
Prayer: Appeal against the Judgment and decree dated 21.7.1998 in
A.S.No.342 of 1985 and A.S.No.588 of 1986 on the file of this Court.
!For Appellant : Mr. G. Masilamani
for Mr.R.Sivakumar
^For Respondent: Mr. S.S. Sundar
:ORDER
N.KANNADASAN,J.
The appellant herein is the appellant in A.S.No.342 of 1985 and
respondent in A.S.588 of 1986 and defendant in the suit. The respondent
herein is the respondent in A.S.No.342 of 1985 and appellant in A.S. No.588
of 1986 and the plaintiff in the suit.
2. The suit is filed by the plaintiff viz., Kovindasamy Naidu
Hospital, which is administered by K.Govidasamy Naidu Medical Trust (
hereinafter called as the Trust), which is a public Charitable Trust
constituted under the deed of Trust dated 27.3.1974. The Trust was found to
serve the public by providing medical relief to the general public, by
establishing Hospital, Surgical Homes, Nursing Homes etc. The plaintiff comes
within the scope of definition of Section 86(e) of the Tamil Nadu District
Municipalities Act,1920 (hereinafter after called as the Act), by construing
it as Charitable Hospital and hence eligible for exemption from payment of the
property tax. However, the said benefit was not extended to it by the
defendant in spite of repeated pleas. In fact, the plaintiff has availed the
exemption from payment of property tax in pursuance of the Coimbatore
Municipal Council Resolution 693 dated 18.6.1980 with effect from 1.4.1980 and
by later resolution No.1121 dated 23.7.1980, the defendant has cancelled the
earlier resolution for mala fide and extraneous reasons. The said
cancellation is also illegal as no opportunity of hearing was given before the
said cancellation, which is violative of the fundamental principles of natural
justice. In spite of several representations submitted by the plaintiff, no
order was passed by the defendant even though the plaintiff satisfies the
scope and ambit of Section 86(e) of the Act and Section 123 (e) of the
Coimbatore City Municipal Corporation Act, 1981. In fact, the Trust has been
recognised as Charitable Institution for the purpose of the provisions of the
Income-tax Act, 1961 and availed Customs Duty exemption for the purchase of
medical equipment. Due to inaction on the part of the defendant, the suit is
filed to declare the plaintiff as Charitable Trust to seek exemption from the
property tax and to direct the defendant to repay the amount already collected
by way of property tax for the period subsequent to 1.4.1978 and to grant
permanent injunction restraining the defendant from recovery of any arrears.
3. The suit was resisted by the defendant contending that the
property tax was imposed after carrying out inspection of the premises and
during such inspection, it came to light that rents are collected for the
rooms and fees also collected from the patients. It is also contended that
the plaintiff hospital cannot be construed as Charitable Hospital within the
meaning of the relevant provisions of the Act referred to above and the
cancellation of the earlier resolution in withdrawing the tax exemption was
done in accordance with law and the suit is barred by limitation.
4. The suit was decreed in respect of declaration, injunction and for
recovery of a sum of Rs.36,002.80, but however, relief was not granted in
respect of the tax which was collected for the period prior to 18.6.1977 as
barred by limitation.
