Income Tax: ITAT Restores Registration of Reliance Foundation After Holding Hospital Activities Charitable in Nature

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that a charitable hospital does not lose its charitable character merely because it provides advanced medical facilities, earns operational surplus, or receives funding from corporate donors. The Tribunal quashed the retrospective cancellation of Reliance Foundation Hospital Trust’s registration under Section 12AB of the Income Tax Act, 1961, and restored its approval under Section 80G. A Bench comprising Judicial Member Amit Shukla and Accountant Member Makarand Vasant Mahadeokar allowed the appeals filed by the trust.

The dispute arose when Reliance Foundation Hospital Trust, which runs the Sir H.N. Reliance Foundation Hospital and Research Centre in Mumbai, applied for renewal of its registration under Section 12AB through Form 10AB. During the renewal proceedings, the Commissioner of Income Tax (Exemptions), Mumbai, examined the trust’s activities and concluded that the hospital was operating on commercial lines.

The department alleged that the trust generated significant revenues from patients, received substantial funding from related corporate entities, and entered into sponsored clinical trial arrangements with pharmaceutical companies. Based on these findings, the Commissioner not only rejected the renewal application but also retrospectively cancelled the trust’s existing registration under Section 12AB. Consequentially, the trust’s approval under Section 80G was also denied.

Before the Tribunal, the central issue was whether operating a modern multi-speciality hospital, earning a surplus from healthcare services, and undertaking clinical research activities could justify withdrawal of charitable status under the Act.

“Providing high-end medical care or charging patients who can afford such services does not, by itself, convert a charitable hospital into a commercial enterprise.”

The Tribunal observed that the trust had consistently applied its income, donations, and surpluses towards expanding healthcare infrastructure, acquiring advanced medical equipment, and carrying out its medical and research objectives. It noted that “medical relief” is independently recognised as a charitable purpose under Section 2(15) of the Act and is distinct from the category of “advancement of any other object of general public utility”, to which the commercial activity restrictions primarily apply.

The Bench also rejected the department’s contention regarding clinical trial activities. It held that clinical trials form an essential component of scientific and medical research and cannot be equated with ordinary commercial trading activities merely because pharmaceutical companies sponsor such projects.

“Clinical trials are integral to scientific and medical research and directly further the objectives of a research-based healthcare institution.” Having found the cancellation of registration to be unsustainable, the Tribunal held that the denial of Section 80G approval, which was solely based on the cancellation of the trust’s registration, could not survive independently.

Thus, the ITAT set aside the orders of the Commissioner of Income Tax (Exemptions), restored the trust’s registration under Section 12AB, and directed renewal of its approval under Section 80G for the prescribed period.

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