Reliance Foundation secures major win as ITAT overturns cancellation of charity registration

Mumbai: Reliance Foundation has won the first round in the legal tussle with the Income tax authorities which had questioned the 'charitable' character of the top-notch Mumbai hospital run by the organisation.

In a decision that has bearing on many public and religious charitable trusts, and may stoke a social debate, a tribunal has ruled that the tax law never says that medical relief will qualify as charity only if offered at a particular price, or every service is affordable to the average household, or premium facilities are absent.

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According to the quasi-judicial body, the taxman has no business to assess the extent of charity undertaken or the hospital charges.

Reliance Foundation Hospital Trust -- the umbrella under which Sir H N Reliance Foundation Hospital & Research Centre functions -- moved the I-T Appellate Authority (ITAT) after the tax department cancelled its registration with retrospective effect on the grounds that it was carrying out 'commercial activities'.

Similar action was taken against trusts of Breach Candy and PD Hinduja hospital, and the spiritual organisation, Iskcon, when their registrations came up for renewal in March '26.

Trusts and non-profits are registered under Sections 12AB and 80G of the I-T Act to claim tax relief on surplus generated and donations received.

Quashing the retrospective cancellation of Reliance's registration and upholding the registration for another 5 years, ITAT said an institution does not cease to be charitable merely because it succeeded in creating excellence.

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"Important principles emerge from this decision: the test of charity under I-T tax law is not a tax officer's subjective view on what should be an ideal charity, but on the basis of legal principles. Cross-subsidising the needy by charging the affluent more does not detract from the concept of charity. A charitable institution need not necessarily be small and simple -- it can be large and sophisticated," said senior chartered accountant Gautam Nayak.

The tribunal has spelt out that under the I-T law, registration can be cancelled if there's income diversion, private enrichment, use of funds outside charitable purposes, and violation of discipline as per sections 11 to 13 of the statute.

It's a timely reminder that the focus under Section 12AB should be on whether an institution is genuinely pursuing its charitable objectives, and not on a subjective assessment of whether it is doing enough charity, said Ashish Karundia, a chartered accountant. "The Tribunal rightly recognises that generating surplus does not, by itself, indicate profit motive, particularly when funds are reinvested to further the institution's charitable work. Also, it underscores that retrospective cancellation of registration is a serious step and cannot be resorted to unless there's clear evidence that the institution has ceased to operate as a genuine charitable organisation," said Karundia.

A social issue?

Considerations like affordability and tariffs may have social relevance, but don't constitute statutory tests under section 12AB, according to ITAT.

However, while the tax office may be seen to have overreacted when viewed through the prism of the law, the discourse on what constitutes adequate charity may not die down. Industry circles believe I-T department will move the High Court to challenge the ITAT ruling.

"Every charitable institution can perhaps do more. Every hospital can aspire to treat a larger number of indigent patients. Every educational institution can aspire to grant more scholarships.. However, section 12AB does not authorise the Commissioner to cancel registration because an institution falls short of an ideal standard conceived by the authority," said the Tribunal.