5. Aggrieved against the Judgment and decree of the trial court, the
appellant/defendant filed A.S.No.342 of 1985 and the plaintiff/ respondent
filed A.S.No.588 of 1986 in respect of the portion of the decree which was not
granted. Before the learned single Judge, the appeal filed by the plaintiff
in A.S.No.588 of 1986 was not pressed and accordingly the same was dismissed
as not pressed. However, the appeal filed by the appellant/defendant in
A.S.No.342 of 1985 was dismissed on merits by a Judgment and decree dated
21.7.1998. Against which the defendant has filed the present L.P.A.
6. The learned senior counsel Mr.G.Masilamani, appearing for the
appellant/defendant has contended that the plaintiff-hospital is receiving
income and collecting rent for the rooms and the patients are being charged by
way of fees and as such the exemption claimed by the plaintiff for the payment
of property tax cannot be granted. He further contended that the fact of
availing exemption under the Income-tax Act as well as the payment of Customs
Duty will not ensure benefit in respect of payment of property tax, since the
relevant provisions of the said Acts cannot be treated on par with the
provisions pertaining to the grant of exemption of payment of property tax
under the above said two Acts. The learned senior counsel further contended
that the plaintiff has not established the fact that it is a Charitable
Hospital within the meaning of the Act, except pleading in this regard in the
plaint as well as the assertion during the oral evidence adduced on behalf of
the plaintiff. The learned single Judge of this Court as well as the trial
judge have overlooked the material evidence on record, more particularly the
evidence adduced before the trial court which discloses that the hospital is
not providing free treatment even to 10% of the patients.
7. Per contra, the learned counsel for the respondent/plaintiff has
submitted that the trial court as well as the appellate court have rightly
found that the plaintiff is a Charitable Hospital within the meaning of the
Section 83 (e) of the Act and 123 (e) of the City Municipal Corporation Act.
The learned counsel for the respondent contended that a perusal of the Trust
deed discloses that the main object of the Trust is to promote, establish,
administer the hospitals, Surgical Homes and Nursing Homes for providing
medical relief to the needy people. It is further contended that none of the
trustees are enjoying any profit of the hospital and the necessary audited
statement was marked as Exhibits before the trial court. It is contended that
the Trust has been recognised as Charitable Institution for the purpose of the
provisions of the Income tax Act, 1961 and availed Customs Duty exemption for
the purchase of certain medical equipment. He has further contended that the
hospital was rightly granted exemption initially by a resolution No.693 dated
18.6.1980 with effect from 1.4.1980 but subsequently for mala fide and
extraneous reasons the same was cancelled by subsequent resolution No.1121
dated 23.7.1980.
8. The point for consideration is whether the plaintiff/respondent is
entitled for the exemption from the payment of property tax within the meaning
of Section 83(e) of the Tamil Nadu District Municipalities Act, 1920 and
Section 123(e) of the Coimbatore City Municipal Corporation Act, 1981 ?
9. We have considered the rival contentions of the parties. Before
we proceed to deal with the legal submissions with reference to the relevant
provisions of the Act, it would be useful to find out as to whether the
plaintiff/respondent has proved its case to the effect that it is a Charitable
Institution within the meaning of the Act. A perusal of Exhibit A-12 dated
14.5.1979, which is an application submitted by the plaintiff/respondent
discloses several particulars about the hospital. In the said application,
Ex.A-12 it is admitted that the details relating to the number of patients,
out-patients as well as inpatients who have been treated free of charges or at
concessional rates, have not been maintained. The relevant portion is
extracted here under:
“At the beginning detailed records about the patients who were treated
free or at concessional rates were not maintained. We wanted to avoid
unnecessary paper work, expenditure on employment of non-medical personnel,
and delay in treatment and discharge of the patients. … There are no
standard procedure or guidelines of maintenance of Hospital accounts and
patient statistics. We had to learn by trial and error, and we now have
detailed statistics. …..
Most patients knowing that the Hospital is run by a Charitable Trust
volunteer to pay their fees as donations to the Trust. As long as the amount
they pay equal or more than the amount payable as fees to the hospital, we
receive their payments as donation. Many times the donation amount was much
higher than the fees, and the Trust and Hospital gained by accepting as
donation….
It has also been our endeavour to charge a patient at least a nominal
fee, because anything received grant is not valued…
A perusal of the above discloses that most of the patients volunteer
to pay their fees as donations to the trust. If the said statement of the
plaintiff is accepted, it should have produced documents in support of the
same before the trial Court. Inasmuch as it is specifically mentioned that,
on several occasions, the donation amount was higher than the fees, the
plaintiff would have maintained registers indicating what is the amount
earmarked for donation and what is the amount earmarked for fees. In the
absence of production of any convincing documentary evidence, we do not agree
that what ever amount paid by the patients are received as donations by the
trust.
10. Further, Ex.A.12 furnishes the details relating to the number of
patients, who have obtained full concession of fees and who have obtained
partial concession of fees and who have paid their charges in full. A perusal
of the concession extended by the hospital to the patients with the total fees
due to the hospital for the period from 197 7-78 indicates that the
concessions so extended did not exceed more than 25%. If we consider that the
above details reflects the true facts, the fact of extending concession to the
patients is far less than the actual amount representing the fees due.
Similarly, the figures pertaining to number of patients treated free of charge
is far less when compared to the patients who were treated on collection of
fees. One of the enclosures to Ex.A-13 dated 7.6.1980 which is a resolution
of the Trust discloses that the desire of Sri. K.Govindasamy Naidu, founder
trustee for providing absolute free medical treatment should be achieved and
at least 25% of the patients both in-patients and out-patients should be
treated at concessional rates and token fee could be charged. Thus, even as
per the plaintiff’s resolution, it is admitted that the hospital would
endeavour to collect concessional and token fees to the extent of 25% of
patient only, which suggests that even the said minimum percentage of the
patients are not given free treatment in entirety. 11. A perusal of the
evidence adduced by P.W.1 during his crossexamination discloses that the
plaintiff hospital has been used to collect room rents. He has further
deposed that out of 86 rooms, only one room is earmarked for poor patients.
He has also admitted that the hospital has not displayed either in its name
board or otherwise that it would give free treatment for poor people. In the
light of the above evidence also, we are not convinced that the hospital has
to be construed as a charitable hospital within the meaning of the relevant
provisions of the Act.
12. The trial Court by referring to the order granting tax exemption
by the Income Tax Department under Ex.A.28 and A.29; Audited statements
produced in Ex.A.26 and A.27; Duty exemption granted under Customs Act in
Ex.A.31 to A.34 has come to the conclusion that the plaintiff is a charitable
hospital. The trial Court has overlooked the facts that in Ex.A.31 which
contains the condition for grant of Customs Duty exemption, it is clearly
indicated that the hospital should provide free treatment to the out-patient
at least to the extent of 40%. A further condition is also imposed that the
hospital should provide free treatment to all the in-patients whose monthly
income is less than Rs.300/-. It further proceeds that 10% of the beds should
be provided to the in-patients whose monthly income is below Rs.300/-.
13. Even though the trial Court has referred to the above Exhibit, it
has miserably failed to take note of the oral evidence deposed by P.W.1 as
well as Ex.A.12, which makes it clear that the conditions set out in Ex.A.31
are not satisfied. As regards the tax exemption granted by the income tax
department and the customs department, the provisions contained in the said
Act cannot be equated on par with the provisions under which the
plaintiff/respondent is claiming tax exemption.
14. Section 2(15) of the Income Tax Act, 1961 proceeds as here under:
“A Charitable purpose includes relief of the poor, education, medical
relief, and the advancement of any other object of general public utility.”
The scope of the above provision discloses that it has wider meaning,
more particularly when a reference is made about the advancement of any other
object of general public utility. Similarly, Section 25 of the Customs Act,
1962 enables the Central nment to exempt payment of duty on such conditions as
may be prescribed, if the central Government satisfies itself to pass an
order. However, Section 86(e) of the District Municipalities Act, and 123(e)
of the Coimbatore City Municipal Corporation Act proceeds as follows:
“Charitable hospitals and dispensaries, but not including residential quarters
attached thereto”.
Thus, in the absence of any similarity of the other provisions when
compared with the provision under which the property tax exemption is sought,
the trial Court is not correct in accepting the plea of the plaintiff. The
trial Court has further proceeds on the basis that the trust has been
established for serving public and it was not established for the benefit of
the founders or the trustees. The above reasoning of the trial Court is not
sustainable inasmuch as the plaintiff has not established that it is a
charitable hospital within the meaning of the Act and the recitals in the
Trust Deed cannot be considered as a conclusive proof.
15. Similarly, the appellate Court has confirmed the findings of the
trial Court by overlooking several aspects as stated already. The learned
Judge by referring to Ex.B.2 that there is no column pertaining to “Rent” has
come to the conclusion that the hospital is a charitable one. A reference is
made to the effect that the hospital can be construed as a charitable hospital
on the basis of the registers and Ex.B.2 receipt. The learned Judge has also
accepted the other reasoning adduced by the trial Court for the grant of
decree. The learned Judge has overlooked the evidence deposed by P.W.1, the
various details set out in Ex.A.12 and A.13, which suggest that the hospital
is collecting rent and free treatment is not given even to the extent 10%
patients and only an endeavour is made in future to give treatment that too at
concessional rates to an extent of 25% of the patients only. The trial Court
as well as the appellate Court have not discussed about the evidence of P.W.1
as well as contends of Ex.A.12 and A.13. 16. As regards the grant of
exemption which was ordered in Resolution No.693 dated 18.06.1980 and
subsequent cancellation in Resolution No.1121 dated 23.07.1980 is concerned,
no motive was established as against the appellant/defendant Corporation. It
cannot be suggested that the appellant do not have powers to withdraw the
earlier resolution when it is noticed at a later date that a hospital did not
satisfy the requirement of all charitable hospital. Moreover no prayer is
sought for setting aside the resolution dated 23.07.1980 in the suit. 17.
The trial Court as well as the appellate Court have failed to take into
account the power of taxation of a municipal authority/ Corporation. Every
municipality is a local self-Government and in order to sustain itself a power
of taxation has been delegated to municipal bodies. The taxes are local taxes
for local needs. Such tax must obviously differ from one municipality to
another. It is impossible for the Legislature to pass statute for the
imposition of such taxes in local areas. In a democratic set up, the
municipality which need the proceeds of these taxes for carrying out the
projects to the public, it would be but proper to leave to these
municipalities the power to impose and collect taxes. The local authorities
do not act as Legislature when they impose tax, but they do so, as an agent of
State Legislature. The power and extent of these powers must be found in the
statute which create them such powers. Local bodies being subordinate
branches of Governmental activities or democratic institutions managed by the
representatives of the people. They function for public purposes. They bear
the burden of the Government affairs in local areas as they are required to
carry on the required local selfGovernment.
18. In the light of the delegation of taxation power to the local
bodies, the Supreme Court made a clear distinction with regard to the ruling
arising out of income tax in its decision rendered in Municipal Corporation of
Delhi Vs. Children Book Trust (1992)3 SCC 390). The relevant portion is
extracted here under:
“The rulings arising out of Income Tax Act may not be of great help
because in the Income Tax Act “charitable purpose’ includes the relief of the
poor, education, medical relief and the advancement of any other object of
general public utility. The Advancement of any other object of general public
utility is not found under the Delhi Municipal Corporation Act.”
After observing as above, the Apex Court has held that the municipal tax being
an annual tax, the liability of tax must be determined with reference to each
year. It is also observed that the society claiming exemption will have to
show that it fulfils the condition for exemption each year. It is finally
concluded therein that the test to be applied is not merely qualitative but
quantitative as well.
19. The Supreme Court in its decision rendered in Indian Chamber of
Commerce Vs. C.I.T., West Bengal II, Calcutta (1976) 1 SCC 324), while
holding that the income of the Indian Chamber of Commerce as taxable has
observed as follows: “The interpretation of the provision must naturally
fall in line with the advancement of the object. Of course, there are
borderline cases where it becomes difficult to decide at first sight whether
the undertaking which yields profit is a deceptive device or a bona fide
adventure which results in nominal surplus although substantially intended
only to advance the charitable object.”
If we apply the above interpretation, then the respondent/plaintiff do
not fall within the scope of the relevant provision of the Act to claim
property tax exemption.
20. The Supreme Court in its decision rendered in Carmel Book Stall
Vs. Deputy Commissioner of Sales Tax (1994 Supp(3) Supreme Court Cases 241),
has held that the onus of proof viz., the profit was utilised for charitable
purposes rest with the individual who claims it. Admittedly, in the present
case, the said burden of proof was not discharged by the plaintiff/respondent.
21. Similarly, the Supreme Court in its decision rendered in Indian Red Cross Society Vs. New Delhi Municipal Commit
4 (SC)), has held that the statute exemption from property tax under the said Act was not available to a charitable society i
building is not self-occupied, but is rented out even if such rental income is used for charitable purposes. In the present
already, the plaintiff hospital is collecting rent as admitted by P.W.1 and as such it cannot claim exemption.
22. The learned counsel for the respondent strongly relies upon the
observation of Supreme Court in its decision rendered in Additional
Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers
Association (AIR 1980 SC 387), to the effect that the activity involved in
carrying out the charitable purpose must not be motivated by a profit
objective, but it must be undertaken for the purpose of advancement or
carrying out the charitable purpose. By relying the above observation, the
learned counsel has contended that inasmuch as the ultimate object of the
plaintiff/respondent is nothing but a charitable purpose, it is entitled for
exemption and the mere collection of rent as well as the charging of fees from
the patients cannot be construed that the hospital is not a charitable one.
We do not agree with the argument of the learned counsel for the respondent in
view of the fact that the Supreme Court in the said case has rendered a
finding that the activity of obtaining licences for import of foreign yarn and
cloths and for the purchase of indigenous yarn was not an act of profit. It
was further held that the predominant activity was for the promotion of
Commerce and Trade. In the light of the specific finding as stated therein,
the observation, which was relied upon by the learned counsel for the
respondent has no application to the facts of the present case.
23. The learned counsel for the respondent also relied upon the
decision of the Supreme Court in Christian Children Fund Inc. Vs. Municipal
Corporation of Delhi and Others (1994)4 SCC 337). In our opinion the said
decision is not helpful to the respondent/defendant, in view of the fact that
the Supreme Court has rendered in the said Judgment by taking out of the fact
that there was no dispute that the said organisation is a charitable
organisation and the dispute involved was denial of exemption on the only
ground that the premises in question was used by the said organisation for its
office. Hence, the above Judgment has no application to the case on hand.
24. Similarly, the other decision cited by the learned counsel for
the respondent viz., Victoria Technical Institute Vs. Additional Commissioner
of Income Tax, Madras and another (AIR 1991 SC 997), and Commissioner of
Income T ax, Bombay City, Bombay Vs. Breach Candy Swimming Bath Trust (AIR
1955 BOMBAY 250) are not applicable to the facts of the present case in view
of the fact that the said decisions were rendered under the provisions of the
income tax.
25. Reliance is placed by the learned counsel for the respondent the
decision of this Court rendered in S.N.R.Sons Charitable Trust, Coimbatore Vs.
The Commissioner, Coimbatore City Municipal Corporation, Coimbatore (1993(2)
LW 100), which has no application to the present case in view of the reasons
that the Division Bench has considered the issue therein as to whether the
benefit of exemption can be denied on the sole ground that the payments made
by the patients to the hospital should be construed as rent or not and on
facts it was held that the payments made therein cannot be treated as rent.
In the instant case, there is a specific admission on behalf of the plaintiff
in the oral evidence of P.W.1 that rents are being collected. Further, in the
above mentioned decision on facts it was held that the hospital as a
charitable hospital.
26. For the foregoing reasons, we are of the opinion that the
plaintiff/respondent cannot be construed as a charitable hospital within the
meaning of Section 86(e) of the District Municipalities Act,1920 and Section
123(e) of the Coimbatore City Municipal Corporation Act, 1 981. Therefore,
the Judgment and the decree of the appellate Court confirming the Judgment and
decree of the trial Court is set aside and the suit is dismissed.
27. The above Letter Patent Appeal is allowed. However there will be
no order as to costs.
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